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A PATH FORWARD ON POSTAL REFORM 

HEARING 

BEFORE THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JULY 17, 2013 

Serial No. 113–49 

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

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

CYNTHIA M. LUMMIS, Wyoming 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

KERRY L. BENTIVOLIO, Michigan 

RON DESANTIS, Florida 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

JACKIE SPEIER, California 

MATTHEW A. CARTWRIGHT, Pennsylvania 

MARK POCAN, Wisconsin 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

DANNY K. DAVIS, Illinois 

PETER WELCH, Vermont 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

STEPHEN CASTOR, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

(III) 

C O N T E N T S 

Page 

Hearing held on July 17, 2013 ............................................................................... 1 

WITNESSES 

The Hon. Adrian Smith, A Representative in Congress from the State of 

Nebraska 

Oral Statement ................................................................................................. 8 

Written Statement ............................................................................................ 10 

The Hon. Patrick Donahoe, Postmaster General & CEO, United States Postal 

Service 

Oral Statement ................................................................................................. 13 

Written Statement ............................................................................................ 16 

Mr. Joel Quadracci, Chairman, President & CEO, Quad Graphics 

Oral Statement ................................................................................................. 30 

Written Statement ............................................................................................ 32 

Mr. Cliff Guffey, President, American Postal Workers Union, AFL–CIO 

Oral Statement ................................................................................................. 39 

Written Statement ............................................................................................ 41 

APPENDIX 

A Letter from Senators Coburn and Carper, Submitted for the Record by 

Chairman Darrell Issa ......................................................................................... 94 

Letters to NAPS, NAPUS, NARFE, (EEC UC), Submitted for the Record 

by Rep. Cummings ............................................................................................... 95 

The Hon. Elijah Cummings, Ranking Minority Member, Opening Statement .. 122 

Follow-up Questions and Answers for Patrick Donahoe by Rep. Pocan ............. 124 

(1) 

A PATH FORWARD ON POSTAL REFORM 

Wednesday, July 17, 2013 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, D.C. 

The committee met, pursuant to call, at 1:40 p.m., in Room 2154, 

Rayburn House Office Building, Hon. Darrell E. Issa [chairman of 

the committee] presiding. 

Present: Representatives Issa, Mica, Duncan, Chaffetz, Walberg, 

Lankford, Meehan, Farenthold, Massie, DeSantis, Cummings, 

Maloney, Tierney, Clay, Lynch, Connolly, Speier, Pocan, 

Duckworth, Kelly, Davis, Cardenas, and Lujan Grisham. 

Staff Present: Ali Ahmad, Communications Advisor; Alexia 

Ardolina, Assistant Clerk; Molly Boyl, Senior Counsel and Parliamentarian; David Brewer, Senior Counsel; Daniel Bucheli, Assistant Clerk; Drew Colliatie, Professional Staff Member; John 

Cuaderes, Deputy Staff Director; Linda Good, Chief Clerk; Tyler 

Grimm, Senior Professional Staff Member; Christopher Hixon, Deputy Chief Counsel, Oversight; Krista Boyd, Minority Deputy Director of Legislation/Counsel; Kevin Corbin, Minority Professional 

Staff Member; Elisa LaNier, Minority Director of Operations; Lucinda Lessley, Minority Policy Director; Safiya Simmons, Minority 

Press Secretary; and Mark Stephenson, Minority Director of Legislation. 

Chairman ISSA. Good morning. The committee will come to order. 

The Oversight Committee mission statement is that we exist to 

secure two fundamental principles. First, Americans have a right 

to know the money Washington takes from them is well spent. And 

second, Americans deserve an efficient, effective government that 

works for them. Our duty on the Oversight and Government Reform Committee is to protect these rights. Our solemn responsibility is to hold government accountable to taxpayers, because taxpayers have a right to know what they get from their government. 

It’s our job to work tirelessly, in partnership with citizen watchdogs, to deliver the facts to the American people and bring genuine 

reform to the Federal bureaucracy. 

Let us be very clear today: The United States post office is in cri- sis. The American people lost in the range of $16 billion last year. 

They never wrote a check, the appropriators never had a meeting 

and authorized anything. And this committee was unable to take 

effective action. 

Last summer, the United States post office defaulted on $11 billion in payments required by law, and every day they lose $25 million, as we speak 

2 

The situation is both unacceptable and as much Congress and 

the administration’s fault as any of the hundreds of thousands of 

workers at the post office. Ultimately, we have kicked the can down 

the road, first in 2006 by not doing enough, and then every year 

since then. In 2006, I don’t think anyone was predicting an additional 25 percent reduction in postal volume in just 6 years. 

The post office will and has continued to make some adjustments. Attrition has been a primary tool, but less people in large, 

out-of-date facilities is not the answer. Real reorganization, fundamental restructuring, rightsizing facilities, and being allowed to innovate new products is essential. 

Today, we will hear from two panels. Those two panels are, in 

fact, essential to us. We have an obligation—and, Representative 

Smith, I appreciate your being here today—we have an obligation 

to 50–State and all the territorial delivery. We have a universal delivery system that is at the heart of what the post office does that 

no private sector company is tasked to do. And we’re proud of that, 

and the post office has been proud of that for 200 years. But to preserve delivery to every point in the globe and every point in the 

United States by the U.S. Postal Service requires real change, including the retiree health care plan. 

We will hear today from the second-largest postal union, which 

believes Mr. Cummings, my ranking member, does not go far 

enough and does not entirely do away with the retiree health care 

funding. Now, you will notice I didn’t say prefunding, because if 

you stop making the payments, ultimately, you will not be able to 

make those payments. 

Mr. Cummings knows that, I know that, and it’s the reason that 

any bill that comes from this committee will restructure to the 

greatest extent possible, but recognizes that those bills will come 

due and they must be addressed by this committee if we’re to be 

realistic about reforms that will guarantee a post office well into 

the next century. 

We can discuss plenty of reforms here today, but the truth is reforms are going to come primarily from us enabling the system to 

work properly. Congress must reduce or eliminate the kinds of preconditions we have put on whenever possible, while maintaining 

our requirement of universal service. 

Our commitment is bipartisan. Our need for a bill is urgent, and 

we intend to do it in the coming weeks. Among the most important 

cost savings that can no longer be overlooked is shifting the Postal 

Service from 6 day to 5 day. This was once opposed almost universally, but as time has gone on we have found more and more of the 

major shippers recognizing that the alternative of higher cost is 

more unacceptable than having to adjust when you ship a package 

so it arrives at the time that the customer needs it. 

But let’s understand, going from 6 to 5 day, even if it achieves 

the $2 billion a year savings, is but a small down payment. We 

must look at every possible savings, and those savings must not be 

on the back of longtime workers. They cannot be on the back of 

those who have given their careers. We must find acceptable ways 

to offer retirement and rightsizing to postal workers, and I believe 

we can do that. 

3 

At the same time, postal unions must join with us to work together to make the kinds of efficiency increases that allow high 

pay, good benefits to be earned now and in the future while delivering a product that can meet the requirement of the customer. I 

believe we can do that. I believe we will do that. 

I would like to take a moment to thank my ranking member who 

has worked hard on as far as we have gotten. I will not say that 

his vision of the bill and my vision of the bill are yet identical. But 

our teams have worked together and we have worked across the 

dome. As a matter of fact, I will now ask unanimous consent that 

a letter signed by both the chairman and ranking member, Senator 

Carper and Senator Coburn, be placed in the record. Without objection, so ordered. 

Chairman ISSA. We in the House, we in the Senate must get together and we must do it this year if we are going to begin to have 

the post office make the changes now, with the money that we are 

currently losing being the money we invest in no longer losing in 

the future. 

And with that, I recognize the ranking member for his opening 

statement. 

Mr. CUMMINGS. Thank you, Mr. Chairman. I want to thank you 

for your words of bipartisanship. I am reminded that towards the 

end of last year we were working feverishly trying to come up with 

a bill, and I think we got about 85 percent there. And so I do believe we will be able to accomplish that, and I pledge to you we will 

work hand in hand to achieve that. 

So I thank you for convening today’s hearing, and I thank you 

for agreeing to my request to invite Mr. Cliff Guffey, the president 

of the American Postal Workers Union, to be with us today. During 

our April hearing we were able to hear from the letter carriers, and 

I’m pleased that today we have a chance to hear from officials who 

represent the men and women who work in our postal facilities. So, 

I have said repeatedly, the Postal Service is a vital link that binds 

our Nation together. Our job in Congress is to enact comprehensive 

legislation that will strengthen those links by ensuring that the 

Postal Service offers products and services that meet the changing 

demands of consumers while operating an efficient and effective 

network that provides all customers with timely and convenient access to these vital services. 

The financial challenge facing the Postal Service is familiar to us 

all. Last year, the Postal Service reported losses of approximately 

$16 billion—that is with a ‘‘B.’’ Losses have continued this year, 

and the Postal Service has borrowed all of its $15 billion it is authorized to borrow from the Treasury. Obviously, these losses are 

simply unsustainable. 

Unlike any other agency or business in the Nation, however, the 

Postal Service faces the legal burden of prefunding 100 percent of 

its future retiree health costs, and this requirement is a key contributor to its losses. The Postal Service has taken numerous steps 

to reduce its costs, including offering buyouts to employees, reducing operating hours at thousands of post offices, and closing dozens 

of mail processing facilities. 

And let me say this. I have said it in private and I have said it 

in public and I say it again today. I want to thank the unions for 

4 

working hard trying to help us get to where we can have a bill that 

makes sense and the unions for bending over backwards trying to 

make sure and understanding that the postal system has changed 

and therefore there has to be changes with regard to the number 

of employees that we have. 

But the Postal Service cannot do this job alone. Congressional action is essential to put the Postal Service on a sustainable financial 

path. Although I am glad that the committee is poised to consider 

postal reform legislation and it must, I am disappointed with the 

draft legislation circulated by the chairman. The chairman’s draft 

legislation would end 6-day mail delivery immediately and end 

most door delivery in this Nation by 2022. 

Rather than returning the overpayments made into the Federal 

employment retirement system to the Postal Service, the chairman’s bill would burden the Postal Service with yet more debt by 

increasing its borrowing authority, something the Postal Service 

has repeatedly said they simply do not want. The chairman’s bill 

includes an extreme provision that would abrogate existing union 

agreements and require that they be renegotiated to include provisions allowing the Postal Service to unilaterally lay off or dismiss 

employees, including those who have decades of service. 

The chairman’s bill would also remove postal workers from the 

existing Federal worker’s compensation system and establish a 

postal-specific system that would reduce benefits below those provided under current law. 

There is a more sensible alternative to this approach. This morning I introduced the Innovate to Deliver Act, which has cosponsors, 

to enable the Postal Service to operate more like a business it was 

meant to be. My legislation would give the Postal Service increased 

operating flexibility while ensuring that revenue meets expenses. 

Specifically, my bill would create a new chief innovation officer in 

the Postal Service charged with leading the development of products and services that enable the Postal Service to capitalize on 

new business opportunities. 

My legislation also would amend the schedule for retiree health 

payments, recalculate the Postal Service’s pension surplus using 

postal-specific characteristics, return the surplus to the Postal 

Service, and provide key tools to rightsize the Postal Service workforce in a compassionate manner that respects and honors these 

employees’ dedicated service over the years. 

If we reject extreme measures that harm postal workers, increase the Postal Service’s debt, and destroy existing services, I believe we can identify commonsense provisions that provide common 

ground solutions. It is possible to develop and finalize legislation 

that we can all support, and I urge the chairman to choose this 

path. 

With that, Mr. Chairman, I ask for unanimous consent to enter 

into the record the statements of testimony from the following: the 

National Association of Postal Supervisors, the National Association of Postmasters of the United States, and the National Active 

and Retired Federal Employees Association. 

Chairman ISSA. Without objection, so ordered. 

Mr. CUMMINGS. And with that I yield back. 

Chairman ISSA. I thank the gentleman. 

5 

Chairman ISSA. And before I recognize the chairman of the subcommittee, I just wanted to take a liberty here with the ranking 

member. 

Pursuant to our practice of posting legislation and draft legislation on the site, and because your draft was circulated to us, the 

following are at Leg Counsel right now for redrafting in the bill. 

So for purposes of discussion today I hope that people will be aware 

the bill in its original form will include a chief innovation officer, 

something the ranking member had suggested. It will have a higher experimental product test cap added to it. It will have travel reporting for postal governors in the PRC. It also will, by popular demand, eliminate the requirement for any reopening of collective 

bargaining agreements related to reductions in force. It will, however, require that those be placed or harmonized with the rest of 

the Federal workforce at time of new contracts, but in no way effect 

current contracts for the life of those contracts. And it will have a 

workforce-specific pension assumptions. 

Now, I realize it’s unfair, since I don’t have specific language, but 

I wanted to make sure that those, particularly the ones that the 

ranking member had included in his draft legislation, will be employed. 

I recognize the ranking member. 

Mr. CUMMINGS. Okay. Thank you very much, Mr. Chairman. 

I just want to make sure I understand what you just said and 

that is what I was asking my staff. So you are saying that the 

things you just named are what? What are those? 

Chairman ISSA. Those are being placed before the bill comes to 

the committee, those are being placed into the base text of the bill. 

Mr. CUMMINGS. I see. 

Chairman ISSA. Because we circulated draft legislation and it has 

been up on what is called Madison, we have had public comment 

in addition to yours. So I wanted to make sure the committee understands that, as you said, we were 85 percent last year with the 

Senate even though we had to start over. We want to get as close 

to that 100 percent as we can before it comes to the committee. So 

all of those will be changed prior to coming to the committee lest 

there be any need to offer those. Obviously, there are additional 

items that both sides will probably want to offer in amendments. 

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

Chairman ISSA. Thank you. 

We now go to on the chairman of the Subcommittee on Postal, 

Mr. Farenthold. 

Mr. FARENTHOLD. Thank you, Chairman Issa, for allowing me to 

make an opening statement. 

As the chairman of the Subcommittee on the Federal Workforce, 

U.S. Postal Service and Census, Ranking Member Lynch and I 

have held hearings with the Postal Service itself, its customers, 

suppliers, and workers. 

Today’s hearing will focus on the big picture, postal reform, finding ways for the United States Postal Service to stand on its own 

two feet, to work harder and smarter for the future, and not to become a burden on taxpayers. It’s all about finding innovative solutions that will make the United States Postal Service fiscally 

sound. 

6 

The Postal Service, this committee, and all of Congress cannot 

bury our heads in the sand, ignoring billions in deficits, technology 

changes that are lowering demand, and increased competition and 

huge liabilities for future employment benefits. 

Even without the contractual prefunding contract, the Postal Service is losing in excess of $5 billion a year. They are getting 

closer to not being able to meet the payroll and provide for retiree 

benefits. Moving to a modified Saturday delivery and cluster boxes 

alone could save as much as $8 billion annually, and these are only 

two of the simple and obvious changes that need to be made when 

mail volume continues to decline. 

I am hopeful that together we can use what we have learned 

from past mistakes and work in a bipartisan manner to identify 

ways that will make the Postal Service a more successful and viable service for the 21st century. 

Thank you very much. 

Chairman ISSA. The gentleman yields back. 

We now recognize the gentleman from Massachusetts, the ranking member of the subcommittee, Mr. Lynch. 

Mr. LYNCH. Thank you, Mr. Chairman. I want to thank the ranking member as well, and including Representative Smith and the 

other witnesses who have come before us to help us with our work. 

Mr. Chairman, the United States Postal Service and our dedicated postal employees have long stood as a shining example of essential government service. Year after year, when polled, the American people have voted postal clerks, our mail handlers, letter carriers, and supervisors as among the most trusted and most appreciated government employees. 

Importantly, the Postal Service is not defined by partisanship or 

politics, but rather embodies our core governmental mission to ensure the free flow of information, communication, and commerce. 

Towards that end, the agency delivers mail 6 days a week to over 

152 million residences, businesses, and post office boxes nationwide, across every one of our congressional districts. And even in 

the face of dangerous events that threaten to halt mail delivery 

and upset the stream of commerce, our mail handlers, our letter 

carriers, our postal clerks continue their commitment to safeguarding the continuity of the mail processing and delivering operation. 

It is out of respect for the vital national role of the United States 

Postal Service and its exceptional workforce that we must ensure 

that our most trusted government institution does not fall victim 

to customary partisan gridlock. Instead, the viability of the Postal 

Service depends on our willingness on both sides to set partisanship aside and work together towards the enactment of meaningful 

and commonsense postal reform legislation. 

Regrettably, however, the discussion draft of the Postal Reform 

Act of 2013 that was recently circulated by the chairman fails to 

reflect the widespread consensus that exists among postal stakeholders and this Congress regarding certain practical steps that we 

could take to place the Postal Service on more solid financial 

ground. Notably, right off the bat, in measuring the Federal Employee Retirement System surplus, the chairman’s draft bill would 

not require the Office of Personnel Management to consider the 

7 

unique position, salary growth, and demographic characteristics of 

postal employees when calculating the Postal Services’ Federal Employee Retirement System surplus. 

In December of 2012, the Office of the Postal Service Inspector 

General estimated that the use of that postal-specific, rather than 

government-wide assumption would result in a $12.5 billion surplus, which the Postal Service could then apply to pay down its 

Treasury debt and satisfy other outstanding obligations. 

This approach to postal reform has received the strong support 

of our postal unions, associations and mailers, and my own legislation, H.R. 961, to require the use of postal-specific formula when 

recalculating the postal FERS surplus has received the support of 

over 130 Members of Congress, including nine brave and exceedingly wise Republicans. 

I’d also note that this language is also included in H.R. 2690, the 

Innovate to Deliver Act, the thoughtful postal reform legislation 

that our ranking member, Mr. Cummings, introduced last night, of 

which I am a cosponsor. 

What Chairman Issa draft does mandate, however, is a series of 

drastic, far-reaching, and unnecessary changes to postal operations 

that I strongly believe would only serve to send the agency further 

into the red. It would compromise delivery standards and undermine our postal workforce. In particular, the proposed bill would 

immediately reduce mail delivery to 5 days per week and eliminate 

an essential Postal Service competitive advantage. 

The bill also seeks to phase out another key Postal Service feature by replacing door-to-door delivery in favor of curbside delivery 

and even contemplates a shift to so-called neighborhood cluster 

boxes. Moreover, the chairman’s draft would significantly expedite 

the review process for consolidating and closing and therefore further limiting the opportunity for the meaningful community and 

stakeholder input. And the bill would even require the abrogation 

of existing collective bargaining agreements that contain reduction 

in force provisions, despite the fact that these contracts are the end 

result of extensive and hard-fought negotiations in which the 

unions agreed to very, very, very modest increases in wages and 

benefits. And those were negotiated between postal management 

and employee representatives. 

Mr. Chairman, while I appreciate the opportunity to discuss your 

draft legislation in greater detail prior to next week’s business 

meeting, I do not believe that the bill in its current form would set 

the Postal Service on a path towards financial stability. Accordingly, it is my hope that today’s hearing will also allow us to focus 

our collective attention on those areas of postal reform that can 

form the basis of a truly bipartisan postal reform package for the 

sake of the Postal Service, our postal stakeholders, and the American people. 

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

Chairman ISSA. Thank you. Although you took 16 seconds over, 

I know you did the best you could. And hopefully you did recognize 

that two of your points we are changing and those will be incorporated. So for the remaining ones that’s what markups are for. 

We now go to our first panel—and, Adrian, you’re called a panel 

here—the Honorable Adrian Smith, who represents Nebraska’s 

8 

Third District. Although the committee’s rules require that witnesses be sworn in, we do not require Members to be sworn in. 

So, Congressman Smith, you’re recognized for 5 minutes. 

STATEMENT OF THE HON. ADRIAN SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEBRASKA 

Mr. SMITH. Thank you. Good afternoon Chairman Issa, Ranking 

Member Cummings, and members of the committee. Thank you for 

the opportunity to participate in today’s hearing on the future of 

postal reform. We certainly need solutions. 

I come before you today as Nebraska’s Third District representative to discuss the importance of the United States Postal Service 

to our rural communities. The Postal Service continues to face a severe fiscal crisis, losing $25 million per day. Congress needs to ensure the Postal Service continues to uphold its mission to serve all 

Americans while addressing its long-term challenges. 

Throughout rural America, the post office is the center of the 

community and a link to the rest of the country, and even beyond. 

Every day I hear from constituents who are concerned about losing 

access to basic mail services. Those in my district are among the 

most reliant on the Postal Service. I myself reside just a short walk 

from my local post office in western Nebraska and I know firsthand 

the impact the Postal Service has on small town Americans. To us, 

the Postal Service is not just a convenience, it is a pathway to information, products, medications, and services which are essential 

to our daily work and lives. 

Millions of Americans are at risk of being further isolated without access to mail services. Congress must enact postal reform 

which provides certainty for consumers and businesses alike. 

Commercial options already are scarce in rural America. Arbitrarily targeting the mail in these areas may cause potential businesses to lay roots elsewhere, limiting consumer choice and harming rural economies. Two years ago, the Postal Service announced 

it was considering for closure more than 3,600 small mail facilities 

in an attempt to address its budget shortfall. Included on this list 

for possible closure were 90 locations in the entire State of Nebraska, with the great majority in the Third District. Locations 

across rural America were disproportionately singled out despite 

the minimal savings which would have been achieved by closing 

these facilities. 

In fact shutting down the smallest 10,000 post offices in the 

United States only would save the Postal Service roughly 3 percent 

of the cost of operating its more than 31,000 post offices nationwide. 

As co-chair of the Congressional Rural Caucus, I have spent the 

last 2 years closely working with the Postal Service, stakeholders, 

and this committee to ensure rural post offices are not unfairly targeted. Because of the importance of continuing this bipartisan effort, last week I introduced the Securing Access to Rural Postal 

Services Act, H.R. 2615. I appreciate my colleagues joining me in 

support of this bill. My Democratic co-chair of the Congressional 

Rural Caucus, Congressman Mike McIntyre, as well Rural Caucus 

and Oversight and Government Reform Committee member ConVerDate Aug 31 2005 09:22 Sep 04, 2013 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 C:\DOCS\82401.TXT APRIL
9 

gresswoman Cynthia Lummis, both are original cosponsors of H.R. 

2615. 

This legislation would cap small post office closures and consolidations at 5 percent of the total number of closures and consolidations executed by the Postal Service in any given year. The bill also 

would set guidelines for closing or consolidating any post office to 

ensure those affected by such changes would maintain access to the 

Postal Service. 

The Postal Service would be required to provide 60 days notice 

of its intention to close or consolidate a post office. In addition, it 

would need to survey affected customers to determine their preferences for alternative access to postal services. If the Postal Service is unable to provide access through the alternative chosen by 

survey participants or if the preferred option is determined to be 

cost prohibitive, it would be required to provide access to postal 

services through a different means and give written explanation for 

why the surveyed option was not possible. 

The Postal Service should focus on changes which provide the 

greatest savings with the least service disruption. My measure allows the Postal Service flexibility to pursue needed cost-cutting reforms while ensuring rural Americans are not disproportionately 

affected. I am pleased the Securing Access to Rural Postal Services 

Act will be included in this year’s comprehensive bill, the Postal 

Reform Act of 2013. 

Mr. SMITH. I thank the chairman and committee staff for recognizing this unique set of challenges facing our rural communities 

and for their willingness to work with me on this important issue. 

I also want to acknowledge the constructive input I have received 

from my district over the last 2 years. I appreciate the many ideas 

shared with me from industry, postal workers themselves, and individual patrons of the Postal Service. 

Congress must support a robust, efficient, and dynamic Postal 

Service. Without responsible legislation, the Postal Service will not 

be able to return to solvency. I am confident this committee will 

produce a comprehensive reform bill which provides universal service standards for consumers, opportunity for businesses, and stability for the Postal Service. I am committed to continuing to work 

with this committee, with members on both sides of the aisle, to 

ensure rural Americans continue to be an important part of the 

discussion on postal reform. 

Thank you. 

Chairman ISSA. Thank you. 

[Prepared statement of Mr. Smith follows:] 

10 


Insert offset folio 1 here 82401.001

Written Testimony of the Honorable Adrian Smith 

Prepared for the House Committee on Oversight and Government Reform 

Good aftemoon Chairmen Issa, Ranking Member Cummings, and members of the Committee. 

Thank you for the opportunity to pat1icipate in today's hearing on the future of postal reform. 

I come before you today as Nebraska's Third District Representative to discuss the imp0l1ance of 

the United States Postal Service (USPS) to our rural communities. 

USPS continues to face a severe fiscal crisis, losing $25 million per day. Congress needs to 

ensure the Postal Service continues to uphold its mission to serve all Americans while USPS 

addresses its long-term challenges. 

Throughout rural America. the post office is the center of the community and a link to the rest of 

the country. Every day, I hear from constituents who are concerned about losing access to basic 

mail services. Those in my district are among the most reliant on the Postal Service. I. myself. 

reside just a short walk from my local post office in Western Nebraska and know firsthand the 

impact the Postal Service has on small town Americans. 

To us. the Postal Service is not just a convenience; it is a pathway to information. products, 

medications. and services which are essential to our daily work and lives. Millions of Americans 

are at risk of being further isolated without access to mail services. 

Congress must enact postal refonn which provides certainty for consumers and businesses. 

Commercial options already are scarce in rural America. Arbitrarily targeting the mail in these 

areas may cause potential businesses to lay roots elsewhere, limiting consumer choice and 

harming our rural economies. 

Two years ago, USPS announced it was considering for closure more than 3.600 small mail 

facilities in attempt to address its budget shortfalL Included on this list for possible closure were 

90 locations in the State of Nebraska. with a great majority in the Third District. 

Locations across rural America were disproportionately singled out, despite the minimal savings 

which would have been achieved by closing these facilities. In fact, shutting down the smallest 

10,000 post offices in the United States only would save the Postal Service roughly 3 percent of 

the cost of operating its more than 31.000 post offices nationwide, 

As co-chair of the Congressional Rural Caucus. I have spent the last two years closely working 

with USPS, stakeholders. and this committee to ensure rural post offices are not unfairly 

targeted. Because of the importance of continuing this bipartisan effort, last week I introduced 

the Securing Access to Rural Postal Services Act, H.R 2615. 

I appreciate my colleagues for joining me in support of this bilL My Democrat co-chair of the 

Congressional Rural Caucus, Congressman Mike McIntyre, as well as Rural Caucus and 

Oversight and Government Reform Committee member, Congresswoman Cynthia Lummis, both 

are original cosponsors ofRR, 2615. 
11 


Insert offset folio 2 here 82401.002

This legislation would cap small post office closures and consolidations at 5 percent of the total 

number of closures and consolidations executed by the Postal Service in any given year. The bill 

also would set guidelines for closing or consolidating any post office to ensure those affected by 

such changes would maintain access to the Postal Service. 

USPS would be required to provide 60 days' notice of its intention to close or consolidate a po,t 

office. In addition, it would need to survey affected customers to determine their preferences for 

alternative access to postal services. 

If USPS is unable to provide access through the alternative chosen by survey participants or if 

the prefelTed option is dctcnnincd to be cost prohibitive, it would be required to provide access 

to postal services through a different means and give written explanation for why the surveyed 

option was not possible. 

The Postal Service should focus on changes which provide the greatest savings with the least 

service disruption. My measure allows the Postal Service flexibility to pursue needed costcutting reforms while ensuring rural Americans are not disproportionately affected. 

I am pleased the Securing Access to Rural Postal Services Act will be included in this year's 

comprehensive bilL the Postal Reform Act of 2013. I thank the Chairman and Committee staff 

for recognizing thc unique set of challenges facing our rural communities and for their 

willingness to work with me on this important issue. 

I also want to acknowledge the constructive input I have received from my district over thc last 

two years, I appreciate the many ideas shared with me from industry, postal workers, and 

individual patrons of the Postal Service. 

Congress must support a robust, efficient, and dynamic Postal Service. Without responsible 

legislation, USPS will not be able to return to solvency. I am confident this committee will 

produce a comprehensive refonn bill which provides universal service standards for consumers, 

opp0l1unity for businesses, and stability for tbe Postal Service. 

I commit to continuing to work with this Committee, with members on both sides of the aisle, to 

ensure rural Americans continue to be an important part of the discussion on postal reform. 

Thank you. 
12 

Chairman ISSA. And thanks to the CBO scoring of an estimate 

of closing all 10,000 rural post offices saving in the neighborhood 

of $300 million, we fully concur that H.R. 2615, in its entirety, is 

intended to be folded into the base bill. We recognize, as you do, 

that there are literally dozens of fundamental alternatives to an 

outright closing of a post office, including part-time and other techniques that would allow service at an appropriate level. So the bill 

is anticipated to limit to 5 percent, as H.R. 2615 does, the total 

number of outright closings. 

I have only one question for you, and we don’t usually ask questions, but since you did mention rural, how many door deliveries 

would you have in a district like yours. 

Mr. SMITH. I don’t have that number with me. 

Chairman ISSA. Wouldn’t it be approximately zero? Wouldn’t almost everybody in rural Nebraska go down to the curb, go down 

to the front, go down to a box, and pick up their mail, isn’t that 

substantially how virtually all of your residents get their mail? 

Mr. SMITH. I wouldn’t say all of the residents, but keep in mind 

that it’s not uncommon that someone would have a five-mile-long 

driveway in ranch country, at the end of which would be their 

mailbox, and perhaps that is a lot cheaper to have it out there by 

the paved road than five miles down the driveway at the doorstep. 

Chairman ISSA. You know, it’s our intention to make sure that 

we do not make that drive one foot further for any of those residents. 

Mr. SMITH. Understood. 

Chairman ISSA. Mr. Cummings, do you have any questions? 

Mr. Smith, we thank you. We will see you on the floor in just 

a few minutes. 

Mr. SMITH. Thank you. 

Chairman ISSA. We will now set up the second panel. It will be 

just be a very short break. 

[Recess.] 

Chairman ISSA. I thank all the witnesses for their patience. 

Hopefully you’ve heard from rural America and there will be no 

disagreement here, since there seems to be none here on the dais. 

We now welcome our second panel, the distinguished Postmaster 

General and CEO of the United States post office, Mr. Patrick 

Donahoe. 

Mr. Joel Quadraccia? 

Mr. QUADRACCI. Quadracci. 

Chairman ISSA. Quadracci. Joel, I know you well enough, I 

should get the last name right. You are chairman, president and 

CEO of Quad Graphics, one of the largest printers and obviously 

one of the large stakeholders in anything we do. 

And Mr. Cliff Guffey is president of, as previously announced, 

the second-largest, the American Postal Workers Union. 

We’re very pleased to have all of you. Your testimony is important. It will be listened to in the markup. 

Pursuant to the committee rules, we would ask that you please 

rise, raise your right hand to take the oath. 

Do you solemnly swear or affirm that the testimony you’re about 

to give will be the truth, the whole truth? Please be seated. 

13 

Let the record reflect that all witnesses answered in the affirmative. 

I will warn you all that about the time Mr. Donahoe finishes, 

there will be a bell. That will let us get through all three of you 

and then we will break for a period of time necessary to take the 

votes, and unfortunately, the once-in-a-Congress picture. So members, being politicians, are not likely to return until after they get 

their picture taken. 

Mr. Donahoe. 

WITNESS STATEMENTS 

STATEMENT OF PATRICK DONAHOE 

Mr. DONAHOE. Thank you, Mr. Chairman. Good afternoon. Good 

afternoon, Ranking Member Cummings, members of the committee. 

Thank you, Mr. Chairman, for calling this hearing today. 

Let me begin by thanking the committee for taking on this important challenge of restructuring the business model of the Postal 

Service. The Postal Service continues to face systemic financial 

challenges because it has a business model that does not allow it 

to adapt to changes in the marketplace. We cannot pretend that 

these marketplace changes are not happening or that they do not 

require fundamental changes to our business model. We need comprehensive reform now. 

In the past 18 months, the Postal Service reported $19 billion in 

net losses, has defaulted on $11.1 billion in retiree health benefits 

to the Treasury, and without legislation this year we will be forced 

to default on $5.6 billion in payments due to the Treasury on September 30th, 2013. Our liquidity also remains dangerously low. 

Our financial condition should not obscure the fact that the Postal Service plays a vital role in American commerce and delivers 

great value to its customers. Our package business is growing and 

very strong, and our marketing mail will remain strong for the long 

term. Unfortunately, declines in first class mail overshadow the 

healthy parts of our business and efforts we have taken to adapt 

to the lost revenue. 

We have taken aggressive steps to reduce costs. Since 2006, we 

have reduced our annual cost base by over $16 billion. We have reduced the size of our career workforce by more than 200,000 employees, have consolidated more than 350 mail-processing facilities, 

modifying hours right now in operations at 13,000 post offices, and 

have eliminated 21,000 delivery routes. 

We have been able to accomplish these incredible operational 

changes because of the tremendous dedication and effort of our employees. It is to their credit that the organization continues to provide high levels of service to our customers and community during 

such change. 

America deserves a Postal Service that can adapt to the basic 

marketplace changes and invest in the future. It needs a Postal 

Service that can evolve and change over time. The Postal Service 

has advanced a plan that can meet these expectations and it requires fundamental changes in the way that we currently do business. 

14 

Mr. Chairman, we are seeking the authority under law to control 

our healthcare and retirement costs. We can completely eliminate 

the need for prefunding retiree health benefits if we can move to 

our proposed solution. Our goal should be the elimination, not just 

reamortization of any prefunding, and this is achievable. Our employees and retirees will also benefit from lower premiums and get 

the same or better health benefits. Just by pursuing this one element of our plan, it can reduce annual costs by $8 billion. 

We seek the ability to establish a defined contribution retirement 

system for new employees. Given the changes that will occur in our 

industry in the coming decades, I believe it is fundamentally unfair 

to the Postal Service and future employees to maintain the defined 

pension system. 

With the authority to move to a schedule that includes 6 days 

of package delivery and 5 days of mail delivery, the Postal Service 

can save nearly $2 billion annually. The American public supports 

this delivery schedule and it’s the financially responsible step to 

take. 

We require a more streamlined governance model and flexibility 

under the law to develop, price, and implement products quickly. 

And we are also seeking a refund of approximately $6 billion in 

overpayments into the Federal Employee Retirement System. 

If Congress can pass legislation that addresses each of these areas, we can close a $20 billion budget gap by the year 2016 and 

operate on a financially stable basis. If we do not gain that flexibility, our unsustainable losses will continue and we will risk becoming a significant burden to the American taxpayer. 

There is a simple question to ask about the legislation this com- mittee is in the process of developing: Does it enable $20 billion in 

savings by 2016? We believe our plan meets this test and provides 

the most responsible approach for customers and employees, but 

we cannot implement it without legislation. 

Mr. Chairman, we are quickly moving down a road that leads 

straight to a large financial chasm. The postal legislation can be a 

bridge over that chasm. If we build the bridge properly, the Postal 

Service can have a bright future. It can adapt and better serve the 

changing mailing and shipping needs of the American industry and 

the American public, and it can be a more powerful engine for economic growth and be profitable and operate without burdening the 

American taxpayer. 

However, we can’t get to that future if we don’t build that bridge, 

and we need a bridge that gets all the way to the other side. Half 

measures are about as useful as a half bridge. We need legislation, 

together with our planned changes, that confidently enables the 

Postal Service to save that $20 billion. 

I strongly urge this committee to pass comprehensive reform legislation that effectively grants us the authority to operate the Postal Service in a financially responsible manner and creates a fiscally 

sustainable model for the next decade and beyond. 

Let me conclude by thanking this committee for its willingness 

to address these tough issues and to pass comprehensive postal legislation this year. The Postal Service is a tremendous organization 

and needs your help. Thank you. 

Chairman ISSA. Thank you. 

15 

[Prepared statement of Mr. Donahoe follows:] 

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iJii2!!!'f UNITED STIlTES 

I!!!iiiittI POSTIJL SERVICE 

STATEMENT OF 

POSTMASTER GENERAL AND CHIEF EXECUTIVE OFFICER 

PATRICK R. DONAHOE 

BEFORE THE 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

UNITED STATES HOUSE OF REPRESENTATIVES 

JULY 17, 2013 

Good aftemoon, Mr. Chairman, Ranking Member Cummings and members of the Committee. Thank 

you, Chairman Issa, for calling this important hearing to discuss imminent posta! reform legislation. I 

testified before this Committee exactly three months ago. My message remains the same, and our 

financial losses continue to mount. Since my testimony three months ago, the Posta! Service released its 

Fiscal Year (FY) second quarter financial results, posting a six-month loss of $3.1 billion. Since the 

introduction of H.R. 2309, the Postal Reform Act of 2011, in the 112" Congress, the Postal Service has 

reported net losses of $19.0 billion in 18 months. 

We also appreciate the effort that has gone into the creation of draft legislation from you, Chairman Issa 

and from Ranking Member Cummings. Both pieces of legislation help to continue the conversation on 

comprehensive postal reform. The Postal Service has laid out a path forward, detailed in my testimony 

today, to set up our organization for future growth and stability. The plan we developed will allow us to 

succeed without highly undesirable measures, such as large price increases, which would serve to 

dampen demand. Our plan addresses unfunded liabilities head on, such as a USPS-sponsored health 

plan which eliminates the need for Retiree Health Benefits (RHB) prefunding by integrating with Medicare 

as most private sector firms have done for years. Why debate amortization periods for unfunded 

balances when we should attack the root problem of high costs? We further address the unfunded 

liability issue through our proposal to create a defined contribution retirement plan for future employees, 

which eliminates the need to fund the Federal Employees' Retirement System (FERS) for those 

employees. Now is the time for bold and sweeping action, which will !et us move forward with a solution 

that will last for years to come, instead of piecemeal efforts that wi!! only bring us back here again, 

pursuing legislative reform in a few years. We need to act now to implement strategies designed not for 

the Posta! Service of today, but for the Postal Service of ten, twenty, and even fifty years into the future. 

The Postal Service continues to make great strides in adapting to the country's changing mailing and 

shipping needs. However, our efforts are severely limited by a statutorily-mandated, restrictive business 

model, and by excessive, bureaucratic oversight that prevents the Board of Governors and postal 

management from effectively running the business. We have the responsibility to provide and to fund 

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universal service for our nation, but we do not have sufficient authority or flexibility to carry out that 

mandate, and be profitable. Postal reform legislation is urgently needed. In its absence, continued 

significant net losses are inevitable, and the business is simply not sustainable. 

If provided the ability to make needed changes, the Postal Service has a bright future. We could again be 

a model of self-sufficiency. I look forward to the swift passage of legislation and the end to Congressional 

hearings discussing the Postal Service's financial losses. Then, we can finally shift our full attention back 

to what is really important to the men and women of the United States Postal Service - delivering for the 

American people. 

USPS FINANCIAL CONDITION 

The Postal Service faces tremendous financial challenges. For the first half of FY 2013 we recorded a 

net loss of $3.1 billion. Last year, the Postal Service recorded a net loss of $15.9 billion. We defaulted 

on Retiree Health Benefits (RHB) prepayments to the United States Treasury of $11.1 billion, and will 

default on an additional $5.6 billion due on September 30,2013. The Postal Service has already reached 

its debt limit of $15 billion and continues to contend with serious liquidity challenges. As of June 30, it 

had just 10 days of cash on hand and has significant unfunded liabilities. In addition, the Postal Service 

owes an estimated $17 billion for future workers' compensation payments. Our retirement, workers' 

compensation and debt obligations, which total $96 billion, combined with continuing losses highlight the 

need for immediate legislative reform. To be clear, the Postal Service does not have the authority or the 

tools to manage these massive obligations without legislative action. 

At one point last October, the Postal Service had less than four days' worth of cash on hand to fund 

operations. For an organization the size of the Postal Service - which has revenues of $65 billion and a 

workforce of close to 500,000 career employees - that is a razor thin margin. By way of comparison, 

most private sector companies usually have at least two months of cash on hand to fund operations. 

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The Postal Service cannot continue along this current path. [Figure 11 We are weighed down financially 

by the increasing burden of our healthcare obligations and are projecting continuing financial losses 

unless significant changes are made to our business model. 

FY2{t12 FY 2013 

Figure 1 

The results from the most recent financial quarter show a decline in total mail volume, including FirstClass Mail, our most profitable category. The most significant factor contributing to the ongoing decline is 

the migration toward electronic communication and transactional alternatives. While the shift to electronic 

communication alternatives has a pronounced negative effect on First-Class Mail volume and revenue, 

the growth of e-commerce and successful marketing campaigns grew our Shipping and Package 

business. However, the growth in Shipping and Packages does not provide enough profit to offset the 

decline of First-Class Mail. 

As one potential approach to address the Postal Service's financial situation, the Postal Service's Board 

of Governors has asked postal management to examine a possible exigent price increase. The Postal 

Service is currently in an information-gathering phase to determine revenue and volume impacts, as well 

as analyzing the long-term implications of such. To be sure, the Postal Service would much rather 

pursue legislative reforms to stabilize our business, than to enact price increases which could hurt 

demand. No decision has been made at this time, regarding an exigent price increase. 

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LEGISLATIVE REQUIREMENTS 

Returning the Postal Service to solvency requires the comprehensive approach reflected in our Five-Year 

Business Plan, which was updated in April 2013 and is available for public viewing on our website. It has 

also been submitted, along with this testimony, to the Committee for the record. The plan provides a 

roadmap to restore financial stability and preserve affordable mail service for the American public. The 

major elements of the Plan must be executed within a short window of opportunity to avoid continued 

unsustainable losses which could become a long-term burden to the American taxpayer. 

The Postal Service needs to save $20 billion annually by 2017. Much of the savings cannot be achieved 

without legislative action. The legislative requirements put forward by the Postal Service constitute a fair 

and thorough way to stabilize the Postal Service as a platform for future grow1h. The requirements 

include: 

1. Require USPS Health Care Plan (Eliminates Need to Prefund RHB) 

2. Refund FERS Overpayment and Adjust Future FERS Payment Amount 

3. Adjust Delivery Frequency (Six-Day Packages/Five-Day Mail) 

4. Streamline Governance Model (Eliminate Duplicative Oversight) 

5. Provide Authority to Expand Products and Services 

6. Require Defined Contribution Retirement System for Future Postal Employees 

7. Require Arbitrators to Consider Financial Condition of Postal Service 

8. Reform Workers' Compensation 

g. Right to Appeal EEOC Class Action Decisions to Federal Court 

Each of the Postal Service's legislative requirements is explained in further detail below. 

A. FIX THE UNAFFORDABLE BENEFITS SYSTEMS IN A RESPONSIBLE MANNER 

Require USPS Health Care Plan: 

One of the most important proposals contained in our plan, and one which represents tremendous cost 

savings, is a change in the way we provide health care to our employees and retirees. More than 20 

cents of every revenue dollar the Postal Service takes in goes toward health care costs. [Figure 2J The 

cost of this large component of our total operating costs, second only to wages, is largely outside of our 

control. To put it simply, the Postal Service would already be fully-funded in our retiree health benefits 

obligations if we could fully integrate with Medicare. Significant health benefits savings are created by 

integrating the plan for current and future retirees with Medicare in exactly the same way it is almost 

universally done in the private sector, and in state and local government plans. After a retiree reaches 

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age 65, Medicare becomes the primary insurance, and the employer plan is secondary. With Medicare 

responsible for paying first, that makes the employer sponsored plan much more affordable. This would 

eliminate the need to prefund retiree health benefits. 

Figure 2 

Current USPS Health Care Costs (2012) 

$13.4 Billion Per Year 

.. Retnee Heatth 8e'1ent 

iRH8:· ?f€-fundlng 

Health Benefit Premium 

to: Rebr€'€-s 

!Ii Health Benefit Pre-rr.f~lm 

fm employfr€-s 

More than 20¢ of every revenue dollar goes towards 

health care costs 

There is a substantial opportunity for savings - approximately $8 billion each year through 2016 - by 

moving to a more modern, responsive and customer-focused system. This would be accomplished by 

allowing the Postal Service to sponsor its own healthcare plan, either within the Federal Employees' 

Health Benefits Plan (FEHBP) or outside of it. By moving away from the current system, nearly all of our 

employees and retirees would reap the benefits of getting equivalent or better healthcare coverage and 

paying less for it. 

A Postal Service sponsored health care plan is critical. Without addressing the cost issue in a responsible 

way, the Postal Service may be unable to afford to provide health benefits to retirees. In its proposal, the 

Postal Service would sponsor its own health care plan for employees, as well as current and future 

retirees. Congressional action to allow this fundamental change would dramatically reduce health care 

spending, and help the Postal Service take a significant step toward financial stability. 

Our health care plan proposal provides savings and benefits in a variety of ways: 

Helps return the Postal Service to financial stability. Preliminary estimates indicate cash savings for 

the first year would be approximately $2.1 billion, in addition to savings from the elimination of the 

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prefunding. A savings of approximately $660 million in reduced premiums for employees and 

annuitants (about $700 annually per participant) is also projected. 

Eliminates the need for future scheduled RHB pre-funding payments (ranging from $5.6 billion to $5.8 

billion annually) under the Postal Accountability and Enhancement Act and eliminates the unfunded 

liability. 

Leverages the tremendous buying power of more than one million employees and retirees to obtain 

better pricing. 

Achieves significant savings for the Postal Service, employees and retirees. 

Maintains the Postal Service's commitment to provide quality health care coverage to our dedicated 

workforce and retirees, as the cost of current FEHB plans is not sustainable. 

Implements best practices such as improved prescription drug coverage, integrated care and disease 

management, wellness incentives, and integrated Medicare and Employer Group Waiver Plans 

(EGWP) for retiree health benefits. 

Enables better choices with simple, more understandable options, as well as additional enrollment 

options. 

The Postal Service's white paper on its proposed health care plan has been submitted, along with this 

testimony, for the record. 

Refund FERS Overpayment: 

Postal Service employees participate in one of three Federal government pension programs. These 

programs are administered by the Office of Personnel Management (OPM). OPM has determined that 

the Postal Service has overfunded its obligation to the Federal Employees' Retirement System (FERS) 

and that a surplus exists. According to the most recent actuarial estimate from OPM, the Postal Service 

has overfunded its FERS obligation by $2.6 billion, as of September 30, 2011. This estimated surplus is 

less than amounts previously reported, due to changes in the government-wide economic and 

demographic assumptions made by OPM. OPM's most recent calculation (before adjustments using 

postal-specific assumptions and demographics) shows that the surplus is projected to have grown to 

approximately $3.0 billion by September 30, 2012. 

In December 2012, the US Postal Service Office of the Inspector General (OIG) issued an update to a 

previously released paper on the causes of the FERS surplus. The Postal Service agrees with the major 

conclusions in the OIG's report. First, the distinctive characteristics of the Postal Service workforce, 

including lower salary increases than the rest of the Federal government, indicate that our FERS surplus 

is larger than the OPM's current calculation, and OPM should use Postal Service specific data to 

calculate the surplus. Second, in order to prevent excessive surpluses from accumulating in the future, 

OPM should adjust the future USPS FERS contribution rate. The current FERS charges are too high, as 

evidenced by 20 years of surpluses, and contribute to the Postal Service's financial crisis. Third. once 

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calculated, the current surplus should be refunded to the Postal Service. The Postal Service, using 

postal-specific demographics and assumptions, estimates the FERS overfunding amount to be 

approximately $6 billion. Directing aPM to utilize postal-specific demographics and assumptions in 

calculating the correct amount of the FERS surplus and returning the full amount of that surplus to the 

Postal Service is important, and needs to be completed this year. The Administration agrees with 

this approach, as evidenced in its 2014 budget request, which requires aPM to calculate FERS costs 

using actuarial assumptions and demographics specific to the Postal Service workforce. 

Require Defined Contribution Retirement System for Future Postal Employees: 

The Postal Service's current employees participate in one of three federal government pension programs, 

all of which include defined benefit plans. But the Postal Service is changing. Employees coming in now 

have a much different future than current employees. We should provide a retirement system that 

benefits both the employee and the Postal Service. The Postal Service proposes this new retirement 

system for four main reasons, including: 

1. The ability to meet obligations under the Postal Reorganization Act (PRA). 

The Postal Service is required to provide wages and benefits comparable to those provided in the 

private sector. The FERS system is not comparable to the private sector and is more costly. 

Permitting this move would allow the Postal Service, like the private sector, to adjust to market 

conditions by modifying plan design, portability, provider services, employee engagement and 

other factors. 

2. The Postal Service's employee base is changing. 

Our emerging workforce is younger and less likely to stay with one employer for their entire 

career, as most of our established employees have done. This type of portable and flexible 

retirement program holds a greater appeal for the younger demographic. 

3. Permits a reduction in labor costs. 

Benefit costs constitute roughly 48 percent of total labor costs, including RHB prefunding. Even if 

the RHB prefunding requirement were removed, benefit costs would still make up nearly 43 

percent of the Postal Service's labor costs. As has been well reported, approximately 80 percent 

of the Postal Service's total costs are labor costs. We cannot resolve our fiscal issues without 

addressing these costs. 

4. Separates Postal Service retirement system from the rest of the Federal Government. 

There continue to be ongoing debates regarding Postal Service funding of both the CSRS and 

FERS retirement systems. These tensions will continue and will likely escalate, given that the 

Postal Service has funded substantially more of its pension obligations than the remainder of the 

federal government. Allowing the separation of the Postal Service's retirement obligations would 

resolve these disputes. 

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5. Protects the American taxpayer. 

A defined contribution retirement system for future employees would ensure the Postal Service 

can fulfill its obligations not only to future employees, but to retirees and current employees as 

well. This, in turn, provides an added level of protection for taxpayers, as it significantly lessens 

the possibility that taxes would have to be used to fund these payments. 

A defined contribution retirement system for future employees would be a triple win. It would be a win for 

employees, who would have more portability in their retirement plan; it would be a win for the Postal 

Service, freeing it from having to fund a defined benefit plan; and, it would be a win for the taxpayers, as it 

protects them from having to step in and fund any liabilities for these future employees. It should be 

noted that this change would not impact existing retirement systems for current employees. 

B. ELIMINATE DUPLICATIVE OVERSIGHT AND UNNECESSARY BUREACRACY 

Streamline Governance Model: 

In order to meet the challenges it faces both today and in the future, the Postal Service must be given the 

tools to become a more nimble, streamlined organization, better able to respond quickly to the needs of a 

dynamic marketplace and to adjust our operations as demand for products and services evolves. The 

Postal Service does not need any additional bureaucracy to slow us down. We urgently need the 

flexibility to implement our Five-Year Business Plan. 

The Postal Service Board of Governors should have the clear authority to make structural changes that 

reduce the costs of the retail, processing and delivery networks. Currently, the Governors must submit 

operational changes to the Postal Regulatory Commission (PRC) for an advisory opinion following a 

lengthy, litigious, administrative proceeding that does not promote timely and effective implementation of 

necessary, efficient cost reduction decisions. The current process imposes substantial costs on the 

Postal Service, delays savings and should be eliminated. At a minimum, PRC procedures should be 

substantially streamlined. 

Another facet of restoring financial sustainability is the growth of revenue through product and pricing 

innovation, both with respect to existing lines of business and other lines of business. Giving the Board 

greater authority to exercise business judgment in this area does not mean the end of oversight by an 

external entity. A more nimble and well-defined regulatory approach is required to minimize unnecessary 

bureaucracy, recognize the Postal Service faces intense competition with respect to all of its products, 

and allow the Board to respond effectively to changing conditions. Even the PRC recognized in its 

Annual Report that the current system of regulation is not achieving the objective of financial stability. 

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Giving the Postal Service greater flexibility over pricing and product innovation would further advance the 

goal of providing universal service in a financially sustainable way. The Postal Service faces competitive 

pressures, and has strong commercial incentives to be efficient and responsive to its customers' needs. 

Extensive price and product controls are not necessary, Governors' decisions on new products and 

pricing should be subject to after-the-fact reviews (like the current Annual Compliance Determination) or 

handled through the complaint process. Pairing much greater flexibility over pricing and product 

innovation with additional flexibility to address network costs would put the Board in a position to create a 

multi-faceted and balanced approach to restoring financial stability. The Postal Service's white paper, 

detailing these streamlined governance proposals is submitted, along with this testimony, for the record. 

Adjust Delivery Frequency (six-day packaqeslfive-day mail): 

In February 2013, the Postal Service put forward a proposal to move to a six-day package/five-day mail 

delivery schedule, Savings projected from this move (net of the cost of Saturday package delivery, 

primarily by non-career carriers, are estimated to be approximately $2 billion annually when fully 

implemented. The proposal provides mail delivery to street addresses Monday through Friday. Mail 

addressed to P.O. Boxes would continue to be delivered on Saturdays. Post Offices already open on 

Saturdays would not be affected by this proposal. Packages would continue to be delivered six days per 

week, and our Express Mail offering, currently delivered seven days per week, would not be impacted. 

The proposal was designed to serve a dual purpose: to respond effectively to the increase in package 

growth, a 14 percent volume increase over the last two years, and to address the realities of the public's 

changing mailing habits. By continuing to deliver Express Mail, Priority Mail, and most other packages on 

Saturday, the modified plan responds to many of the concerns expressed by the Postal Regulatory 

Commission (PRC) and others about the impact of 5-day delivery on certain customer segments, such as 

recipients of medicine. 

We believe the timing is right to implement this change, especially in light of overwhelming continued 

support for five-day mail delivery by a vast majority (over 70 percent) of the public. Additionally, in his FY 

2014 budget proposal, released on April 10, the President again included a provision to allow the Postal 

Service to move to a five-day mail delivery schedule. 

Authority to Expand Products and Services: 

The Postal Service must be allowed authority to establish new revenue sources and respond to a 

changing marketplace. Provisions contained in both draft House bills will be helpful in providing flexibility 

to the Postal Service to offer products and services that would improve our net financial position. Both 

bills, for example, grant additional authority to the Postal Service to provide certain nonpostal services. 

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Such changes are vital to our ability to grow additional revenue and leverage our strengths. The Postal 

Service is fully engaged in exploring all options available to us under the existing structure. For example, 

we are currently focused on ensuring our presence in the digital world, through the work done by our 

Secure Digital Solutions group. Potential product offerings and services include identity and access 

management services and secure messaging. The Postal Service is confident it can leverage critical 

brand components, such as trust, convenience, security and privacy. The Postal Inspection Service, the 

law enforcement arm of the Postal Service, plays an important part in our efforts to move into the digital 

realm. The Postal Service has been named the Most Trusted Government Agency for seven years and 

the fourth Most Trusted Business in the nation by the Ponemon Institute. We value that trust and we 

intend to build upon it, in both the physical mail and the digital mail worlds. Our return to financial viability 

is dependent on finding innovative ways to use the mail. A critical part of that is obtaining legislative 

change that will enable the Postal Service to offer additional products and services and improve our 

financial condition, 

C, CHANGES NECESSARY TO PUT THE POSTAL SERVICE ON A LEVEL PLAYING FIELD 

Require Arbitrators to Consider the Financial Condition of the Postal Service: 

More than 85 percent of the Postal Service's career employees are covered by collective bargaining 

agreements. The Postal Service requests that Congress enact provisions that instruct interest arbitration 

panels to consider the financial condition of the Postal Service in interest arbitration awards. Although 

some argue that interest arbitrators do this already, they cannot function like bankruptcy courts under 

Chapter 11 in the private sector. The panels cannot restructure the Postal Service's regulatory or 

business models. They do not have the authority to look at the entirety of the Postal Service's financesindebtedness, pricing, operations, service standards, capital sources, debt relief, etc. 

All the arbitration panels can do is address wages and benefits for a particular bargaining unit. Even 

there the panel's power is limited, because they cannot alter or modify statutory benefits like retiree health 

care or defined benefit pension plans. Given these inherent limitations (which were explicitly recognized 

by the panels in the two most recent awards involving the National Rural Letter Carriers' Association and 

the National Association of Letter Carriers), we believe it is especially important for Congress to make 

certain that the arbitration panels take into consideration the Postal Service's financial condition in the 

areas they do have authority to address - wage rates, leave, health care contributions, workforce mix, job 

protections and related matters - and to make that legislatively explicit. The Postal Service needs 

legislative language requiring arbitrators to consider the Postal Service's overall financial health. The 

Chairman's discussion draft bill includes this provision, which the Postal Service supports. 

- 10-
26 


Insert offset folio 13 here 82401.013

Reform Workers' Compensation: 

Postal employees injured on the job are covered by the Federal Employees' Compensation Act (FECA), 

administered by the Department of Labor's (DOL) Office of Workers' Compensation Programs (OWCP). 

which makes all decisions regarding injured workers' eligibility for benefits. The Postal Service has made 

tremendous strides in reducing its accident and injury rate, as measured by the Occupational Safety and 

Health Administration (OSHA). Since 2003, the rate of reported injuries has dropped by over 50 percent. 

Despite the declining level of accidents and injuries in our workforce, our workers' compensation costs 

and liabilities continue to grow, We pay approximately $1.4 billion per year to the DOL, and our workers' 

compensation liability is currently approximately $17 billion, which is an extreme financial burden on the 

Postal Service. The OWCP program is also flawed because it does not allow cases to be settled, which 

makes it extremely difficult to remove participants, and allows participants to continue receiving payments 

after reaching retirement age. 

We currently have around 17,000 employees on the workers' compensation periodic rolls, being paid for 

wage losses. Some of these employees have been on the workers' compensation rolls since before 

postal reorganization in 1971. Although one of the current draft measures would provide some flexibilities 

with regard to workers' compensation, specific provisions are still needed, such as providing the Postal 

Service with the ability to settle federal workers' compensation claims, as is done in the private sector, 

We urge that any future legislation include specific provisions to address this costly area of the Postal 

Service's total operating expenses. 

Right to Appeal EEOC Class Action Decisions to Federal Court: 

The Postal Service has seen a reduction in Equal Employment Opportunity Commission (EEOC) formal 

complaints of 40 percent since FY 2004, and continues to focus on ensuring compliance with the law. 

Today, however, despite these strides, the Postal Service has no right to appeal decisions of the EEOC 

administrative judges outside of the EEOC. To illustrate why this is problematic, the Postal Service is 

subject to class actions that we believe have been improperly certified in the EEOC process. Defending 

against these class actions is extremely costly and burdensome, regardless of their merit. We believe we 

should have a broader right to appeal to federal court the final class action decisions of the EEOC, This 

is similar to the Postal Service's existing authority to appeal decisions of the Postal Regulatory 

Commission (PRC), 

- 11 -
27 


Insert offset folio 14 here 82401.014

POSTAL SERVICE ACTIONS 

On April 17, 2013, the Postal Service released its updated comprehensive Five-Year Business Plan, 

which details the implementation of our targeted program to eliminate nearly $20 billion of annual cost 

from the business by the year 2016. [Figure 3] This plan continues the Postal Service's efforts to 

aggressively pursue strategies to increase operational efficiency and to improve our liquidity position. By 

carefully managing what is within our control, the Postal Service is currently running ahead of plan in FY 

2013 for revenue. In addition, cost reductions are ahead of schedule. But our actions alone are not 

enough to return us to profitability, and we continue to pursue all avenues for change, as detailed in the 

updated Five-Year Plan. The Plan requires a combination of operational realignment, aggressive cost 

reductions, and comprehensive legislation, as described earlier, to reform the Postal Service's current 

business model. Several key provisions include better alignment of network size and cost with reduced 

mail volumes, revenue management and increased growth, the implementation of a USPS sponsored 

healthcare plan for active and retired employees, and business model changes, including implementation 

of a new delivery schedule. 

2016 

Operational Initiatives 

Savings 

:w.c ~ ~§] ~ ~ 

Networks $ 3.1 0.' 

Retail 15 0.' 2.S 0.7 

Deifvery 14 2.3 

3.5 

Tot~1 Operation.llinitiatives 6.0 6.2 4,' 

Workforce & Non-Personnel 2.6 2.6 

I 1.3 1.9 

legislative Initi.tives l.9 1.1l 

• 5-Day Mail Del + Saturday Pkgs 1.9 II I I Postal Health Plan 86 

FERS & Other 

Total Legislative Initiatives 

!Totnl201S Savina! $ 19.71 

Figure 3 

- 12-
28 


Insert offset folio 15 here 82401.015

Alignment of network size and cost with reduced mail volumes: 

Operational measures taken to achieve this goal include the accelerated consolidation of mail processing, 

retail, and delivery networks in order to better align them with mail volumes, and a reduction in hours at 

13,000 Post Offices, accompanied by an expansion in alternate retail access. These extensive 

operational changes are being executed while the Postal Service continues to deliver high levels of 

service to communities throughout America. This realignment of mail processing, retail, and delivery 

operations is expected to generate nearly $6 billion in annual cost reductions by the year 2016. 

In conjunction with the operational realignment, the Postal Service continues to implement efficiency 

measures, and continues its actions to better align staffing levels with projected mail volume. These 

staffing level reductions will be achieved largely through attrition, as approximately one-half of career 

employees are eligible for optional retirement or voluntary early retirement. As a result of a special 

Incentive and Voluntary Early Retirement (VER) offer, approximately 22,800 eligible employees 

represented by the American Postal Workers' Union (APWU) retired or separated from the Postal Service 

in the second quarter of fiscal year 2013. This followed 4,275 eligible postmasters and 2,925 eligible mail 

handlers who retired or separated from the Postal Service in fiscal year 2012. 

Recent contractual agreements with major postal unions allow for increased utilization of lower cost noncareer employees, which will facilitate the realignment of staffing and workload levels and the reduction of 

costs. The number of career employees decreased by approximately 25,000 in the second quarter and 

by 46,000 in the last year. These reductions have been accomplished primarily through attrition and 

separation incentives, The Postal Service now has the lowest number of career employees since 1966. 

The Postal Service has increased its use of non-career employees, who currently comprise approximately 

20 percent of the total workforce, improving workforce flexibility and better aligning pay scales with the 

organization's financial realities. 

Revenue Generation: 

The Postal Service also continues to introduce new service offerings to generate additional revenue and 

to slow the migration of existing revenue streams to electronic alternatives. Expanded use of digital 

technologies to enhance the mail experience.using connectivity to various websites, social media, and 

paints of purchase is a focus in enhancing the mail experience. However, legislative action is also 

required to give the Postal Service authority to generate new revenue and adapt to changing business 

conditions, as the scope of products and services that the Postal Service can offer is currently limited by 

law. 

- 13-
29 


Insert offset folio 16 here 82401.016

CONCLUSION 

Simply put, the enactment of comprehensive postal reform legislation cannot wait The Postal Service 

has exhausted its borrowing authority, faces massive unfunded liabilities, and is constrained in how far it 

can go to right its financial ship. In no uncertain terms, the Postal Service does not want to become a 

burden on the American taxpayer. The successful implementation of strategic initiatives included in our 

Five-Year Plan would bring tremendous results, allowing for increased net profits and elimination of 

existing debt [Figure 4J We cannot get there by our actions alone, however. There exists no scenario 

where the Postal Service returns to financial stability without enactment of postal reform legislation. 

Comprehensive and wide-ranging postal reform legislation, as opposed to narrow piecemeal efforts, is 

desperately needed. The sense of urgency I expressed when I last testified before this Committee three 

months ago has only deepened. We must avoid a situation where the Postal Service's financial crisis 

causes mailers to seek out alternatives. Mr. Chairman, we look forward to continuing to work with you 

and the rest of the Committee to accomplish meaningful postal reform legislation. 

Figure 4 

Achieving the Bus;""'s. Plan wiD f'Il>J:ioo!; reasonable profits that wiD all"'" ("rdebt r"f'ayment 

This r"'1uires fuUrealizatian of a11th<> StrategiGlnitiative •. 

NetPrmit"'!$ inl:lilliDns} 

Wttoout I~ ilnjlaO! ... Av&TSq$ annL-'>ti Mt ~ ,1,01$148 

-14 -
30 

Chairman ISSA. Mr. Quadracci. 

Mr. QUADRACCI. You’re getting closer. 

Chairman ISSA. You know, you’d think with a name that gets 

messed up as often as my four letters that I’d be better. Thanks. 

STATEMENT OF JOEL QUADRACCI 

Mr. QUADRACCI. Thank you, Chairman Issa and Ranking Member Cummings and distinguished committee members, for the opportunity to discuss Postal Service and its impact on Quad Graphics and the printing and mailing industries. 

I am encouraged that both Chairman Issa and Ranking Member 

Cummings are taking leadership roles in pursuing reforms that 

would lead to the financial stabilization of the Postal Service. In 

some key respects, the drafts are quite close. In others, there are 

disagreements. But it is my hope, and the printing and mailing industry will lend strong support to any effort to earn bipartisan approval of the necessary reforms. 

My company, Quad Graphics, has grown over the past 40-someodd years into one of the largest printers of magazines and catalog 

and retail inserts. We employ about 20,000 American workers in 

the United States, 58 plants, plus dozens of other support facilities 

across 28 states. And I want to be clear that we are believers in 

print. We do believe that print is here to stay, but it is evolving, 

and we have worked with the Postal Service on innovative ideas 

that entail things like mobile devices, QR codes, interactive print 

to make print a much more viable part of the multichannel world. 

And so print is here to stay, and we have to make sure we have 

the ability to deliver it in an efficient manner. So what’s at stake here is that the Postal Service is a $65 billion 

business supporting a $1.3 trillion industry that provides 8.4 million Americans with family-supporting jobs, all of which accounts 

for 9 percent of the U.S. gross domestic product. So it really is 

about deciding whether or not we want to have the post office selffunding and sustainable or whether we want to offload the problem 

onto the taxpayers. 

In terms of the decline in volume and excess capacity that exists, 

pricing back in 2007, the significant increase that happened then, 

along with the recession, has led to a permanent reset within the 

printing and mailing industry. The last great increase before the 

CPI cap was implemented in 2007, which was double digit in size, 

led to double-digit decrease in volume. On the heels of that rate 

case, the great recession continued the erosion of volumes to the 

combined impact of about 25 percent out of the volume of not only 

the post office, but our industry. 

This, we believe, has become a permanent reset because people 

have figured out how to be more efficient as well as have used 

things like the internet and tablets to take the place of some of 

that spend. 

The reality is the USPS and private industry must rightsize to 

the demand as price increases will not provide additional revenue, 

but will lead to further erosion of demand. Excess capacity and 

costs are the problem and it must be fixed. The Postal Service has 

the capacity to produce approximately 300 billion pieces of mail; 

however, the projected volume in 2013 is closer to 150 billion. This 

31 

is an unsustainable fact that leads to costs far outweighing the actual demands. If excess cost were removed, the costs of delivering 

the products would be much closer to being aligned. 

Quad Graphics has a lot of experience in rightsizing, unfortunately. When the great recession happened and the industry lost 

its volume, because we had a strong balance sheet and a strong 

business, we were able to take advantage of it. We are about a $1.7 

billion company. We acquired a $3 billion competitor who had gone 

through bankruptcy and lots of issues. We knew that the opportunity was consolidation because we knew the industry had to. 

There was excess capacity. We took on the hard work of closing 

over 21 plants throughout our network to make sure that the remaining business, the resulting business of this combination would 

be sustainable on into the future. 

The private sector economic activity is at risk unless Congress 

acts to ensure the Postal Service is sustainable. The Postal Service 

reform cannot wait until the last minute as it hurdles towards insolvency. The crisis of confidence is already costing the industry 

customers and volumes as marketers decide how best to spend 

their advertising dollars. Fear of more large increases in pricing 

will scare volume away. 

Our industry changes rapidly. Quad, our customers, and the 

Postal Service need to be nimble and flexible, and the Postal Service must be allowed to make the business decisions that are necessary without artificial constraints in order to allow that to happen. 

For reform to be legitimate and effective, we believe there needs 

to be six key provisions in this. Assuring the Postal Service has the 

authority to streamline its operations to rightsize the capacity. 

Maintain a postage rate structure with a CPI cap. Change in the 

delivery schedule to 5 days, something the industry hasn’t been 

clear on, but I think we feel that, in conjunction with the rest of 

the reforms, we are willing to support 5-day delivery and can adjust to it. Return to USPS its overpayments to the Federal Employees Retirement System. Reamortize of payments for prefunding retiree health benefits from 10 years to 40 years without impacting 

what is due to the employees. And also provide the USPS the ability to go out and shop different healthcare benefits, something that 

Quad Graphics has experience at doing, and our cost happens to 

be 20 to 30 percent lower than all industry. And so there are options out there not only to shift where things are paid, but actually 

to reduce how much has to be paid. 

So I thank you, Mr. Chairman, for the time, and I urge you to 

move this along as we are at a stage where our customers are concerned. Thank you. 

Chairman ISSA. Thank you. 

[Prepared statement of Mr. Quadracci follows:] 

32 


Insert offset folio 17 here 82401.017

~ Q!!adGraphics !-.J6i W2304.1 YarrJ s V'fay 

Sussex., \Nj 

53089--2827 

tel 414 566 6000 

U.S. House Committee on Oversight and Government Reform 

July 17, 2013 

Joel Quadracci, Chairman, President & CEO 

Quad/Graphics, Inc. 

Good morning Mr. Chairman, Ranking Member Cummings and Members of the Committee. I 

want to thank you, Mr. Chairman and Ranking Member Cummings, for your leadership, and the rest of 

the Committee for your focus and efforts on the urgent matter of restoring the U.S. Postal Service 

(USPS) to financial stability. This is a vitally important issue for communications and commerce in our 

country. A financially hobbled postal system cannot provide the service the public needs and 

deserves. The Postal Service must right-size its network and substantially reduce its costs, but it also 

needs help from Congress. We, as an industry, are truly grateful for the thoughtful proposals that 

have been prepared for consideration by Congress. I believe the Chairman's discussion draft, in 

particular, will facilitate the cost reductions and right-sizing that are necessary to ensure the Postal 

Service's long-term financial viability. 

It is clear that you and the members of this committee, in particular, clearly understand the 

importance of a financially sustainable Postal Service. So, with respect, I urge you and your colleagues 

to act as quickly as possible to find the common ground that is evident and ensure that these 

necessary reforms are enacted into law. In order to thrive the mailing industry must have a costeffective and efficient postal service. At times even just the uncertainty surrounding the Postal Service 

will lead to additional customers leaving the mail-stream in favor of other more predictable marketing 

media. 

As we know all too well, the Postal Service is losing money at a rate of nearly $25 million a day 

with a total planned loss in 2013 of $7.6 billion. This is clearly unsustainable. This financial instability 

and the constant threat of insolvency is obviously troubling for the Postal Service, but it is even more 

troubling for the American economy overall. Although the Postal Service is financially challenged it is 

still a $65 billion business that supports a private sector economy worth more than $1 trillion, 

employing some 8 million private sector workers and accounting for 9% of our nation's Gross 

Domestic Product (GOP). 

The Postal Service is the backbone of the private sector mailing industry and it plays an 

integral role in the modern economy ranging across every type of mailer and the printing, paper and 

technology industries that supply the industry. These businesses support services in a marketplace 

that includes cost-effective advertising, magazines, catalogs, e-commerce, prescription drug 

fulfillment, and what is still a huge amount of statements, bills and greeting cards as well as an 

expanding package delivery segment. These are products that consumers in all 50 states value, and, in 

some cases, rely on, and they depend on the Postal Service to deliver them right to their door. 

While it is clear that the printing and mailing industries are a vital part of our economy, there 

is no doubt that our industries are changing and change can be challenging. Since 2009, the mailing 
33 


Insert offset folio 18 here 82401.018

industry lost 4.5% of its jobs. The biggest problem facing the printing industry is the same problem the 

Postal Service faces: excess capacity. This is a problem that we, at Quad/Graphics, are addressing 

head on. We continue to work hard to acquire markets hare by attracting and retaining clients and 

pursuing strategic acquisitions, both large and small. Over the past three years we have completed 

two major acquisitions (World Color Press Inc. and Vertis Holdings Inc.). Through these acquisitions 

we acquired more volume. At the same time, we also acquired more underutilized capacity. 

Therefore, we were required to make the tough but necessary choices to close facilities and 

consolidate work into other locations where we believe we can produce the work most efficiently and 

competitively. This has resulted in the closure of 21 facilities accounting for more than 7 million 

square feet of printing capacity. These decisions are necessary in a mature industry and challenging 

marketplace. 

The Postal Service must make similarly difficult decisions. It must take an honest look at its 

business model and make sure that the size of its business matches the reality of the marketplace. 

Right now, the Postal Service has too much capacity and must continue to be "right-sized." Mr. 

Chairman, your bill's focus on continued cost reductions will help ensure that excess capacity is 

eliminated. 

Our company, Quad/Graphics, is one of the largest mailers in the United States, accounting 

for nearly 12 billion pieces of mail each year. We print magazines, catalogs, retail inserts and direct 

mail for many well-known publishers and marketers. For example, Quad/Graphics has contractual 

relationships with leading magazine publishers, including Conde Nast, Hearst Magazines, Meredith 

Corporation, The National Geographic Society, Rodale Inc., The Reader's Digest Association ltd., 

Source Interlink Media, llC, Time Inc., Sports Illustrated, and Wenner Media LLC. Quad/Graphics 

prints catalogs for industry-leading marketers such as Cabela's Incorporated, J. Crew Group, Inc., l.l. 

Bean, limited Brands Inc. (Victoria Secret), and Redcats USA, and direct mail products for companies 

such as Charter Communications, American Family Insurance, American Eagle Outfitters, Publishers 

Clearing House, Inc. and Weight Watchers International, Inc. The success of Quad/Graphics and our 

20,000 American workers -- which include 6,700 in Wisconsin, 700 in Oklahoma, 1,200 in Georgia, 300 

in Tennessee and more than 1,500 in Pennsylvania and many more people throughout 28 other 

states, is directly tied to the existence of an efficient and cost-effective Postal Service. Those 20,000 

workers are counting on this committee and this Congress to take the necessary steps to help them 

succeed. 

Point being, you are not alone on this journey. We are part of the Direct Marketing 

Association, PostCom, American Catalog Mailers Association, Alliance of Nonprofit Mailers, MPAThe Association of Magazine Media, and the Coalition for a 21" Century Postal Service all of which 

stand beside us, ready to continue their work with you to ensure the future of the Postal Service as 

well as the 8 million American families that depend on the Postal Service for their livelihood. 

The continued sluggish economy and the decline in mail volumes pose a threat to the Postal 

Service's sustainability. These challenges can be overcome with bold reforms, cost-cutting and 

streamlining - the same types of tough measures that thousands of American businesses like ours 

have made during difficult times. In addition to measures the Postal Service must take, Congress can 
34 


Insert offset folio 19 here 82401.019

help by alleviating the unreasonable financial burdens that have been placed on the Postal Service. 

Without Congressional action, not only will the financial situation of the Postal Service continue to be 

dire, but the uncertainty for our clients and the entire mailing industry will stifle volume as customers 

make decisions about how to spend their advertising budgets, among other concerns. The uncertainty 

surrounding the USPS is referred to by many as a "crisis of confidence." Many clients may choose to 

move away from print only because they do not have confidence that the Postal Service will continue 

to be a viable option. This uncertainty can be resolved by Congress taking decisive action to show that 

the Postal Service will remain a strong and practical option for our marketers and publishers to 

distribute and advertise their products. 

Given the Postal Service's current financial condition and the continuing decline in mail 

volume, we support proposals to move to 5-day mail/6-day package delivery as part of a 

comprehensive reform approach focused on cutting costs and excess capacity. The mailing industry 

will make the necessary changes to adjust if five-day mail delivery is implemented as part of a 

comprehensive plan to ensure the Postal Service's financial viability, and with an adequate period of 

time (at least six months) to prepare for the change. Moving to a 5-day delivery schedule is a costcutting measure that Quad/Graphics and other mailers can manage as we help our clients through the 

transition while continuing to add value. 

While we are confident that we can adjust to a 5-day delivery schedule, I cannot say the same 

about dramatic increases in postage rates (higher than the current CPI cap). Our clients have budgets 

and they will meet those budgets one way or another - either by cutting back on volume to cover the 

costs of the increased postage or, worse yet, leaving the mailstream completely, thereby exacerbating 

the Postal Service's financial problems and costing private sector jobs throughout the mailing and 

related industries. Substantial postage rate increases would do damage to both the Postal Service and 

the mailing industry. No such provisions should be included in postal reform legislation. 

RECOMMENDATIONS FOR CORE ELEMENTS OF LEGISLATION TO STABLIZE THE USPS 

As an industry, we believe there are core components that should be part of any Postal Service reform 

legislation and request that Congress, at a minimum, act on the following. 

Provide the USPS with the authority to streamline its network. With the precipitous plunge in mail 

volumes, the network of postal facilities has become far too large for the business the system has or is 

likely to have in the foreseeable future. Therefore, the postal system must downsize. The USPS is in 

the process of doing precisely that, having closed numerous facilities with little operational disruption 

because of continual communication with mailers. Mailers are very pleased with the way this process 

has been managed. The USPS also heard Congress loud and clear, and instituted a well-received 

program to keep rural and small post offices open. We urge Congress to exercise its customary, 

thorough and cautious oversight of the USPS as it downsizes, but not to unduly inhibit or restrict the 

Postal Service's ability to do so, and do so quickly. 

Mail volume has declined 25% since its peak year in 2006. The associated revenue drop has 

outpaced the USPS' actions to cut costs. 
35 


Insert offset folio 20 here 82401.020

Prior to implementing Network Rationalization, the USPS had the infrastructure and 

capacity to handle and process more than 300 billion pieces of mail. Unfortunately mail 

volume continues to decline and is expected to be only 153 billion pieces in 2013 (of which 

Quad/Graphics accounts for approximately 12 billion pieces of mail). 

The USPS must reconfigure its system (facilities and workforce) to the business it has and 

projects to have over the coming years. 

o The decline is unlikely to be substantially reversed, but further losses may be 

slowed. 

o The USPS is implementing plans to consolidate and close processing facilities and 

reduce post office costs without widespread closings. Implementation of these 

plans ought to be allowed to proceed in accordance with the USPS' best 

professional judgment, without Congressional intervention. 

The USPS must be provided with and use its authority to continue the effort to "right-size" 

its system to current and anticipated future mail volumes. 

Shift to an affordable payment plan for retiree health benefits. Prefunding retiree health benefits is 

admirable but virtually without precedent in the private or public sector, especially on the massive 

scale of $5+ billion per year. The current payment schedule is simply unaffordable and already we 

have seen the USPS default on two payments. Thus, the business community, including 

Quad/Graphics, supports proposals to modify the prefunding schedule for retiree healthcare. 

Ensuring retiree health is not an unfunded liability is financially sound. However, the current $5+ 

billion per year payment schedule, which the USPS has defaulted on twice, is unaffordable. 

Adopting a more affordable amortization schedule, as proposed in the Chairman's and Ranking 

Member's discussion draft, guarantees full pre-funding at much lower annual payments. 

Allow the USPS access to potential pension system overpayments. There appears to be bi-partisan 

support for ensuring that the USPS adequately funds its retirement obligations and the business 

community supports that as well. However, if there is a surplus, the USPS ought to have access to the 

excess funds to be used for debt reduction, necessary capital investments, and efforts to restructure 

and right-size itself. 

Provide the USPS with needed flexibility to manage healthcare costs. While not explicitly addressed in 

current discussion drafts, healthcare costs are a significant issue for every business and making sure 

that employees get the necessary services at an affordable price is paramount to business success. 

Quad/Graphics has a unique, in-house, healthcare model, called QuadMed, which focuses on 

preventive primary care, based on a wellness model that rewards employees for choosing a 

healthy lifestyle. It generates significant savings for the company and the employee while 

improving the quality of care. Due to this unique model, Quad/Graphics has seen a significant 

reduction in healthcare costs. 

It seems beneficial that USPS be able to go out in the marketplace and negotiate for better 

service at a lower cost, which is something it has explored and recommends to Congress. Those 

beneficial options do exist and can save the USPS money. 
36 


Insert offset folio 21 here 82401.021

Retain the Consumer Price Index (CPI) cap on postage rate increases. Congress, in its wisdom, capped 

postage rate increases to the CPI as part of the 2006 Postal Accountability and Enhancement Act 

(PAEA). Doing so has provided an enormous incentive for the USPS to move quickly and prudently to 

improve the cost-efficiency of its services without substantially reducing the quality of its mail 

services. Without such an incentive, the fiscal position of the USPS would be much worse than it 

currently is. 

An increase in postage has a direct and profoundly negative impact on postal volumes, resulting 

in a "death spiral" where additional price increases are necessary to cover the costs, driving 

additional volume out of the mailstream. 

In general, since 2001, postage prices have increased by 50% while other costs relating to being 

in the mailstream have risen at a much slower rate or have even decreased. For example: 

o The cost of paper has increased 9% 

o The costs related to printing have decreased 33% 

Switch to a 5-day deliverv schedule. Given the Postal Service's current financial condition and the 

continuing decline in mail volume, we support the Chairman's proposal to move to 5-day mail/6-day 

package delivery as part of a comprehensive reform to cut costs and excess capacity. It is important 

that the USPS provide adequate notice (at least six months) and continue the transparent process of 

working with mailers to ensure a smooth transition. 

Moving to a 5-day delivery schedule is a cost-cutting measure with which Quad/Graphics and 

other mailers can assist our clients through the transition all while continuing to add value. 

The move to 5-day delivery along with the proposed conversion to curbside and, where 

feasible, clusterbox box delivery, will result in major savings to the USPS annually and, taken as 

a whole package, will be part of the necessary cost reductions that are necessary to ensure the 

USPS is sustainable for the long-term. 

Ensure that arbitrators take into consideration the fiscal position and the marketplace challenges 

facing the USPS. Regardless of the outcome of management-labor disputes, it is the mail users who 

are ultimately impacted by the outcome as a result of price and service changes driven by the 

resolution. 

Explicitly requiring the arbitrator to consider the markets served by the USPS and the fiscal 

challenges the USPS faces ensures that mailers' interests will be represented at the bargaining 

table. 

Reform workers' compensation rules. The rules governing eligibility for workers' compensation need 

to be reformed to ensure that workers whose age would otherwise qualify them for retirementrelated benefits have their future compensation and benefits provided in accord with those 

retirement programs in lieu of continued coverage under workers' compensation. 

The issues laid out above are the items that, at a minimum, ought to be included in any postal 

reform legislation. There are also a few items that have been discussed over the last few years that 

would be extremely harmful to the Postal Service as well as, have direct consequences on 

Quad/Graphics, the mailing industry, and the USPS itself if enacted. In particular, proposals to 
37 


Insert offset folio 22 here 82401.022

substantially increase postage rates - such as those included in the Ranking Member's discussion draft 

- must not be included in reform legislation. 

I would like to take some time to put a finer point on the impacts of postage rates on our 

business and the business of many mailers across the country. There are three main components to 

printing a magazine, catalog, retail insert or direct mail piece: 1) the cost of the physical printing of 

the item; 2) the paper on which the product is printed; and 3) postage. I cannot stress enough how 

damaging postal rate increases are to our industry. There is a direct negative correlation between rate 

increases and volume. Our clients demand predictability and affordability and if prices suddenly 

increase more than expected, they react by reducing their volumes to cover the extra postage or 

move away from print altogether. Of course, this hurts the revenue of the printer, but it also reduces 

the volume going to the Postal Service, further exacerbating its financial challenges. Over the last 25 

years, through technological advances and process changes resulting in productivity gains of more 

than 4% annually, the printing industry has been able to reduce the price for printing (adjusted for 

inflation). The Postal Service should address its problems by achieving the same cost control success. 

Paper prices have fluctuated during that same period based on supply and demand. To ensure 

that we are providing our clients with the lowest possible cost and highest quality product, 

Quad/Graphics has dedicated staff who continually work with paper manufacturers to coordinate with 

transportation companies (be they rail or over-the-road-trucking) to ensure the most cost-effective 

and timely delivery of paper from the mills to our plants. We've also developed and initiated 

standards for managing inventories and waste, all in an effort to be the low-cost provider and deliver 

quality products for our clients. Despite the fact that we are not in control of paper prices, these 

efforts have resulted in the management of paper prices and costs overall for our clients for our 

printed products. 

During that same time period, the price of postage has continued to increase and, as a result, 

the single largest expense of printing is now the postage associated with delivering the final product. 

In order to help control these costs, Quad/Graphics, along with other printers and mail service 

providers, offer co-mail services that combine and then ship numerous, individual clients' mailpieces 

together, relieving the Postal Service of significant sorting, handling and transportation costs. A large 

volume of the product we co-mail is sorted to the individual letter carriers and sequenced exactly in 

the order in which they walk their route. This reduces Postal Service costs and qualifies our company 

and our clients for postage discounts. These "work share" discounts were put in place in cooperation 

with the Postal Service at a tremendous capital expenditure for the printing industry. The equipment 

necessary to provide these co-mail services is expensive. However, the private sector is able to 

provide this service efficiently, saving the Postal Service the added expense of installing this 

technology in its own processing facilities. This not only reduces the Postal Service's costs, but helps 

to control our clients' postage bills, facilitates consistent and predictable delivery and provides our 

clients with a significant return on their marketing dollar. Except for the ability of Quad/Graphics and 

other mail service providers to help clients manage their postal costs through work sharing, mail 

volumes would have been reduced to an even greater extent over the last decade. 
38 


Insert offset folio 23 here 82401.023

Postage rate increases that are above the rate of inflation simply cannot be part of this 

solution (whether they are from straight rate increases or reductions in work-share discounts). The 

rate caps enacted as part of the PAEA have worked well to control postage rates and provide our 

clients with that much needed certainty. These caps must be retained and action taken by Congress 

must lead to a cost-effective Postal Service. As confidence grows that the USPS is a long-term viable 

option, marketers will have the wherewithal to make volume and pricing commitments into the future 

to the benefit of both the USPS and the industry as a whole. 

Quad/Graphics remains bullish on print. We live in a multichannel world where our clients 

have choices. If the Postal Service can manage its costs and maintain an affordable pricing structure, 

its business can remain sustainable and ours, in turn, along with it. We are encouraged with the 

direction we have seen the USPS take over the last two years. We've seen a difference in the way the 

USPS manages the "customer experience" with new products and services being developed. 

Innovation is what drives our business today. For example, we invest in new technologies and ways to 

keep print relevant in our multichannel world. We believe print is the foundation of successful 

multichannel strategies for both marketers and publishes. Our own innovations with mobile 

technology apps related to QR codes, image recognition, and near-field communications keep 

Quad/Graphics on the cutting-edge of our industry and give our clients a competitive advantage. We 

need similarly innovative thinking from the USPS. 

As an example, the Postal Service recently initiated a new strategy for growth through 

incentive promotions tied to value-added products and services and partnering with its customers and 

mail service providers. The principle is simple: value-added = greater response = growth. As we know 

from our experience with our clients, the risk really isn't that great when it comes to using mail to 

drive response. Therefore, we consider this a good example of the Postal Service using its pricing 

flexibility under PAEA to drive the growth of mail, and we fully support those efforts. 

I thank the Chairman, the Ranking Member and the Committee for allowing us the 

opportunity to discuss our company and the importance ofthe Postal Service to the 8 million families 

our industry supports. I look forward to working with you to enact reforms that will put the USPS on a 

path to sustainability. I applaud you for making the Postal Service a priority, and I would be happy to 

answer any questions that you may have. 
39 

Chairman ISSA. Mr. Guffey. 

STATEMENT OF CLIFF GUFFEY 

Mr. GUFFEY. Thank you, Chairman. I want to thank you for 

adopting some of senior member Cummings’ proposals right up 

front, especially the using the postal demographics. I think that’s 

a huge step forward 

The Postal Service was not broken in 2006 when Congress 

passed the PAEA. As a consequence of that legislation, it is nearly 

broke. But it still is not broken. Even today it delivers mail to 

every address in the United States and delivers 6 days per week 

at less than half the cost of mail in other industrialized nations. 

As a matter of fact, I think we looked at England. England’s is 0.6 

of a pound, so it’s a dollar a letter there, and there are no discounts. I think the discounts in this country are appropriate, they 

are well, but taken in a whole with the whole Postal Service, everything is operating properly and there needs to be some adjustments 

to save this grand institution. 

Congress needs to legislate to remove the burden of health benefits prefunding. With that and a few other changes, the Postal 

Service can continue to provide excellent and universal service to 

the American public. Individual mail-processing plants and post offices should not be judged in isolation. They are a necessary part 

of the universal service network. I would like to point out that 

probably over 250 plants have already been rightsized, and we are 

to the point now where the more rightsizing that we get, the more 

that the mail is delayed. 

In other words, if the mail is delayed 2 or 3 days by going to 

other plants and getting to the point where it loses its value to the 

customers and we lose the opportunity to keep the customers that 

we have now if we keep rightsizing. Rightsizing is not wrong, it’s 

not inappropriate as long as it doesn’t damage the product. And the 

product needs to be universal service, overnight or 2 days at maximum. 

Small offices where the mail is going is just as important as 

large offices where the mail begins. Without the network, none of 

the network pieces will work. All the pieces fit together. Cutbacks 

due to financial pressures have caused a severe cut in service. The 

situation will only get worse if postal management is forced or permitted to continue it present course. 

The network consolidation plan the Postal Service announced on 

May 17th, 2012, is really a plan for dismantling and weakening the 

Postal Service. After reviewing that plan, the PRC concluded that 

the net savings from all these cuts in service could be as little as 

$46 million. Although this may sound like a great deal of money, 

it is only about 0.06 of 1 percent of postal revenues. More optimistic cost-savings projections are built on ridiculously high assumed productivity increases. 

I am sure the members of this committee have seen numerous 

press accounts, as I have, that report strong complaints from postal 

customers about delayed mail because of the network consolidations. We received an article today about the fact that Fastenal 

Corporation’s finances have been damaged by delayed mail. Their 

40 

accounts receivable are not receiving the moneys in a proper timeframe. 

Mail is being delayed more than the Postal Service thought it 

would be. When a mail processing facility is closed, mail is sent to 

a distant facility for processing. It is very common for delays to 

occur and for mail not to be transported back to the original processing area for an on-time delivery. 

In many places, postal mangers have tried to address this by requiring mailers to mail before the end of the business day. When 

mailers cannot do that, such changes cut off mail and delay it a 

full additional day. These unintended delays are compounding the 

effects of the Postal Service reduction in delivery standards. Where 

the Postal Service is intended to delay mail 1 or 2 days, the actual 

effect is greater. The Postal Service now plans to deliver Tuesday’s 

mail on Wednesday or Thursday. Often it does not get delivered 

until Friday. Mail intended for delivery later in the week is not 

being delivered until the following week. 

These are unnecessary cuts in service to the public. Congress 

should require the Postal Service to provide overnight delivery of 

first class mail in local delivery areas and prompt delivery of first 

class mail elsewhere. 

Congress also must recognize that solving this problem will require an increase in postage rates. The Postal Service should be 

permitted to raise rates to increase postal revenue as long as the 

increases are consistent with the market for postal services. The 

CPI cap should be repealed. The situation facing the Postal Service 

is dire. It is important for the Congress to refund Postal Service 

overpayments to CSRS and FERS. Postal Service payments to 

CSRS and FERS should be recalculated on the basis of Postal Service employees’ experience. 

Congress should reject proposals to create a new class of business 

mail. Further, the Congress should not require to make some of the 

changes that the Postmaster General is asking, but should allow 

it. The unions and management can work together to create a better Postal Service for all of the employees of the Postal Service. I 

think the unions are willing to do so, it’s necessary, but do not require that which could be allowed to happen. Thank you. 

Chairman ISSA. Thank you. 

[Prepared statement of Mr. Guffey follows:] 

41 


Insert offset folio 24 here 82401.024

THE HOUSE COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

TESTIMONY OF CLIFF GUFFEY, PRESIDENT 

A.MERICAN POSTAL WORKERS UNION, AFL-CIO 

(July 17,2013) 

Mr. Chaim1an and members of the Committee; I am Cliff Guffey, President ofthe 

American Postal Workers Union, AFL-CIO - the APWU. On behalf of the APWU, thank you 

for providing me this opportunity to testify on behalf of our more than 200,000 members. 

Repeal Retiree Health Benefits Pre-Funding Requirement 

The most important postal-related task facing the United States Congress is the urgent 

need to repeal the requirement that employee retirement health benefits be pre-funded. Seldom 

has there been such universal consensus in the postal community on any issue. The pre-funding 

burden is unbearable. It is also wrong and unfair to postal customers. As we have pointed out in 

testimony here and elsewhere, no other enterprise, either public or private, is required to pre-fund 

100 percent of its retiree health benefits liability. Without this burden that was imposed on the 

Postal Service and postal customers beginning in 2006, the Postal Service would today be in 

reasonably sound condition 

Virtually the entire current debt of the Postal Service has been caused by this pre-funding 

requirement. Pre-funding payments have grown to nearly $50 billion. That is more than enough. 

Large companies that have chosen to pre-fund for retiree health benefits typically do not fund to 

a level of more than 30 percent. The pre-funding requirement should be repealed effective 

immediately. 

We appreciate the efforts made to compromise on this issue so that postal reform 
42 


Insert offset folio 25 here 82401.025

legislation can be enacted. While we think reducing the funding requirement to 80 percent does 

not go far enough, that step in combination with re-amortizing the pre-funding obligation over a 

peIiod of 40 years would provide the Postal Service significant financial relief 

There also is virtually universal agreement that Postal SeI-vice overpayments into CSRS 

and FERS should be made available for the use of the Postal Service. It is critically important, in 

addition, that the amount of those overpayments be calculated on the hasis of Postal Service and 

postal employee actuarial data. 

The APWU has made a concerted effort over the past two years to inform the AmeIican 

public that the Postal Service does not receive any government subsidy. It is self-sustaining on 

the basis of income from postal ratepayers. In fairness to postal ratepayers, Postal Service costs, 

including in particular the cost of funding its employees' retirement benefits, should be 

calculated on the basis of an accurate measurement of the real cost of postal employees' benefits. 

This is not only required to be fair to postal ratepayers and the Postal Sen'ice, it is also the most 

appropriate and businesslike approach to an important financial and public policy issue. So, as an 

initial step in preserving the Postal Service for the American people, Postal Service overfunding 

must be returned to the Postal SeI-vice for its use; and that overfunding should be calculated on 

the basis of actual Postal Service costs. Actual Postal Service costs also should be used as the 

basis for calculating future Postal Service contributions to its retirement funds. 

For the same reasons, we oppose restrictions on how the overpayments to be returned to 

the Postal SeI-vice may be used. Postal management has the obligation to manage the Postal 

Service. It should be left to postal management, with the policy guidance of the Board of 

Governors to detennine how to utilize available funds. We strongly oppose any restriction that 

would require that excess retirement funding be deposited in the retiree health benefits fund. 

2 
43 


Insert offset folio 26 here 82401.026

The CPI Cap Should be Repealed 

The issue of repealing the CPl cap on postal rates should be considered by looking at how 

postal rates changed when there was no CPI cap. As Tahle J shows, rates increased overall at 

approximately the same pace as the CPI during the 35 years the postal reorganization act 

permitted rates to be set to cover postal costs instead of strictly limiting them to changes in the 

CPI. By restricting rate increases to cpr changes and confining increases to separate classes of 

mail, the 2006 legislation in effect took a system that was not broken and fixed it in a way that 

has made it too confining and unworkable. 

In Real Terms (Adjusted for Inflation) Postage Costs Were Below 1972 

Levels in 2006 

(1972=100) 

120T-----------------------------. 

115+---~------------------------~ 

110+---~------------------------~ 

105+---~~--------~~~~------~ 

100~~~_+_+~~_r~Pr~~--~~~ 

95~~~~~~--~~~~--~~--~ 

90+-----~~~~~~------------~ 

§+-----------------------------~ 

8O~TT~~~~~~~~~TT~~~~ 

Total postage 

Soun::e: BInau of LaborSlalistics-PnxlPril:e Indexes forUSPS and CPI-W 

When the 2006 law was passed, Congress recognized that there is a relationship between 

service and rates. The Postal Service and the Postal Regulatory Commission were required to 

3 
44 


Insert offset folio 27 here 82401.027

establish service standards to provide service to the American public at fair and reasonable rates. 

That service includes providing universal First Class service to the American public at a unifonn 

rate. Because of changes made due to the lack of funds. it is clear that we are now at a point 

where mail is being delayed and postal facilities are being closed, and the Amelican public is no 

longer receiving the service it deserves from the United States Postal Service. These 

circumstances require that Congress reconsider the statutory CPI cap on postal rates. 

There are sound policy reasons for repealing the CPI cap. It is no longer possible to argue 

that first-class letter mail is a monopoly that requires protection against excessive rates being 

exacted from mailers. Quite the opposite is true. The postal service monopoly on letter mail is 

necessary to protect and preserve the postal network and to continue providing universal service 

to the American public. But there is a lot of competition with the Postal Service, and there is no 

economic reason to deny the Postal Service the right to set rates that are appropriate for the 

amount of demand in the marketplace for postal services. 

Comparison of postal rates in the United States to postal rates in other industrialized 

economies shows that our postal rates are unusually low. Table IT in this testimony shows a 

comparison of rates in this country as compared to other countries on a basis that provides a fair 

economic comparison. 

4 
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Insert offset folio 28 here 82401.028

TABLE II 

Comparative First Class Letter Mail Rates for 

Different Countries 

Country iCost in US$ 

United States Up to 1 oz. (28.3 grams) $0.44 

Canada Up to 30 grams (1.08 ozs.) $0.61 

Australia Up to 250 grams (9 ozs.) $0.62 

Japan Post Up to 25 grams (0.9 OZS.) $0.71 

German Post Up to 20 grams (0.7 Ozs.) $0.78 

France Up to 250 grams (9 Ozs.) $1.07 

Royal Mail (UK) Up to 100 grams (3.5 OZS.) $0.74 

Source: Various Posts, April 4. 2011 exchange rates 

Cost is for sending a letter to a domestic destination that weighs approximately 1 ounce 

The CPT cap is too restrictive, and it has damaged the Postal Service. It should be 

repealed. We recognize, however, that repealing the CPI cap may not be possible. If repeal is not 

possible, we think it is important to take steps suggested in a draft of postal legislation recently 

published for comment. The CPI should, at least, be applied across all postal products and not 

limited to individual postal services separately. A study by the Office of Inspector GeneraJ shows 

that the limitation of CPI increases to each class has had a significant detrimental effect on postal 

ratemaking. 

In addition, we support the proposal to permit the Postal Service tore-set rates in 2014 at 

a level necessary to cover all postal costs. In our view, even that step will not he enough, and the 

5 
46 


Insert offset folio 29 here 82401.029

CPI cap will prove to be too restrictive. But a recalibration of rates would be a healthy step in the 

light direction. The need for this adjustment shows that the exigent rate increase provision in 

CUiTent law is too tight. The Postal Service proposed an exigent rate increase that was denied by 

the Commission. Even though that Commission's decision was vacated by the Court of Appeals 

and the case remanded to the Commission, it is clear that the difficulty of obtaining an exigent 

rate incrcase is too great. 

We oppose proposals to create a new class of business mail for many of the same 

reasons. There is virtually unanimous agreement among economists that Efficient Component 

Pricing (ECP) is the most efficient way of determining how to set prices for mail that is 

workshared. This means that, as required by current law, workshare discounts may not exceed 

costs avoided due to the worksharing activity. Proposals to create a new business class of mail 

which would receive First-Class service but which would not be compared to individual FirstClass mail for purposes ofratemaking would violate this principle. It also would be unfuir to 

individuals and small businesses that are not in a position to take advantage of works hare 

discoUilts. First Class mail must be preserved for all Americans, not just fur large business 

mailers. The Postal Service should be permitted to set rates that reflect current economic realities 

in the postal marketplace. Establishing a business mail rate would be a step in the wrong 

direction. 

6 
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Insert offset folio 30 here 82401.030

Maintain Senice Standards and Presene the Mail Processing Network 

Congress also must give immediate attention to the need to preserve the Postal Service 

mail processing network. Failure to do so will lead to a significant degradation of service and 

ultimately to the demise of the Postal Service itself. Network consolidation was the subject of 

lengthy hearings and a comprehensive report by the Postal Regulatory Commission. (Advisory 

Opinion on Mail Processing Network Rationalization Service Changes; N2012-1.) On May 17, 

2012, the Postal Service announced a modified plan for network consolidation that would have 

preserved approximately 80 percent of previous overnight service until January 31, 2014. Under 

that plan, intra-SCF mail would, in theory. have continued to receive overnight service until 

February 31,2014. That network consolidation plan was followed by aJuly 1, 2012, 

announcement in the Federal Register of interim service standards that provided for the 

elimination of overnight service for inter-SCF First-Class Mail. 77 FR 31190 (May 25, 2012). 

The Postal Service plan called for closing or consolidating 229 plants in two phases. 

Phase I would include the closing of approximately 140 plants to be completed by February 

2013. Phase 2 was to require the closing of approximately 90 more plants beginning in February 

2014. 

This Postal Service plan was never a good one. Evidence presented to the Postal 

Regulatory Commission showed that potential cost savings would be offset by very substantial 

loss of postal revenue that would result from the lowering of service standards. The Commission 

concluded that the net savings from these substantial cuts in service could be as little as $46 

million annually. M., at 2. 

It is important to recognize, as did the Postal Regulatory Commission, that the most 

negative impacts 'On service and on revenue that would result from the network closing and 

7 
48 


Insert offset folio 31 here 82401.031

consolidation plan would happen because of the phase 2 closings and consolidations that were 

scheduled for 2014. Notwithstanding that fact, and the Commission's strong cautionary language 

that the Postal Service should reconsider its plan for phase 2, the Board of Govemors has 

instructed postal management to proceed to implement 57 of the planned 90 closures for 2014. 

This action by the Board of Govemors is irresponsible and unjustifiable. The Board can speak 

for itself about why it chose to take this action, but it seems very clear on the public record that it 

flowed from a sense of desperation on the part of the Board because it could find no other way to 

reduce costs or avoid the impact of the retiree health benefits pre-funding requirement in the 

near-term. 

The APWU has received reports from our locals around the country that strongly suggest 

that the consequence of this mistaken policy of excessive facility closures is that the Postal 

Service is now violating its own service standard regulations. There also have been nUll1erous 

reports in the press about mail being delayed. Unquestionably, network consolidation is having a 

very negative effect on postal customers. It is delaying mail not just one day but as much as two 

or three days. 

An example will serve to illustrate the effects of network consolidation. Prior to 

consolidation, mail is first processed in the Sectional Center Facility (SCF) near where it 

originates, call it SCF-A. This means that mail picked up from mail drop boxes all over the area, 

is transported from stations, branches and Area Offices (ADs) in the area around SCF-A for 

processing. This occurs in the late aftemoon and early evening. Typically, collection times from 

the ADs, stations and branches are around 5 p.m. that is, around the normal close of business . 

That collection time permits carriers, who left early that moming to deliver their routes, to return 

to their AD, Station or branch with mail they have collected from postal customers and from 

8 
49 


Insert offset folio 32 here 82401.032

collection boxes on their routes. It also pemlits individuals and small businesses to prepare mail 

during the day and mail it at the end of the day. Mail collected at the end of the day in these ways 

is then processed at SCF-A that evening and throughout the night, if necessary. 

Mail that is addressed to a person in the area serviced by SCF-A is thcn dispatched early 

the next moming to all the AOs, stations and branches served by the SCF-A mail processing 

facility. This permits ovemight delivery ofmai! that originates and destinates in the same SCF. 

When that facility, SCF-A, is closed, the mail must be transported from stations, branches 

and AOs in the vicinity of the closed SCF-A to a more-distance SCF-B. Several things then 

happen that prevent overnight delivery of the mail. One is that mail that is transported longer 

distances may not arrive in time for overnight processing and redistribution. In an effort to solve 

this problem, the Postal Service typically requires that mail be collected at an earlier time in the 

area of the closed SCF-A so that it can be transported to the more distant SCF-B for processing. 

This means that the mail of businesses and individual mailers who deposit their mail after the 

earlier collection time, and all mail picked up by letter carriers that day, will not be counted and 

mail received on that day for the purpose of determining delivery standards. All that mail is 

being delayed because it must wait for processing until the next day. It is being delayed an entire 

day but that delay does 110t show up in Postal Service on-time statistics. 

In the case oflarge mailing businesses with their own separate mail pickup arrangements, 

or which deposit their own mail at SCF-A, the effect of this sort of change is to require that they 

prepare their mailing for pickup earlier ill the day or transport it longer distances for mailing. 

These requirements are imposed by the Postal Service by changing its business practices. In this 

case, it changes the critical entry time (CET) after which mail cannot receive the service it would 

have received Typically when the Postal Service changes a pickup time, a box closure time, or a 

9 
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Insert offset folio 33 here 82401.033

Critical Entry Time, the Postal Sen'ice does not acknowledge that it is not meeting its service 

standards. Therefore, while the customer experiences a substantial cut in service, the Postal 

Service does not acknowledge that fact and reports that it is still meeting its service standards. 

The other thing that happens when SCF's are closed is that mail sent to a distant SCF for 

processing, although it may be processed overnight if it can be transported to the SCF in time for 

that to occur, may not be transported back to the original SCF or to the AOs, stations and 

branches surrounding the original SCF in time to be sent out with the letter carriers for delivery 

the next day. Mail that arrives too late either delays thc carrier in leaving to deliver a route or it is 

left in the carrier station for delivery the following day. At times, this results in idle time while 

the carrier waits for mail or overtime due to carriers having to work an extended day. And it is 

unsafe for carriers and annoying to the public to have carriers delivering mail after dark. 

The unintended delays due to closings and consolidations compound the effects of the 

Postal Service's formal change of delivery standards. Where the Postal Service may intend that 

overnight mail delivery continue, or that it be changed from one-day service to two-day service, 

the actual effect is greater for the reasons I have explained. Substantial amounts of mail are being 

delayed two or even three days. This means that mail that should have been delivered on 

Wednesday may not be delivered until Friday. Mail intended for delivery late in the week is not 

being delivered until the following week. 

In the case of time-sensitive mailings this means that mailers must plan and complete 

their mailing preparations days in advance. These problems no doubt explain why research on 

the effects of network consolidation and service standards changes has shown that the Postal 

Service will lose a substantial amount of business by delaying the processing of mail. 

The unwarranted closing of mail processing facilities threatens to further weaken the 

10 
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Insert offset folio 34 here 82401.034

Postal Service's competitive position in the critical parcel market. Studies have shown that the 

parcel mailing industry is one that is strong and growing, and that will continue to grow. The 

Postal Service is well-positioned to provide competitive low-cost services to the American public 

in this area. It would bc very counterproductive to permit the Postal Service to so deplete its 

network that its ability to provide these services cannot be maintained. 

The dismantling oflhe essential Postal Service mail processing network is tragic and 

unnecessary. The evidence is very clear that cost savings and efficiencies can be obtained, and 

many have been obtained, through less drastic closing and consolidation actions that preserve 

essential services. 

It also is important to recognize the impact these unnecessary facility closings have on 

our communities and on postal workers. Where mail processing plants are closed, communities 

suffer economic hardship, and postal employee's Jives are disrupted. Postal workers are 

extremely dedicated and have continued to perfonn at the highest levels to provide postal 

services. It is wrong for the Postal Service to demand sacrifices from its workers where, as in the 

case of these excessive facility closures and consolidations, these actions cannot be justified by 

net financial benefit to the Postal Service. 

We support proposed legislation that would require that service standards be maintained 

at the level established beginning in February 2012 and that would prohibit the closing of mail 

processing facilities where those Delivery standards could not be met. In addition, legislation 

should strengthen the procedures the Postal Service must follow before closing a mail processing 

facility and the postal regUlatory commission should be given the authority to delay, stop, or 

reverse facility closing decisions. 

11 
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Insert offset folio 35 here 82401.035

Preserve and Strengthen Retail Senices and Rural Services 

As in the case of its mail processing network, the Postal Service is taking actions that are 

hamlful to communities by closing or consolidating post offices. These actions cannot be 

justified by the relatively small cost savings to be gotten from them. Again, the Board of 

Governors seems to have been stampeded into taking actions that it knows, or should know, will 

be counterproductive in the long run. 

We support legislation that would impose a temporary moratorium on the closure of post 

offices and require Postal Service to establish retail service standards. The Postal Service should 

be required to conduct a detailed review and provide full disclosure of its findings at least 90 

days in advance of a post office closing. The public should be given a full and adequate 

opportunity to oppose the closure, and the Postal Regulatory Commission should be given the 

authority to provide a thorough de novo review of a post office closing decision and to suspend 

or reverse that decision. 

Legislation that would require reliance on Contract Postal Units (CPUs) would be 

inefficient and counterproductive. Too often today there are CPUs that are unnecessary because 

they duplicate postal services available from nearby post offices. This expensive duplication of 

postal retail outlets is inefficient; and such duplication should be eliminated. This is not to say 

that the APWU opposes the provision of postal services in alternative ways. We are available to 

work with the Postal Service in finding creative ways to extend the official Postal Service 

presence into non-traditional outlets. 

Non-Postal Services Must Be Authorized 

The need for authorization of non-postal services to be provided by the Postal Service is 

also extremely urgent. The subject is closely related to the subject of the Postal Service retail 

12 
53 


Insert offset folio 36 here 82401.036

network. By offering non--postal services through its retail facilities. the Postal Service can 

strengthen its network. maintain more facilities. and provide important public services - both 

postal services and non-postal services. Authorized non-Postal Service and should include: 

• Micro-banking 

• Check cashing 

• New technology and media services 

• Warehousing and logistics 

• Facility leasing, and 

• Public internet access services 

• Driver licensing 

• Vehicle registration 

• Hunting and fishing licenses 

• Notary services, and 

• Voter registration 

Wherever necessary, the Postal Service must be authorized to enter into cooperative 

ammgements with other federal agencies, state and local governments, and private enterprises. 

A full discussion of these services, how they should be provided, and their importance to the 

communities served by the Postal Service is beyond the scope of this testimony. However, the 

APWU will be more than happy to provide information and assistance to the committee and its 

staff to facilitate legislation to authorize these services. 

Oppose Interference with Collective Bargaining 

The APWU strongly opposes legislation that would interfere with collective bargaining 

rights. We know that Chairman Issa and other legislators oppose collective bargaining provisions 

that protect against layoffs and propose to legislate restrictions on collective bargaining rights for 

no-layoff protection. We have several responses to such proposals. The first is that there is no 

justification for restricting collective-bargaining in this manner. The Postal Service has 

drastically reduced its workforce without laying off its workers. There is no need for layoffs. 

This might not be true, of course, if some of the more aggressive privatizing legislative proposals 

13 
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Insert offset folio 37 here 82401.037

some have suggested were to be enacted. Of course, if the United States Postal Service is to be 

handed over to private enterprise, there will be far Jess need for postal employees. 

No layoff provisions in collective-bargaining agreements have been negotiated for many 

years and are part and parcel of the agreement between postal unions and the Postal Service. It 

would be fundamentally unfair to take away protection for which postal employees have 

bargained over the years. 

In this connection, I want to remind the committee that the 20 1 0 APWU National 

Agreement is one that will save the Postal Service billions of dollars. Postmaster General 

Donohoe testified before this committee in 2011 that implementation oflhe APWU 2010 

national agreement could save the Postal Service more than $3.5 billion. To accept the flexibility 

and monetary savings that agreement provided the Postal Service and to deny APWUrepresented employees the job security they bargained for would be a violation of our contract 

rights and would be grossly unfair. 

We also oppose any change in the standard of comparable pay and benefits that must be 

paid to postal employees. Proposals that would require that postal employees' compensation be 

compared to the compensation of all employees in our economy are unsound as a matter of 

economics. Postal employees are highly trained and highly responsible workers who protect the 

sanctity and safety of mail. Most employees work with mechanized or automated equipment and 

are very productive. In fact, postal productivity in the United States is the best in the world. 

We also oppose proposals to require that last best final offer (LBFO) arbitration be used 

invariably to resolve deadlocks in postal bargaining. It is not that we invariably oppose LBFO 

interest arbitration, but it would be a mistake to take away from the parties their flexibility to use 

14 
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Insert offset folio 38 here 82401.038

other possible means of resolving disputes. Our expelience has shown that no one method should 

be uscd to the exclusion of all others. 

Oppose New Governance Structure or Temporar\! Board or Commission 

Notwithstanding the fact that the APWU has been critical of the Board of Governors, we 

oppose proposals to replace the Board of Governors with a ternporary or permanent board of a 

different sort. The Postal Reorganization Act of 1970 was based upon careful consideration of 

the need to de-politicize the Postal Service. History has shown the wisdom of that decision. Even 

though the Board of Governors has often been lacking, it has at least been partially insulated 

against political pressures. Proposals to appoint a short-ternl body to engage in a quick review 

and supposedly corrective change in postal management would inevitably subject the Postal 

Service to political pressures. Those who wish to privatize the Postal Service would seize upon 

such an opportunity to atten1pt to make wholesale changes that this Congress would never 

approve. 

We suggest that it is instructive to look at what happened when President Bush appointed 

a commission to examine the Postal Service. That commission found that even -months of 

intensive study was insufficient for outsiders to comprehend the postal industry and to make 

useful recommendations. In effect, those appointed to the commission issued a report reflecting 

the views and positions they brought to that task. 

Oppose Expedited Consideration of Service Standard Cbanges 

We oppose legislation that would require expedited consideration of service cl1anges for 

several reasons. First, our experience with postal regulatory commission consideration of service 

cl1anges has convinced us that no important service standard change can receive the 

consideration it needs in 90 days. Setting a standard of90 days for consideration of serviced 

15 
56 


Insert offset folio 39 here 82401.039

standard changes would, therefore, be unrealistic. The Postal Regulatory Commission is in the 

process of changing its procedural regulations concerning service standard cases. It appears that 

the Commission is headed in the direction of setting an unrealistically short standard for such 

proceedings. We hope that they will be persuaded to leave considerable flexibility to extend such 

proceedings if, as we believe will be the case. it is necessary to take a longer period to give 

important service standard changes sufficient consideration. In any event, legislation in this area 

would be unnecessary and unwise. 

16 
57 

Chairman ISSA. I’m going to try and squeeze in a first round of 

questions, try to minimize the time you have to wait. 

Mr. Quadracci, you listened to the head of the second-largest 

union say that a rate increase fixes the problem. What does a rate 

increase do to the customers that you serve, which represent in flat 

mail probably more than any other single group? 

Mr. QUADRACCI. Well, I think it would be devastating. I mean, 

selfishly I should want it because I’d have fewer competitors at the 

end of the day, but I don’t think that’s what we want to do here. 

We saw in 2007, when our customer base had a significant increase, we saw a direct correlation to the drop in count. Remember, 

for people like catalogers, people who are using the mail to sell 

product, there is two lists. There is the customer list, people they 

already have captive, but then there is the prospecting list where 

they’re trying to get more customers, and the problem is, there’s a 

response rate. If the response rate isn’t great enough to offset the 

cost, they drop that and they find other ways to prospect. So we 

will see a devastating reduction in volume from our customer base 

if that were to happen. 

Chairman ISSA. Thank you. 

Mr. Donahoe, you have exigent authority to raise rates, so in a 

sense you could do what Mr. Guffey is asking. You have to balance 

those. What do you think would happen if, without reducing most 

of the loss through other means, if you simply sort of wrote a rate 

increase of 20 percent roughly across the board, roughly, what 

would be needed to balance the books, right? 

Mr. DONAHOE. If I wrote a rate increase of 20 percent, Mr. 

Quadracci would faint. 

Chairman ISSA. But you’d lose how much business? Let’s say $4 

billion, what would you be—— 

Mr. DONAHOE. It would be more than 20 percent. More than 20 

percent. In our plan—— 

Chairman ISSA. And what would that do to the efficiency of the 

system if that much volume dropped off? 

Mr. DONAHOE. We already have a substantial amount of overcapacity. Our plan calls for no rate increases over the CPI. It’s predictable, customers can plan on that. They’re planning budgets 

right now for what they’re going to mail next year. That’s why we 

are so careful and that’s why we are pressing hard for the legislation now. Let’s get this done. These guys can plan on what they’re 

going to put in the system. We’re getting some growth back. We 

don’t want to hurt that growth 

Chairman ISSA. Now, if we did do this increase and we lost 20 

percent volume, in a sense, we would have 20 percent of the letter 

carriers idled. In other words, there would be, even though it’s not 

allowed under the current collective bargaining, 20 percent of letter 

carriers would have nothing to do if 20 percent of the volume went 

away. Wouldn’t that be true? 

Mr. DONAHOE. If we lost 20 percent of the volume, it would be 

devastating to our finances. 

Chairman ISSA. I just want to understand from a labor standpoint. If we want to maintain the maximum number of efficient, effective postal workers in the processing centers, in the retail operations, and carrying the mail to every point in the Nation, the maxVerDate Aug 31 2005 09:22 Sep 04, 2013 Jkt 000000 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 C:\DOCS\82401.TXT APRIL
58 

imum number of people being used efficiently is based on the maximum volume. Isn’t that true? 

Mr. DONAHOE. That’s true 

Chairman ISSA. So volume drives the question of employment, 

assuming people are efficient and effective, right? 

Mr. DONAHOE. That’s correct. 

Chairman ISSA. Mr. Guffey, one of my questions, one of Mr. 

Cummings’ ultimate questions, too, is don’t we need to get the 

maximum level of efficiency, use attrition and other means to help 

reduce the workforce to match the current volume and keep the 

price low or as low as possible to maintain the maximum volume 

and thus the maximum employees for your union and all the other 

trade unions? 

Mr. GUFFEY. Of course, and that’s what’s been going on for the 

last 10 years, the reduction and the productivity increasing and 

consolidating the plants. 

Chairman ISSA. Okay. So when you sort of sneered a little bit, 

just a little, about these money savings, if I understand correctly, 

what you’re really saying is you’d like to have an active role in 

whether something pencils out or not, but you’re not objecting to 

the Postmaster finding ways to deliver the same amount of mail 

with lower total labor, lower total costs, and maintaining that volume. 

Mr. GUFFEY. Well, it might be done with lower labor and additional lower costs, and we have done a lot of that in our last contract. We saved the Postal Service $3.8 million. When I talk about 

raising the rates, I’m not talking about a 20 percent raise. I think 

I would faint just as much as—— 

Chairman ISSA. I just want to look at $16 billion of loss, or even 

if you did all the maneuvering you could do under current law, it 

would still be, you know, on $64 billion in revenue, you’re losing 

more than $12, sans these readjustments of retirement. To me 

that’s 20 percent. You got to get it from somewhere, and if you 

don’t get it from the American Lung Association’s mailer, you’ve 

got to get it from somebody else’s mailer to get more. 

Mr. GUFFEY. There are reductions that we’re talking about here 

in refinancing the long-term health insurance for the retiree. 

Chairman ISSA. Right—— 

Mr. GUFFEY. We are talking about many things. 

Chairman ISSA. Right. And all of that’s on the table. Absolutely, 

all of it’s on the table 

Mr. GUFFEY. So that would not throw all of the cost savings into 

a rate increase. 

Chairman ISSA. Okay. I just want to understand that—and the 

point that I was making, and hopefully all three of you are going 

to agree, is the least desirable part of any reform is the rate increase that inherently drives down volume. Is that agreed across 

the board? That that’s the last thing you really want. If you can 

find savings without, including healthcare cost savings, if you can 

find savings without reducing those things which drive people to 

use your service, that’s the best solution, right? 

Mr. GUFFEY. Correct, but that would also include the fact not 

slowing the mail down because that will also drive them away. 

59 

Chairman ISSA. This committee is very concerned about quality 

of service, quality of service, and we want to define it and we want 

to make sure our final legislation provides the guidance that is 

going to assure quality of service. 

Now, understand, I flew to Alaska, and I understand that their 

needs are for a certain type of delivery. They are less concerned 

about speed, while others are more concerned about time perhaps 

than whether they can get a can of Coke delivered—or case of— 

actually a pallet of Coca-Cola delivered. 

Mr. Ranking Member, I think it would be fairer if we pick you 

up when we come back. I want to thank you all, and we’ll stand 

in recess until after that last vote. 

[Recess.] 

Chairman ISSA. Okay. While we wait for others to get back, I’m 

going to use the fact that I sprint better than some of the other 

old guys. 

Two quick things. Mr. Donahoe, when you talked about the sav- ings of about $8 billion in your opening statement, I was intrigued 

because you and I have had this discussion before, and I’ve been 

very willing to give you that jurisdiction if we can, although we are 

working on a government-wide attempt to save quite a bit in 

healthcare cost. 

The question I have is, if we were—and again, Mr. Guffey will 

be back in a minute, I’m sure—but if we were to give you that authority, allow you do it, and essentially give you back, quote, your 

prefunding, would the Federal Government be off the hook? And if 

so, how would we eliminate the contingent liability if, let’s say, 20 

years from now there wasn’t enough money and ultimately people, 

retired postal workers, looked to the Federal Government as the 

bailout? You might remember the railroad retirement. 

Mr. DONAHOE. Mr. Chairman, we’ve put together a proposal on 

the healthcare. What we proposed was that we would take our plan 

over Postal Service wide. The key to success with that plan, we’ll 

also be able to cover the retirees. 

Now, we have had discussions with the unions. There has been 

some suggestions from Mr. Rolando, as you remember at the last 

hearing—— 

Chairman ISSA. Yes. 

Mr. Donahoe. —that we try to organize that under FEHB because there was been a concern from the employees of not moving 

away from FEHB. From our perspective, we’re okay to wait, as 

long as we get the savings. The savings are what’s key to us. If I 

could put a chart up here. 

Chairman ISSA. Sure, if they have it. 

[Slide] 

Mr. DONAHOE. Yes. If I could explain, this chart is the key to the 

$8 billion savings. If you look on the far left, you’ll see a $10,700 

column. What that is, that represents the average healthcare cost 

for a 65-year and older postal retiree on average. The Postal Service retiree pays that. We pay 70 percent. They pay 30 percent. 

Chairman ISSA. Right. 

Mr. DONAHOE. So, if you take a look at the concurrent bar on the 

right, the largest bar, that represents where we are from a 

prefunding perspective right now. We’ve got about $49 billion in 

60 

the bank, with another $46.9 billion on the hook. It’s $96 billion 

prefunding. 

Now, we are required to make these payments because this is 

the most affordable plan that you can get existing in the system 

right now, the FEHB system. The next chart, the next column over, 

you can see it says, ‘‘With Medicare A and B’’ in the blue. The second one to the left. 

[Slide] 

Chairman ISSA. I’m going to cut you short in one sense. It is at 

least under consideration to move the entire Federal healthcare 

benefit to one that would put Medicare in first position as you were 

talking about doing. 

Mr. DONAHOE. That’s excellent 

Chairman ISSA. So if we do that with the entire Federal workforce, including postal workers, if I understand correctly, that will 

take a substantial portion of the $8 billion you hope to save in addition to the amount would be saved within the Federal system. 

Mr. DONAHOE. If you require A, B, and D. We pay for everything 

now. The mailers pay for it. It’s postage money. What’s happens is, 

the farthest right-hand column, you can see we in fact would have 

a small surplus. We would have completely prefunded everything 

we needed. 

Chairman ISSA. Okay. We’ll follow up more on that. I wanted to 

make sure I understood it because our committee, of course, controls the entire Federal workforce’s benefits, and we are looking 

specifically at—and if the ranking member were here, I know he 

would chime in positively—we are looking at making sure that 

Federal employees do not pay, and the Federal Government on behalf of Federal employees do not pay more or less than Lockheed 

Martin, IBM, or any other private sector company. 

Currently, as you’ve said to us, and we fact checked it, the Federal Government is more generous to the savings, not of the Federal worker necessarily, but of Medicare, which means we’re not 

properly saving. And of course, as you know, since the mid-1980s, 

your postal workers and all Federal workers have paid into—— 

Mr. DONAHOE. Yes. 

Chairman ISSA. —the system so, they’re fully vested. 

Mr. Davis, are you ready to go? 

Mr. DAVIS. Yes, sir. 

Chairman ISSA. Then it is my distinct pleasure to recognize the 

ranking member in presence, Mr. Davis. 

Mr. DAVIS. Thank you very much, Mr. Chairman. And let me 

thank you and the ranking member for moving us to the point 

where we have actually got legislative initiatives to take a good 

hard look at. I want to thank all of the gentlemen for being here 

and testifying. 

We talk a great deal about the quality of service that is provided, 

and we’ve talked a great deal about universal service. Let me ask 

you, Mr. Donahoe, could universal service be maintained when the 

service standard requirements are degraded through unilateral 

and/or arbitrary reductions in the workforce or by realignment of 

the network, that is the mail network? And, you know, there is the 

claim that we lose $25 million a day. Is that an assessment that 

we are pretty comfortable with? 

61 

Mr. DONAHOE. Thank you, Congressman. Let me first off on the 

service standards. We measure everything. We measure first class 

mail, commercial first class standard mail and periodicals. Our people are doing a tremendous job. And right now everything we 

measure is showing us at all-time service levels. And that’s from 

taking the mail all the way through delivery. And so with all the 

consolidations we’ve been doing, the people have been doing a very 

good job with that. 

One of the things that we’re weighing for next year, we are looking at the system right now to figure if there is a way that we can 

maintain current service standards and continue to make the consolidations to absorb in the excess capacity that we have. That’s a 

balancing point. No final decision has been made on that right now. 

But we think that as we have run through the first sets of consolidations, we find the service levels have held very high and we do 

check this with our customers, both those who send mail through 

the blue mailboxes, as well as the commercial mailers. 

As far as the $25 million a day, that’s a number that we have 

used based on the fact that we have not only had operating losses 

within the system, but we’ve had the loss that’s been associated 

with the prefunding. I think if you check today, this year, we are 

going to finish our finances approximately, this is approximately, 

about a billion dollars better than we said in the beginning of the 

year because we’ve had revenue increases, especially in the package business, we have been able to absorb those in. We have also 

been able to work and take advantage of negotiated contracts with 

Mr. Guffey and our other union leaders and be able to reduce the 

rate of pay with the employees. So that’s helped. So it’s a little less 

than the $25 million a day right now. Thank you. 

Mr. DAVIS. Thank you. Let me ask you a little bit about the 5- 

day delivery discussions that we’ve been having. Have you asked 

the PRC for an updated advisory opinion on the savings from moving to a 5-day modified delivery? 

Mr. DONAHOE. The last time we had an official discussion with 

them was last year when they came out with the savings statement 

of $1.7 billion. We think it’s a little bit higher. There have been 

some other adjustments we’ve made, as you know, because we’ve 

said we would deliver packages, especially medications, on Saturday, too. 

Mr. DAVIS. Are we currently losing money on Saturday delivery? 

Mr. DONAHOE. Well, when you take a look at universal service, 

you could look at pretty much by address. Some places you are always going to make money Monday through Saturday, and other 

places, just by as hard as it is to get to the places, you’re going to 

lose. 

So from a fairness perspective, that’s why we’ve made the pitch 

around Saturday because it’s the lightest day of the year—or lightest day of the week. It’s a day of the week where you have fewer 

business open. So we’ve always tried to figure out in order to maintain universal service to, you know, hard-to-reach places across the 

country, we would just go with Saturday as the standard for everybody. 

Mr. DAVIS. Well, let me just quickly, Mr. Guffey, given the continuous decline of mail volume, do you think that eliminating the 

62 

postal monopoly on access to the mailbox would create a serious 

disadvantage for the Postal Service? 

Mr. GUFFEY. I think it would create a serious disadvantage for 

the American public. Keeping the monopoly on the mailbox is what 

keeps the Postal Inspection Service able to follow through and investigate problems with lost mail and what have you. If other people have routine access to postal mailboxes, I think that would deteriorate. 

The Postal Service, to have its universal service, needs that 

right, and if it doesn’t have that right, then universal service will 

deteriorate very fast in this country. 

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

And thank you, Mr. Chairman. And I yield back 

Chairman ISSA. I thank the gentleman. 

We now go to the gentleman from Texas, the subcommittee 

chairman, Mr. Farenthold. 

Mr. FARENTHOLD. Thank you very much. I appreciate you all 

being here. 

I’ll start with Mr. Quadracci. Did I get that right. 

Mr. QUADRACCI. Quadracci 

Mr. FARENTHOLD. Quadracci. 

Chairman ISSA. Quadracci. Couldn’t you get it right on the 15th 

time the way I finally did? 

Mr. QUADRACCI. Here, everybody together, Quadracci. 

Chairman ISSA. Quadracci. 

Mr. FARENTHOLD. Quadracci. All right. 

There was some testimony earlier on—and I’m sorry, I forget 

who made it—that as a result of some of the consolidations—and 

maybe it was just part of a question—there have been substantial 

delays in getting product delivered. Have you noticed that within 

your experience and for your customers? 

Mr. QUADRACCI. I would say in our experience over the last 2 

years, the performance has been better than it’s ever been. A couple of years ago, the post office put in a system to really help monitor performance throughout the network. 

Now, I want to be clear I’m speaking about catalog, magazine, 

and direct mail. We have not seen those disruptions as they’ve realigned things. And we have better visibility to when there are disruptions, we can contact them very quickly and resolve the issues. 

So it’s actually been quite good. 

Mr. FARENTHOLD. Thank you. 

And, Mr. Donahoe, we’re talking a lot about giving the Postal 

Service the flexibility to do what they need to do to be competitive 

in the 21st century. The bill, the draft legislation you’ve seen, did 

we go far enough? Did we give you what you need to do that? 

Mr. DONAHOE. I think that, as I’ve stated before, it’s our intention to continue to press for comprehensive legislation. We think 

that what the bills do in terms of the reamortization helps, it gives 

us some breathing space, but as the chairman said, you would be 

looking at overall healthcare of the Federal system. I would strongly encourage that. I would strongly encourage a good deal of competition in those systems and bring the prices out, because we 

know we’re paying way too much now. 

63 

So from that perspective we think it’s good. We like the fact that 

there’s this 6- to 5-day considerations in there, and we would also 

like to encourage the continuation on flexibility with governance in 

pricing. 

Mr. FARENTHOLD. All right. And just so we get it in the record, 

and I know we’ve talked about this in subcommittee hearings, I do 

want to make sure it’s clearly in the record, can you explain to us 

why mail volume is going down and whether or not you see any 

way of turning that around? 

Mr. DONAHOE. Let’s break it down into three categories—first 

class, commercial standard, and packages. Packages are growing. 

We are seeing double digit growth. It’s been great, mainly tied 

in—— 

Mr. FARENTHOLD. Even with competition from private carriers? 

Mr. DONAHOE. Yes. And we compete with FedEx and UPS. We 

also work with FedEx and UPS, as well as Newgistics, DHL. We 

provide a lot of last-mile delivery for them, so it’s been growing in 

leaps and bounds very good. 

From a standard mail, advertising mail, Mr. Quadracci can tell 

you it’s stabilizing. There’s a lot more technology being applied in 

that area. So it gives the customers the ability to match up digital 

and physical, use it for advertising. We think that there is a nice 

growth opportunity. 

Where we’re seeing dropoffs is first class. Single piece mail, we’ve 

lost 60 percent of it in the last 10 years. People pay bills online. 

It’s cost us about $14 billion in today’s 46-cent stamp, if we had 

that. The other area that we’re worried about, it’s been fairly stable, but that’s commercial first class, bills and statements. We’ve 

done a lot of work to try to keep people in that mail. 

Mr. FARENTHOLD. And with respect to some of the proposals. A 

chief innovation officer, you think that’s probably a good idea, too? 

Mr. DONAHOE. I think that’s a great idea. We pride ourselves on 

a lot of the innovations we’ve been doing now. I think that we work 

very well, listen to our customers. Our people, from a craft perspective, come up with a lot of good suggestions, too. I think it’s a great 

idea. 

Mr. FARENTHOLD. And we talk about the drop in volume of first 

class mail. Do you think it would be a more substantial or quicker 

drop in that if the standards of the service dropped where, for instance, if I dropped—you know, put a piece of mail in the mailbox 

at my house, put the little red flag up, now it gets to wherever it’s 

going within Corpus Christi the next day. If that went to 2 or 3 

days within the city, do you think that would accelerate that drop 

substantially? 

Mr. DONAHOE. It certainly would if it was 3 days, and we’re looking at that now to try to figure how, as we continue to shrink the 

network down, we can try to maintain some level of overnight service. But, you know, we’ve got to see where we’re at in that. 

Mr. FARENTHOLD. All right. 

And I want to ask Mr. Guffey, do you see some areas for cost 

savings in innovation, specifically, that we need to address above 

and beyond the obvious issues of prefunding and the stuff we normally talk about? Do you see some efficiencies we can find and 

some ways we can go that you and your folks could get behind? 

64 

Mr. GUFFEY. I think that—— 

Mr. FARENTHOLD. Microphone, please, sir. 

Mr. GUFFEY. I think there are some opportunities at this time to 

work with the Postal Service on some of the healthcare issues. It’s 

something that—we recognize the problem, and the whole country 

has the problem. 

We think there is opportunities to sit down with the Postal Service and do something about the cost to the Postal Service for the 

retirees. In other words, it’s not fair for the Postal Service to pay 

a full boat, the full cost of a health insurance plan for a person 

who’s going to get most of his services from Medicare. 

Now, that is a tremendous cost to the Postal Service, we recognize that, but because they pay that much money for the retiree, 

that money goes into the healthcare system for the current employee. So, you know, in this dynamics, there’s going to be some 

shift of cost to the Medicare and there’s going to be a lot of shift 

to the current employees. 

Meeting that fine balance is something that we think we can do. 

I think all the unions can get together and work that out with the 

Postal Service. It’s something we don’t want to be required to do 

but allowed to do. 

Mr. FARENTHOLD. Well, I see my time has expired. I appreciate 

you all’s coming before the committee and testifying today. Thank 

you. 

Chairman ISSA. I thank the gentleman. 

And, Mr. Donahoe, when I was explaining what we were doing 

with the health care, we were also doing the one-, two-family that 

you had proposed. So that was one of your other savings. Both of 

those would be included, which I think is another—— 

Mr. DONAHOE. Thank you very much. That would really help. 

Chairman ISSA. Thank you. 

We now go to the gentleman from California, who was one of the 

first back, for 5 minutes, Mr. Cardenas. 

Mr. CARDENAS. Thank you very much, and boy am I tired. Thank 

you, Mr. Chairman. I tried to rush back, and I guess it paid off. 

Chairman ISSA. You need to know the shortcuts. 

Mr. CARDENAS. I’m learning, I’m learning. Thank you very much. 

And I’d like to thank the panel for being here and answering our 

questions. 

My first question is, according to the Congressional Research 

Service, Postal Service employees are the largest single pool of 

workers within the Federal Employees Compensation Act program, 

otherwise known as FECA. In its report, the CRS noted that, and 

I quote, ‘‘Postal workers are injured on the job at rates disproportionate to the rest of the Federal Government. Postal employees 

make up almost 22 percent of the Federal workforce but they account for almost 40 percent of the cases recorded in 2012.’’ 

Mr. Donahoe, do these figures sound correct to you? 

Mr. DONAHOE. Yes, sir. 

Mr. CARDENAS. Okay. Could you explain why the Postal Service 

accounts for such a large percentage of Federal workers compensation cases? 

Mr. DONAHOE. Yes. Number one, the Postal Service—the work 

that our people do is hard work. If you think about today, in WashVerDate Aug 31 2005 09:22 Sep 04, 2013 Jkt 000000 PO 00000 Frm 00068 Fmt 6633 Sfmt 6633 C:\DOCS\82401.TXT APRIL
65 

ington, D.C. or anywhere up the east coast, you’ve got letter carriers out in 95-degree heat delivering mail. If you go into our processing plants in the evening where Mr. Guffey represents the people, that’s a hard job. You’re on your feet 8 hours a night, you’re 

putting mail in a machine and taking mail out. 

We are very proud of the fact that in the last 10 years the Postal 

Service, working with the unions and working with OSHA, have 

been able to reduce workplace accidents as measured by illness and 

injury rate by 50 percent. And if you take a look at what’s happened over that time, there has been a lot of work with ergonomics 

and whatnot. We still have a high injury rate. Any accident is unacceptable. But we’re proud of the fact that we have been able to 

push those rates down. 

Mr. CARDENAS. So, basically, so that everybody understands, 

even in our most automated times that we’ve ever seen in the 

world and in this country, the Postal Service is still very manual 

intensive in the sense, like you mentioned, postal workers walk 

door to door, they don’t electronically meet people at their front 

door. In addition to that, we still have people who are actually, 

such as in warehouse-type situations, where they’re moving goods, 

et cetera? 

Mr. DONAHOE. Yes. 

Mr. CARDENAS. Okay. So in general, I would assume that organizations who are still doing an intense amount of that kind of work 

have injuries in their workplaces more than perhaps maybe in an 

office setting in general? 

Mr. DONAHOE. Yes, I think that’s true. 

Mr. CARDENAS. Okay. So also my next question is, does having 

a higher than normal injury rate reduce overall productivity and 

efficiency within the Postal Service? 

Mr. DONAHOE. Yes, that’s why we focus so hard on making sure 

that we reduce the rates. Because an accident is something that, 

you know, has a cost in the short term, but what we also worry 

about is long-term injury to employees. You can get injured at work 

and carry a back injury for the rest of your life. So that’s why we 

focused on trying to reduce this. 

Mr. CARDENAS. And you mentioned earlier about the ways in 

which—or the methods that you’ve taken advantage of as a department such as ergonomics. Can you condense for that what exactly 

does that mean? It sounds kind of foreign. 

Mr. DONAHOE. Well, if you think about on a nightly basis a person would go and work on a certain machine. There’s work that 

we’ve done to help people learn to stretch better so that when they 

lift things or move things that they don’t have a tendency to hurt 

themselves. And then you can also employ various—a piece of 

equipment, some back support, and things like that. These are all 

the things we’ve learned over the years to try to reduce the accidents. 

Mr. CARDENAS. And they have been reduced, right? 

Mr. DONAHOE. Yes, 50 percent down in 10 years. 

Mr. CARDENAS. Okay. I think it’s important for the taxpayer—excuse me, the ratepayers to know that. 

In your April testimony before this committee, you asked Congress to reform the workers’ compensation program and specifically 

66 

you requested that the Postal Service, ‘‘be provided with the ability 

to settle Federal workers’ compensation claims. This would allow 

the Postal Service and the employee to agree on a settlement, sever 

ties and end the employee’s receipt of FECA benefits.’’ Why did you 

make that request and is it practical? And do you still believe that 

we should give you that authority? 

Mr. DONAHOE. Yes. We believe it is. What we’d like to see, there 

is a bill presently being sponsored and being discussed, I don’t 

know where it is exactly right now between the Senate and the 

House, that talks about changing some of the retirement requirements for people on FECA to move to, you know, move people off 

FECA, onto retirement. We support that. 

We would also like to have the ability to have a buyout process 

like the States do where a person could take a buyout and go on 

with their lives. We have 17,000 people as we speak on the periodic 

rolls right now. It’s going to cost us, we estimate, about $16 billion 

in liability. We think that we could reduce that, let a person get 

on with life, they could go work somewhere else and they would be 

off our rolls. 

Mr. CARDENAS. Okay. Thank you very much. 

My time has expired. I yield back. Thank you. 

Mr. FARENTHOLD. [presiding] Thank you very much. 

We’ll now recognize the gentleman from Florida, Mr. Mica, for 5 

minutes. 

Mr. MICA. Thank you. 

Well, I guess a lot of your costs, Mr. Donahoe, are related to 

labor, something like 80 percent of the costs? 

Mr. DONAHOE. Yes, 79 percent. 

Mr. MICA. And how about benefits like health care and stuff like 

that? You seem to have a lot of issues with this so-called prepayment, but what percentage are the benefits? 

Mr. DONAHOE. In terms of benefits, benefits make up 48 percent 

of all postal salary and benefit costs. 

Mr. MICA. Now, you know the President is delaying, I guess, the 

employer mandate. What if we opened up for savings purposes the 

postal employees to join—well, actually just put them on 

Obamacare? What would you think of that? 

Mr. DONAHOE. Well, we have actually gone out and solicited in 

the private market and secured private insurance outside the Federal system for our noncareer employees. 

Mr. MICA. So you wouldn’t object if I have an amendment to open 

it up? What about a mandate? 

Mr. DONAHOE. I would like to open it up for free competition. 

We’d like to go out and bid, get everybody to bid and give us the 

best price for health care. We don’t do that now. 

Mr. MICA. How about you, Mr. Guffey? Would you like to either 

have a mandate or to open it up to Obamacare? 

Mr. GUFFEY. I think Obamacare was written in such a manner 

that a person could keep their current insurance, and we’re very 

happy with our current insurance, thank you. 

Mr. MICA. Well, we are shifting some of the employees, I think 

Members of Congress and also staff. And 40 percent of his cost. 

And it seems to be touted as such an economy saver for maybe reVerDate Aug 31 2005 09:22 Sep 04, 2013 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 C:\DOCS\82401.TXT APRIL
67 

ducing some of their costs. Maybe I could look at that and work on 

an amendment with you all when we get the bill up. 

Let’s see. How many employees do you now have, Mr. Donahoe? 

Mr. DONAHOE. Currently we have 492,000 career employees and 

119,000 noncareer. 

Mr. MICA. And how many would be—are sort of mandated by 

your union agreements, labor agreements? All of those positions? 

Mr. DONAHOE. No. No. We’ve got about 50,000 people in the organization on the career side, that would be the Postmaster, supervisors, administrative people in that, and they are not mandated 

by union agreements. 

Mr. MICA. Okay. So you could go down—I mean, you have, say, 

440,000 that are mandated? 

Mr. DONAHOE. Yes. 

Mr. MICA. Do you have vacancies? 

Mr. DONAHOE. We have vacancies. We continue to absorb the vacancies. 

Mr. MICA. So you’re not filling them? 

Mr. DONAHOE. No. We have absorbed 200,000 people under our 

system in the last 6 years. 

Mr. MICA. Right. And to get to sort of a break-even is there any 

projected, is it going to be 300,000, 400,000? 

Mr. DONAHOE. Right now if we were in a 5-day delivery mode 

with the downsizing of the network we think we would be able to 

support about 400,000 career employees and about 65,000 to 70,000 

noncareer. That would equate to around an operating expense with 

noncareer of about $62 billion a year. 

Mr. MICA. I noticed the different proposals to try to increase your 

revenues. I support the 5-day service. But there could be the availability of a special service. Is that anticipated? Or pay a premium 

to get mail on a Saturday? 

Mr. DONAHOE. One of the things we’ve looked at, of course, is to 

provide package service on Saturday. There is an option if we sort, 

because we will be sorting mail for post office boxes on Saturday, 

so there could be an option if somebody wanted to pay—— 

Mr. MICA. But you could have a method and also increase your 

revenue, I think. 

Mr. DONAHOE. That is an option. 

Mr. MICA. I pay sometimes for Saturday delivery extra with 

some package carriers, I think. 

And you said you’re a billion dollars better off than you were, you’ve had some reductions. So what’s the loss, is it from $16 to 

$15, or $15 to $14? 

Mr. DONAHOE. No. NO. The loss this year was projected to be 

$7.6 billion. We’re thinking—and this is not, you know, it’s not 100 

percent firm at this point—somewhere between $6 and $6.4. So it’s 

a little better than a billion better. 

Now, here is the reason why. Operationally, we are probably 

going to be fairly close to a billion dollars better. The health care 

costs are fixed and we’ll have a little bit better of a rate change 

with the interest rates, which help us in the long-term liabilities 

for workers’ comp, so we get some credit on that. 

Mr. MICA. Finally, the unfunded liability. The report I got says 

about $100 billion in unfunded liabilities. Is that correct? 

68 

Mr. DONAHOE. High $90s, yes. 

Mr. MICA. Okay. Thank you. 

Yield back. 

Mr. FARENTHOLD. Thank you very much, Mr. Mica. 

We’ll now recognize Mr. Clay for 5 minutes. 

Mr. CLAY. Thank you, Mr. Chairman. 

And according to a recent press release, the APWU’s 2010–15 col- lective bargaining agreement saved the Postal Service almost $3.8 

billion over the lifetime of the contract. 

Mr. Guffey, considering those savings, would you say that Postal 

Services’ financial condition was taken into consideration when you 

negotiated that agreement? 

Mr. GUFFEY. Definitely. Definitely. Every negotiation and every 

arbitration the information about the status of the Post Office and 

the problems they’re having is under consideration. 

Mr. CLAY. Thank you for that response. And the draft bill released by the chairman would require the abrogation and renegotiation of any existing collective bargaining agreements prohibiting 

the use of reduction in force authority. Instead, this bill would require provisions allowing the Postal Service to unilaterally fire employees. 

Mr. Donahoe, has your legal department reviewed this provision? 

And if so, have they provided you with an opinion on what the consequences of abrogating existing contracts might be? 

Mr. DONAHOE. Well, we haven’t looked at that, and I’m not so 

sure that today that whenever the chairman spoke, I wasn’t sure 

if he changed some of that. So I think there might have been a 

change afoot. But we have not looked at that. 

Mr. CLAY. I would suggest that your legal counsel look at it 

and—— 

Mr. FARENTHOLD. If the gentleman would yield for a second. 

Mr. CLAY. I’m sure it’s not too far off from what was initially proposed. 

Mr. FARENTHOLD. We’ve agreed to take the mandatory renegotiation provision out of the final bill. It is at Leg Counsel being drafted now. 

Mr. CLAY. Okay. I would hope their legal counsel would look at 

it. 

Mr. FARENTHOLD. Right. And we intend to take that out. 

Mr. CLAY. The more eyes the better. 

Mr. Guffey, did the APWU’s 2011 agreement have a provision 

prohibiting the use of RIF authority? 

Mr. GUFFEY. There are specific provisions that go into if you do 

conduct a RIF, and those provisions are spelled out in article 6 of 

our contract. The danger has been, and I don’t think it’s really a 

danger because the Postal Service and the unions are both very 

concerned about the employees and we’ve been able to manage the 

downsizing of our organization by almost 200,000 employees by attrition/buyouts and excessing people to other crafts or to other 

functions. And I would caution that the repeal of the contracts or 

to prohibit negotiating of these things is not necessary. 

Mr. CLAY. Would a new collective bargaining agreement require 

the consent of your members? 

Mr. GUFFEY. Yes. 

69 

Mr. CLAY. Okay. And, Mr. Donahoe, is there a particular reason 

why the Postal Service has chosen not to try to renegotiate RIF authority in its existing collective bargaining agreements? 

Mr. DONAHOE. Not that I’m aware of. As Mr. Guffey said, we’ve 

worked very hard over the last number of years to try to make 

what we call for soft landing for people. As a matter of fact, in the 

latest negotiation we were able to reach an agreement to expand 

the number of noncareer people. We’ve got about 30,000 on the 

rolls. And they would be used if we needed to as a buffer for any 

big loss in volume. They’re hired with the idea that they are only 

temporary. So we’ve tried to figure out how to give the Postal Service the flexibility if workload changes. 

Mr. CLAY. Also the chairman’s bill would replace the current conventional arbitration process with a last best final offer process. 

This process establishes a set timeframe within which an arbitration board must select a final offer. 

Mr. Guffey, as the president of APWU, do you think the current 

arbitration process moves too slowly? 

Mr. GUFFEY. It definitely moves too slowly, but the goal of the 

union and management both is to negotiate agreement, get to an 

agreement. There’s been few times in our history where we’ve had 

to go to arbitration. In those panels right now there is always a 

neutral, there’s one person from the unions and one person from 

management on those panels to determine what the final outcome 

would be. 

Mr. CLAY. And, Mr. Donahoe, would the Postal Service benefit 

from a structured process as required by this provision? 

Mr. DONAHOE. I think that the timing would help if we would resolve things faster. But I like the idea of having a little bit more 

flexibility in terms of what we do now. We have used what’s commonly referred to baseball arbitration, and it can be a little bit 

worrisome, it’s a lot less predictable. 

Mr. CLAY. Thank you both for your response. 

I yield back. 

Mr. FARENTHOLD. Thank you very much. 

We’ll now recognize the gentleman from Kentucky, Mr. Massie, 

for 5 minutes. 

Mr. MASSIE. Mr. Donahoe, in talking about the partnership with 

UPS in a press release called ‘‘Brown and Blue Make Green,’’ you 

said that, ‘‘It’s a great template for how posts and private enterprises can work together to better serve our customers, the planet 

and the bottom line. We hope our partnership can serve as a model 

for others to work together in new ways, whether they are competitors, collaborators, customers or all of the above.’’ 

Is it a template for how the U.S. Post office can implement more 

partnerships with private industry to deliver a better package at 

a lower price? 

Mr. DONAHOE. We work very strongly right now with private industry in many different ways. If you would take a look at the volume of mail, we have a $65 billion revenue base, it would probably 

be a good $15 billion to $18 billion more in just revenue alone if 

we didn’t have work-share partnerships with companies like Quad 

Graphics. Mr. Quadracci’s company produces mail, sorts it. At the 

70 

same time, it is very efficient. He can drop it into our system and 

our clerks sort it and letter carriers deliver it. 

So that’s been a very good working relationship. I think that opportunities to work with companies like FedEx UPS, DHL, 

Newgistics has been very good, especially for the paying customer, 

because they’re able to get the best price, the best value and very 

timely service. 

Mr. MASSIE. What about in the area of first class delivery? Is 

there an opportunity to do something similar to what you did with 

UPS with other companies to deliver first class mail? 

Mr. DONAHOE. We do what we call first class presort now where 

a lot of companies actually produce the mail and sort it and then 

bring it into us. So that’s a pretty active process now. 

Mr. MASSIE. How about in the delivery of it, the final delivery? 

Mr. DONAHOE. Final delivery to a large extent we’ve got a great 

delivery force out there, and we do what’s called post office Delivery Unit drop ship where a lot of packages and mail come in at 

that point and then we deliver the final mail. 

Mr. MASSIE. How about some innovative ways to deal with the 

problem of keeping up the rural service to rural areas? What are 

some reforms you’ve implemented? But more importantly, what are 

some that you’ve thought about that you haven’t yet? 

Mr. DONAHOE. Well, we’re working with our rural carriers union 

right now on what we call a new evaluation system. It’s come out 

of our last arbitration. We think it’ll be a good process to get a good 

handle on costs for delivery in rural areas. 

Of course there’s a lot of work that’s been done with both city 

carriers and rural carriers on visibility. Our visibility to package 

and soon to be mail delivery is going to be very good, so people 

know within 10 minutes when they got mail in their mailbox. 

Mr. MASSIE. How about the services in the rural areas? For instance, when we have a post office close down, there are certain 

services that are no longer provided. Are there opportunities to 

work with private organizations there? 

Mr. DONAHOE. Yes. We’re doing what’s called the Post Plan, 

which is trying to match up the revenues and the workload on the 

window services. But we also have opportunities for people, like in 

a small store, to have what’s called a village post office. We’ve got 

about 350 of them now with another 100 on the way. If you own, 

let’s say, a small gasoline station in a rural area, it’s a little bit 

extra revenue and it creates foot traffic, too, where people come in 

and mail a package or buy stamps at their local store. 

Mr. MASSIE. So far is that a model that you think could work or 

is working? 

Mr. DONAHOE. Yes. Absolutely. There has been a lot of interest 

and we’ll continue to expand in that area. 

Mr. MASSIE. So what is your overall plan for addressing the financial crisis? 

Mr. DONAHOE. Financial crisis pretty much boils down to this: 

We’ve got to resolve the healthcare issue. As I was saying to the 

chairman when people came back in, it is worth $8 billion. We 

strongly advocate exactly what he has mentioned about moving 

out, taking a look at the entire Federal system. We overpay substantially for our retiree health benefits, as Mr. Guffey mentioned. 

71 

On average we pay $10,000 for a post-65-year-old retiree when, in 

fact, that post-65-year-old retiree should be paying $3,300. Very inefficient. Big changes there. Six to five-day delivery, we keep Saturday delivery of package. We’re looking for some other changes in 

structure as far as some of the opportunities for new growth. 

Mr. MASSIE. But there are still opportunities available to partner 

with private industry and you found that to work so far—— 

Mr. DONAHOE. Absolutely. 

Mr. MASSIE. —in rural areas—— 

Mr. DONAHOE. Absolutely. Rural, cities, across the entire gamut. 

Yes. 

Mr. MASSIE. Okay. Thank you very much. 

I yield back, Mr. Chairman. Thank you. 

Chairman ISSA. [presiding.] Thank you. 

We now go to the ranking member of the subcommittee, the gentleman from Massachusetts, Mr. Lynch. 

Mr. LYNCH. Thank you, Mr. Chairman. 

Mr. Donahoe, I just want for the record just to express my disagreement with you on going to 5-day. I think America is on a 6- 

day schedule now. And we’ve had this conversation in private, 

you’re a good man, we just disagree on this. I just think that America’s business and America’s workers, America’s families live on a 

6-day schedule. And I am very concerned that by stopping delivery 

on Saturday, which is pretty much the consensus day that will be 

dropped off, we would basically enhance or exacerbate the downward spiral of the Postal Service and we would lose a lot of volume. 

Our problem right now is we don’t have enough volume of mail. 

And I think by eliminating Saturday we’re going to exacerbate that 

problem, we’re going to have less volume, and it’s going to be a selffulfilling prophecy. 

And I could just picture myself as a consumer and I’m about to 

mail something on a Wednesday or a Thursday, and if I know it’s 

not going to get there by Friday and it’s closed on Saturday and 

it’s closed on Sunday, well, wouldn’t it make more sense for me to 

call UPS instead of putting it in the mail. I just think you’re going 

to invite a further decline. But that’s me. That’s my schtick. 

But I want to talk to you about door-to-door delivery. And I have 

great sensitivity to the rural community. I do. I understand a lot 

of the rural communities consist of a gas station, a post office, 

maybe a grocery store, and that’s downtown for a lot of those small 

towns. So losing a post office is a big thing, it’s a big deal, it could 

be very damaging to rural communities, especially given the fact 

that you might have to drive another 200 miles to find another post 

office. So I am very sensitive to their needs. And we’ve got to figure 

out a way to hold them harmless if possible. And I appreciate Mr. 

Smith’s testimony earlier. 

But I also see a proposal in the chairman’s bill that says that, 

well, for instance, right now, according to your folks in our briefing, 

they said you provide door delivery to about 37 million—a little bit 

more than 37 million homes and businesses. And the chairman’s 

plan is to eliminate 30 million of that in door delivery. And that’s 

largely urban. And the idea is to replace that with cluster boxes 

or some other means of delivering mail. 

72 

Now, I come from a very thickly settled, densely settled urban 

neighborhood where the houses are basically attached. There’s no 

open space, there’s no place to put a cluster box. And you’re talking 

about basically eliminating door delivery for urban residents. 

I don’t see how this works. And I’m not just speaking for south 

Boston or for the city of Boston, I’m talking about New York, Chicago, Los Angeles, Houston, Baltimore, you know. And on top of 

this you’re going to have to buy land or find land and then construct these cluster boxes. I don’t understand how you’re making 

money on that, instead of having somebody just deliver it the way 

they have been for the past 80 years. 

Mr. DONAHOE. Let me comment on a couple of those. First of all, 

on the small post offices, we have the Post Plan, so there’s no plan 

on closing small post offices. So those towns that have just got the 

gas station and whatnot can rest assured. We may have fewer 

hours there, but we’ll keep them open. 

In terms of 6- to 5-day delivery, my biggest concern is, as we lose 

volume, we do not want to raise prices to make up the difference, 

so we’ve got cut some infrastructure out. That’s what’s driven. We 

certainly aren’t excited about moving in that direction, but our fear 

is if we don’t doing something from an infrastructure standpoint 

it’ll push price. 

Let’s talk about cluster boxes. Cluster boxes are an interesting 

proposal because if you look at what customers say when you make 

changes, probably the biggest thing that upsets customers. So as 

we move into that area there’s definitely an economic opportunity, 

it costs about $161 per year for delivery at a cluster box versus 

$353 for a door-to- door. 

But what we’re looking at is, is there a way to make this a winwin, so that if you put a cluster box, say, in a street in Boston or 

Baltimore or northern Virginia, could you set it up in a way that’s 

designed differently than we have today? Today, see, we’ve got two 

slots for packages and 10 or 12 slots for letters. 

Mr. LYNCH. What I’m trying to say is, though, you have to knock 

a house down. 

Mr. DONAHOE. Well, there’s ways of looking at this. We’ve been 

looking to try to figure out how you’d have a freestanding unit that 

you can put packages in as well as mail, so that if you were worried about having to come home and then go to the post office to 

pick a package up that you ordered on eBay or Amazon, we could 

put it right in your box. So what we’re thinking is, is if we can design these things in a way that you can fit more than a couple of 

letters in, people may start to like them. And what we would try 

to do would be to work with neighborhoods to test them out and 

see what the feedback looks like. 

I’ve had door delivery in my house, I’ve had cluster box, I’ve had 

street box. With a cluster box it’s pretty good once you understand 

how they work. And I think the key thing for us to is to make sure 

that customers see it as a win and not taking something away from 

them. 

Mr. CONNOLLY. Mr. Chairman? 

Chairman ISSA. Yes, the gentleman from Virginia. 

Mr. CONNOLLY. Would you allow just one observation as a Bostonian by birth? 

73 

Chairman ISSA. As long as the voters of Virginia do not mind. 

Mr. CONNOLLY. They know. 

Chairman ISSA. I will give you that 1 minute. But understand it 

could be at your own peril, especially if you the if you talk about 

the Red—the White Sox. 

Mr. CONNOLLY. Red Sox. 

Chairman ISSA. Red Sox, White Sox, those non-Yankees. 

Mr. CONNOLLY. Mr. Lynch is talking about the lack of land. My 

family lives in West Roxbury in Mr. Lynch’s district. There is no 

land to put in boxes. There’s none. It’s not a matter of what shape 

the box would be or what you put in it, there is no common land 

at all. The urban set backs are such—— 

Chairman ISSA. I thank the gentleman. 

Mr. DONAHOE. We understand that. Thank you. 

Chairman ISSA. Mr. Chaffetz, you’re recognized. Could I have 15 

of your seconds? 

Mr. CHAFFETZ. Absolutely. 

Chairman ISSA. Mr. Donahoe, isn’t it true that the highest density area practically you can name is New York City, and in New 

York City cluster boxes are a reality of high rises? So isn’t it true 

that some of the noncurb, nonchute is in fact apartment houses 

where there’s whole rooms the size of a post office. So at the end 

of the day, isn’t it true that if you do it where you can and do it 

the way you can, you save money? 

Mr. DONAHOE. Yes. And what we’re trying to do in New York, 

too, is put a lot more package boxes in so we can—— 

Chairman ISSA. So we can protect the kind of thing you’re delivering more of. 

Mr. DONAHOE. Yes. 

Chairman ISSA. I thank the gentleman. 

Mr. CHAFFETZ. And thank the chairman. I appreciate this piece 

of legislation, the good work that’s gone into it. It’s not perfect, but 

it is a move in the right direction. I think everybody understands 

and knows that we have to engage in some postal reform. 

One of the things that I’m deeply concerned about, we’ve heard 

the mention of rural multiple times. I have a county in my district 

that’s larger than the size of Connecticut. It has 15,000 people in 

it. And I do hope that one of the strongest considerations we have 

as we look at how to deal with the rural markets is proximity. That 

should be the case as it is in the density of Boston or south Boston 

or Cape Cod where they just have a ridiculous number of post offices, as opposed to maybe some of the other areas where you literally could go 100 miles before you see the next one. I think proximity is that key metric that we need to look at. 

At that same time I would encourage, Chairman, that we need 

the ability to have some flexibility and actually close some post offices from time to time. Now, I happen to come from a high-growth 

area. We had a situation in one of my largest cities in my congressional district where there was a major fire. It just so happens with 

this post office there is no longer access from the north end of this 

facility. Nor can you get access to this postal facility from the eastern side. No longer can you access it from the western side. Only 

from the south side, with no sidewalk, can you actually get to this 

post office. We have been begging and pleading with the Postal 

74 

Service to look at the extenuating circumstances, make a change 

for the betterment of the community, which is a reflection of the 

postal workers, they’re going to be on the brunt end of the criticism 

that the Postal Service is negligent and reluctant to make this 

change. And we’re hamstrung because deep within the bowels of 

your organization everybody’s scared to death of making a change. 

And somehow, some way, Mr. Chairman, there has got to be 

some flexibility. We had a fire. We’re closing in on a year here and 

our people are not served yet, but they keep saying, well, we’ve got 

to keep waiting because there’s postal reform and there are some 

Senators that don’t want any post offices closed. We have to do 

more. We have to do better that way. 

The other thing that I would encourage, Mr. Chairman, is we 

have this opportunity, and I’ve said this many times before, the 

great opportunity in my mind for the Postal Service is to become 

more relevant in people’s lives. And the balance that we have to 

find is to make sure that we don’t cannibalize into some of the private sector. 

And so my question, which is a long one here, long time coming, 

is what are we doing to galvanize other government agencies and 

be the conduit and the opportunity to be the face, if you will, the 

access point for other government services. When I think of passport services, for instance, Mr. Chairman, it’s great, that appears 

to be a great success. When I think, hey, I got to renew my passport, got to go to the Post Office. 

FEMA, we’ve talked about for a couple years, is spending untold 

millions of dollars trying to recreate and remap the entire United 

States, but it’s the postal worker who knows if that sign gets blown 

down in a hurricane, they know where that street, they probably 

know how many people live there. 

There are other services that wouldn’t cannibalize the private 

sector but would open up an avenue and a conduit, if you will, so 

that people can actually access government services. I think in my 

rural district I would love to have the State government do the Department of Motor Vehicles through the post office. What a great 

place to come do that. And yet it would be a good revenue source 

for the Postal Service. 

So my question about the bill is the flexibility, but also making 

sure that we’re being innovative but without cannibalizing the private sector, so that little mom and pop who’s selling coffee doesn’t 

suddenly have to compete with a post office that suddenly wants 

to sell coffee and T-shirts and other things that they’re doing. You 

have 15 seconds, so good luck. 

Mr. DONAHOE. Pass comprehensive legislation and it will get people away from being fearful that the Postal Service cannot meet 

their needs. Get it behind us, and I guarantee you’ll see plenty of 

that spring up because that’s what people are looking for. Thank 

you. 

Mr. CHAFFETZ. Yield back. 

Chairman ISSA. Thank the gentleman. Johnny on the spot, on 

the button, zero. 

We now go again to the Bostonian, the third member from Massachusetts on the top of the dais, the gentleman, Mr. Connolly. 

75 

Mr. CONNOLLY. And by the way, Mr. Chairman, there are three 

of us from the Virginia delegation from Massachusetts, including 

my good friend Bob Goodlatte, who loves being reminded he is from 

Massachusetts. 

Chairman ISSA. You know, there were three of us from the same 

high school at one time. Two are gone. I’m the lone survivor from 

Cleveland Heights High. But I do not make it a point of talking 

about growing up in Cleveland with those sidewalks and those 

chutes and those doors on those homes produced before 1974 as 

though that was the only solution to mail delivery. I just wouldn’t 

do it. 

Mr. CONNOLLY. Well, my parents appreciate my advocacy. 

Mr. Donahoe, we had Walt Francis before this committee talking 

about your proposal to pull out of FEHBP. Now, Walt Francis is 

probably the living walking expert on the Federal health program. 

He writes an annual book analyzing every single plan and option 

in great detail, his checkbook, and he looked at your claims, which 

seem a little vague. He said, you say you can better manage health 

insurance than OPM? Highly unlikely, extremely unlikely, he says. 

You say FEHBP fails to match other employee benefits; KFF data 

on private employer insurance shows no such disparity. USPS says 

it can offer the same and possibly even better health care choices; 

he says extremely unlikely and inconsistent with claims to offer 

more understandable set of choices by USPS. 

You say FEHBP fails to provide health promotion and wellness 

incentives, chronic condition and disease management programs. 

Absolutely false. They most certainly are offered by FEHBP. 

And then finally, he says you say, it can communicate benefits 

to enrollees more effectively. Well, that’s interesting because every 

employee group I’ve talked to with the Postal Service is utterly confused about what it is you’re proposing and quite anxious about it. 

I think we heard Mr. Guffey say, as the president of a union, we 

have our options with FEHBP and we’re happy with them. 

Is that true, Mr. Guffey? 

Mr. GUFFEY. More or less, but we would be willing to sit down 

and negotiate with the problems. 

Mr. CONNOLLY. But I’m looking at what USPS has posted, the 

so-called healthcare proposal. It’s two pages. And it’s utterly lacking in detail in terms if you’re an employee wanting to know, well, 

is this a better deal than I’m getting currently right now, if I’m an 

annuitant over 65, if I want to look at how it folds in with Medicare, if I want to know what my annual out-of-pocket deductions 

might be, what about prescription drugs, there is no specificity. 

So, Mr. Donahoe, how would you answer Mr. Francis’ rather profound critique of this proposal to pull out of FEHBP. 

Mr. DONAHOE. Let me ask if we can put the slide back up there. 

Can we put that slide back up with the charts? 

[Slide] 

Mr. DONAHOE. Here is the way I’d answer Mr. Francis. If you 

look at the far left, that $10,000 healthcare plan is what a post65-year-old Federal employee has to pay, period. That’s the average 

pay that we all pay, any Federal employee. If you’re in the private 

sector where you have Medicare wrap-arounds, A and B, you pay 

76 

on average $4,500. If you have A, B, and C, which we feel we have 

every right to, you pay $3,000. 

Why in the world would we ever tolerate spending three times 

the health care for our retirees in an FEHBP plan when they don’t 

compete it, when they don’t offer wrap-around, when they don’t 

offer single plus one? That’s the way the rest of the Federal Government has worked. In 1962, back when the OMB was created, 

FEHBP was a wonderful plan. That was 40, 50 years ago. We need 

to update it. 

Mr. CONNOLLY. Mr. Donahoe, can you commit to providing specific data—— 

Mr. DONAHOE. I can give you—— 

Mr. CONNOLLY. —and dollar amounts? 

Mr. DONAHOE. I can give you a specific—what you’ve got in your 

hand I’m not so sure where you got that from. But I can give you 

a much more detailed presentation in person and we’ll go step by 

step and cover every detail. 

I would state on the record that it is in the best interests of the 

Federal Government, not just the Postal Service, to compete these 

plans. There’s money to be saved. We should not as Federal employees be subsidizing everybody else like I’ve showed you on that 

chart. 

Mr. CONNOLLY. Well, I’ll look forward to the data. By the way, 

this was handed up by your congressional relations in meetings 

with our staff. 

Mr. DONAHOE. I’ll get you an updated one. 

Mr. CONNOLLY. With specificity so we know—we can compare. 

Real quickly, have you—why haven’t you signed an MOU with 

the Department of Labor with respect to disclosure of FECA 

records? You’re looking at a new FECA process for the Postal Service, but you have not yet agreed to their privacy standards, and 

they’re concerned that that could lead to violations of the Privacy 

Act. 

Mr. DONAHOE. We’re stuck between a rock and a hard spot on 

that one because for years, as I mentioned earlier, we’ve been 

working to bring people back to work from workers’ comp. We’ve 

got 16,000, 17,000 people in the periodic rolls. 

What we do now is, is when we have discussions with the people 

at the DOL we share that information electronically with the 

unions as required by our contract. What we think is, is if we have 

to go to the manual process that they’re suggesting and a more restricted electronic process, we won’t be able to share the information with the unions, and that becomes a Labor Department issue 

on the other side. 

So it’s kind of, we’d like to get this thing worked out, matter of 

fact I’ve written a letter that’s gone over to the Acting Secretary 

to sit down and see if we can figure this out. 

Mr. CONNOLLY. Thank you. 

And, Mr. Chairman, I know my parents thank you for the extra 

time. 

Chairman ISSA. You’re most welcome and your parents are welcome. 

With that we go to the gentleman from Oklahoma, Mr. Lankford. 

Mr. LANKFORD. Thank you. 

77 

Mr. Donahoe, you have a tough job in a lot of ways, you know 

that full well, because we need significant reform, you’re waiting 

on the House and the Senate to get its act together to be able to 

help provide that. You’re trying to do stuff in the meantime. And 

across America people say over and over again, that’s my post office, whether they like or don’t like or disagree on how many days 

it took to get there this time or whatever it may be, they set their 

drive home from work based on a certain drive route to stop by to 

get to their box and be able to check in at a certain time in the 

morning. There’s a tremendous sense of ownership. So I do not 

envy that task. And thanks for what you’re doing, and for all of you 

and what you’re doing. There are a lot of folks that don’t get a lot 

of thanks that are out there in the heat today. And so we do appreciate that. 

Mr. Guffey, let me ask you a question. You’ve made some proposals and some different ideas that have come up. What cost-saving proposals would you support that are efficiency structures or 

that are labor related or that are the way the post office does its 

business? You kind of live and breathe, you’re around it. The people are experts that are there. I interact with some of the union 

folks at our military base that do civilian work. They know better 

than anyone where the efficiencies are, where they can do reductions and such. 

Where do you see cost savings? 

Mr. GUFFEY. We are trying to work with the post office right now 

in saving and transportation of mail. We think we can work with 

the post office—— 

Mr. LANKFORD. Give us a couple of those ideas. What does that 

look like? 

Mr. GUFFEY. Redoing the routes and making routes more efficient so that a truck can take more than one or two, three stations 

at the same time to different locations, making sure that the facilities can handle a certain size truck, and if it can handle a bigger 

truck we’ll make a bigger truck so that truck can go to two or three 

locations. There’s a lot of things we’re getting into it, and those are 

in negotiations and I can’t speak on them too much. 

I said we are willing to talk about doing some more efficient 

things with the health plan inside FEHB, want to aggressively look 

at those approaches and everything. 

There are other things that happen on different types of containers. We talk about on-the-job injuries, and we think there are 

a lot of containers that are within the post office that shouldn’t be 

utilized when they’re utilized, not that they can’t be utilized but 

there’s areas that they’re utilized that they shouldn’t be utilized, 

which by themselves can cause on-the-job injuries. 

There’s a myriad of things that we’re looking at in rotations and 

how to get more flexibility. We negotiated more flexibility with the 

post office in this last negotiations by giving them noncareer people, but we also went away from the traditional five 8-hour days 

to allow the post office to schedule in such a manner that without 

paying overtime they could keep post offices open later. We did a 

lot of things that we could do to work together with the post office 

to provide a workforce that was more conducive to them providing 

services to the American public. 

78 

Mr. LANKFORD. Okay. Are we at the right size as far as total 

workforce? 

Mr. GUFFEY. It’s hard to say yet. The volume is constantly 

changing. Our concerns on the consolidation is when it hits the 

point where it delays the mail. And when I say delay the mail, we 

could have instances—I’m from rural Oklahoma, too, I graduated 

with 32 kids, so I know what we’re talking about. But you have situations where mail was processed in office A and now it’s going to 

be processed in office B, which may be 80, 90 miles away or something. The mail that was taken to office A to be processed was in 

5 or 10, 20 different cities around that area, and it would go to office A and turn around and get back and delivered the next day. 

Well, now to get it to office B many times they have to change 

the dispatch times in these one, two, three, four, five, six, seven, 

eight offices to 1 o’clock or 2 o’clock in the afternoon. In Grove, 

Oklahoma, now I think it’s like 1 o’clock in the afternoon to make 

the dispatches so it can get to Tulsa or Oklahoma City to be turned 

around and worked back. Well, that means the businesses in 

Grove, they can no longer can put the mail on their counter for the 

mailman to pick up because he may not get back to the post office 

until 5. And if he doesn’t get back until 5 that means the mail 

doesn’t get dispatched that day. It sits there until the next day. 

Now, scales of economy are important, and what can happen in 

these offices, it’s going to vary. And I think if the Postmaster General has the tools to get things done properly, I think we’ll get it 

done. We can work together. I mean, I have said several times to 

Postmaster General we are going to solve this problem. We’ve got 

to solve the problem in the long run. And I think we can if the post 

office gives us the ability—not the post office, but the Congress 

gives us the opportunity to do certain things, we’ll do our best to 

work through the problems. It’s not in anyone’s interest to destroy 

the post office. 

Mr. LANKFORD. Oh, no, it’s not ours either, nor is that the goal 

there. As Mr. Quadracci can tell you, there are a tremendous number of private sector jobs that are affected by what happens to the 

post office by rates, by times, by scheduling efficiencies, all these 

things are all built in. So this is very important to you, it’s important to us, it’s important to the private sector as well. So it’s got 

to be right. But I do hope there is a way to be able to get together 

and everybody look for efficiencies and find a way to be able to resolve it. 

So with that I yield back. 

Chairman ISSA. I thank the gentleman. 

We now go to the gentlelady from New York for her round. 

And you are from New York, not Boston. 

Mrs. MALONEY. I am. But I have relatives in Boston. 

Chairman ISSA. Yeah, but you’re not rooting for anyone with sox 

in their name, right? 

Mrs. MALONEY. No. 

Chairman ISSA. Okay. Just check. 

Mrs. MALONEY. Well, first of all thank you to the ranking member and to the chairman for holding this hearing and to the distinguished panel. I also recognize in the audience the former chief of 

staff to the committee here, Ron Stroman. 

79 

Very good to see you, Ron. Congratulations on your new move to 

be Deputy Postmaster General. That’s great. But it’s good to see 

you and we miss you. So good to see you. I just noticed you. 

Mr. Chairman, I really truly want to thank you for holding this 

hearing. We all know that postal reform is something that needs 

to happen, and I hope we can work on this in a bipartisan way to 

make it happen. 

I have some very serious concerns with the discussion draft of 

the Postal Reform Act of 2013. As it stands, the current discussion 

draft requires a dramatic downsizing of the Postal Service, reduces 

customer service by moving to a 5-day delivery, and guts collective 

bargaining agreements. 

I deeply and greatly oppose these kinds of initiatives that hurt 

seniors, businesses, and take a major step back in the rights of 

hardworking letter carriers. These kinds of initiatives not only hurt 

seniors, rural areas, and low-income urban areas, but many businesses and postal workers will be hurt. 

I do, however, want to commend the chairman for including in 

his discussion draft the underwater classes provision to address the 

problem of mail classes whose rates do not always cover their costs, 

such as magazines. Too many magazines are going out of business. 

This provision prevents a seriously negative impact on the magazine publishing industry, which employs a great number of people 

in our country, much of which is headquartered in my congressional district, including Time Inc., Hearst, and Conde Nast. 

The draft takes a sensible approach on this issue, delaying the 

implementation of any rate increase on periodicals and other socalled underwater classes of mail until the Postal Service has time 

to remove excess costs from the system. After 2 years of reforms 

at the Postal Service, if periodicals do not cover 90 percent of their 

true costs, a reasonable rate increase of 2 percent would go into effect. I think this approach makes sense, and I hope it is included 

in whatever final postal reform bill this committee considers. 

Mr. Donahoe, I know that there’s a review of postal services 

across the country and I want to know your criteria, specifically in 

closing post offices, if you look at cost-benefit. Are the post offices 

making money? Regretfully, I’ve had some cases where the post offices are making money, literally a profit, which is what we want, 

in fact the competitors are opening up stores across the street or 

next door to them hoping that people will come to them instead of 

staying in the lines at the post office. But even when they are making money, they are sometimes slated to be closed. And I’d like to 

know what is your criteria for closing post offices and why is not 

the cost-benefit analysis or a productivity. I would think we want 

to a strong post office, those that are making money we should be 

keeping because that’s going to cover the costs. 

Mr. DONAHOE. Yes, I agree with you. We have a process for large 

cities all the way down to the smallest rural office that we do review if we do propose any closures. We have really moved away 

from that to a large extent as we put changes into place to change 

hours mainly in the smaller offices. 

In a big city like New York what we’ve run into, and I think 

there’s been a couple in your district, where we’ve unfortunately 

lost the lease on the building that we were in and then we’ve had 

80 

to move. So I know that we’ve been actively seeking some retail 

space in your area because some high rises are being built and 

buildings that we were in probably for the better part of 30 or 40 

years we’re now forced out of. 

We are looking at relocating in some cases. Other cases, whether 

its stamps online or being able to pick postage up at a local drugstore in the city, we’re moving in that direction, too. 

So I think the key thing for working with your people in the 

upper Manhattan area is to make sure that we do a good job to 

find the retail space close so that we don’t have to move too far 

away from the places where we lost our lease. So you’ve got my 

commitment to work with you on that. 

Mrs. MALONEY. Thank you very, very much. And I want to commend the postal workers. They work in really terrorist conditions. 

Anthrax has been discovered in the mail in several offices in the 

great city of New York and they have responded with great courage 

and devotion to their jobs. 

Mr. DONAHOE. Thank you. 

Mrs. MALONEY. So thank you. 

Chairman ISSA. I thank the gentlelady. 

We now go to the gentleman from Tennessee, Mr. Duncan. 

Mr. DUNCAN. Well, thank you very much, Mr. Chairman. 

Mr. Donahoe, I see that one of your recommendations, and you 

have mentioned this, is to reform workmen’s compensation. And I 

see notes that said some employees have been on workmen’s compensation, some postal employees, since before the Postal Service 

was established in 1971. You said you’ve got 17,000 employees 

drawing what you refer to as periodic payments? 

Mr. DONAHOE. Periodic rolls, yes, yes. 

Mr. DUNCAN. How would you reform workmen’s compensation, 

and have you done a wild estimate or guess as to how much you 

could save if your reforms were put into place? 

Mr. DONAHOE. Well, it’s been a multistep approach. Number one, 

we’ve been working this issue for a number of years, and the key 

thing first was to reduce accidents so people didn’t end up on workmen’s comp. So we’ve been very aggressive with vehicle accidents 

and illness, injury. We have seen nice reductions there. 

Mr. DUNCAN. And I’ve read there is a big reduction in the—— 

Mr. DONAHOE. We still have people on workers’ compensation. 

Some people we would like to have the ability to have them retired 

out of the system and there is legislation I know that’s afoot here 

both in the House and over in the Senate. We would support that. 

That would address people who have been on workers’ comp since 

1981—or 1971. The problem with that in some cases is that they 

make more money on workers’ compensation than they do going 

into retirement, so we’ve got to figure out how to resolve that issue. 

The other approach, and it’s for a much larger group, is to either 

help to get them back to work or actually buy them out like a private sector company would do. On the back-to-work efforts we have 

worked very closely with Mr. Guffey, we have insourced some work 

in which we have employed—reemployed people off the periodic 

rolls, and it’s been helpful because it helps us pull that large liability down. We still have a long way to go as far as getting people 

back to some active duty. 

81 

We think that probably there’s about 10,000 people who one way, 

shape, or form would to be able to get back to work. That’s what 

we’re looking at. And then the other 6,000 to 7,000 probably would 

either have to be retired or have some kind of a buyout. 

But the key thing here is we have a liability of about $17 billion 

that is part of the chairman’s note, that we’re sitting on almost 

$100 billion worth of liability. We’ve got to resolve that. 

Mr. DUNCAN. Let me ask you this. Another one of your recommendations is the right to have appeals of EEOC class action 

decisions to Federal Court. Do you have a large number of 

those—— 

Mr. DONAHOE. What happens, it’s a small number but it’s an extremely expensive process. I’ll give you an example. And this is 

something—this is not what we would normally see in an EEOC 

type of complaint. We’re proud of the fact that the EEOC complaints have dropped over the years we’ve focused on that, but we 

have some situations where class actions come about. We just settled one for $17 million and the class action was, I didn’t get overtime while I was on workers’ compensation. If you’re on workers’ 

compensation you shouldn’t get overtime. And we had to pay out 

$17 million to settle that. And there’s no point—we couldn’t go anywhere from a plea bargain up to say—I’m sorry—an oversight up 

to the courts. What we’re asking for is give us the opportunity, if 

we disagree with some of these big class actions, to take them to 

court to have somebody impartially look at them. 

Mr. DUNCAN. All right. Mr. Guffey you said a while ago your employees are happy with their present health plan. Do you think 

they would be willing to go under Obamacare and would you be 

willing to recommend that they do that? 

Mr. GUFFEY. I would not be willing to recommend they go to 

Obamacare. Obamacare allows them to stay in their own insurance 

and that’s what we recommend that they do. 

Now, we are willing to sit down with the Postmaster General and 

negotiate on a different type of health care within the FEHB family. I’m a single-payer type person. I think you take out all the 

costs and overhead of all the different plans, the CFOs and the 

CEOs and all these different people, and the boards and different 

people that these different health plans have to pay. For the same 

amount of money I think we can probably come up with a health 

plan that will deliver services to the membership and to the post 

office and can come up with something. 

But that is something, I think, the type of insurance that our 

people go into is something that’s negotiable, and we’re more than 

willing to negotiate on it. 

Mr. DUNCAN. Have you seen the letter that the three unions recently sent objecting to the provisions—or the requirement that 

they go under Obamacare and give up their so-called Cadillac 

health plans? 

Mr. GUFFEY. I would sign it today. 

Mr. DUNCAN. You would sign that same letter? 

Mr. GUFFEY. Yes. 

Mr. DUNCAN. All right. 

Chairman ISSA. I thank you, Mr. Duncan. 

82 

If I can just clarify the record. Are you saying that from a union 

position—I know you can’t speak for all the members—but that if 

a comprehensive reform eliminated, if you will, sort of the letter 

carriers’ bidding within the system and went to a larger group with 

less overhead, that as long as the unions had some form of representation in that process, they would be supportive if it lowered 

the cost. Because right now the Federal employee health care plan 

has specific grandfathers for letter carriers and so on, if you will, 

for these special groups. Is that what you were saying? I wanted 

to make sure I understood, because those have separate overhead 

costs that could be eliminated. 

Mr. GUFFEY. We could come up with a health plan, I think, that 

we could tell our members that this is the health plan that you will 

get your matching funds from the post office for, and it’s going to 

be within FEHB. We could come up—maybe we could. I think 

there’s an opportunity, a real opportunity to negotiate that, to take 

out all those other costs. 

Now, having said that, I think the real savings for the Postal 

Service is in not paying the full freight for the same type of health 

insurance for the retirees. 

Chairman ISSA. Right, and we’re working on that. 

Mr. GUFFEY. But if you do that, and save the money for post office there, it throws additional costs back to the current employees. 

Now, working on a plan, a universal type plan which would give 

our membership what they have wanted, to change the benefits 

would have to go through OPM, we could probably come up with 

a lower cost that would also save the post office money and prevent 

the costs from going up. 

Chairman ISSA. And I don’t want to take more time today, but 

I would invite you and the other union representatives to engage 

with our staff, we have working groups on both sides, because we 

control, if you will, that question for the entire Federal workforce 

and we are currently working on a reform, sans the Postmaster’s 

leaving the system, that is intended to achieve several of the areas 

the Postmaster has put forward. 

But if there’s a willingness to give us additional opportunity that 

would come specifically out of changes as to how we deal with postal to the benefit of all the workers, we’d love to work with you on 

it. We’d like to make sure you see what we’re proposing for the 

Federal workforce. 

Mr. GUFFEY. I understand, but our position is, we will provide 

you some information and what have you, but we believe our position is negotiate with the post office and not with the committee. 

You understand what I’m saying? 

Chairman ISSA. No, no, we’re happy to have your input. 

Mr. GUFFEY. Right. 

Chairman ISSA. To be honest, you don’t get a vote. 

Mr. GUFFEY. I understand that. 

Chairman ISSA. Currently, the committee’s position—and it has 

to be for now—is we’re making a decision on behalf of the Federal 

workforce. The post office is part of the Federal workforce and so 

therefore we’d like to have that large section of current and retirees have input into it just as I would any other Federal worker. 

83 

Like I say, the Postmaster and I are discussing whether or not 

there is a cost savings in departing. 

The problem we have—and I hope Mr. Tierney will understand, 

I’ll give him all his time of course—but is that we cannot get a 

CBO score that supports the Postmaster’s position. If we can’t get 

that, that makes legislation difficult. And that’s why we’re trying 

to work on things which we know will score real savings for the 

post office and put it into a comprehensive health care reform, and 

we certainly would welcome union input in addition. Of course the 

Postmaster has a seat at the table. 

Thank you. 

Chairman ISSA. Mr. Tierney, why don’t you take about 7 minutes, because I owe your side that. 

Mr. TIERNEY. Well, I appreciate that, but I don’t think my time 

will take all of that time. 

Mr. Donahoe, I just really wanted to finish on the thought that 

Mr. Connolly started about the Federal Employees Compensation 

Act. You had not signed the memorandum of understanding. That’s 

your answer to him, right? 

Mr. DONAHOE. Yes. 

Mr. TIERNEY. So the Department of Labor says that these FECA 

records really require protection under the Privacy Act. Do you 

agree with that? 

Mr. DONAHOE. Yes. 

Mr. TIERNEY. Okay. Do you, or does the Postal Service ever disclose the FECA records, and if you do, in what circumstances? 

Mr. DONAHOE. I’ll have to get back to you. I don’t know what we 

do with those other than share information, talk with the doctors. 

And there may be some time, if there is a grievance filed, that 

some information would be shared with the unions, but I cannot 

tell you that for certain. I’ll have to follow up on that. 

Mr. TIERNEY. You’ll follow up with the committee and give us 

that? 

Mr. DONAHOE. Yes. 

Mr. TIERNEY. Thank you. So let me ask you this. Has the Postal 

Service ever used the FECA record to discredit an employee when 

that employee was before the EEOC or the Merit System Protection Board? 

Mr. DONAHOE. I’m not aware of that, but I’d have to get back to 

you on that. 

Mr. TIERNEY. Would you do that as well, check as many instances as that happened? 

Mr. DONAHOE. Sure. 

Mr. TIERNEY. As a general matter of policy, would you generally 

commit that you would not use them that way? 

Mr. DONAHOE. Absolutely we wouldn’t want to do that, no. 

Mr. TIERNEY. The Department of Labor went to the Justice Department’s Office of Legal Counsel to get an opinion concerning 

your dispute. 

Mr. DONAHOE. Right. 

Mr. TIERNEY. They reported back that they thought the Office of 

Legal Counsel agreed with them on the matter. And you, however, 

wouldn’t participate in those conversations. Why not? 

Mr. DONAHOE. Me, personally? 

84 

Mr. TIERNEY. Or the Postal Service. Why wouldn’t the Postal 

Service—— 

Mr. DONAHOE. I’m not aware of that. I would have to get back 

to you on that, too. 

Mr. TIERNEY. Okay. So what the Department of Labor said the 

Office of Legal Counsel determined was that the Department has 

exclusive authority over the FECA records on that. 

Mr. DONAHOE. Right. 

Mr. TIERNEY. Following that, they then told this committee that 

they no longer provide access to the FECA records to the Postal 

Service. 

Mr. DONAHOE. Yes. 

Mr. TIERNEY. Has that caused you problems in any way? 

Mr. DONAHOE. It hasn’t caused problems in the short term, but 

it will cause problems in the long term because you turn the whole 

process into a manual process. 

I think there is a win-win in here somewhere. Like I told Mr. 

Connolly, we don’t want to end up with a situation where we end 

up violating agreements we have with the unions because of other 

agreements that we’ve made. So we’ve got to figure that out. 

Mr. TIERNEY. So when you report back to the committee, will you 

be able to share with us the reasoning behind your reluctance or 

the Postal Service’s reluctance to sign that memorandum of agreement? 

Mr. DONAHOE. Yes. 

Mr. DONAHOE. The other thing, as I mentioned, we’ve sent a letter up for me to go up and speak with the Acting Director so that 

we can—or Acting Secretary—so that we can get a common area 

where we might be able to work together on that. 

Mr. TIERNEY. Okay. Barring Mr. Lynch or the ranking member 

having any other questions, I’ll yield back. I yield back. 

Chairman ISSA. I thank the gentleman. 

We now go to the gentleman from Mr. Pennsylvania, Mr. Meehan. 

Mr. MEEHAN. Thank you, Mr. Chairman. And, Mr. Chairman, 

just as a matter to make sure that we correct the record as a—— 

Chairman ISSA. You’re not a Bostonian? 

Mr. MEEHAN. Well, you know, I’ve got to tell you, as somebody 

who suffers—is a suffering Red Sox fan for all these years, Yaz, 

Carl Yastrzemski would pass out in front of the Green Monster if 

he thought Congress believed that he actually played for the White 

Sox. So as long as we can—— 

Chairman ISSA. You know, I’m a Cleveland Indians fan through 

and through. 

Mr. MEEHAN. My condolences. 

Chairman ISSA. You know, they were once a professional baseball 

team, and they still have a great ballpark. So you know, as we run 

down your clock, I just want you to remember you started this. 

Mr. MEEHAN. I appreciate that. 

Mr. Donahoe, I appreciate the work that’s being done by you and 

all the organizations and the tough choices that have to be made 

and the spirit of collaboration that everybody has to work on to try 

to define resolutions. And I find myself looking for the right ways 

to help support the post office in making their calculations and deVerDate Aug 31 2005 09:22 Sep 04, 2013 Jkt 000000 PO 00000 Frm 00088 Fmt 6633 Sfmt 6633 C:\DOCS\82401.TXT APRIL
85 

cisions. But I also live and work with, you know, my neighbors who 

work for the post office, and sometimes I get very frustrated with 

the process that we’ve gone through. And you and I have discussed 

some of this. 

But let me just say that it’s very difficult, as we’re getting to the 

end of some of these issues, and I’m talking about the whole question of consolidation that has been pushed forward, and I’ve seen 

a process, and to walk through it, you know. We began with the 

identification that there was going to be a consolidation that was 

going to be proposed, and they suggested that there was, you know, 

a line of savings. And so, right from the outset, the Southeastern 

facility in my region was slated to be closed and projected a $16 

million savings. 

We looked at the thing and realized that they didn’t even calculate within the four corners of the letter correctly, and we asked 

for a recalculation of that. It went to—and a GAO study to confirm 

that it was being done appropriately. The GAO came back and 

said, well, based on the information that you had given to them, 

they could see how a decision could be made. They didn’t weigh in, 

just how a decision could be made, so to speak. 

Then we find that during this process, that there is a second consolidation that’s being considered in which, even though we’ve 

asked for a stay while this is being studied, that mail that was supposed to go to Philadelphia under the process that was being proposed to keep Philadelphia open was actually being diverted to 

Delaware. It was being diverted to Delaware because there was an 

overflow, and we really began to question the efficiency of that, 

finding that there is then a second study that’s being done during 

the period of time that we all believe that the first consolidation 

is still being considered. 

Come back the second time and say, okay, they are actually 

going to consolidate everything down in Delaware now, which 

makes no sense to me because I’ve got a big city between Delaware 

and Southeastern, and this has an impact not just on the Postal 

Service, but businesses that use the Postal Service and rely on it 

for its efficiency. 

So now we begin to see that there is a proposed savings of $13 

million by closing down the Southeastern facility as part of plan B, 

but we found out it’s being consolidated and pushed even quicker. 

So the bottom line in the process is, how can I have confidence 

that the decisions and calculations that were made were accurate 

and corrected in the best interest of the Postal Service and not due 

to some other kinds of issues which, quite frankly, I can’t understand because the logistics don’t make sense to me, that you would 

close Southeastern and keep a Delaware and Philadelphia facility 

within a short distance of each other open at the same time, as 

well as one in New Jersey, right across the river. 

Mr. DONAHOE. Let me comment on the—first of all, the history 

of Southeastern came about because of the overflow in Philadelphia. We built a new facility in Philadelphia in the mid-2000s and 

right before the mail volume loss, we’ve lost 27 percent of our volume, and a substantial portion of that was what we would consider 

outgoing mail, which we processed in Southeastern. 

86 

The idea was to originally move everything from Southeastern 

into Philadelphia. As we looked, there were some opportunities to 

move the 193 ZIP Code area down into Wilmington because of the 

geographical proximity. From what I know, all of Southeastern, 

with the exception of 193, is still going into Philadelphia. The Wilmington will get the far south 193 portion and will split the mail 

up. 

We’ve already started that move. We’ve made these moves because financially we are in a desperate situation. You know, we’ve 

been trying to keep our head above water. We’ve got 8 days of cash 

on hand. And I know, you know, it hurts whenever—it hurts when 

it happens to a local facility, but we’ve had to make these changes 

across the country. 

There will be no service degradation because Philadelphia, Wilmington, and Southeastern are all considered overnight service. 

That will not change. And we’ll watch that like a hawk, you’ve got 

my commitment. But we’ve got to make these changes. We just 

have too much capacity, and we’ve got to take the capacity out of 

the system. We can eliminate the building in Southeastern, we’ll be 

able to find jobs, landing spots for the people. Most of them are 

within that area anyway. And we’ll continue to make sure we provide great service. 

Mr. MEEHAN. Let me ask you about some of those employees 

right now. What kind of job security is there for those who are at 

Southeastern? Is there an assurance that they are going to continue to receive work within the area? 

Mr. DONAHOE. We have eliminated in the last 6 years 200,000 

jobs. In the last 13 years 314,000. We’ve never laid anybody off, 

never. I have been fanatical about holding jobs, using overtime, 

noncareer people, we always find a landing spot. Mr. Guffey and 

I worked together to eliminate the need to excess people for farther 

distance than 50 miles. That makes us even hold ourselves more 

to account to try to find landing spots. 

Because when you start moving people all over the country, it’s 

bad for them personally. Economically, it’s a disaster. And so 

you’ve got my commitment that we will find landing spots for the 

people at Southeastern. We know that. I know that for a fact as 

I sit here. 

Mr. MEEHAN. All right. Well, thank you. 

Mr. Chairman, just one last question for Mr. Quadracci. 

The company prints all kinds of different mail, and in my region 

as well, including standard flats and magazines. And I have heard 

from some of those who do that in my area that aggressive postage 

rates increases for their mail can sometimes be devastating. 

Can you tell me, from your experience, what happened to your 

business with the postal rate increases once you began to have to 

deal—whether in the end it was really more cost-effective, that you 

might lose more business by virtue of the rate increase? Tell me 

how you were impacted by that. 

Mr. QUADRACCI. Well, 2007 would be the last example where it 

was the last time they could raise prices beyond the cap and there 

were double-digit increases, you know, to many of my clients, and 

we saw double-digit decreases in volume as people pulled back. 

And I was explaining before that a lot of it has to do with, you 

87 

know, there is different files that people mail to. One is a 

prospecting file where they’re trying to get new customers, and 

that one is very delicate based on response rates. And so if you get 

a rapid spike in pricing on postage, you’ll see them cut that way 

back, and we saw it. In fact, the whole industry saw it. 

You know, we ended up consolidating a couple of businesses that 

couldn’t make it because of this, much larger than us. Some of 

them in your district were a part of that. And as a part of that, 

we closed over 21 plants to rightsize the infrastructure. And it was 

tough. I mean, I know it’s important to try and save jobs, but in 

the private sector we had to release jobs. Very tough for us to do 

as a company, but to be sustainable we made the tough decisions. 

Let’s put this into perspective. Since 2001, postal rates went up 

50 percent. Since 2001, print prices went down 33 percent. And 

we’ve had to make tough changes every part of our business to stay 

profitable and we’ve been able to do that. 

And so, you know, when you talk to the private sector and you’re 

dealing with a declining situation, you have to get ahead of the 

curve, you have to make the tough decisions to do it. You know, 

it’s challenging but it’s real. Those price increases beyond CPI have 

devastated this industry and it will devastate it again if we let that 

happen. 

Mr. MEEHAN. Well, thank you for your indulgence, Mr. Chairman. 

Chairman ISSA. I thank the gentleman. 

We now go to the gentlelady from Illinois, Ms. Duckworth. 

Ms. DUCKWORTH. Thank you, Mr. Chairman, and thank you for 

holding this very important hearing. 

Mr. Quadracci, I want to sort of follow up a little bit. It would 

seem to me that some of the mail that’s going out in the standard 

flat rate, catalogs specifically, are generating more mail, and mail 

that actually generates more revenue. So when people decide to 

purchase something, and now that has to be delivered via package 

mail. Do you keep—does your industry keep any data, statistics on 

that, how much subsequent mail is created out of the catalog mail? 

Mr. QUADRACCI. I’m not sure if we have some of that data. Some 

of the organizations might. But there has been a decline in catalog 

mail through this timeframe. We’re seeing some stabilization, but 

there is still a decline. It does generate package products, you 

know, through the post office, which is a good thing. 

Ms. DUCKWORTH. Mr. Donahoe, do you have any data on it at all 

in terms of how much follow-up mail at a higher rate, such as 

package mail, is generated by the catalog mail delivery? 

Mr. DONAHOE. There are some statistics, and we can get that for 

you, from the industry. To Mr. Quadracci’s point, some catalogs, a 

lot of times, will generate first class mail and then packages, too. 

So there is a multiplier effect, and I can have our marketing people 

get in touch with you on that. 

Ms. DUCKWORTH. That would be great. Thank you. 

Ms. DUCKWORTH. Mr. Donahoe, the second quarter of this year 

the Postal Service reported having approximately 616,000 employees, of whom 498,000 were career. 

Mr. DONAHOE. Yes. 

88 

Ms. DUCKWORTH. Is it correct that this is the smallest workforce 

of the U.S. Postal Service since 1966? 

Mr. DONAHOE. Yes, it is. 

Ms. DUCKWORTH. Could you explain why labor costs continued to 

represent such a large portion of your overall costs? 

Mr. DONAHOE. Labor costs are high in terms of total for two reasons. Number one, we are a people-intense organization. A lot of 

times we’re compared to FedEx and UPS. They’re both great companies, but they run air systems—they run airlines, I should say— 

large trucking firms. We contract a lot of that type of work out. 

The major driver for our costs are the benefits costs. As I mentioned before, it’s 48 percent of our cost, a large chunk with the 

prefunding, but we also think there are some efficiencies that we 

can get, working with the unions and with everyone here, around 

the health costs for the current employees. 

Ms. DUCKWORTH. So under the chairman’s bill, postal employees 

receive lower employer contributions to their health benefits and 

life insurance than they do now, requiring that the employees contribute more. That seems to me to be a pay cut for the current 

postal employees. 

Mr. DONAHOE. We’re working through that right now. In the 

course of the last 3 years we have moved management employees 

to—we’ll be very close to the Federal rate, I think, in 2014. It’s 

been a part of our union negotiations that will start back up in 

2015, and of course we’ll ask to continue to move that. 

Ms. DUCKWORTH. Thank you. 

Mr. Guffey, did APWU’s most recent collective bargaining agreement with the Postal Service include any concessions to incrementally increase your members’ share of these costs? 

Mr. GUFFEY. Yes, we moved, I think, 3 to 4 percent so much per 

year. Like I say, these things were won sometimes in the past 

based on the wages then. We took less wages to get more pay for 

the health benefits. And now the post office is negotiating to take 

it back, and that’s why we don’t believe it belongs in legislation to 

require us to go there because it’s a negotiation issue. They’re not 

in the same legislation. They’re not trying to give us back what we 

gave up to get that. And we think that’s imperative, and when you 

have a labor organization dealing with management, it’s a give and 

take, quid pro quos, and what have you, and to take back our quid 

pro quo for something that we gave up years ago we think is not 

right. 

Ms. DUCKWORTH. So how would the chairman’s bill affect the 

agreement that I was just talking about with the concessions to incrementally increase your share. Are you saying that this bill 

would actually do that? 

Mr. GUFFEY. We haven’t seen the final bill and everything, but 

we believe that anything that deals around labor relations and negotiations should not be legislated. It should be allowed, maybe, 

under the bill, but not required. And that’s what I was talking 

about earlier, dealing with the Postmaster General on a whole 

realm of issues that, we can work through a lot of issues if we have 

the ability to do so. 

Ms. DUCKWORTH. Thank you. 

I’m out of time. Thank you. 

89 

Chairman ISSA. Would the gentlelady yield just for a colloquy? 

Ms. DUCKWORTH. Yes. 

Chairman ISSA. So the gentlelady understands, the intent of the 

bill is at the expiration of their contracts they would harmonize 

with the rest of the Federal workforce. However, the intent, and 

clear intent, and I want to make sure it’s understood during the 

markup, too, is that that allows 100 cents on the dollar to be 

moved back into pay or other benefits not covered by Federal harmonization. 

So the intent was to be able to say once and for all that the Federal workforce has, based on category, substantially the same reimbursements, benefits, retirements. That was more a matter of comparing apples and apples, because for this chairman’s time there 

has always been, well, you know, they make less but they do this, 

but they don’t do that. And quite frankly, our employees here in 

the House, employees over at the White House and so on, we wanted to make a statement that if you’re a Federal employee, to the 

greatest extent possible, the benefits, which are not ordinarily negotiable, in other words, Federal workers cannot negotiate benefits 

as part of their collective bargaining, the union can, but to be honest, it created a different interpretation of what a fair reimbursement was to a Federal worker. 

So although it’s open to amendment, and we’re certainly happy 

to take your input, the intention in the bill was to not reopen negotiations. We’re clearly saying that it simply would be harmonized 

when they renegotiate their new contracts. And the intent is that 

any givebacks would then be passed on so that it would translate 

into higher pay, but a different benefit for current employees, and 

obviously it has no effect directly on retirees. 

We now go to the ranking member of the full committee, who has 

been patiently waiting for his first round. 

Mr. CUMMINGS. Let me ask you—first of all, let me say that we 

got to resolve this. Mr. Donahoe, I’ve said that if we can send somebody to the moon, seems like we ought to be able to resolve this. 

And I think that our constituents have sent us here to work 

through problems, and I think our constituents are getting more 

and more frustrated when we fail to do so. We have a limited 

amount of time. We do not—we hold these positions for a temporary period, and this is our watch. 

Mr. Guffey, I insisted that you be here, and I want to thank the 

chairman for making sure that happened. I want you to tell me 

what is it, what in a bill—we’re going to do a bill—what must you 

see in a bill that would make you feel comfortable supporting it? 

Can you give me the elements, the things that you must see? Is 

that a fair question? 

Mr. GUFFEY. I think it’s fair. I think, personally, and I think my 

organization would like to see something that took care of the 

prefunding issue with the long-term health insurance. I think we 

would like to see something done with the overfunding of the retirement plans. I think we would like to make sure, and I think 

I heard Chairman Issa say that they will be using postal-only calculations to take care of the overages in the different accounts. 

I think we would like to see more opportunities for the post office 

to do more things in other government agencies. We’d like to see 

90 

them do more, have the postal management have the greater flexibility to deal with agencies or mailers to generate income to the 

Postal Service. 

We would like to make sure that the issues that need to be done 

in collective bargaining remain in collective bargaining. But there 

are some things that maybe need to be changed in the law to allow 

certain things to happen. Part of that might be part of the health 

insurance issues. 

There are a myriad of things that we would like to see, but the 

main thing we’d like to see, I think, is just a viable post office for 

the future. 

Mr. CUMMINGS. Now, Mister—were you finished? 

Mr. GUFFEY. Sure. 

Mr. CUMMINGS. Mr. Donahoe, what issues do you have with regard to anything he just said? 

Mr. DONAHOE. I think the, you know, the key for us is resolving 

the health care. I think that we’re in 100 percent agreement with 

that, so I don’t think that there is any issues there. 

I think that probably the difference between where the unions 

are and the Postal Service is, is the degree and speed of change. 

I think that we’re all in agreement that we have to make some 

changes. So when we’re pushing for the 6- to 5-day, I understand 

why Mr. Guffey and Mr. Rolando are a little more reticent, because 

their members are worried about that. So those type things. 

I think we’re both in—we’re in full agreement with FERS refund, 

Federal Employee Retirement, and getting the payment set right. 

We still continue to overpay, and that’s money that’s coming out 

of our pocket, the ratepayer’s pocket. Those are some things. 

I also think that we’re in full agreement on opening up for new 

products. You know, there’s discussions around other government 

services, even shipments of things like wine, beer, and spirits. 

There’s a big business in that. We think we’d do a great job. So 

there is a lot of points of agreement that we have. 

Mr. CUMMINGS. Did you have something else, Mr. Guffey? 

Mr. GUFFEY. No. I think as long as the service standards. We 

just want to see a viable Postal Service, you know, whatever that 

is in the future. 

Mr. CUMMINGS. Now, Mr. Chaffetz, a little earlier talked about 

the cannibalism of the private side. I remember cannibalism. I 

know you remember that. I don’t remember all the rest of what he 

said. But what he was referring to is that he didn’t want, when we 

go into the innovation piece and trying to make money through the 

Postal Service, that we not interfere with the private side. He listed something about passports and some other things, and you just 

mentioned wine shipments and whatever. 

I guess, you know, I’m trying to figure out where we draw the 

balance. On the one hand, you know, in my bill we talk about this 

innovation officer to come in and bring as much innovation as possible to the table, but on the other hand, you have folks who are 

saying, oh, no, no, no, no, no, no, no, don’t step on this, don’t step 

on that, don’t step on this. And by the time you start eliminating 

the private things you could get into, there’s nothing left, and it’s 

talking out of both sides of our mouths. 

91 

So, Mr. Donahoe, you mentioned wine. Can you think of other 

things? 

Mr. DONAHOE. Sure. 

Mr. CUMMINGS. Other than passports, and I think you mentioned 

a few other things. 

Mr. DONAHOE. I think the thing that we should challenge ourselves with is build things or perform work that helps not only the 

Postal Service, but others. I’ll give you an example. We’re working 

through this whole digital approach now. We think that we can fill 

a very important role in the space on secure digital messaging, authentication, things that really can’t be done by the private sector 

because there’s always a concern of lack of trust or, you know, 

who’s got what information, that from a Postal Service perspective 

we think that we would be able to fit in that spot. 

What that does then, that allows other people to grow. I mean, 

if you think about the group of us sitting here. We have an excellent infrastructure network of plants and processing centers and 

retail and delivery that Mr. Quadracci can bring volume in that he 

prints for thousands of customers. So if we can replicate a lot of 

that same thought going out into the future, I think there is a real 

win for us, and we don’t end up tramping on toes of people who, 

you know, would claim foul, that we’re government and not private 

sector. 

Mr. CUMMINGS. Mr. Chairman, I would just ask for unanimous 

consent. The Chairman has taken all kinds of time. I just want to 

make—I want to just have 3 more minutes and I’ll be finished. I’ve 

been here. I see you reaching for your gavel. I just thank you very 

much. 

Mr. LANKFORD. [Presiding] You’ve got 3 minutes there. 

Mr. CUMMINGS. Thank you very much. 

Let me ask you this. You know, I believe, you know, if given the 

proper tools, the Postal Service could expand its use of new technologies to offer new products and services. I also believe the Postal 

Service should be given expanded authority to offer non postal 

services such as check cashing, warehousing and logistics and facility leasing. 

Let me you this, Mr. Donahoe. How much of the space in the 

Postal Service existing facility for print is vacant? Do we have a 

lot of space? 

Mr. DONAHOE. There’s a number. I’d have to get back to you on 

that because it kind of varies by facility. We’ve squeezed a lot of 

that out in the last year or so, but we probably still have some 

space available. 

Mr. CUMMINGS. So the Postal Service could lease that space out 

or collocate it with other agencies? 

Mr. DONAHOE. Yes. We’ve talked to other agencies, we’ve talked 

to other firms that would like to move into space that we have and 

actually use our facility as a fulfillment site because they can operate a little warehouse right there and hand it across to us and we 

can get it delivered. 

Mr. CUMMINGS. So make sure that we understand this. You all 

are doing things right now that are in the pipeline that would yield 

substantial funds that you just haven’t gotten to yet? In other 

words, you haven’t—the deal has not been sealed? Is that—— 

92 

Mr. DONAHOE. I would say from a digital perspective, yes, we’ve 

been careful because we didn’t want to get ahead of legislation—— 

Mr. CUMMINGS. Right, right, because that was my next question. 

Are we hindering you from going where you’re trying to go? 

Mr. DONAHOE. As fast as we can get legislation—— 

Mr. CUMMINGS. You didn’t answer. 

Mr. DONAHOE. As fast as we can get the legislation passed, that 

helps us. 

Mr. CUMMINGS. So in other words, you’re out there and you’re 

going toward some things and you’re kind of worried that you don’t 

want to reach a deal or you can’t reach a deal or you’re sitting 

down with somebody to reach a deal, but you’re so worried that the 

Congress has not caught up with where you are. And so you, even 

if you were able to reach a proposed deal, you couldn’t carry it 

through right now. 

Mr. DONAHOE. That’s in some cases, and in some cases the opposite, where customers are a little afraid to do deals with us because 

they’re afraid that we would have some problems with our finances. So it goes both ways. 

Mr. CUMMINGS. All right. Thank you, Mr. Chairman. 

Mr. LANKFORD. Thank you for being here very much. 

With that, this hearing is adjourned. 

[Whereupon, at 4:55 p.m., the committee was adjourned.] 

(93) 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

94 


Insert offset folio 40 here 82401.040

The Honorable Darrell E. Issa 

Chairman 

Committee on Oversight 

and Government Reform 

U.S. House of Representatives 

"United ~tatcs ~rnat£ COMMITTEE ON 

HOMELANO SECURITY AND GOVERNMENTAL AFFAIRS 

WASHINGTON, DC 2051(H250 

July 16,2013 

The Honorable Elijah Cummings 

Ranking Member 

Committee on Oversight 

and Government Reform 

U.S, House of Representatives 

2157 Rayburn House Office Building 

Washington, D.C. 20515 

2471 Rayburn House Office Building 

Washington, D.C. 20515 

Dear Chairman Issa and Ranking Member Cummings, 

We regret that we are unable to testify at the House Oversight and Government Reform 

Committee hearing tomorrow on the state of the U.S. Postal Service and proposals that 

have been made to address the challenges it faces. 

As you know, postal reform has been and remains a priority for us and our committee. 

The Postal Service is a vital part of our economy, supporting by some estimates a $1 

trillion mailing industry that employs as many as 8 million people. The financial crisis 

the Postal Service has been dealing with in recent years has created uncertainty for 

postal cmployees, postal customers, and all Americans who continue to rely on the 

mail. It's vitally important that Congress act as soon as possible to provide the Postal 

Service with the reforms needed to ensure it is placed on a long-term, financially 

sustainable path, To that end, we remain committed - as we stated we were when you 

testified at our committee's postal reform hearing earlier this year - to working with 

both of you to get a postal reform bill to the President's desk as soon as possible. 

Thank you for your invitation to testify and for your continued commitment to tlnding 

bipartisan consensus on this important issue. 

With best personal regards we are, 

Thomas R, Carper 

Chairman 

Tom A. Coburn, M.D. 

Ranking Member 
95 


Insert offset folio 41 here 82401.041

NATIONAL ASSOCIATION OF POSTAL SUPERVISORS 

July 16, 2013 

The Honorable Elijah E. Cummings 

Ranking Member 

/Vutimwj llt'l1ci(lUarferf..' 

]727 KI!\iG STREIn: 3(,1'J'1::400 

:\LEX!\:'iDRlA. VI\ 2231";-275:1 

Ilb()!)c (70:1; 113f)~flGnO 

Committee on Oversight and Government Reform 

U.S. House of Representatives 

Washington, DC 20515 

Re: Discussion Draft of "Innovate to Deliver Act of 2013" 

Dear Ranking Member Cummings: 

The National Association of Postal Supervisors, representing over 28,000 active 

and retired supervisory and managerial employees of the United States Postal Service, 

appreciates the opportunity to respond to your discussion draft of comprehensive postal 

reform legislation. As you know, our' organization has long urged Congress to pass 

postal legislation that responsibly ends the financial crisis atl1icting the Postal Service 

and provides a foundation for future stability and growth. 

We commend you for your legislation's commitment to stabilize the Postal 

Service's finances and provide for longer-term stability through growth and innovation. 

We endorse your measure and look forward to continuing to work with you and other 

members of the Committee in achieving passage of legislation that provides immediate 

and lasting benefit to the Postal Service. 

Thank you for considering the attached comments of your draft measure. Please 

contact us if you have questions or require assistance. 

Sincerely, 

~~;,~ Executive Vice President 

Ene!. 

cc: Members of the House Committee on Oversight and Government Reform 

Representing supervisor,,>, managers aIld postmasters in the United Staff:l~ Posta18mvice 
96 


Insert offset folio 42 here 82401.042

NATlOl\AL ASSOCIATIOl\ OF POSTAL SGPERVISORS National Headquarters 

1727 KlNG STREET. SUITE 400 

ALEXANDRIA. VA 22314-2753 

(703) 836-9660 

Comments of the National Association of Postal Supervisors 

Concerning the Discussion Draft of the "Innovate to Deliver Act of 2013" 

The National Association of Postal Supervisors, representing over 28,000 active and retired 

supervisory and managerial employees of the United States Postal Service, strongly supports the 

passage of comprehensive postal reform that ends the financial crisis afflicting the Postal Service 

and provides a foundation for future stability and growth. 

NAPS believes that comprehensive postal reform should embrace short-term and long-term 

solutions. The immediate crisis facing the Postal Service is largely due to past actions taken by 

Congress. Short-term solutions should correct those errors and aim at restoring financial 

solvency. Longer-term solutions should aim to fortifY revenue and provide wider authority to 

the Postal Service to transform itself and sell innovative products and services. While no single 

action will solve the Postal Service's problems, NAPS believes that four key solutions lie at the 

heart of comprehensive postal reform: 

• Repeal or modify the retiree health prefunding requirement 

• Return pension overfunding to the Postal Service 

• Preserve Saturday delivery and other delivery standards 

• Authorize the Postal Service to sell additional products and services 

NAPS provides these comments in response to the discussion draft of comprehensive legislative, 

entitled the "[nnovate to Deliver Act of2013," prepared by Rep. Elijah E. Cummings, Ranking 

Member of the House Committee on Government Oversight and Reform. NAPS endorses the 

legislation and believes it represents an effective, balanced approach toward encouraging 

innovation and comprehensive postal reform. Our comments are organized by title of the bill. 

Title I - USPS Profitabilitv and Revenue Generating Enhancements 

Subtitle A - Postal Service Products and Pricing 

1. Section 101: Establish the position of USPS Innovation Officer. This section calls for 

the USPS to create and the Postmaster General (PMG) to designate a Chief Innovation 

Officer (CIO) to "lead the development of innovative postal and non-postal products and 

services" by January 1,2014. The PMG must also propose a comprehensive innovation 

strategy to Congress and periodically report to Congress on the progress and proposed 

revisions to the Innovation Strategy. 
97 


Insert offset folio 43 here 82401.043

2 

NAPS Response: NAPS supports the creation oj a CIO and more aggressive action by 

the USPS to identify and take advantage oj the vast opportunities Jor smart innovation 

that exist within the postal inji-astructure. With the extensive logistical nenvork, retail 

presence and on-line opportunilies that the USPS possesses, the appointment 0/ a 

designated officer t%cus on growth and expansion is overdue. 

The Postal Service and the American public stand to benefit Jrom the creation oj an 

aggressive innovation strategy. NAPS members, as they have/or over 100 years, stand 

ready to manage and supervise the implementation oj innovation strategy in the field. 

2. Section 102: Authority to Offer Non-Postal Services. This section allows the USPS to 

expand its business operations into new lines of business it has previously been 

prohibited from participating in, 

NAPS Response: NAPS agrees with granting the Postal Service the ability to provide 

additional services to the American public including check cashing, basic banking 

services, and internet services. These services could raise additional revenue and extend 

a variety oj convenient services to millions oj Americans. 

3. Section 103: Requirement that Market Dominant Products Cover Attributable 

Costs. This section repeals current statute and requires each category of mail to cover its 

own separate costs. 

NAPS Response: NAPS agrees that the rate structure of the Postal Service should be set 

to have all postal services cover their actual costs, and not continue subsidies for 

particular businesses to the detriment oJthe broader American public. 

4. Section 104: PRC Review ofCPI CAP Instituted Under PAEA. This section requires 

the Postal Regulatory Commission's consideration of the merits of the current CPI price 

cap, established by the Postal Accountability and Enhancement Act. Current exigency 

requirements to alleviate the burden of the current cap structure are too narrowly 

constructed under the current law and do not provide sufficient pricing flexibility to 

USPS. 

NAPS Response: NAPS agrees that the Postal Service should not be burdened by 

current statute that unnecessarily restrains the USPS ji-om setting prices and rates. 
98 


Insert offset folio 44 here 82401.044

3 

S. Section 105: Enhanced Product Innovation. This Section streamlines the 

implementation process for experimental USPS products. 

NAPS Response: NAPS agrees that the Postal Service requires the latitude to develop 

and test new products without the restrictions that are currently in place. Innovative 

products have the power 10 rejuvenate the Postal Service and increase revenue. 

6. Section 106: Authority to Ship Beer, Wine and Distilled Spirits. This section allows 

the USPS to serve as a carrier for alcoholic beverages. 

NAPS Response: NAPS agrees with this change in the law. Currently other shipping 

service companies have the ability to engage in these services for the American public, 

and the Postal Service should compete in this lucrative market like private carriers. 

7. Section 107: Repeal of Uniform Rates for Books, Films and Other Materials. This 

section lifts requirements on what the USPS is required to charge for media materials. 

NAPS Response: NAPS agrees with this provision as it complies with Section 103 o,(this 

proposal, which require all classes of mail cover their attributable costs, and does not 

unfairly shift the costs for some products on those who do not enjoy them. 

Subtitle B Postal Service Management 

8. Section 108: USPS Balanced Budget Minimum Requirement. This section requires 

the Postal Service to maintain a balanced budget in relation to revenues and costs. 

NAPS Response: NAPS agrees that the costs of the Postal Services should be balanced 

with the rates that are charged for services. This is common business sense in any 

industry. 

9. Section 109: Reporting Requirement for Board of Governors and Postal Regulatory 

Commission. This section requires members of the PRC to disclose their travel and 

expenses at the end ofthe fiscal year to Congress. 

NAPS Response: In the spirit a/transparency, NAPS agrees that all costs aSSOciated/or 

travel and expenses should be available for review and audit. 
99 


Insert offset folio 45 here 82401.045

4 

10. Section II 0: Restrictions on Postal Service Executive Compensation. This section 

places significant pennanent and temporary limitations on the maximum salary for postal 

executives, limits how many executives can earn this salary, and establishes the 

maximum benefits these executives can receive. 

NAPS Response: NAPS members have expressed concerns about the ability of the USPS 

Board of Governors to enter into contractual agreements with postal executives that 

create additional methods of compensation that enable them to bring their own 

compensation and benefits above the limits for other federal employees. NAPS agrees 

with salary and benefit ceilings consistent with the rest of the federal government. 

II. Section Ill: Investment of Competitive Product Monies. This section pennits the 

Postal Service to invest the profits made from competitive products into a broader range 

of investments than is currently pennitted by law. 

NAPS Response: NAPS agrees that the Postal Service should enjoy the latitude to invest 

any generated swpluses as it chooses, subject to the Department of Treasury 's oversight. 

Title II - Postal Service Workforce Realignment and Right-Sizing 

1. Section 201: Separate Normal-Cost Percentage Recalculation of FERS. This section 

requires the Office of Personnel Management to amend the fonnula used to detennine the 

USPS's contribution to FERS, making strategic assumptions tailored to the USPS. 

NAPS Response: NAPS agrees that the federal government must fairly modify the 

formula used to calculate future payments to the FERS system by the Postal Service, and 

not punish the Postal Service for the government's actuarial errors. 

2. Section 202: Treatment of Surplus Contributions to the FERS. This section requires 

that the surplus calculated in section 201 be used first to repay the Postal Service's loans 

from the US Treasury, and that any subsequent surpluses pay down remaining liabilities 

the USPS may have to the CSRS or the FRHBP. 

NAPS Response: NAPS agrees that any excess funds that are identified through the 

enactment of Section 201 should be returned 10 the Postal Service so it can to pay down 

outstanding debt. NAPS also agrees that once these loans have been satisfied that any 
100 


Insert offset folio 46 here 82401.046

5 

other excess fitnds be used to offset any other postal liabilities, including health plan 

costs. 

3. Section 203: Sense of Congress. This states the non-binding sense of Congress that the 

USPS should have the ability to offer early retirement and buyout packages without 

restriction. 

NAPS Response: NAPS agrees that the Postal service should have the authority to offer 

incentives that reduce workforce costs and are mutually beneficial to the USPS and its 

employees. 

4. Section 204: Contributions to Thrift Savings Fund of Voluntary Separation 

Incentive Payments. This section allows posta! employees to voluntarily deposit part of 

their buyout into their TSP. 

NAPS Response: NAPS supports this change because it provides incentives to further 

reduce workforce costs through voluntmy retirement. 

5. Section 205: Service Credit Contributions of Voluntary Separation Incentive 

Payments. This gives the USPS and employees the flexibility to offer service credits as a 

part of or instead of buyouts. 

NAPS Response: NAPS agrees with the flexibility granted to USPS, as it gives workers 

the opportunity to take the voluntary separation incentive most beneficial to them, as 

opposed t%rcing a one size fits all policy on a diverse workforce. 

6. Section 206: Modification of Prepayment Schedule Relating to Postal Retiree Health 

Benefits Fund. This provision modifies the pre-funding requirement for future retiree 

health benefits to amortize over a 40-year schedule, reduces the prefunding requirement 

for future retiree benefits from 100% to 80%, and delays the commencement of future 

payments until Fiscal Year 2017. 

NAPS Response: NAPS supports the recalculation of the pre/unding requirement to a 

longer amortization period, and the extension of relief to the Postal Service for several 

years while it acquires greater financial stability 
101 


Insert offset folio 47 here 82401.047

6 

7. Section 207: Study on Workforce Realignment and Right-Sizing Options. This 

section requires the Comptroller General to report to Congress on the methods used to 

right-size the postal workforce. 

NAPS Response: NAPS agrees that a comprehensive plan on wor~rorce realignment and 

right-sizing options would be desirable and preferable to current piecemeal approaches. 

8. Section 208: Applicability of Provisions Relating to a Reduction in Force (RIF). This 

section allows the USPS to engage in RIF activity except when prevented by collective 

bargaining agreements, and to exercise this power in conjunction with an evaluation 

system based on comparative performance. 

NAPS Response: NAPS believes that current RlF rules are still applicable to dealing 

with any changes in the woriforce that would require reductions in positions. Al the 

present lime the USPS has the authority to have up to 20% of their woriforce as noncareer. This flexibility precludes the need to have massive cuts in the woriforce of career 

employees as non-career workers may be adjusted withoUl impacting career employees. 

9. Section 209: Enhanced Reporting on Facility Network Initiatives: This section 

requires the PMG to submit reports to Congress that provide extensive reasoning for the 

potential closing of postal facilities, including addressing several factors related to how 

these closings will impact the postal infrastructure and postal employees. 

NAPS Response: Considering the severe and permanent impact closures of postal 

facilities have on both the USPS infrastructure and employees, NAPS believes that all 

network changes require the overSight necessary to ensure that the overall service and 

mission of the delivery of services /0 the American public is not adversely impacted by 

the poor planning or execution of a restructuring plan. 

Title III - Postal Service Improvements and Regulatory Relief 

1. Section 301: Permit Appeal Rights for Closing of Postal Stations and Branches. This 

section creates uniformity between the processes for closing post offices, and those for 

closing postal stations and branches. 

NAPS Response: NAPS supports eliminating this arbitrary distinction, and believes that 

ali postal ins/alia/ions should be subject /0 the same process for closing, regardless of 

their designation. While there are parts of the postal infrastructure that are more visible 

and understandable to the American Public, the parIs that are not as visible can play just 
102 


Insert offset folio 48 here 82401.048

7 

as or an even more important role within the Postal Service. and should enjoy equal 

protection. 

2. Section 302: Intra-Agency Cooperative Agreements: This section allows the Postal 

Service to work with other governmental agencies for their mutual benefit. 

NAPS Response: NAPS agrees that the Postal Service should more aggressively seek 

revenue from collaborative relationships with other federal components and that intraagency cooperative agreements could play an important role toward that end. 

3. Section 303: Grouping of Negotiated Service Agreements. This section authorizes 

USPS to engage in Negotiated Service Agreements and private businesses. 

NAPS Response: NAPS agrees with allowing the Postal Service 10 enter into Negotiated 

Service Agreements with postal customers much in the same manner as other delivery 

services are allowed to enter into such agreements with their customers. 

4. Section 304: Standardization of the Process for· Classification of Competitive 

Products. This section requires the PRC to review and approve potential competitive 

products that comply with current requirements as quickly as possible. 

NAPS Response: NAPS agrees that the timeliness of approvals for classification of 

competitive products would benefit the Postal Service in bringing products and services 

to the American public. 

5. Section 305: Development of New Market-Dominant Classes of Mail. This section 

requires the PRC to establish on its own, or when formally requested, new classes of mail 

that adhere to specified criteria. 

NAPS Response: NAPS agrees that the Postal Service should have the power to market 

different classes of mail to improve its income while better tailoring its products to the 

individualized needs of the American public and the business community. 
103 


Insert offset folio 49 here 82401.049

8 

6. Section 306: Expedited Consideration of Service Changes by the Postal Regulatory 

Commission. This section permits the USPS to request expedited consideration from the 

PRe for time sensitive advisory opinions. 

NAPS Response: NAPS agrees that the Postal Service should have the ability to request 

that PRe expedite certain advisory opinions warranted by their time sensitive nature or 

their relative importance as compared to other issues before the PRe. 
104 


Insert offset folio 50 here 82401.050

NATIONAL ASSOCIATION O"F POSTAL SUPERVISORS 

July 16, 2013 

The Honorable Darrell E.lssa 

Chairman 

1727 

.-\L2XA\:DRIA, Vt\ 22:-l14-Z7::;:~ 

Ph0:W t 70:1) n:W-nfifiO 

Committee on Oversight and Government Reform 

U.S. House of Representatives 

Washington, DC 20515 

Re: Discussion Draft of "The Postal Reform Act of 2013" 

Dear Chairman Issa: 

The National Association oC Postal Supervisors, representing over 28,000 active and retired 

supervisory and managerial employees of the United States Postal Service. We appreciate having 

the opportunity to respond to your discussion draft of comprehensive postal reform legislation. 

As you know, our organization has long urged Congress to pass postal legislation that 

responsibly ends the financial crisis afflicting the Postal Service and provides a foundation for 

future stability and growth. 

We commend you for your commitment to stabilize the Postal Service's finances by 

including in your draft measure provisions addressing the foremost cause of the Service's current 

problems; the unwise and unfair pension and retiree health financing polices that Congress and 

the Office of Personnel Management have created. We also commend you for your efforts to 

extend greater authority and responsibility to the Postal Service for pushing the envelope of 

innovation, especially to leverage its premier assets; its first-mile and last-mile networks. 

We believe these policy elements of comprehensive policy refOim can be strengthened 

further. Short-term and long-term solutions together provide the prescriptions for the Postal 

Service's stability and growth. We look forward to continuing to work with YOli. other 

Committee members and your staff in achieving legislation that provides immediate and lasting 

benefit. 

Thank you for considering the attached comments on your draft measure. Please contact us 

if you have questions or require assistance. 

Sincerely, 

~ t:, krl1.o.{;j(-I11/l. {f~~eSF. Killackey 1II 0 

Executive Vice President 

Ene!. 

cc; Members oflhe House Committee on Oversight and Government Reform 

Representing .<;upen'isnts. managen; and postmasters in the! UnilHd SlaTes Pos/oJ S6'rvjC(~ 
105 


Insert offset folio 51 here 82401.051

\'A 2231~-='753 

;:;'3(,··t)('(,i) 

Comments ofthe National Association of Postal Supervisors 

Concerning the Discussion Draft of The Postal Reform Act of 2013 

The National Association of Postal SuoelC\''''orS. ",nnesen/inrr over 28.000 active and retired superv'sory and 

managerial of the United 

postal refonn ends the financial crisis aftlicting the Postal 

stability and gro\\'th. 

supports the passage of COll10rehens 

and provides a foundatton 

NAPS believes that comprehensive postal refonn should embrace short-term and long-term solutions. The 

immediate crisis facing the Postal Service is largely due to past actions taken by Congress. Short-term solutions 

should correct those errors and aim at financial solvency. Longer-term solutions, meanwhile, should 

aim to fortify revenue and provide wider to the Postal Service to transfonn itself and sell innovative 

products and services. While no slngle action solve the Postal Service's problems, NAPS believes that four 

key solutions lie at the heart of comprehensive postal refonn: 

Repeal or modify the retiree health prefunding requirement 

Return pension overfunding to the Postal Service 

Preserve Saturday delivery and other delivery standards 

Authorize the Postal Service to seD additional products and services 

l':APS provides these comments in response to the discussion draft of comprehensive legislative, entitled the 

"Postal Reform Act of 2013," prepared by Rep. Darrell Issa (R-CA), chainnan of the House Committee on 

Government Reform and Oversight, and posted on June 13 on the Committee website. NAPS that the 

draft legislation is an improvement over H.R. 2309, as proposed by Rep. Issa in the I Congress. 

Nonetheless) NAPS bctieves the legislation falls short in some areas and overreaches in others. Our comments 

arc organized by section ofthe bill. 

Title I Postal Service Modernization 

I. Allows the Postal Service to Shift to a Modified-Saturday Delivery Schedule (Section 101). The 

legislation will establish a nationwide schedule of 5 days of mail delivery per week and require that there cannot 

be more than 2 consecutive days on which mail is not delivered, including as a result of public holidays. It will 

tcmlinate Saturday delivery of competitive products, like packages, beginning in 2018. It also will extend the 

current mailbox-monopoly Sunday exemptions jor newspapers to other days in which the Postal Service docs 

not deliver letter mail. 

NAPS Response: NAPS opposes reductions in mail delivery schedules Ihat degrade service and contribute to 

volume erosion. CUlting mail sen'ice l.':; inheren1ly counter-productive to "growing the business. " A1aintenance 

orlhe semblance a/Saturday delivery to post offices boxes. and caller services coupled with parcel dehvel)' 011 

1 
106 


Insert offset folio 52 here 82401.052

SU{lIrda),'s and even on Sunday 's, is ill-conceiv2d. NAPS is dOl/b:jtt! {hat the scrrlcc rcducrzons COI1:c)'Jln,!iiI1:a 

file legis/atioJ? H'i!! prm'ide the $2 biliion in projected In fac!. P;)stai Sr!n'ice 

dc/il'CtJ' on Saturda.v and Sunda.v will he cos[~r and unless ihe attnbwabfc costs or de!in!tT Drs 

rccol'{.!red through a fce .ror such "prctnwm" sf]Ticc 

2, Expansion of Curbside Delivery (Section 101), The legislation will phase-out "door 

that curbside or centralized (clusterbox) delivery of mail become the default delive:-y 

residential addresses and business adcresses, according to timetables and criteria 

the leg1siation. The also wili require the Postal Service to begin efforts to conve:-r 35 

addresses as to curbside dell very, 30 million converted addresses in the next 

10 years. A working capital \vi11 be created finance to offset costs of conversion to curbside delivc:·y. 

NAPS Response: NAPS tilat there are opporlunities to modernize and creale adelL/iona/ In 

the dc/ivelY of mail to throughout the country The Postal Sen'ice should seek fa use mas! 1.:0s1-

options 0/ mali de!i"!!IY where consistent with the maintenance o/sen'ice quality, r, 

barriers and conditions 'with urban areas present challcnge') to lhe success q( 

ccntraizz.cd deii\'crv service in these areas. There arc securi~y issues, lssues involving elderly and 

handicapped Americans, and SlOrage and delit'eJY issues associated with parcels. NAPS believes that curbside 

de/ipery cannot be an all-or-none propositioJl. and that fhe considerations requiring the continuance q( door 

defiver:v. as contemplated in the legislation, should be expanded. 

3. Closures of Post Offices (Section 103). The legislation will remove the prohibition on closing post offices 

solely for operating at a deficit. 

NAPS Response: It is critically important that postal service is maintained regardless of profitability in mral 

areas. While the Postal Service needs to have the authority to detennine the appropriate level of service that 

should be afforded to communities, the fulfillment of universal service mandates attention to the needs ofrJral 

America and its citizens and business interests, 

4. Enhanced Heporting on Postal Service Efficiency (Section 105). The legislation requires the Postal 

Service to usc a PRe-recommended fonnula to determine changes in Postal Service productlvity and the 

resu!ting effect on overall costs. 

NAPS Response: NAPS is uncerta/n as to the value of this approach. The Postal Service already has wel! 

developed methodologies to measure volume of mail and equipment and personnel performance, 

5. Area and District Office Structure (Section 106). Requires the Postal Service, in consultation with the 

Postal Service Inspector General, to close or consolidate 30 percent of Postal Service Area and District offices 

that existed as of September 30, 2012 and to fully achieve that goal by October 1, 2015, 

NAPS Response: The current management stmcrnrc of Area and District offices supporting the work of local 

post offices and processing facilities should be studied, but a goal of eliminahng 30% of these offices may not 

be realistic credible, 
107 


Insert offset folio 53 here 82401.053

Title n -- Postal Sen·ice Governance 

1. Establishment of the "Postal Service Financial Responsibility and lVlanagement Assistance Authority." 

The would abolish the cu;rent Board of Governors and replace the Board with five executives, 

the "Postal t"inG::cial Respor,sibiliry and 1\1anagement Assistance Authority," authorized to govern 

the Serrlce dUri;1g a control period until such time 3S the Postal Service returns to profit::;bility and ca~ 

properiy fund its retirement obiigatlons. At :hat poi:1t, the Board ofGovcmors \\'Quld return to ~owcr. 

r'/APS Response: j\'APS believes fhat the last thing thaI the USPS needs is !O bring in a group "expcrl\'" fo 

temporari(}! replace the current Board of Governors. Currenl(F [he Pnsw/ S6Tl'lce lS managed an internal 

group of c.reculives, the Board 0/ Gm'ernors and Ol'crseen, in sOnle respecIs, !he Postal Reglilater), 

Comnllssion Adding a nC>-t· temporQl~V layer of leadership is unnecessary Instead belie,'cs fhal (he si::.c 

of the current Board of Governors should immcdiGle~}' be nine members to five memher.~·, as 

confempiated by the legislation upon completion a/the 

Title III - Postal Service Workforce 

1. Applicability of Reduction-in-Force Procedures (Section 301). The legislation 

workers to the same reduction-in-foree (RIF) regime as other federal workers. 

barred in Postal Service collective bargaining agreements. Any collective agreemt::nt 

prior to the date ofenactmcnt of the legislation witt be renegotiated within nine agreement 

includes any restrictions on the use of RIF procedures. Any employees who lose their job due to current 

restructuring will have preferential hiring status among Postal Service contractors. 

NAPS Response: Current postal workers already have RIF procedures that work effectively in balancing the 

worl,iorce. Since 2009, over 8, 000 managemenl positions represenled by NAPS have been eliminated through 

the and RIF procedures. NAPS has worked with management to ensure the best inlereSIS 0/ {he 

Postal and the recognition of Ihe righls of our members. 

On the bargaining unit side of the Postal Service, the implementation of the most recent contracts 0/ the four 

major postal unions provided/or the hiring of up 10 20 percent non-career employees. This large percentage of 

non-career employees presents adequate opportunities to aller needs at the local and national level to 

odjustfor workload. NAP believes thallhe currenl syslem in place well and docs nol need to be changed. 

2. FEHBP and FEGLI Funding Requirements (Section 302). The legislation will require postal workers by 

2020 to pay the same premium contribution that other federal workers pay for health and life insurance benefits. 

NAPS Response: At first glance, this recommendation ivould appear to make sense: all, }vhy should 

d{lferent groups of federal employees receiving the sante group health insurance and insurance cQl'erage 

pcZy different mles for Ihese benefits. The juslification lies in how Ihe pay and benefits of federal and poslal 

empLoyees are arrived at. 

The size of heallh and life insurance premiums paid by the Poslal Service for ils workers are negolialed and Sci 

through the col.lective bargaining agreements the Postal SerFice reaches with its unions. The compensation of 
108 


Insert offset folio 54 here 82401.054

c/\li1 service emplo)'ees, on fhe other hand, is S!r1/ulorilyj!xed and/cdera! employee unions may not !lcgol/atc 

and other compensation malters \yilh the governmem. ;Vegotiation ore,. postal compu;sation, tllll:" mav 

higher paymenls of health insurance prf:fniums by the Postal Service than lhe/cderal go;'ernmel'll, bUi no! 

as high a base pay rate due to a 101t'er priority fo it by fhe unions during negotiations, Fay and bOle/if 

l'Clriance.v arc b:v the availahlht'v' pay fO -workers, depending on ~~'here stich 

\~'orkers live, is not a\'ailab1e to postal 

Title IV - Post. I Service Revenue 

1. Adequacy, Efficiency and Fairness of Postal Rates (Section 401). The legislalion will require each 

markct-donlinant product to cover its costs, while mamtainlng the statutory price cap based on the Consumer 

Price Index. It .:llso require rates for any market-dominant class of mail less than 90 percent of costs, 

within t\VO years, to increase annually at a rate of 2 above the rate It also \\'lll requIre thc 

PRe to conduct a study dunng the two-year delay on the exccss capacily on attlibutable cosls_ 

NAPS Response: NAPS suppons any e{forl that lVould result ill all classes ofmml bearing Iheir own cos/sfar 

processing and deln:e1y_ 

2. Rcpeal of Rate Preferences for Political Parties (Section 402). The legislation will immediately eliminate 

the ability of the national and state political committees to use the non-profit mad rate. 

NAPS Response: NAPS agrees 11701 all mailers. including polilieal mailings, should be charged the cost for 

processing and delively. 

3. Nonpostal Services (Section 404). The legislation permits the Postal Service to pursue new revenue. It 

allows USPS to scll advertising space at facilities and on its vehicles to offer state and local services, such as the 

sale of fishing licenses, 

NAPS Response: NAPS focused, intensive effort to assist the Postal SerFice in reinventing ils 

husiness model. The Postal needs 10 generate new revenue as aggressively as it is pursuing e/ll'mmelCs 

in mail processing and de/i\!cry Thr(; involves the pursuit of business opportunities within existing as 

well as the oj/ering ()Inon~pos{al product,,;, subject to Congressional approval. 

NAPS supports legislafion that. \vould alloH! lhe Postal Serf/ice to raise additional revenues by propiding 

additional products and services that the American public needs and would use, The Postal Service should be 

permitted to oller non-postal products or sen'ices if the Postal Regulatory Commission has determined fhat the 

products and serVices make use of USPS's processing, transportation, delil'eIY, retail net1,vork, or lee-llnOIIWV 

and are consistent with the public interest. In many respects, this can be best accompHshed throllgh 

privole and inter-governmenlal partnerships. l! also should be permitled offer services on behalf of stale alld 

local governments as it does today on behalf offederal agencies and to ship )-t1ine and beer like its przvalesector compelifOrs do. 
109 


Insert offset folio 55 here 82401.055

4. Appropriations Linkage (Section 406). 

Postal Servlce to ask for a public service 

direct taxpayer expe!1dirures in support of the 

will elimHiatc curren: author:tv 

and will eliminate two other provisio"ns 

Ser.rlce . 

. \>iPS Re.lpollse: The public service taxpayer subsidy should be preserved as a safe,), mll'e should the 

financial health of the Postal Service unexpectedly deteriorate. Prior nON-lise of the subsidy and the Ol'crall 

reliance of the Postal Service on postage revenue should not diminish the potcntial '1)alue of the public 

sen-'ice taxpayer subsidy m; a safeguard in extraordinary circumstances. 

Title V -- Postal Service Finance 

l. Treatment of CSRS and FERS Funding Surpluses (Section 501). The legislntion will require any net 

actuarial surpluses between the Postnl Service's CSRS and fERS accounts be transferred to the Posta! 

Retiree Health Benefits fund on an annual baisis. 

NAPS Response: flAPS believes that any surpluses in 

to down the current debt Postal Service. Once Ihe debt has 

as to thefulure use 

CSRS or FERS should be first used 

paid dmvn, then options should be 

2, Retiree Health Benefit Liability Payment Schedule (Section 502). The !egislation wiil restructure the 

Postal Service's plan to fully fund its retiree health care benefit. Starting in 2014, ail future payments will be 

based strictly on an actuarial calculation designed to achievc full funding in 2056. Past due prefunding 

payments are covered in the restructured payment plan. The legislation will eliminate the two statutory retiree 

health care payments the Postal Service has previously defaulted on, as well as the juture payments 

for FY 

NA PS Response: NAPS agrees thaI there must be a restructuring of the tnelhodologyfor funding retiree hea/Ill 

care benefits, HOH'ever, it is concerned thaI forty-year amortization based on fi{lI funding of thl? Postal 

Service's retiree health liability by 2056 may yet impose intolerablefinancial burdens upon the Postal Sen'ice, 

3. Supplementary Borrowing Authority During a Control Period (Section 503), The 

the Postal Service, to assume an additional $5 billion in debt, but requires repayment 

each year. 

NAPS Response: 

to satisfy increasiHg~v 

the authorization of additional debt sen'ice/or the Postal Service, especially 

if!(rastructure andfleet needs. 

Title VI - Postal Contracting Reform 

L Advocate for Competition (Section 702), The legislation requires the Postal Service and PRC to establish 

competition advocates for promoting the contracting out of functions that the private sector can perfonn equally 
110 


Insert offset folio 56 here 82401.056

\\"elJ or better and at lower cos:, The competition 3.dvocates 2rc to promote competition to the r:-;JXlr:lUrr; e'..:tent 

practicable conslstent with obtaining best value, and to revic\v procurement JC~lVJt!eS, 

.YAPS Respollse: There arc already sIUI/cient policies and resources in place within the Postal SeJl'ice to 

promote the co,1!racting out of appropriate postal/unction'}, The [/SPS Genera! addilional~v (js<:;iSL~ 

in maA:ing recomrnendatlOns on contracting 011/ and cost savings resources, the creotion (?f 

c'ompelftion advocates does not walTon! priorit}, attentIOn, 

2. Delegation of Contracting Authority. Posting of Noncompetitive Contracts, Ethical Issucs (Sections 

703~706). The legislation rC(iU;reS the Postal Service and PRe to :ssue policies on officer 

delegations of authority and provides for otber rc:o~s, including requirements of ~ransparcncy ethIcs 

comphance. 

/VAPS Response: Legitimate recent concern over the Postal Sen'ice's recent management of its confracting 

authonty Create the need for the reforms established by the legislation. 

6 
111 


Insert offset folio 57 here 82401.057

~i'\P~S I'\~A U 

National Association of Postmasters of the 

United States 

Testimony of 

Robert Ra poza 

National President 

Hearing 

House Committee on Oversight and 

Government Reform 

Washington, DC 

July 17, 2013 
112 


Insert offset folio 58 here 82401.058

Chainnan Issa, Ranking Member Cummings and committec mcmbers. on behalf of the 

25.000 members of the National Association of Postmasters of the United States 

(NAPUS), I appreciate your im'itation to share our \'iews regarding the pending 

"discussion drafts" that were recently unveiled by the chairman and ranking member. 

NAPUS represents Postmasters, the managers-in-charge of our nation'5 post offices. Our 

mcmbership also includcs Postmaster Relief personnel, officers-in-charge of post offices, 

and retired Postmasters. 

As this committee knows, fonnidable obstacles continue to confront the United States 

Postal SeI\'ice as it struggles to remain a viable and universal publie seI\'ice. Our 

Constitution recognizes the preeminent status of the Postal SeI\'ice as an inhercntly 

governmcntal entity. Indecd, Article I, Section 8 of the foundation of system of 

govennnent stipulates an explicit Congressional responsibility to establish the national 

postal system; and, now, in 2013, Congress must cnsurc its continued viability. 

Postmasters and the communities they serve have been acutely impacted by Postal 

Service cost-cutting initiatives that have decreased the number of full-seI\'ice post offices 

available to the mailing public, as well as dramatically reduced the hours of service at 

thousands of post offices, particularly those in IUral areas and small towns. I might add 

that urban and suburban connnunities have also suffered seI\'ice reductions. In total, 

within the next year, approximately 14,000 post officcs will experience significant hour 

reductions, and these sCI\'ice cuts will have a negative impact on postal retail revenue. 

While Postmasters rccognizc the financial rationale underlying these painful actions, 

NAPUS believes that congressional failure to enact constlUctive postal refonn has been a 

catalyst in fostcring these seI\'ice reductions; these actions also have had a significant 

adverse effect on NAPUS members. 

Postmasters believe that constlUctive postal relief legislation would be the most effective 

means of averting a postal collapse that would put at risk a substantial portion of our 

national economy, hann countless small and home-based businesses, jeopardize the 

employment of thousands of middle-class jobs, and endanger the hard-earned benefits of 
113 


Insert offset folio 59 here 82401.059

postal employees. I believe that the chainllan. ranking member. and conuniltee members 

recognize that NAPUS has and \viII continue to playa constlUctive role in de\'(~loping and 

enacting beneficial postal relief legislation. As you may know. last year. NAPUS strongly 

supported the Senate-passed consensus postal bilL S. 1789. It was not a perfect bill, but 

was a thoughtfuL responsive and bipmtisan measure that facilitated sensible postal rclicf. 

With all this in mind, I am providing you with NAPUS' input rclating to those provisions 

of your draft bills, in which, I believe, there is consensus among NAPUS membcrs. The 

eore elements of NAP US' fi'amework for postal legislation are fairly simple: revenue 

generation through innovation, financial relieffrom the inequitable treatment of postal 

retirement and health care tlUSt funds. realistic postage rate-setting, and assurance of 

universal service. 

Almost six months ago, I testified before the Senate Homeland Security and 

Governmental Affairs COl1Ullittee, at which time NAPUS forcefully argued that the 

primary focus of postal relieflegislation should be revenue generation. This legislative 

priority has not changed. It is foolish to endlessly eviscerate the postal institution, 

suggesting that these actions will restore the Postal Service to financial vitality. 

Responsible partnerships with other governmental entities -federal, state and municipal -

and with the private sector provide opportunities for growth. NAPUS is pleased that both 

the chairman's and the ranking member's drafts recognize the need for new postal 

products. We are also supportive of the provisions in the ranking member's draft that 

establishes innovation as a major priority. 

Expansion of the small parcel market is accelerating, and the Postal Service must capture 

a significant share of it. There is absolutely no reason that the Postal Service cannot be 

the dominant participant in this segment of the postal market. Post offices are uniquely 

equipped to provide a secure, affordable, and accessible point for parcel preparation, 

acceptance, and delivery. Moreover, post offices provide a comprehensive network for 

parcel returns. The physical presence of post offices provides a major competitive 

advantage for Postal Service dominance in the small parcel market. Postmasters are 

exceptionally qualified and capable to promote small parcel products, particularly to 
114 


Insert offset folio 60 here 82401.060

small and medium-sized businesses. It should be noted that. according to the Small 

Business Administration. there are presently about 23 million small businesses in the 

country and they contribute am1Ually about 5)9 billion in postal revenue. There is ample 

evidence their postal needs arc accelerating and. as a result, increased postal revenue is 

within reach. Postmasters will be pivotal to tapping into this potential postal revenue. A 

recent Postal Inspector General report concluded that Postmaster visibility is a priceless 

tool to successfully market revenue producing postal products to local businesses. 

"Postmasters are typically at the forefront of interactions with local small business 

customers, either by providing service, addressing service issues, or selling Postal Service 

products or services:· 1 Moreover, the Postal Service recognizes the key role that 

Postmasters can play in postal marketing, "the Postmaster title weighs heavily in the 

community as a valued resource to assist customers with their mailing and shipping 

needs:·2 

In addition, at this year's Senate heming, NAPUS noted that the Postal Service is an 

effective, reliable and trusted communications conduit, and, as a consequence, can be 

responsibly used to deliver essential government services to vulnerable populations, 

particularly in the aftennath of a disaster. Disaster relief in the wake of Super Stonn 

Sandy and the Moore Oklahoma Tornado are illustrations. For example, for those who 

lack accessible financial institutions, Social Security cash cards could be delivered and 

reloaded through local post offices. Additionally, Federal Emergency Management 

Agency (FEMA) benefits and Small Business Administration (SBA) assistance could 

also employ the u.s. Postal Service cash card concept. In fact, the concept of USPSissued cash cards is not alien to postal operations, because post offices have been issuing 

postal money orders for years. Moreover, assorted financial services may be made 

available through the post offices, much as such services are provided in other nations. 

Post offices have already demonstrated their value and security in partnering with the 

U.S. State Department in the passport application process. Other agencies, at all levels of 

I Small Business Growth Audit Report, Office ofInspector General USPS, page 1, June 20, 2013. 

: Employee Engagement Program Guide, Version 14, page 4. November 16, 2012. 
115 


Insert offset folio 61 here 82401.061

gon:rnmcnL should be encouraged to seck out comparable paI1nerships \vith the Postal 

Sen-ice. Indeed, identity and residence ycrification serviccs for a variety of goyelllincntal 

purposes can be effectively conducted through the post office. For instance, state or 

municipal licensing and pcnnitting can be conducted at thc post office. Also, the Postal 

Service should be designated the pre felTed shipper for federal agencies and the agencies 

should be able to avail themselves to prefcrablc postal rates and volumc discounts. In 

sum, NAPUS believes that House legislation needs to encourage and dramatically expand 

the oppOI1unitics for the Postal Scrvice to generate revcnue_ 

Two of the most vexing issues for Congrcss have been how to refund the Postal Scrvicc's 

overfunding of its employee pension contributions and how to tackle the debilitating 

requirement to prefund retiree health benefits. Although these issues are independent, 

both the chairman's and the ranking member's drafts have joined them in an attempt to 

address a budgetary scoring issue, NAPUS believes the scoring issue to be a red-hen'ing_ 

The real issue is equity and fairness, both which are shockingly abscnt in thc discussion. 

The Postal Service pension surplus should be remitted directly to the agency. Separately, 

the cun'ent retiree hcalth care liability should be immediately recalculated, and a more 

manageable and equitable amoI1ization schedule should be established. However, 

addressing the specifics of the two legislative drafts, NAPUS would prefer the ranking 

member's proposal for addressing the trust fund dilemma, We do not believe that the 

chairman's proposal to apply the surplus to past year's liability payments will be helpful 

in stabilizing postal finances, because the Postal Service will not accrue a timely benefit 

from the lightful refund. In contrast, the ranking member's proposal would enable the 

Postal Service to free up its credit line and, thereby, access essential funds for updating 

its infrastructure and assist in operational necessities. 

It is clear that the Postal Service needs greater flexibility in adjusting postal rates, and 

setting rates that more accurately reflect the true cost of providing services. And, yes, the 

rates should include an identifiable component that helps underwrite the American 

citizen's access to a universal postal system. We understand that the decision to seek an 

"exigent rate case" rests squarely with the Postal Service ~ NAPUS believes that the time 
116 


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has come for such a filing. Moreover. statutorily mandated deep discounts should be 

reviewed. Indeed, such discounts should be repealed if the appropriations for the 

reimbursement of past postal "revenue forgone" are to be eliminated, as proposed in the 

chaim1an's draft. Both the chaim1an's and the ranking member's drafts seek to provide 

the Postal Service greater latitude in setting certain postage rates and more realism is 

setting other rates. 

A preeminent NAPUS-promoted issue has and continues to be universal access to postal 

services. Accessibility should not rely on neighborhood demographics or be 

compromised due to a community's rural or small-town location. Economically 

depressed and rural conununities tend to be more postal-dependent. Additionally, 

delivering postal services to rural venues contribute very little to Postal Service 

expenditures. For this reason, NAPUS appreciates the chairman's decision not to include 

a post office closing commission in his draft. Nevertheless, the proposed elimination of 

the statutory prohibition against closing a post office solely for operating at a deficit and 

the removal of the requirement that the Postal Service provide a maximum degree of 

postal services to small towns and rural areas would deal a devastating body blow against 

postal-dependent communities. Many of these communities already are trying to adjust to 

retail hour reductions of up to 72%. Moreover, NAPUS is deeply concerned about the 

provision in the chairman's draft that would prohibit a community from appealing the 

closing of a post office if a contract postal unit (CPU) is opened within two miles of the 

post office targeted for closure. It is important to note CPUs, as well as privatized socalled Village Post Offices, do not offer a full array of services and, as a consequence, 

impacted postal customers would be significantly disadvantaged if they, for example, 

needed to file a claim or send accountable mail, or purchase postal money orders. 

NAPUS urges you to extract section 103 from the measure and replace it with a provision 

to provide the Postal Regulatory Commission with binding authority over post office 

closure appeals. 

NAPUS agrees with the proposal in the chairn1an's draft that area and district offices 

should be consolidated. Multiple levels of postal bureaucracy hamper the ability of 
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Postmasters to effectively manage their post otnccs. It is far more efficient and useful for 

Postal Headquarters or areas to directly communicate with frontline managers. 

Delayering the postal bureaucracy has been a long-held conyiction of NAP US. In fact in 

2003. we testified in favor of such delayering before the President' s Commission on the 

United States Postal Serviee. 

However, NAPUS does not believe that replacing the Board of Gove1110rs with a Postal 

Financial Responsibility and Management Assistanec Authority would successfully 

address the Postal Service's current and future operational and fiseal issues. It simply 

substitutes one goveming authority for another, and creates the mere illusion of being 

temporary. Moreover, the qualifications for serving on the new Authority are grossly 

inadequate for managing the operations and finances of our national postal system, and, 

in performing its responsibilities, it is not required to ensure that a universal postal 

system will be maintained. Also, under the chairman' s draft proposal, the Authority could 

dismantle the national postal system. 

Although NAPUS is not entitled to collective-bargaining, it participates in a consultative 

process with the Postal Service in regard to adjustments relating to compensation and 

fringe benefits. The chairman's proposal would undermine the ability of NAP US to 

represent the interests of its members during pay consultations by removing the minimum 

value of such pay and benefits. Moreover, the proposed legislation dramatically alters the 

measurement for pay comparability to, among other criteria, inaccurately uses pay and 

benefit data from organizations that do not perf 01111 tasks or engender a level of trust 

comparable to the United States Postal Service. 

Finally, let me indicate that NAPUS appreciates the chairman's and the ranking 

member's decision not to include a provision in their proposals that would have removed 

postal employees from the Federal Employees Health Benefits Program (FEHBP). There 

are simply too many unanswered questions about the feasibility of a postal-only plan 

outside of the FEHBP. There is considerable skepticism about the capability of the Postal 

Service to manage such a program, the degree to which postal retiree health protection 
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would be maintained. its cost and efficiency relative to the FEHBP. and whether such a 

program would actually provide a benefit package comparable to the insurance extended 

through the FEHBP. 

It would be unfortunate for the American public if Congress is unable to enact 

meaningful legislation to address the fiscal difficulties that confront the Postal Service, 

which are not of its making. Some view the Postmaster General's recent actions as acts of 

desperation that are doomed to backfire; others see it as pati of a bold, calculated plan for 

the sun'inl of the Postal Service, an organization of which I have been an employee for 

the past 46 years. In either case, my fear is that if this Congress does nothing to resolve 

its fundamental differences, the integlity of our nation's universal postal system wiII be 

iITevocablyeompromised. 

Consequently, NAPUS urges this Congress to act responsively and responsibly to assist 

the U.S. Postal Service, the greatest and most efficient postal service in the world, to 

continue to provide the products and services that Americans expect and deserve. 

NAPUS pledges to assist the chai1Tllan, the ranking member and this committee to that 

end. The future of the Postal Service is in your hands. 
119 


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Jo'Seph A. Be(ludoin 

Paul H. Carew 

July 16, 2013 

Conunittec on Oversight and Government Reforn1 

U.S. House of Representatives 

2157 Raybum House Omce Building 

Washington, DC 20515 

Riclmrd G. Th~:.,sen 

Dear Chail111an Issa, Ranking \-Iember Cununings and Members of the Committee on Oversight 

and Govcmment Rcfol111: 

As you examine postal refOITI1 proposals, including the discussion draft of the "Postal Reionn 

Act of 2013" and the draft of the "Innovate to Deliver Act" I would like to share the concems of 

the five million federal and postal employees and annuitams represented by the National Active 

and Retired Federal Employees Association (NARFE). Before I do, I would like to thank 

Chairman lssa and Ranking Member Cummings for posting their draft legislation and soliciting 

feedback from stakeholders prior to introducing the bills. NARFE appreciates thc opportunity to 

provide its conunents. 

Generally. NARFE supports the approach taken by the "lnnovate to Deliver Ad' (Cununings 

draft) and rejects the approach taken by the "Postal Reform Act of2013" (Issa draft). The Issa 

draft places the burdens of cost-cutting on the backs of the postal workforee while undennining 

the mission of universal mail service provided by the United States Postal Service (USPS). In so 

doing, it threatens the future oflhe postal serviee as we know it today. 

In eontrast, the approach in the Cummings dralt seeks to preserve the postal service for the 

American publie through policies encouraging innovation and growth. '-Jotably, the Cummings 

draft seeks to remove statutory obstacles to the USPS' ability to increase its revenues, for 

example, by allowing USPS to deliver wine, beer, and liquor. It also allows greater flexibility for 

USPS in setting rates. Additionally, it calls for common-sense refonns to the funding 

requirements for both retirement and health benefits. 

NARFE has the following comments regarding particular provisions of the draft bills. 

Reduction in Annual Prefunding Payments for Retiree Health Benefits 

First, NARFE supports the adjustment of the payment schedule to prefund retirees' health 

benefits represented by Section 502 of the Issa draft and Section 206 of the Cummings draft. 

This general approach is a major improvement over the status quo, which requires USPS to make 

set statutory payments over an accelerated ten-year period that is more the result of the quirks of 

congressional budget scoring than common sense. The amortization of payments over forty 

additional years will allow for reduced payments and improve USPS' financial outlook while 
120 


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ensuring there is adequate funding for retiree health benefits. Such an approach should be 

included in any postal refolm proposal considered by Congress. 

Termination of Federal Workers' Compensation Benefits for Postal Employees 

Section 306 of the Issa draft takes away. completely. the protections of the Federal Employees' 

Compensation Act (FECA) from postal employees injured on the job. Instead. it allows the 

lJSPS to create its own program for providing workers' compensation to its employees. \\7hile 

the draft provisions require USPS to design the program "in consultation with appropriate 

employee representatives:' to account for various "recommendations." and specifically envisions 

congressional oversight (a redundancy). none of these provisions limits USPS' legal authority to 

craft whatever program it sees fit. In other words, there is no legal limit on USPS' ability to 

reduce or limit the amount it compensates its injured employees. This provides too much 

authotity over the lives and compensation of injured employees to an independent agency 

already looking for ways to cut costs. 

The legislation makes clear that USPS must reduce the compensation provided to injured 

employees (i) once they reach retirement age, and (ii) if they have dependents. compared to the 

current structure. By doing so, the new program would threaten to deprive injured employees of 

the level of income security they deserve and would have earned had they been able to continue 

working. NARFE strongly opposes Section 306 of the Issa draft. 

Reduced Service Standards 

NARFE supports preserving cun-ent service standards for the Postal Service, including 

maintaining six-day delivery, to-the-door or curbside delivery where in place, and keeping post 

offices open based on customer service standards rather than profitability. Postal service is a 

basic government service that has existed since the 18th century, not a for-profit business 

enterprise. 

Unfortunately, the lssa draft removes the protections necessary to keep in place cun-ent service 

standards. Section 101 allows for an end to six-day delivery. Section 102 allows for a transition 

away from to-the-door or curbside delivery, moving to cluster box delivery. This is of particular 

concern to NARFE members, as most of them are retired and some may not have the ability to 

walk several blocks to retrieve their mail, and they shouldn't have to. Section 103 removes a 

provision that prevents USPS from closing post offices solely for operating at a deficit, even 

though profit is not the mission of the USPS. 

Conclusion 

The Cummings draft represents the best approach to reform efforts, while the Issa draft takes the 

wrong one. The goal should be to find ways to preserve the postal service as we know it through 

innovation and growth - how the Cummings draft addresses the problem. Unfortunately, the Issa 

draft does not do this. Instead, it ignores the longstanding role of the postal service in American 

history and misapprehends the nature of the service as a profit-making enterprise rather than an 

essential government service. That's not something the American people want or deserve. 
121 


Insert offset folio 67 here 82401.067

Thank you again for providing NARFE the opportunity to submit comments on the legislation. 

Should you have any questions or concerns regarding NARFE's \ie\\s. please contact NARFE 

Legislative Director Jessica Klcment at jklemcnt!Ci.narfc.o[sc or 703.838.7760. 

Sincerely. 

Joseph A. Beaudoin 

National President 
122 


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~AWR"N:::f J,aRADV 

STA"fOI~(:::TOI\ 

ONE HUNDRED THiRTEENTH CONGflESS 

<!.Congress of tue 'Q!:lntteb $tates ~OUE'C of i\cprcE'entatibeE' 

COMMITTEE ON OVERSIGHT AND GOVERt",IENT REFORM 

;>157 RAYOUR-.: HOUSE OFFICE Bo...;'lDING 

WASH'NGTON, DC 20515-6103 

Opening Statement 

Rep. Elijah E. Cummings, Ranking Member 

Committee on Oversight and Government Reform 

Hearing on "A Path ~Forward on Postal Reform" 

July 17, 2013 

".'JAHL(;UI.'M,,'WS,MARVLAI-O 

RANK,Nf.MINOR:-;-V ~lEMBtl1 

Thank you, 1'.1r. Chairman, for convening today's hearing, and thank you for agreeing to 

my request to invite Mr. Cliff Guffey, the President of the Amcrican Postal Workers' Union. 

During our April hearing, we were ahlc to hear from the letter can'iers, and I'm pleased 

thai (oday we have a chance to hear from officials who represent the men and women who work 

in our postal facilities. 

As 1 have said repeatedly, the Postal Service is a vital link that binds our nation together. 

Our job in Congress is to enact comprehensive legislation that will strengthen those links by 

ensuring that the Postal Service offers products and services that meet the changing dcmrulds of 

consumers whilc operating an efficient network that provides all customers with timely and 

convenient access to these services, 

The financial challenge facing the Postal Service is familiar to us all. Last year, (he 

Postal Service reported losses of approximately $16 billioll. 

Losses have continued this year, and the Postal Service has borrowed all of the $15 

billion it is authorized to borrow from the Treasury. 

Obviously, (hese losses are unsustainable. Unlike allY other agency or business in the 

nation, however, the Postal Service faces the legal burden of pre-funding 100% of its future 

retiree health costs) and this requirement is a key contributor to its lORses, 

The Postal Service bas taken numerous steps to reduce its costs, 

outs to employees, reducing operating hours a( thousands of post offtecs, and 

mail processing facilities. 

But the Postal Service cannot do this job alone. Congressional action is essential to put 

the Postal Service on a sustainable financial path. Although I am glad that the Committee is 

poised to consider postal refon11 legislation, I am disappointed with the draft legislation 

circulated by the Chairman. 
123 


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The Chairman's draft legislation would end six-day mail delivery immcdiately and end 

most door delivery in this nation by 2022. 

Rather thalll'cturning the overpayments madc into the Federal Employee Retirement 

System to the Postal Service, the Chairman's bill would burden the Postal Service with yet more 

debt by increasing its bon'owing authority, something the Postal Service has repealedly said they 

do not want. 

The Chainnan's bill includes an extreme provision that would abrogate existing union 

agreements and require that they be renegotiated to include provisions allowing the Postal 

Service to unilateralIy layoff or dismiss employees, including those who have decades of 

service. 

The Chairman's bill also would remove Postal workers from the existing Federal 

workers' compensation system and establish a Postal"speeific system that would rcduce benefits 

below those provided under Clment law. 

There is a more sensible alternative to this approach. This morning, I introduced the 

Innovate to Deliver Act, which has co-sponsors, to enable the Postal Service to operate more like 

the business it was meant to be. My legislation would give the Postal Service increased 

operating flexibility while ensuring that revenuc meets expenses. 

Specifically, my bill would create a new Chief IIU1ovation Officer in the Postal Service 

charged with lcading the dcvelopment of products and services that enable the Postal Service to 

capitalize on new business opportl1nities. 

My legislation also would amend the schedule for retiree health payments, recalculate the 

Postal Service's pcnsion surplus using postal-specific characteristics, retLlm this sl1l'plus to thc 

Postal Service, and provide key tools to right-size the Postal Service workforce in a 

compassionate maImer that respects and honors these employees' dedicated service. 

If we reject extreme measures that harm Postal workers, increase the Postal Service'S 

debt, and destroy existing services, I believe we can identify common-sense provisions that 

provide common-ground solutions. 

It is possible to develop and finalize legislation that we can all support, and I urge the 

Chairman to choose this path. 

Contact: Jennifer Hoffman, Communications Director, (202) 226"518 L 

2 
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1l0lSE OVERSIGHT AKD GOVERK}IEKT REFORM CO}IMITTEE 

"A Path Forward Oil Posw/ Re/iJ/'IJI" 

Wednesday, July 17, 20U 

Post-Hearillg Que.vtiollS/iJI' IIII' Record 

Submitted to fIle HO/Jorable Patrick R. Donahoe 

Frolll RcprcscntatiH }Iark Pocan (I)-WI); 

What is it about postal employee demographics that makes you think that seeking health care 

011 your own might result in premium savings that USPS could realize while still delivering 

excellent health care? 

While the demographics of the USPS population is similar to the federal population, there are 

a large number of retired postal employees who are not enrolled in Medicare even though the 

retirees, and the USPS on their behalf, paid into Medicare throughout their career. According 

to the latest data received from OPM, 22 percent of USPS retirees do not participate in 

Medicare part B; and more surprisingly, 8 percent are not enrolled in Medicare part A, despite 

the fact that part A is free. That non·participation in Medicare has the effect of shifting claims 

costs from Medicare to the FEHBP plans and this cost shifting drives costs up for both USPS 

and all plan participants. 

Under the USPS proposal, the new plan would administer the health plan to require/incent 

retirees to enroll in Medicare. This would be accomplished in accordance with essentially 

universal practice in private sector and state and local government plans which provide 

continuing health care coverage into retirement. This will avoid the cost·shift from Medicare 

to the plan and result in lower health care claims and therefore both retirees and the USPS 

would realize certain savings. 

In our review of the relative demographics of the two populations (the USPS population.· 

actives and annuitants--and the balance of FEHBP participants) we found that USPS claims 

costs <lre predicted to be about 1 percent greater than the costs for the balance of the FEHBP 

population. This difference, however, is more than overcome by taking full advantage of the 

Medicare program for current and future annuitants, and that in turn has an enormous effect 

on the unfunded retiree health care liability. 

USPS plan savings would be augmented by the adoption of an Employer Group Waiver Plan 

(EGWP) for prescription drug benefits for Medicare eligible annuitants. The EGWP plan will 

produce additional cash savings and an additional reduction in the unfunded liability. Taken 

together, these two changes, which will integrate the plan fully with Medicare, will eliminate 

more than 90 percent of the unfunded liability for USPS' retiree health care obligations, and 

produce substantial current reductions in costs for USPS and all plan participants. The savings 

associated with the EGWP plan will grow over time because of the discounts for drug 

purchases. 
125 


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These factors are explained in much more detail in the white paper we prepared for Congress 

and our stakeholders. We have provided a copy of this paper for your convenience. 

2. Do you presently have postal·specific FEHBP claims data on health premiums' If no, how can 

you make accurate premium projections that would justify leaving the Federal worker plan? 

USPS does not have claims data from FEHBP plans that is postal specific. We can make 

accurate premium projections because we have data on how many postal retirees are not 

enrolled in Medicare parts A and B, and we have estimates from the Center for Medicare and 

Medicaid Services (CMS) and other sources on the savings to the plan from participation in 

Medicare Part D (the EGWP plan). We also have reviewed the relative demographics, as we 

explained above. 

The savings estimates developed in modeling a separate health plan were based on a 

combination of actuarial cost models that value the cost and offset to FEHBP claims of 

Medicare coverage, and the experience with comparative benefit plans and features for 

clients of both Aon Hewitt and Hay Group. Aon Hewitt and Hay Group provide ongoing 

review and analysis of all the cost savings proposals considered for the USPS, for many of their 

other clients both in the private sector, and for state and local government plans. 

Our estimates have been reviewed by an independent actuary retained for that purpose by 

the USPS Office of Inspector General (OIG) and also by the Government Accountability Office 

(GAO). The OIG's report confirmed that the estimates USPS has arrived at are conservative. It 

is our understanding that the GAO report will provide further information on the potential 

savings based on their review of the documentation we provided in the course of their review 

of the USPS proposal as requested by the Congress. 

3. Could you tell me how many insured individuals would be covered under a USPS postal plan? I 

understand that Blue Cross Blue Shield insures about 4.8 million feeleral and postal employees 

and retirees. Why do you believe that a Postal plan will have greater market leverage regarding 

negotiating with health care providers than FEHBP's government-wide service benefit plan? 

It is expected that a separate USPS plan would cover around 2 million participants, equating 

to approximately 1 million active and retired employees plus their dependents, or about 25 

percent of the FEHBP population. Data from aPM indicates that Blue Cross Blue Shield covers 

2.5 miIJion contracts (active and retirees, plus their dependents), which totals 4.8 miIJion 

participants. While a separate USPS plan would have fewer participants than Blue Cross and 

Blue Shield, it would have substantially more participants than any other FEHBP plan. The 

next largest FEHBP plan, Government Employees Health Association (GEHA), has 280,000 

contracts, or about 6 percent of the total FEHBP population. 

The purchasing power represented by the FEHBP program is diSSipated across some 200 plans 

offered in the system, sacrificing potential economies of scale and creating redundancies that 

inevitably affect both the costs of administration and the economies that could be achieved 

by negotiating better discounts and managing care more effectively across the entire FEHBP 

population. With the large number of FEHBP plans, there are many redundancies including, 

plans each purchasing their own claim processing systems, fragmented claims and utilization 

reporting, and a complex enrollment, data management and tracking process. A separate 
126 

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Insert offset folio 72 here 82401.072

USPS plan would eliminate these redundancies and greatly increase the purchasing power 

under a single plan sponsorship, 

4 Can you outline your plan to insure retirees who are not yet eligible for Medicare) 

USPS intends to cover retirees not yet eligibl€ for Medicare in the same health plan pool as 

employees and Medicare-eligible retirees, consistent with current practice within FEHBP, All 

participants (active employees, pre-Medicare annuitants, and Medicare eligible annuitants) 

would be able to enroll in the plan offered, and their contributions would be the same in a 

blended rate structure that treats all participants as a single pool. That is also consistent with 

current practice under FEHBP.