[House Hearing, 113 Congress] [From the U.S. Government Publishing Office] OPTIONS TO BRING THE POSTAL SERVICE BACK FROM INSOLVENCY ======================================================================= HEARING before the COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED THIRTEENTH CONGRESS FIRST SESSION __________ APRIL 17, 2013 __________ Serial No. 113-50 __________ 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 ---------- U.S. GOVERNMENT PRINTING OFFICE 82-436 PDF WASHINGTON : 2013 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (800) 512-1800; DC area (202) 512-1800 Fax: (202) 512-214 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM DARRELL E. ISSA, California, Chairman JOHN L. MICA, Florida ELIJAH E. CUMMINGS, Maryland, MICHAEL R. TURNER, Ohio Ranking Minority Member JOHN J. DUNCAN, JR., Tennessee CAROLYN B. MALONEY, New York PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of JIM JORDAN, Ohio Columbia JASON CHAFFETZ, Utah JOHN F. TIERNEY, Massachusetts TIM WALBERG, Michigan WM. LACY CLAY, Missouri JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts JUSTIN AMASH, Michigan JIM COOPER, Tennessee PAUL A. GOSAR, Arizona GERALD E. CONNOLLY, Virginia PATRICK MEEHAN, Pennsylvania JACKIE SPEIER, California SCOTT DesJARLAIS, Tennessee MATTHEW A. CARTWRIGHT, TREY GOWDY, South Carolina Pennsylvania BLAKE FARENTHOLD, Texas MARK POCAN, Wisconsin DOC HASTINGS, Washington TAMMY DUCKWORTH, Illinois CYNTHIA M. LUMMIS, Wyoming ROBIN L. KELLY, Illinois ROB WOODALL, Georgia DANNY K. DAVIS, Illinois THOMAS MASSIE, Kentucky PETER WELCH, Vermont DOUG COLLINS, Georgia TONY CARDENAS, California MARK MEADOWS, North Carolina STEVEN A. HORSFORD, Nevada KERRY L. BENTIVOLIO, Michigan MICHELLE LUJAN GRISHAM, New Mexico RON DeSANTIS, Florida 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 C O N T E N T S ---------- Page Hearing held on April 17, 2013................................... 1 WITNESSES The Hon. Gene Dodaro, Comptroller General, U.S. Government Accountability Office Oral Statement............................................... 6 Written Statement............................................ 8 The Hon. Mickey Barnett, Chairman, Board of Governors, United States Postal Service Oral Statement............................................... 25 The Hon. Patrick Donahoe, Postmaster General and Chief Executive Officer, United States Postal Service Oral Statement............................................... 62 Written Statement............................................ 65 Mr. Frederic Rolando, President, National Association of Letter Carriers, AFL-CIO Oral Statement............................................... 81 Written Statement............................................ 83 APPENDIX Statement of Rep. Cummings submitted for the record.............. 138 Legal Opinion regarding the Postal Service's proposal to discontinue Saturday's delivery, submitted by Chairman Issa.... 140 A letter to Rep. Connolly from GAO dated March 21, 2013, submitted for the record by Rep. Connolly...................... 157 Statement from Tony Cardenas, a Member of Congress from the State of California.................................................. 164 Responses to questions submitted for the record.................. 166 OPTIONS TO BRING THE POSTAL SERVICE BACK FROM INSOLVENCY ---------- Wednesday, April 17, 2013 House of Representatives, Committee on Oversight and Government Reform, Washington, D.C. The committee met, pursuant to call, at 9:35 a.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, Amash, DesJarlais, Gowdy, Farenthold, Collins, Bentivolio, Cummings, Maloney, Norton, Tierney, Clay, Connolly, Cartwright, Pocan, Duckworth, Welch, Cardenas, and Lujan Grisham. Staff Present: Ali Ahmad, Majority Communications Advisor; Molly Boyl, Majority Parliamentarian; Lawrence J. Brady, Majority Staff Director; Adam P. Fromm, Majority Director of Member Services and Committee Operations; Linda Good, Majority Chief Clerk; Justin LoFranco, Majority Digital Director; Mark D. Marin, Majority Director of Oversight; Jeffrey Post, Majority Professional Staff Member; Laura L. Rush, Majority Deputy Chief Clerk; Scott Schmidt, Majority Deputy Director of Digital Strategy; Peter Warren, Majority Legislative Policy Director; Rebecca Watkins, Majority Deputy Director of Communications; Kevin Corbin, Minority Professional Staff Member; Jennifer Hoffman, Minority Press Secretary; Elisa LaNier, Minority Deputy Clerk; Lucinda Lessley, Minority Policy Director; Safiya Simmons, Minority Press Secretary; and Mark Stephenson, Minority Director of Legislation. Chairman Issa. The committee will come to order. The Oversight Committee exists to secure two fundamental principles: first, Americans have a right to know that the money Washington takes from them is well spent, and I might say the money the Postal Service 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. Our job is to work tirelessly in partnership with citizen watchdogs to deliver the facts to the American people and bring genuine reform to the Federal bureaucracy. Today we are going to have two panels. First, the General Accountability Office is going to characterize the insolvency, the dire situation with the post office. I personally see that today's hearing said insolvency. I say so because there is no such thing as bankruptcy of a Federal entity. The post office, although required to be solvent, required to be self-funding, is in fact neither self-funding nor solvent. The Postmaster reported in the neighborhood of $16 billion in losses last year. Although there is controversy over the so- called prefunding that which is being paid in against the inevitable health care requirements in retirement by postal workers, even if you take away that $11.1 billion default over two years, the fact is, in the real world, by any standard, the post office is bleeding red ink. They are doing so not because the Postmaster General has failed to propose changes, not because the GAO will not testify that these changes are material and work; not because the CBO has failed to score what these savings will be; not because some of those savings have been statutorily possible since the 1970s; not because the American people failed to support these meaningful changes by clear majorities in each category. And I want to reiterate the majority of Americans see six day as not essential; the majority of Americans are perfectly happy going to a cluster box, a corner box, or a lockbox near their home to get their mail while $6.6 billion continues to be lost because some get it in the chute at a greater cost of labor by far. Even the Alaskans admit that although bypass mail is wonderful and convenient, and they believe it has become an entitlement, but it clearly is expensive and they understand it is a subsidy from the post office. As we try to balance all of these and more, we find ourselves back here again and again. The legislation is heralded by almost every newspaper in America; it is supported by the business community. But behind the scenes lobbying continues to make it impossible. Recently, the postmaster announced that he would in fact go from six day to a new six day that would provide different service. Legal opinions varied, but he certainly had a right to try and be challenged. He had other avenues. He was supported by the President, who called for five day both in last year's and this year's Congress's budget, but he backed down. He backed down on the pressure of an inevitable lawsuit. He backed down because, in fact, the postal unions do not want to have these reforms at this time because it will reduce their revenue. They do not want to have these reforms even though they are vastly supported. That is the problem we are here to talk about today, is insolvency and a failure to make the changes that are agreed on that can be made or to support legislation that would allow further changes. I want to thank everyone for being here. There will be two panels. I am going to split my time with the chairman of the subcommittee, Mr. Farenthold. The gentleman is recognized for the rest of my time. Mr. Farenthold. Thank you, Mr. Chairman, for allowing me to give this brief opening statement. The United States Postal Service is an institution founded in our Constitution. Before the age of Internet and cell phones, it was the key mode of communication between loved ones separated by distances and between businesses and their customers and with the Government. We live in a different time today than when Benjamin Franklin was Postmaster General. Today's hearing is about ways the Postal Service can modernize, work harder and work smarter, and prepare for the future. While I am a strong proponent of the benefits of the Internet, the loss of business to email and electronic bill payments is a real problem for the Postal Service. We need an infrastructure in this Country for moving matter, not just bits of data. For the post office, it is not just about cutting cost, but finding innovative solutions that will bring the USPS back from the brink of financial collapse and make it stronger for the future. There is no doubt the Postal Service is in need of reform. Even without the prefunding requirement, which I am sure we will hear a lot about today, the Postal Service is losing roughly $5 billion a year. To start off the conversation on postal reform in the 113th Congress, I chaired a hearing of the House Oversight Committee on the Federal Workforce, Postal Service and Census last week that focused on the Postal Service customers and what they need. Any elementary business course tells you, when business is struggling, the first thing they should do is go to their customers. Today we will hear more from the postal side and how they can become a more efficient 20th century mail provider. My concern as a government watchdog and as a taxpayer is that, without reform, the American people are going to be left footing the bill for a taxpayer bailout. That is the last thing we need right now. I agreed with the U.S. Postal Service's plan to modify Saturday delivery, as did nearly 70 percent of Americans. Unfortunately, the board of governors has decided not to pursue this common sense cost-saving measure. The Postal Service's reversal on this calls into question their ability to move forward with desperately needed reforms. I truly believe there are smart ways that the Postal Service can lower its costs and improve its service, and I hope we can bring them to light today. Thank you very much. Chairman Issa. I thank the gentleman. We now recognize the ranking member for his opening statement. Mr. Cummings. Thank you very much, Mr. Chairman. I am grateful to you for convening today's hearing and I want to thank you for agreeing to my request to invite Mr. Fred Rolando, the President of the National Association of Letter Carriers, to be a part of this hearing. Labor is the foundation on which our Postal Service is built, and we must honor the employees who have served this institution for decades by ensuring that labor representatives are central partners to our reform efforts. Delivering mail to more than 150 million addresses, operating 32,000 post offices nationwide, the Postal Service remains a vital link that binds our great Nation together. Last year, however, the Postal Service reported losses of approximately $16 billion and it lost $1.3 billion in the most recent quarter. Ladies and gentlemen, this is simply unacceptable. It continues to lose approximately $25 million a day and it has borrowed all of the $15 billion it is authorized to borrow from the Treasury. Obviously, such losses are unsustainable. However, much of this loss is attributable to the burden the Postal Service faces in prefunding its retiree health costs, a requirement not imposed on any other agency or business in the Country. 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 centers. I often am reminded of a statement that I said many times: you can lose what you have by trying to hang on to what you used to be. You can lose what you have by trying to hang on to what you used to be. Things are changing and the Postal Service has to change. In addition, in January the Postal Service's board of governors directed the Postal Service to eliminate delivery of all Saturday mail except packages. This change effectively would have ended six day delivery. Every appropriations measure enacted since 1984 has included a rider requiring six day mail delivery. It states that six day delivery and rural delivery of mail shall continue at not less than the 1983 level. The plain language of this rider clearly prohibits the changes ordered by the board of governors. Now, let me be clear. No matter what my position might be on five or six day, I can tell you that the postmaster would catch hell if he went against what the Congress voted for. We voted for that. So, Mr. Postmaster, I can understand the problems that would come when you have a Congress saying do one thing and then you turn around and do something else. In March, Congress extended this rider in the appropriations measure to fund the government for the remainder of fiscal year 2013. As a result, the board rightly reversed course and delayed implementation of five day delivery until Congress passes legislation authorizing such a change. Again, this is Congress that did this. We did this, not the postmaster. We did it. As I have said repeatedly, Congress needs to pass comprehensive reform legislation that addresses not only delivery standards, but the full range of reforms needed to re- engineer the Postal Service for the next century. This legislation must amend the schedule for retiree health payments, recalculate the Postal Services's FERS surplus using postal-specific characteristics, and provide key tools to right-size the Postal Service workforce. As I propose in my Innovate to Deliver Act, we should also create a new chief innovation officer position in the Postal Service. Too many people argue that the Postal Service should be self-sustaining like a business, while at the same time arguing it should be banned from competing against the private sector. I believe we must allow the Postal Service to expand into new business lines and my bill would do just that. Finally, and unfortunately, the most significant challenge facing the Postal Service today remains what it has been for the last two years: Congress's failure to act. We have to do something, us up here. Although the Senate passed a comprehensive and bipartisan bill during last Congress, the House failed to consider any postal reform legislation whatsoever. Last fall, the House and the Senate did come together to negotiate potential solutions in a serious and sustained manner. We did not resolve a bill but, as I stated when Chairman Issa and I testified before the Senate Homeland Security and Government Affairs Committee in February, I believe we can quickly finalize legislation that puts the Postal Service on the path to a sustainable financial future. This legislation is urgently needed and we should begin work on it immediately, and I am sure we will. So, Mr. Chairman, I want to thank you. I want to thank you for holding this hearing. It is a very, very important hearing and I look forward to hearing from our witnesses. With that, I yield back. Chairman Issa. I thank the gentleman. I would like to swear in the panel at this time. Since they appear to both be present, could we have both the first and second panel, and we will swear you in together? Then we won't have to do it twice. So, postmaster and Mr. Rolando, if you will step up also, and please rise. We have to be efficient in a committee that demands efficiency. Please raise your right hand. Do you solemnly swear that the testimony you are about to give will be the truth, the whole truth, and nothing but the truth? [Witnesses respond in the affirmative.] Chairman Issa. Let the record reflect that both the first and second panel answered in the affirmative. Please take your seats. Additionally, there is another sworn witness here today. And it is the first time I have done this, so there is no script for it. Mr. James Bilbray, another member of the board of governors, is effectively on the first panel. For health reasons, he was not able to attend; however, yesterday he did give us a rather thorough, about a 90-minute interview, sworn interview. So I have dispersed his question and answers on the record. It will be available to those on the dais. You may use it as though it is live testimony. However, it will not be placed in the record officially--and this is almost for the press to understand--until Mr. Bilbray reviews it and signs it. This is an oddity of--although he did it yesterday, we have to give him time to review it. For purposes of being a witness, though, you normally don't get to revise and extend every answer. So we are going to treat it as much as we can as a live witness. Specific questions and answers may be used. Those will be in the record but, of course, they will be subject to any additional signature; along with the signature, any additional remarks he makes that may clarify it. I think that is the best way to have the record, at least several days from now, be thorough and complete. Mr. Cummings. Mr. Chairman, just one quick thing. Chairman Issa. Of course. Mr. Cummings. It is my understanding that Mr. Bilbray, just for clarification, Mr. Bilbray did say that he is willing to come at a later date, is that right? Chairman Issa. He was willing to come at the next board of governors meeting, but he was also willing to do, in advance of this, a live interview. The live interview, I think, was bipartisan and really, I think, reflected what we wanted to do, was have the information as clearly on time as possible. So we are appreciative that he adjusted his schedule; did it yesterday. There will not be a need, as far as I can see, for him to come back separately. I think his testimony pairs well with Mr. Barnett, and Mr. Bilbray, of course, is the vice chair. Mr. Cummings. I just wanted to make sure that, in fairness to him, that he did volunteer. Chairman Issa. Oh, absolutely. He was accommodating both by offering to come at an alternate date or, in spite of some health problems that he is having, he was able to do it yesterday. So that is why, to be honest, Micky, he beat you to the testimony by a whole day. With that, we now recognize the Honorable Gene Dodaro for his opening statement. WITNESS STATEMENTS STATEMENT OF THE HONORABLE GENE DODARO Mr. Dodaro. Thank you very much, Mr. Chairman, Ranking Member Mr. Cummings, members of the committee. I am very pleased to be here today to talk about the Postal Service's financial condition. The Postal Service's financial condition has been on our high-risk list since 2009. The situation is dire. In the last five years the Postal Service has added $10 billion to its debt to the Treasury, reaching the $15 billion debt limit. Declining mail volumes have not generated the revenues necessary to meet expenses and financial obligations of the Postal Service. Its debt and unfunded benefit liabilities now stand at $96 billion. As a percent of revenues, they have grown from 83 percent of revenues in 2007 to 147 percent of revenues in 2012. Looking ahead, the Postal Service projects that first class mail, which is one of the most profitable products that they have, will continue to decline in volume through 2020. Also, they have pointed out that they have severe liquidity problems right now and have challenges in making capital investments in their delivery fleet, which many of the vehicles are approaching the end of their useful lives. These are not the ingredients of a successful, sustainable business model going forward. The Postal Service needs to act and the Congress needs to act in order to address this situation. We have recommended a comprehensive legislative package be passed. From the Postal Service's standpoint, what we think they need to do is to continue to reduce their costs. They need to continue to look at their delivery and processing structure; they need to reduce their workforce. Eighty percent of their total costs are workforce related costs. They need to reexamine the benefits paid to the workforce in a compassionate and thorough manner. The Postal Service also needs to reexamine products that are not covering their costs. Periodicals, for example, and standard flat mail, in terms of catalogs, have not covered their costs last year, in 2012, by $1.5 billion. So they need to make some adjustments. We believe they could be done within the price caps that currently exist. Also, as the Postal Service has done, they need to continue to look for new revenue sources, as well. Now, with regard to the Congress, as part of the legislative comprehensive package, there are at least three things I would point out in my opening statement it should address: one, it needs to modify the prepayment of post- retirement health care costs in a fiscally responsible manner. It is very important that this be dealt with in that way so that costs are not deferred down the line, particularly in light of the declining mail volume that portends revenue challenges going forward. Secondly, the Congress should modify the collective bargaining agreement statutes to require that the Postal Service's financial condition be considered in binding arbitration. It has been 40 years since the legislation has been passed, and it was at a time when the Postal Service was in a different competitive position at that time. So we think it needs to be modernized and we think the requirement that the financial condition be considered as part of binding arbitration would be helpful in addressing this situation. Lastly, and perhaps not inconsequentially, the most important thing in my opinion is that the Congress give the Postal Service the flexibility both in pricing and delivery methods in order to react to changes in the marketplace and declining mail volume. Its biggest competition is technology. Technology is changing rapidly and the Postal Service is unable to make those changes in a very nimble and quick fashion. So we believe these are the type of changes that ought to be considered by the Congress, and I think it is very important for the Congress to act soon on this legislation to prevent unintended consequences both for the Postal Service, the American people, and for the finances of that entity, as well as the Federal Government. So thank you very much, Mr. Chairman. I am happy to entertain questions at the appropriate time. [Prepared statement of Mr. Dodaro follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Issa. Thank you. Mr. Barnett. STATEMENT OF THE HONORABLE MICKEY BARNETT Mr. Barnett. Good morning, Chairman Issa, Ranking Member Cummings, and members of the committee. I serve as chairman of the board of governors of the United States Postal Service. I am honored to be asked to testify and I thank you for inviting me today. The Postal Service plays an incredibly important role in the American economy. It provides a national delivery platform that every business and residence relies on. It directly supports an $800 billion mailing industry that employs 8 million people. America needs a financially healthy Postal Service. It needs a Postal Service that can adapt to changes in technology and the habits of American consumers. It needs a Postal Service that inspires confidence in its future. Today, the Postal Service faces tremendous financial challenges. Its business model is inflexible and its future is uncertain. We lack sufficient authority to fulfill our responsibilities to our great Nation. Unfortunately, the laws that control the actions of the Postal Service do not provide the authority or the flexibility for it to continue as a self-sustaining organization. We simply lack the tools under the law to solve the problems we face. If we are given the authority and the flexibility to quickly address our problems, we will do so. The board has directed that the management of the Postal Service explore and act upon every opportunity to generate new revenue and to reduce costs. Postmaster General Donahoe and his team have pursued these opportunities aggressively. They have achieved tremendous results, but they are limited in the actions they can pursue. Our board strongly supports the five- year business plan developed by postal management. It is a responsible plan that will close our large and growing budget gap. We believe it provides the only realistic roadmap to long- term financial stability. I know that this morning we will be discussing our national delivery schedule. Based on the chairman and the vice chairman's opening statements, there are differing opinions about the limits of the law passed by Congress. Last week the board acted upon legal guidance that says the recently passed continuing resolution prevents changes to our delivery schedule. It is a roadblock that stands in the way of a financially responsible action to reduce approximately $2 billion in costs. We need to remove that particular roadblock and many others. I look forward to discussing this issue and the authorities we need under the law to implement our plan. The board of governors is eager to support the efforts of the committee to pass comprehensive postal reform legislation. We would be pleased to help in any way we can. Thank you again for the opportunity to testify. This concludes my remarks. Chairman Issa. Thank you. I will now recognize myself for a first round of questioning. Mr. Dodaro, you went through what the postmaster should do, and he has done a lot. Six day delivery, you have looked at the legal opinion. Does, in your opinion, the legal opinion have a path of suggestions if, even though it questions whether this alternative is legal, does it have a path of alternatives that could be pursued? Mr. Dodaro. Thank you for that question, Mr. Chairman. I think it is important to understand what our legal opinion did address and what it didn't address. What it did address was the provision that was in the first continuing resolution passed by the Congress covering the first half of the fiscal year. Chairman Issa. And the second CR was substantially the same; it was a partial year set of language. Mr. Dodaro. Right. Chairman Issa. Previously used. Mr. Dodaro. Right. But the rationale by the Postal Service for saying the provision didn't apply was the fact that there was not an appropriation attached to the provision in the first six month continuing resolution, and they argued that since there was not an appropriation of funds, that the provision did not apply---- Chairman Issa. Isn't it true that the legal opinion--and I will be asking the postmaster--the legal opinion says you have two alternatives, regardless? You can ask for the President to ask for recision of this puny $100 million piece of appropriations that creates the legitimacy for the rider, and clearly you can also plan October 1st because there isn't a rider in effect. So they have two ways to go to five day. One is to ask the President to act consistent with his five day budget request, which is take back the $100 million so we can save $2 billion or, in the alternative, simply announce that October 1st, if there isn't a rider, they will be doing five day. Didn't the legal opinion say in both cases that they could do that? Mr. Dodaro. Basically, we held in the legal opinion that it wasn't explicitly tied to the appropriation of funds, so we did not agree with that. We thought---- Chairman Issa. Okay, so you disagreed with the legal opinion on which the postmaster made his decision not to go to five day? Mr. Dodaro. That is correct. Chairman Issa. Okay, Mr. Barnett, you have read the legal opinion. I will mention that Mr. Bilbray apparently had not, because he didn't seem, in our interviews with him, to understand the nuances of the alternatives. Did you look, in the last pages of the legal opinion on which the board acted, at those two alternatives that were very clear: don't take the money in the future or ask for a recision to get to the rest of the year? Weren't both of those in the legal opinion? Mr. Barnett. They were, Mr. Chairman. Chairman Issa. Okay. And I believe the legal opinion is in the record already. Okay, well, I will ask unanimous consent that it be in the record, in case it isn't. Without objection, so ordered. Chairman Issa. One of the things that I wanted to get out from Mr. Bilbray is he was asked: Have you or any other board members received direct pressure, to your knowledge, of trying to exert pressure to protect a specific mail processing plant? Answer: I only had one call; that was Senator Reid called me about the Reno processing center. Okay. And did he ask that you not close that? He did. And he goes on. Mr. Barnett, isn't there a pattern of pressure on all of you governors and on the postmaster from U.S. Senators to protect processing centers that have been deemed to be excess and wasteful? And, by the way, and perhaps some House members, too, that have the guts to call you. Mr. Barnett. Mr. Chairman, it is true that we occasionally are contacted by Senators or Representatives, and maybe one of the advantages of being from New Mexico, without any processing centers, I have not received any such calls. Generally speaking, the board has very little political pressure. We received one letter on the six day closing from Publishers Clearing House, the only letter that I received as a governor in regard to the six to five day. Chairman Issa. Isn't it true that Publishers Clearing House ships at an extremely low rate, such that they are part of that group that doesn't cover their own cost? Mr. Barnett. That would be correct. But I didn't get pressure either, Mr. Chairman. Chairman Issa. Well, we will get to the postmaster in a minute and I will get to the political stuff, but I want to be very quick. Mr. Dodaro, the nature of this legislation not going through, there is a piece of language in the 2006 bill--and I want both of you answer to the extent you can--exigent circumstances. According to the law, there are a number of things the postmaster can do and the board of governors can do if they are in dire situation--exigent, dire, insolvent, they all seem to be pretty similar to me--including raising postal rates to cover that $1.5 billion you mentioned. Isn't it true that they have authority they have not used if they are willing to trigger the fact that when you lose $16 billion on $64 billion of revenue, that is exigent circumstances to trigger things to save money or to gain revenue, isn't it? Mr. Dodaro. I am aware of the provision, became aware recently, but we haven't really looked at it to know the full extent of it, that it can occur under the circumstances that you mentioned, so that those decisions, though, would have to be balanced against what potential mail volume might decline as a result of the raises in rates. So I would be happy to provide a more detailed answer for the record, Mr. Chairman. Chairman Issa. Mr. Barnett, as I ask you to answer the same question, I might mention I am from the consumer electronics industry some years ago. We understand that if you lose money on every sale in order to make it up in volume, and thinking volume will take care of you, it will at your bankruptcy. So as you answer whether or not increasing the price and thus losing volume on something you are losing money on, how would you address that? Mr. Barnett. We have had numerous board discussions on this in the seven years I have been on the board and we have discussed exigent rate cases at many of those board meetings. I might add I am the dissenting vote; I was the only board member to vote against the last three rate increases, based primarily on my colleagues' statement that I am more concerned about loss of volume than I am increasing revenue, although both are important. Our infrastructure depends on volume, and if we raise prices, we had great concerns on the board that volume would then decline even further, leading to further deficits. We have directed, at our last board meeting last week, that management look at every other option available. Once we made the vote to not go to five day delivery on August the 5th, we asked that they look at everything else available to us, which would be to reopen the labor negotiations, to look at the filing of an exigent rate case, and then accelerate, if possible, the consolidations in the processing plants as quickly as we can expeditiously do it. Chairman Issa. Thank you very much. Recognize the ranking member. Mr. Cummings. Thank you very much. Let's not kid ourselves, Mr. Dodaro. If Congress says we want you to do something a certain way, and the postmaster came back and said, no, I am doing it my way, the postmaster would catch hell. I am telling you everybody up here knows that and everybody out there knows that. So he was caught in a hell of a bind. And I want to go back to something that Mr. Bilbray said in his testimony so we will be real clear. He said this, and I quote from his transcript on page 58, ``Let me tell you, this is a tough job, and we have to deal with a lot of bureaucracy in the Administration, the Postal Regulatory Commission and Congress, and they are all our bosses. And we try to do the best we can, but we are really restricted on what we can do, when we can do it and what, you know, like I say, what we can do, and it's tough. I mean, I was a congressman; I understand when you try to close a post office in my district. I was just as bad as everybody else out there and I understand them totally, and I wish I had served on the board of governors before I went to Congress because I think I would have been a hell of a lot better congressman in dealing with the post office.'' I just want to make sure that is a part of the record. But let me go back to you, Mr. Dodaro. Does the GAO believe that the six day rider apply even if no money is appropriated? Mr. Dodaro. Yes. We said the Congress has the ability to give operational guidance through the appropriations thing and, yes, that is what our legal opinion held. Mr. Cummings. Because I am getting confused. Does that mean that the postmaster did the right thing consistent with that opinion or he did the wrong thing? Consistent with what you just said. Mr. Dodaro. Right. I think initially the decision by the Postmaster General to go forward based on the first six month CR provision, we disagreed with that. Mr. Cummings. Okay. And then when he reversed, what happened? Mr. Dodaro. Well, we haven't looked at the issue since then. Mr. Cummings. I see. I see. Now, I would like to ask you about the Postal Service's cash position and its financial outlook, Mr. Barnett. Is the board of governors given a routine update of the Postal Service's financial condition? Mr. Barnett. We are. Mr. Cummings. And for the year ending September 30, 2012, the Postal Service wrote in its financial statement: ``Although our cost reduction and revenue generation initiatives are expected to possibly impact cash flow, we project that they may not, in the aggregate, be sufficient to offset potential cash shortfalls which could occur in the second half of 2013.'' Now, Mr. Barnett, in your board meetings this year, has the Postal Service indicated that it may experience a cash shortfall in the second half of 2013? Mr. Barnett. We have discussed it extensively at every board meeting and the answer is yes, the cost-cutting has possibly pushed that date off. But the manner in which we are cash flowing now is by not paying our prefunded RHB payments and we are not planning to make the one that is due on September 30th. Mr. Cummings. So there will be a shortfall. Mr. Barnett. There will be a shortfall. Mr. Cummings. And when will that be? When do you predict? Mr. Barnett. Well, we are already in the shortfall. As you know, we haven't made the last two years' payments and we are not going to make this year's payment. If you are saying will there be sufficient monies to make payroll without making the payments---- Mr. Cummings. Yes. Mr. Barnett.--I believe we will through this calendar year. Mr. Cummings. Now, in its financial statement for the year ending September 30, 2011, the Postal Service indicated that it ``ended 2011 with $1.5 billion of total cash and $2 billion of remaining borrowing capacity on its $15 billion debt facility.'' For the year ending September 30, 2012, the Postal Service wrote: ``We ended 2012 with $2.3 billion of total cash and no remaining borrowing capacity on our $15 billion debt facility.'' In a recent financial briefing to the committee staff, the Postal Service indicated that its cash position has continued to improve. Mr. Barnett, do you know how much cash the Postal Service currently has on hand? Mr. Barnett. I do. We have approximately nine days in operating income, Mr. Vice Chairman. Mr. Cummings. And about how much money is that? Mr. Barnett. Just approximately $2 billion. Mr. Cummings. All right. Now, Mr. Barnett, do you agree with this report, do you agree that the growth in the shipping and package product is improving the Postal Service's financial condition? Mr. Barnett. It is. Mr. Cummings. And despite the growth in the Postal Service's shipping and package service, the Postal Service still reported a loss of $1.3 billion in the most recent quarter. Mr. Barnett, how much of that loss is attributable to the prefunding payment due to the Retiree Health Benefit Plan, do you know? Mr. Barnett. I do not know. Mr. Cummings. Can you get me that information? Mr. Barnett. I am sure the Postal Service can get you that information. What is attributable to anything is a relative question. You could say all of it is due because all of it is, the $5.5 billion, but the answer is we don't have sufficient cash to make any payment on the prefunding of the Retiree Health Benefit. Mr. Cummings. So if the Postal Service did not have to make the RHB payment, its financial outlook would be better, would you agree on that? Mr. Barnett. It would be better, but we would not be solvent, no. Mr. Cummings. Finally, while the Postal Service's financial position is certainly concerning, it appears that the Postal Service will continue to remain solvent through the rest of this year and that the RHB payments are significant factors in the Postal Service's operating losses. Do you agree with that, Mr. Barnett? Mr. Barnett. Mr. Vice Chairman, I don't. I think my learned colleague here would say if we are not making our payments that are due, we are not solvent; and we are not making the payments that are due. Mr. Cummings. I see my time has expired. Thank you very much, Mr. Chairman. Chairman Issa. We now recognize the gentleman from Florida, Mr. Mica. Mr. Mica. And I yield first. Chairman Issa. Very briefly. Thank you. Mr. Barnett, prefunding is a statutory requirement. You are bound by law to do that, aren't you? Mr. Barnett. That is correct. Chairman Issa. And six day delivery, we have established, although it comes with no money, or virtually no money, is a statutory requirement you are required to do. Mr. Barnett. That is correct, Mr. Chairman. Chairman Issa. So why does the board obey one law and ignore another? You obey a law that costs you $2 billion and you ignore a law that says you owe us $5.5 billion a year, and you have done it for two years. Why would you pick one law to obey, that you choose to obey, that actually costs you $2 billion? Where is the fiduciary balance there? If you are going to break a law, why is that the law you broke or didn't break? Mr. Barnett. Mr. Chairman, thanks for that question, because we do have a reason. The board has discussed it extensively. The real problem with the going from six to five day, knowing it will be challenged in court and not knowing what the result would be, is the tens of thousands of dollars that many, many businesses would have to implement in software updates and changes in their procedures. It also involves approximately 23,000 employees that would be directly affected by their futures and transfers and changes in work hours. Chairman Issa. Okay, I get it, Mr. Barnett. I appreciate the gentleman. I think we got the answer: the union wanted to keep six day and they didn't mind not paying their just debts pursuant to the law. Mr. Mica. Well, you know, this little exercise here I think points out the situation we find ourselves in, and Mr. Dodaro, our GAO representative, I think he summed it up only partially. He said the situation is dire. I think it is beyond dire, and it is probably going to get even worse. I think we are headed for a total meltdown in the postal system. Probably the only thing worse than the Federal Government, as far as its fiscal shape, is the United States Post Office, and there is not much to be said there. And we have some of the same difficulty in facing our fiscal challenges, and, quite frankly, I am not sure if the board of governors can resolve this. I was just checking and we were able to pass some legislation out of the committee that could never pass the House, and probably wouldn't pass the Senate, and all the interests here at play, making certain that nothing gets done or bad choices. I feel sorry for the board of governors because with the CR we didn't provide the flexibility and the authority, put you on hold. So I think it is going to get worse. Maybe that will help us resolve it. But two of the primary areas that we are going to have to address, one is personnel, and I notice that personnel and infrastructure are your big cost items. First of all, personnel. I don't know what you are doing at headquarters, but I actually thought I saw the number rise to 3,008 in the figures that I have of personnel right down the street. Not to mention that is just headquarters, but around these districts. So that is one thing, Mr. Barnett. Do you have a plan to reduce some of the overhead as far as management? Mr. Barnett. Mr. Chairman, representative, yes. Mr. Mica. And they don't have union contracts or do they? Mr. Barnett. There are certain management contracts. Mr. Mica. Okay. But, again, you are going to have to address that. You need a plan to come back with far fewer. I remember visiting over there some years ago in one of the RIFs that you all did, and there were hundreds of vacant desks. I don't know if that building is partially empty. Is it now? Mr. Barnett. There are empty desks in that building, from my observation. Mr. Mica. But there are still 3,000 people just in D.C. So that is one thing. Then facilities. You have 32,904 facilities, and I asked how many are vacant. Now, they said 166 was what I got this morning. I don't think that is accurate. They may be vacant, but there are thousands that are underutilized. I know my experience just in my district, in trying to consolidate or change out, there are post office locations in my district, I could give you five of them, that are so out of date, so expensive, in such poor areas for service. The problem is the postal authorities are totally mindless. No one can come up with a solution. Now, I have in one instance given you a solution and we were able to turn that into a valuable property, but it is a mindless mentality in the post office not willing to move forward in some of these. Do you think that can be changed? Mr. Barnett. It is changing. There have been tremendous strides the last two years going to village post offices and reducing the hours they are open to two, four, six hours. Mr. Mica. Well, we will be doing some hearings in some of the empty facilities to highlight the lack of progress, just to give you advanced notice. And I am not just picking on you; we have done this and we will be doing it next week in our fourth building in Washington, D.C., the Nation's capital, under other jurisdictions than the post office. But personnel and management, some things we can tackle, and then consolidation of the facilities and changing them out. Yield back. Chairman Issa. I thank the gentleman. We now recognize the gentlelady from the District of Columbia, Ms. Norton. Ms. Norton. Thank you very much, Mr. Chairman. I may not be here when the Postal Service witnesses themselves come forward. I realize you are here, Mr. Barnett, but I do want to say for the record, and I am certain that members of the committee would agree with me, that we are enormously indebted to Postal Service workers for catching the letter that contained ricin and kept it from coming to the Congress. I think this indicates once again the dedication of Postal Service employees and their vigilance, and the risk today to being a Postal Service employee. They now become not only Postal Service employees who see that the mail gets delivered, but they have a security function and they carried that security function out with great excellence yesterday, and I thank you for that. The Senate passed a bill last year; this side did not. If I may say so, instead of going through these same issues every year in these hearings, five day, six day, why don't we just pass a bill and then we will iron out the differences? This gets to be very repetitive and nonproductive. My major concern, as I think about the new model that Mr. Dodaro spoke about, is the need to treat the postal service like the independent business we spun it off to be, including the ability to use its extraordinary infrastructure to sell non-postal products. But let me get to the issues that are before us today. First let me lay the predicate for this question. I think they are going into their third year of default on prefunding of health benefits, and I suppose that is a kind of civil disobedience that they have been forced to. The third year, by the way, is coming up in September. One effect of these prepayments, Mr. Dodaro, is it not, is to offset the Federal deficit? Mr. Dodaro. On the prepayments for health care? Ms. Norton. Yes. Mr. Dodaro. No, it is basically to provide the money in advance for the Postal Service. Ms. Norton. I know what it does. Does it have the effect, though, of offsetting the deficit or making the deficit look smaller? Mr. Dodaro. I would have to go back and look at that. I am not sure offhand. I think the money is segregated in a different account for the Postal Service, but I would have to check and give you a definitive answer. Ms. Norton. Well, I believe it is in a trust account and is used, and I wish you would look at that because I think that its disguise of the deficit is one of the reasons that the Postal Service is seen as having to do what nobody else has to do; and, of course, that is what I want to get to. Is 75 years of prefunding health care considered a best practice? Mr. Dodaro. Prefunding is considered a best practice. Ms. Norton. That was not my question, sir. This is the only business and the only Federal Government that is prefunding -- -- Mr. Dodaro. Actually, the Defense Department is prefunding. Ms. Norton. How much are they prefunding? Mr. Dodaro. They have prefunded $150 billion already. Ms. Norton. How much has the Postal Service prefunded? Mr. Dodaro. I believe it is about 48. About 43, 46. Ms. Norton. So would you recommend that for the Federal Government? And, if so, why haven't you recommended it for other Federal agencies? Is this the best practice? Is this what we should be doing. And, if so, how many years in advance should agencies be doing what the post office alone is doing today? Mr. Dodaro. Basically, the prefunding is not 75 years, it is 50 years. Ms. Norton. Oh, so you recommend 50 years of prefunding for every agency? Mr. Dodaro. I am not saying what we recommend, I am saying what the law requires. Ms. Norton. Do you think prefunding for Federal agencies, like the prefunding we require of the Postal Service, is to be recommended to the Federal Government? And, if so, why have you not recommended it for other Federal agencies? Mr. Dodaro. Well, first of all, the Postal Service is supposed to be self-sustaining. Ms. Norton. That is my point. Mr. Dodaro. Right. Ms. Norton. And, of course, whenever Congress wants to interfere, it can. Is that how you treat a private business? Do you think the post office is being treated like other private businesses? Mr. Dodaro. Well, it is not exactly a private business; it is still a part of the Federal Government, set up as an independent agency. We have a lot of these organizations that have been set up. Fannie Mae and Freddie Mac are other examples, and Government corporations, whether it is FDIC or whatever. So there are a lot of entities like that. Ms. Norton. Of course, with Fannie Mae and Freddie Mac, we bailed them out to the cost of billions of dollars. Do you think that is what we should do with the Postal Service as it now becomes insolvent? Mr. Dodaro. I think that is a policy matter for the Congress. Ms. Norton. But isn't that the direction we are going? Mr. Dodaro. Our recommendations are to make changes so that it doesn't get into that. Ms. Norton. It is already into that, Mr. Dodaro. It is time for somebody to recommend some changes that helps them get out of it. Now, the GAO itself issued a report in which it talked about alternative approaches to fund health care benefits. Which of those alternatives would you suggest? Mr. Dodaro. We would suggest moving to an actuarial-based prefunding operation, as opposed to the fixed payment schedule. We have recognized that the fixed payment schedule that was set up in 2006 had large up-front costs, more than you would have in an actuarial-based system. So we think that would be a good move, which is what the Senate version of the bill would have done. Ms. Norton. Thank you. Thank you, Mr. Dodaro. Chairman Issa. I thank the gentlelady. We now go to the gentleman from Utah, Mr. Chaffetz. Could I have five seconds? Mr. Chaffetz. Sure. Chairman Issa. Mr. Dodaro, simple yes or no. Isn't it true that Congress, long ago, passed laws requiring at least a minimum that actuarial prefunding by every pension plan in America held by private companies? It is the law. You go to jail for not doing it, right? Mr. Dodaro. Yes. Chairman Issa. Thank you Mr. Chaffetz. Mr. Chaffetz. Thank you. Appreciate you both being here. Mr. Barnett, what does the White House suggest that you do? Mr. Barnett. I have not talked to the White House; they haven't called me, so I don't know. Mr. Chaffetz. So as my colleague from the District of Columbia is suggesting it is time for somebody with an idea, are you suggesting the White House has no plans, no suggestions, no direction for you in what you are supposed to do? Mr. Barnett. I certainly didn't mean to say that. I suspect they have been in contact with the United States Postal Service, just not with me or any of the board of governors. Mr. Chaffetz. Just not the chairman of the board. Okay. That is one of my concerns, is there should be some involvement, engagement here. Mr. Dodaro laid out three general categories, suggestions. What would you agree with or disagree with on that list as he laid out these three? Mr. Barnett. I completely agree with all three and would add just a few more. But we are in 100 percent agreement with the three items he mentioned. Mr. Chaffetz. So what is prohibiting you? You talk about more flexibility and delivery in pricing, for instance, as one of those items, and yet try to make an adjustment there and then it gets pulled back. What is the hesitation? Mr. Barnett. We have, of course, a regulator that we must file with, called the Postal Regulatory Commission, and it is an unduly cumbersome, slow process to do so; and in the current marketplace we need the flexibility to move quickly. We would recommend, for example, that the regulator perhaps could come back and examine the data that was done to make--the board of governors would, say, decide on a price change or possibly a new price for a new product, give the regulator the chance to go back and examine it and require some modifications after the fact, but not require the up-front filing, the delays and the time to go through it because it is just too slow and there is no flexibility at all. Mr. Chaffetz. So part of perhaps what we should look at is restructuring that process and how that Postal Regulatory Commission works, is that the suggestion? Mr. Barnett. Mr. Chairman, Representative, completely. The regulation model we are under is like a utility model from the 1950s, where we are a monopoly and we must file for rate increases, go through the expert witnesses, the whole bit. We are not, any longer, a monopoly in most of our products; we certainly are still in first class mail, but we are in direct competition in almost all our other products. Mr. Chaffetz. Mr. Dodaro, did you want to comment? It looked like you wanted to say something about this discussion. Mr. Dodaro. No. No. I agree with the comments. Mr. Chaffetz. Okay. Mr. Chairman, as we look at this issue, I really do believe, and I have believed from day one, one of the core issues that we have to grapple with here is how does the Postal Service become more relevant. You know, there are only so many times you can raise prices. There are only so many times that you can make your product more expensive in the marketplace. To me it is a question of relevancy. And the world is changing; we are becoming more electronic in our communications and people are more cost conscious. The Postal Service is having to deal with some very difficult things. For instance, for every penny of increase in the cost of fuel, they are going to have to deal with that; it is millions of dollars of costs to the Postal Service. Since President Obama took office until now, which happens to be the same time that I was elected, the price of fuel has doubled; and that is of real impact on the day-to-day lives and solvency of the United States Postal Service. I do want to actually compliment some of the work that has been done with some of the unions and some of the others in actually drawing back down the number of employees that are engaged. I only wished that the rest of Federal Government would have to go through such scrutiny, because what you would find, actually the Postal Service, as bad and as dire as the situation is, most other departments and agencies don't have to go through these types of gyrations; they don't have to go out and sell their services, they don't have to justify a price, they don't have to live within their means. And this is the only department and agency that I can look at that has made significant personnel changes to actually drive down the number of people that are involved and engaged in its agency. So on that side I do applaud. Now, on the other side, to my friends in the unions, there is going to have to be some more flexibility here. When they talk about collective bargaining, I think they are going to have to be some serious discussions about that. Both of these gentlemen concur with that. I happen to think that is going to be part of the issue. We are going to have to look more closely and have more cooperation on moving to cluster boxes and those types of simple things that will have multi-billion dollar effects on the Postal Service; maybe a little bit more inconvenient, maybe somebody isn't able to book as many hours, but small things that will make a big difference in the solvency of the Postal Service and ultimately, Mr. Chairman, become more relevant. Yield back. Chairman Issa. The gentleman yields back. We now go to the gentleman from Virginia, Mr. Connolly. Mr. Connolly. Thank you, Mr. Chairman, and thank you for holding this hearing, you, with our distinguished ranking member, Mr. Cummings, Mr. Dodaro, I want to thank you for the legal opinion from GAO, it was clear and concise and, I think, dispositive. One may not like a law, but to counsel people to circumvent it or ignore it is a different matter entirely, and GAO, I think, made a real contribution at least in understanding where we were legally, and I thank you for that opinion and for your colleagues as well. I think the chairman entered the opinion into the record. That is the opinion of March 21 and I now enter it into the record as part of my five minutes, without objection. Mr. Connolly. Mr. Dodaro, you said there were three things that were fairly fundamental to reform. The first thing you mentioned was prepayment. And I was a little confused with the byplay between you and Ms. Norton of the District of Columbia. Clearly, in saying that is the first thing Congress has to deal with, and, by the way, I happen to agree with you. I wish some newspapers like The Washington Post would even acknowledge it is a problem. But you included it. Presumably you included it because you do think that there is some aspect of it that is onerous and needs to be reformed. Is that correct? Mr. Dodaro. We believe that the 2006 law that set up the schedule for this front-loaded some of the prepayment penalties. Not penalties, excuse me, the amounts for prepayments. It was based on a fixed schedule up front, and we think if it is moved to an actuarial schedule that will help smooth out the payments over the period of time. But I want to be clear, we think prefunding needs to occur and that it needs to be done in a fiscally responsible manner. It is in the best interest of the Postal Service, for their future viability; it is in the best interest of the beneficiaries for their benefits. Mr. Connolly. Your point is so stipulated and the chairman correctly pointed out that it is not a unique requirement. But the 2006 legislation has some aspects to it that clearly put a burden on the Postal Service that are unique, is that not correct? Mr. Dodaro. We think there is a means to modify that, moving to an actuarial approach. Mr. Connolly. And the Senate recognized that in its postal reform bill that actually passed the Senate as S. 1789, is that not correct? Mr. Dodaro. That is correct. Mr. Connolly. And you reviewed that legislation? Mr. Dodaro. Yes. Mr. Connolly. Do you believe that legislation, in principle, is consistent with your recommendations for comprehensive reform? Mr. Dodaro. On the issue of prefunding, we agreed with two of the three changes that they have put in place. The only thing that we would ask be reconsidered would be the requirement to go to an 80 percent total funding. We think it should be 100 percent. Mr. Connolly. Mr. Dodaro, would it be fair to say that if we alleviate or reform the 2006 prepayment requirement in any fashion, that constitutes a Federal bailout of the Postal Service? Is that a fair characterization from your point of view? Mr. Dodaro. No. Modifying the schedule, as long as the prefunding occurs to achieve the full cost of the post- retirement health care benefits, no; it is just changing the payment schedule. Mr. Connolly. Does the prepayment in any way involve U.S. taxpayer dollars? Mr. Dodaro. I don't believe so. Mr. Connolly. So wouldn't a bailout imply that we are using taxpayer dollars? Mr. Dodaro. It usually is a connotation. Mr. Connolly. No, no, no. General Dodaro, it is not a connotation. A bailout, a Federal bailout is with U.S. taxpayer dollars, is it not? I mean, if I use someone else's money to help somebody else out, that is not a Federal bailout. Chairman Issa. Would the gentleman yield? Mr. Connolly. I would f the chairman will give me a little consideration. Chairman Issa. Would you suspend the time? Mr. Connolly. I thank the chair. Chairman Issa. That is the best consideration the chair can give. Mr. Connolly. And I appreciate it. Chairman Issa. The chair is prepared to make it very clear on the record that in the negotiations we had with the Senate until the wee hours of the waning Congress, we had already agreed to go to an actuarial restatement. I would hope that the gentleman would agree also, though, that like the Railroad Retirement Act, if in fact we do not get an actuarial payment and there is a default, full faith and payment from the Federal Government would happen. So I am not expecting a bailout. The reason that we agreed to an actuarial one partially was the GAO's finding that the 2006 law, although well intentioned, was now unachievable with current economic conditions for the post office. Mr. Connolly. If we can keep that clock frozen for one second. Chairman Issa. As long as the ranking member doesn't start pulling at me here. Mr. Connolly. I thank the chairman and I am glad to learn of those negotiations, and his point is well taken. I am only pointing out, though, that I think there has been some loose rhetoric in the past when there has been any talk of prepayment relief of any kind, that that automatically is a Federal bailout. That is inaccurate and it is not fair, and the money involved so far is not U.S. taxpayer money; in fact, it is Postal Service revenue. Chairman Issa. Right. And I think for purposes of today, if everyone wants to go from a $16 billion loss last year, down by a little over $2 billion, which would be the restated amount, we are happy to say it was only $14 billion had they been making an actuarial payment rather than an actual. The problem is you can't be a little bit pregnant, to use an old expression. Also, a little loss of $14 billion is still a lot of money. Mr. Connolly. It certainly is. I thank the chair. Mr. Barnett, are you familiar with the memo from King & Spalding with respect to five day delivery proposal? Mr. Barnett. I am. Mr. Connolly. And did that memo influence the board of governors in its decision ultimately to say we have to comply with the law? Mr. Barnett. Yes, it did. Mr. Connolly. And did you, at any point in your deliberations before or after the Postmaster General's announcement about five days, look at the legal aspect of that and question the Postmaster General in terms of his legal reasoning or the reasoning he relied on? Mr. Barnett. The Postmaster General and the deputy are both members of the board. We had extensive discussions over several meetings on the first legal opinion dealing with the language prior to the current CR and then the current CR, so, yes, we have had numerous discussions with the Postmaster General. Mr. Connolly. And just real briefly, bottom line, what made the board decide we can't go forward with this proposal? Mr. Barnett. The King & Spalding opinion was the primary motivator for the change. Mr. Connolly. Which told you what, bottom line? Mr. Barnett. Well, it told us, bottom line, that we would be going to court and that the disruption that would occur if a preliminary injunction were issued, particularly if they went to court July 20th, a week ahead of the August 5th date and got a preliminary injunction, the disruption to the Postal Service and ultimately to the consumers of the Postal Service was something we felt was too grievous to take a risk on. Mr. Connolly. Thank you. Chairman Issa. I thank the gentleman. Mr. Connolly. I thank the chair. Chairman Issa. We now go to the gentleman from Oklahoma, Mr. Lankford. Mr. Lankford. Thank you, Mr. Chairman. Mr. Dodaro, you mentioned three things that Congress should do in this and you mentioned multiple things the USPS can do, as well, in the process on that. I want to highlight a couple of these things that have been discussed as far as additional revenue. What would you recommend USPS could do right now to deal with revenue issues, whether they be pricing or products or advertising or the many things that have been kicked around? What do they already have authority they could do? Mr. Dodaro. They have the authority to change the pricing for some of the products where they are not covering their costs. I highlighted the periodicals and standard flat mails in some of the catalog areas. Clearly, in the periodicals area they have been losing money on that for the last 16 years. The amount that they lost money in 2012, I believe, was about $650 million. So that is one area that it could re-price. And the same on standard flat mails. Now, they may have to adjust the mix because there are varying products in there with the catalogs and other things. And there are some other areas where they are losing money on different products as well. So that is one thing that they could do. Mr. Lankford. Okay. Do they have any latitude, right now, on advertising? That has been discussed, whether it be products for sale at a post office itself or a village station, or whether that be actually advertising on the truck. I would assume they would not put a big advertising for FedEx on the side of their truck, by the way, as far as selling advertising, but to be able to produce that. Mr. Dodaro. Yes, they can do advertising. Mr. Lankford. Okay. Because that has been discussed. Mr. Barnett, can I shift over to that? I am sure this has bee discussed as well with the board of governors. You have to deal with price and products; the higher the price, the lower the usage. We get that. And it is especially difficult for catalogs because catalogs are in great competition right now with the Internet as one more step. What has been discussed at this point in how to be able to strike that balance? Mr. Barnett. Well, just to give you an example, on the catalogs, for example, the catalogs become a feeder for, then, packaged delivery, or a potential feeder for packaged delivery, which is a great growth in our area. So we do have great discussions, lengthy discussions. We have a new director of marketing, vice president that came on about a year ago. She is doing a fabulous job. The board of governors has gone to meet with potential customers or existing customers with potential increases in New York, in Phoenix, in San Diego; we meet with them, they tell us what their needs are. We are trying our best to increase revenues everywhere we can. We are underwater in several of these categories. We are still stuck with a price cap; we still cannot increase prices in excess of the CPI. So while I don't disagree with my colleague's statement here, I am not sure that we can get there based on the limit of the CPI on the underwater products. Mr. Lankford. As far as packaged delivery, though, where is that moving? Because obviously every retail location will tell you they are getting hammered in a retail box store by Internet purchases, and there is more and more being shipped on that. Where are we right now in moving towards getting more revenue by increasing the number of packages that are coming to USPS, rather than other providers? Mr. Barnett. Tremendous success story. We have had three years of 7 percent growth in package delivery, and we anticipate even further growth in package delivery. Mr. Lankford. Okay. Mr. Dodaro, you also mentioned, as well, that prefunding is in the best interest of employees of USPS. Can you talk about that some? Because there has been a lot of push-back to say that a lot of individuals say we don't want to do prefunding; why are we being mandated? But you mentioned that is in the best long-term interest of those employees. Mr. Dodaro. Yes, because at some point, if there isn't enough revenue set aside, either in advance or being generated at the time to pay for those benefits, the benefits potentially could be changed and lowered, so the employees would not receive the benefits they thought they were going to receive. So I think it is in the best interest of the Postal Service, for their future viability, and the same for the employees. Mr. Lankford. Struggle through it right now, but because it protects retirees in the days ahead. Mr. Dodaro. Yes. Mr. Lankford. Okay, thank you. With that, I yield back. Chairman Issa. I thank the gentleman for yielding back. We now go to the gentleman from Pennsylvania, Mr. Cartwright, who is not here. Okay, Pocan. Mr. Pocan. Thank you, Mr. Chair. Chairman Issa. Thank you. The gentleman from Wisconsin. Mr. Pocan. Thank you. I am one of the new folks around here, so I am still not used to, you know, we pass a budget, but we don't really pass a budget in Washington; and we use words like sequester. I never told my nieces or nephews I am going to sequester their toys if they don't behave. So there is a lot that is new to me around here. Chairman Issa. If the gentleman would yield. Have you learned exigent today? Mr. Pocan. Thank you. Lost five seconds. That is all right. And the last part is this pension requirement, because, as I understand it, it is extremely unique; no one else has to prepay 75 years into the future. If I understand it right, someone who is not even born, who would go to work for the post office, you are already paying for their pension now. Seventy- five years into the future is a long period of time. I am getting shaking heads no. Mr. Dodaro. It is 50 years, and this is prefunding only for the people that are currently employed at the post office or retirees, not future people. Mr. Pocan. Okay. All right. But it is the only agency that is doing 75 years in the future, is that correct? Mr. Dodaro. I mentioned earlier that the Department of Defense is voluntarily doing it for the military. Mr. Pocan. But those are appropriated dollars, right, as opposed to revenue dollars that are brought in? Mr. Dodaro. Well, that is how they get revenue, but they are prefunding their requirements in advance. Mr. Pocan. Right, but that is completely different than how the funding comes in from the post office, correct, because we don't have the appropriated dollars? Mr. Dodaro. That is correct, but---- Mr. Pocan. Okay, that is fine. I was just checking on that. The problem I have is that when I look at the Constitution, which we all had to swear to just a few months ago, I read Article I, Section 8, Clause 7, and it says we have to establish a post office. So, to me, there is a higher responsibility as we take a look at doing this and, therefore, we have to make sure that we are actually providing the service. I have also been a small business owner for over half my lifetime. In Brooklyn, Wisconsin, the small community of Brooklyn, honestly, I believe they rely more on the post office than they do in Brooklyn, New York. They don't have some of the other alternatives. If you are going to keep people in those small communities in rural Wisconsin and across the Country, you need a viable post office, and that includes things like six day delivery and local post offices. If I could just ask questions in two different areas, if I can. One, Mr. Barnett, I guess two questions. One, were the board members briefed and on board with the postmaster's decision to implement a five day a week mail delivery schedule prior to it being announced on February 6th? Mr. Barnett. Yes, we were. Mr. Pocan. They were. And any union representatives on that board? It was implied that the union is the one who blocked it going from five to six days. Mr. Barnett. All of the members of the board of governors, we only have five at the moment, of the nine, all are public interest, public service appointees, so there are no union appointees or business appointees. Mr. Pocan. So it wouldn't be fair to say that the union members somehow blocked. Mr. Barnett. No, sir. Mr. Pocan. Okay, thank you. And then a question for Mr. Dodaro. I know that GAO has supported this move for the 75 years in the future, which is, again, unique. No other agency in government does that, that far into the future. But when you say you support that, if you have to look at what the post office is doing and essentially that if they are going to have to eliminate services in order to do it or that they will be cutting delivery days or slowing service in order to make these inflated payments, is that something that is still supported in order to prefund this? Because we know what a big chunk it was for years, it would have been still profitable and, as you said, we are front- loading a lot of the payments. In order to keep that going, we are hurting Brooklyn, Wisconsin and we are hurting those small businesses in my area. Is that something that you would support? Mr. Dodaro. Well, in the context that the Congress has required the Postal Service be a self-funding operation, yes. And if you look at the fact that the decline in mail volume, particularly first class mail, is projected to go down through 2020 in the future, it doesn't look like the revenue base is going to be there to pay these benefits later, so somebody is going to have to pay it at some point in time, and we think this is a prudent course. Now, we said that we are fine with modifying the prepayments, given the overall financial condition of the Postal Service, but it needs to be done in a fiscally prudent manner; otherwise, you are just pushing the problem down the road. Mr. Pocan. And, also, I believe you did say you are open also to providing additional services, and I think there is some legislation to do that, to allow them to be like any other small business who would adapt and take on maybe some new areas to raise some revenue. Is that correct? Mr. Dodaro. Yes. We think they ought to pursue other revenue areas. I think when you move into non-postal areas you need to think about the competition with other entities, whether they would be subject to the same regulatory authorities that the other agencies would be involved. So it gets a little complicated. But they need to pursue alternatives in conjunction with the Congress. Mr. Pocan. Thank you. Chairman Issa. You still have five seconds left. The gentleman may not have heard, a moment ago, but with Mr. Connolly I did make it clear that we have always said that the $2 billion difference between the statutory prepayment and the actuarial responsibility we are always happy to remove. The challenge is the remaining $14 billion. And since you did say you were new, taking a little privilege from the chair, we have also always supported the innovation fund, the additional dollars. We do have to bear in mind the U.S. post office does not pay parking tickets. The U.S. post office does not pay taxes, including gas taxes, including license plate fees, and the like. So we also recognize that when they want to go into private areas, we have to make sure they are not leveraging reduced cost, such as no property tax and so on. So there is a balancing and hopefully you will take a very active role in the postal reform bill that is still being authored here in the House as we speak, and I would invite you to do so. Thank you. We now go to the gentleman from Tennessee, one of the gentlemen from Tennessee, Mr. DesJarlais. Mr. DesJarlais. Thank you, Mr. Chairman. Just a few questions. First, Mr. Dodaro, did the GAO look to see if the modified Saturday plan met the requirements of the postal rider? Mr. Dodaro. No. Mr. DesJarlais. Okay. Mr. Rolando, in December 2012 report from the GAO, it explicitly stated that the 2006 postal reform law did not require USPS to prefund 75 years of retiree health benefits over a 10-year period. Do you agree with that statement? Mr. Rolando. Barnett. Mr. DesJarlais. Oh, I am sorry, Mr. Barnett. Mr. Barnett. I apologize. Mr. DesJarlais. Let me reread it. Mr. Barnett. Thank you. I appreciate it. Mr. DesJarlais. I apologize for miscommunicating your name. December 2012 report GAO explicitly stated that the 2006 postal reform law did not require USPS to prefund 75 years of retiree health benefits over a 10-year period. Do you agree with that statement? Mr. Barnett. I apologize, but I am not equipped to answer the question. I read the GAO, I read his testimony last night, and I agree with everything in it, but I am not quite following the question, and I apologize for not understanding. Mr. DesJarlais. Okay. Maybe I am not reading it clearly. The GAO report from 2012 explicitly stated that the 2006 postal reform law did not require USPS to prefund 75 years of retirement health benefits over a 10-year period. Chairman Issa. Perhaps the GAO could. Mr. DesJarlais. Okay, Mr. Dodaro, do you know the answer? Mr. Dodaro. Yes, Mr. Barnett is right. Our point there was it was only 50 years, not 75 years. Mr. DesJarlais. Okay, so you agree with that, then. Mr. Dodaro. Yes. Mr. DesJarlais. Okay. And then I guess to either one, just to put one last persistent myth to rest, the same GAO report also stated, contrary to some claims, there is no liability held, nor contributions made, for any future employees who have yet to be hired or yet to be born. Do you agree with that? Mr. Barnett. Mr. Chairman, Representative, we do, and I would like to note, if I could, that the board believes that we would hope the opportunity for postal reform might consider the prospect that all future hires would go to a defined contribution plan, would not affect any current employees in any way, but that in the future that is a better way of looking at retirement plans. We would also, in the same regard, like to have more flexibility at doing our own health plan and competitively shopping it. We believe we could save our employees a lot of money by shopping our own health plan and having a better plan, a more affordable plan for our employees. Mr. DesJarlais. The Federal exchanges aren't looking good? Mr. Barnett. Well, we are a part of FEHB, and it is my understanding we have very little flexibility there. Mr. DesJarlais. All right. Thank you, gentlemen. Chairman Issa. Would the gentleman yield? Mr. DesJarlais. I will yield. Chairman Issa. I might note that every member here on the dais is leaving FEHB and heading to the exchanges at the end of the year, by law. We could accommodate you, I am sure, very easily on that. Mr. Dodaro, just using up the rest of this time, because I think it is important that we get this in, if we were to go to no payments to the health care retirement, isn't it true that in a matter of just a few years you would end up with an unfunded liability? In other words, the $45 billion in prepayment would expire in a decade or so and then you would simply have people taking money out that are currently there, and no money coming in; and the likelihood is that the post office is not anticipating some windfall of profits in the future that would pay it? Mr. Dodaro. That is correct. Chairman Issa. And if this were a private company, and it is trying to be operated as at least a break even private company, what would be their payments, their actuarial payments into a fund like this? One billion, two billion, four billion? Right now it is $5.5 billion, which is arbitrary, we all agree to that. What would be the level payments they would make over the next several decades to meet this obligation? Mr. Dodaro. About $3 billion. Chairman Issa. Okay, so $3 billion instead of $5 billion, $5.5 billion. There is a delta there, and I hopefully we have made the record straight today that the loss is less if one were to go to this, but it still would be a loss of roughly $14 billion. Mr. Dodaro. There is no question this is only one part of a broader package that is needed to deal with the full range of fiscal challenges. Chairman Issa. Isn't it true that the Postal Service has had statutory authority and, actually, a mandate to move from the chute to the curb, in other words, gain that efficiency of curbside delivery, and that there has been a transition, but that that transition has slowed to a crawl, and that is part of about $6 billion of their accumulated loss? Mr. Dodaro. They have had a policy to do that, but they have some flexibility, and based upon what we have seen--we haven't studied it for a while--it is made on a decentralized basis, so whether they get any push-back from the local communities or not. But you are right in the sense that it is very cost-effective to do that. In fact, to deliver an address to a door costs about $350 in 2009; where, if you go to centralized delivery in cluster boxes, it is about $160. So it makes a big difference. Chairman Issa. Thank you. The gentlelady from Illinois, Ms. Duckworth. Ms. Duckworth. Thank you, Mr. Chairman. Mr. Barnett, on April 10th of this year the board of governors announced your decision to delay the implementation of the modified delivery schedule that had been approved in January. Why did the board of governors decide to delay the move to a five day delivery schedule? Mr. Barnett. Primarily because of a legal opinion that it would be unlawful to do so. Ms. Duckworth. Did you seek this opinion, this outside legal--was it outside legal counsel or was it internal? Mr. Barnett. It was outside legal counsel, and we did seek the opinion. Ms. Duckworth. Okay. Mr. Chairman, I ask unanimous consent to enter into the record the King & Spalding legal memo dated April 5th, 2013. Chairman Issa. The gentlelady was not here at that moment, but it is already in the record. Ms. Duckworth. It is. Oh, okay. Thank you. Mr. Barnett, earlier this year, 87 of my colleagues joined me in sending a letter to the postmaster, expressing our concern that ending Saturday delivery would negatively impact the ability of Americans to receive home delivery of prescription drugs in a timely manner. Some of these drugs are not delivered as a package and actually come in first class mail. For example, anything delivered by a patch delivery system, Nicotine patch, pain killers, psychiatric drugs. Some of those are in a patch delivery system as well. Among the people who most rely on home delivery are seniors, service men and women, veterans, and the disabled. Many of them live on a fixed budget. In a subcommittee hearing last week, Carl Jansen, VP of Pharmacy Operations at CVS Caremark, which currently has the delivery contract for Tricare, for example, testified that ending Saturday delivery would impact their ability to maintain current margins and he indicated that he did not know if this would lead to cost shifting to customers. Have you looked at the impact that ending Saturday delivery would have on shifting costs to either business or consumers? Mr. Barnett. Mr. Chairman, Representative, yes, we have had numerous board discussions and presentations by people from industry, by people from the Postal Service about what that impact would be. We are faced with the problem of losing billions of dollars a year, and we only have three or four ways to reduce costs that are of the magnitude to solve that deficiency, and this is one of the largest at $2 billion. It would make a significant impact. There are abilities now for emergencies and for the seniors. We don't deliver on Sunday, so all of the same arguments you just used would be true on Sunday. The seniors don't get their drugs delivered or their pharmaceuticals on Sunday; they sometimes don't on Monday, as well. The Postal Service is and has a plan in effect for those people that have an emergency need or an urgent need for that, and there were contingent plans that, by the way, are part of the reason to take nine months or seven months to put in place. We need to get those things into where we have notification to the carriers about those people that have urgent needs. There is a way to shift them to packages that are not as expensive as people think, and there is also some ability through CVS or others to work at getting the pharmaceuticals to them earlier, on Friday, for example, so that they wouldn't need them on Saturday. Ms. Duckworth. But the cost would still be getting shifted onto consumers and being shifted onto businesses. Mr. Barton. We don't take testimony, but some of the presentations to us have been that there wouldn't be any additional cost, there would be a change in the manner in which they would arrive at their mailings. They will have to do them in a different fashion if it is five days a week, as opposed to six. There would be no additional cost. Ms. Duckworth. Well, the VP of pharmacy operations at one of the largest pharmaceutical pharmacies in the Country disagrees with you and testified accordingly yesterday. I understand and very much appreciate what you just said, that you have been reaching out to business customers and that you understand the needs with regards to this issue. Could you tell us what types of concerns you have heard and if, when you altered your plan for implementation of five day delivery, it was affected by that dialogue at all. Mr. Barton. The board attempted to take all of it into account in making its decision. There is a 70 billion piece drop in volume. We were at 213; we are now at 160. When you have that kind of decline in volume, you must look at modifications of delivery schedules. And I misspoke a minute ago; pharmaceuticals will be delivered on weekends, regardless. And the Postmaster General will be up here in a minute for the next panel; he will get into that more. So it was going to be delivered, regardless. But, yes, all of that is taken into account, and yet we face having to cut several billion, at least $5 billion more a year out, and I don't know where else to do it except one big chunk of it is from six to five day. Ms. Duckworth. I am over time. Mr. Farenthold. [Presiding.] That is all right. If the gentlelady would yield for a second. I chaired that committee and it was my understanding of the testimony that though CVS Caremark had some concerns, they were more concerned with an overall cessation in Saturday delivery, rather than the modified plan. I would like to follow up with them on that one. Without objection, we will forward your specific inquiry for clarification to CVS and include that as part of the record. Without objection, we will do that and get that to you and include it as part of the record, because that is something we really do need to be clear on because it is an important issue, to make sure the seniors are able to get their medications on Saturday. It is a very important issue we will follow up on. With that we will move along to the gentleman from Michigan, Mr. Walberg. You are recognized for five minutes. Mr. Walberg. Thank you, Mr. Chairman. Mr. Barnett, with only nine days of liquidity, when do you project that the Postal Service will run out of cash? Mr. Barnett. I am unable to give you a date. We will be down to, our projections show two days of liquidity on October 16th. On October 15th we will have a large worker's comp premium payment, and we think we will be down to two days liquidity at that time. But that is the start of the Christmas mailing season, when we have tremendous increases in revenue in that quarter, starting October 1st. So we probably will be able to, from a cash flow standpoint, albeit not paying the prefunding and so forth, we are going on many more months, maybe a year or two. I do not have a date I can give you. Mr. Walberg. So any contingency plans you have right now is based primarily on the holiday season coming and expanded revenues that come in from that. Mr. Barnett. Mr. Chairman, Representative, we are in dire cash flow straits under any method we look at. We don't want to in any way sugar coat that today. We are in real trouble and we need comprehensive postal reform yesterday. Mr. Walberg. Do you have contingency plans, though, that you have seen? Mr. Barnett. We have discussed contingency plans, Mr. Chairman, Representative. Mr. Walberg. Has the board approved them? Mr. Barnett. Mr. Chairman, Representative, we have not had a formal vote on contingency plans, but we have discussed them at length, and postal management knows the opinion of the board about what contingencies we would have to do. Mr. Walberg. Well, let's move on. Were you asked, as a board, to approve the Postal Service's decision to implement the five month moratorium on the processing plant consolidation? Mr. Barnett. We discussed the moratorium. We are a board that represents the public interest, and a part of that public interest is what might loosely be termed politics; and you have politics going on when you are trying to get comprehensive postal reform. Just as we had announced we hoped we could close lots of post offices, a wise decision was made collectively by the board, by postal management that that was going to upset Congress a great deal, and we went to the concept of a village post office and the reduction of hours in the post offices, and it seems to have stopped the political rhetoric or lowered the political rhetoric an immense amount, and we still got 80, 90 percent of the savings. In other words, we do keep, in rural areas, post offices open, but they are now open two hours a day rather than eight. We have fewer postmasters, we have fewer costs. It was, I will call it a political compromise, if you will, because we tried to listen, as part of representing the public interest is that kind of consideration. We didn't have specific political consideration. Well, there was political consideration: do you do a moratorium. Well, we were promised, albeit incorrectly, that comprehensive postal reform was on its way. I can tell you I have been on the board six years. I have heard that every year for six years. I am like the kid on Christmas Day; I am waiting for the postal reform, but I haven't seen it yet. Mr. Walberg. Okay. Mr. Chairman, I yield back. Mr. Farenthold. Thank you very much. At this point we will go to the gentleman from California, Mr. Cardenas. You are recognized for five minutes, sir. Mr. Cardenas. Thank you, Mr. Chairman. As reported in an article in Bloomberg on April 11th, 2013, the Postmaster General was quoted as without being able to cut back to five delivery days from six, the Postal Service will take its board's advice and ask its employee unions to renegotiate multiyear contracts. Mr. Barnett, did the board of governors authorize the Postmaster General to take this action? Mr. Barnett. Mr. Chairman, Representative, we directed him to take that action. Mr. Cardenas. Okay. Was it discussed at the April 9th board of governors meeting, or any earlier meeting? Mr. Barnett. We had two meetings in the last week and I am not sure of the dates, but it was discussed at both meetings, yes. Mr. Cardenas. Okay. And do you know if the Postmaster General has spoken to any of the bargaining union leaders, renegotiating their agreements? Mr. Barnett. Mr. Chairman, Representative, it is my understanding that the requests have gone out, and he will be here shortly and he can tell you more. We have not had a board meeting since that time. Mr. Cardenas. Okay. So the board hasn't discussed it further. Mr. Barnett. Not further. Mr. Cardenas. Okay. Thank you. Is it true that the U.S. Postal Service handles approximately 40 percent of the world's mail volume? Mr. Barnett. Yes. Mr. Cardenas. That is about right? Okay. How much of U.S. mail is handled by private industry in this Country, roughly? Mr. Barnett. Mr. Chairman, Representative, we have a monopoly on first class mail, so we have 100 percent of that. If you are talking about priority mail or package delivery and so forth, I don't know that number. We would still, I think, have a majority of it. Well, packages, 20 percent. But there is a lot of criteria from first class all the way down to packages. Mr. Cardenas. And today's recovery cost of a first class piece of mail is approximately what, full recovery cost? Mr. Barnett. The Postmaster General informs me that 50 percent contribution on the first class mail, and it is the most profitable. Mr. Cardenas. So what are we charging today for first class mail? Mr. Barnett. Forty-six cents. Mr. Cardenas. Forty-six cents. And you are saying that that is full cost recovery on that piece of mail? Mr. Barnett. Yes. Mr. Cardenas. Okay. And you are saying that private industry doesn't endeavor in this Country, they don't get involved in first class mail, apparently? Mr. Barnett. They are unable to use the mailbox to deliver. They certainly can deliver things to your driveway, to your front door, mail or packages. Mr. Cardenas. And when it comes to packages, how do we do when it comes to packages, are we losing revenue whenever we try to compete in that arena? Mr. Barnett. Mr. Chairman, Representative, no. I think we are making money. We increased our revenues by more than $300 million last year. It is quite profitable. Mr. Cardenas. Okay. So it appears that this Government entity, the U.S. Postal Service, in your earlier testimony, I am getting the feeling that one of the biggest problems we have isn't that we can't compete in these delivery systems at various levels, it appears that you are finding it hard to actually make decisions in a timely manner to make those adjustments to actually bring yourself into better revenue positions? Mr. Barnett. Mr. Chairman, Representative, there are two primary problems. Every year there are more places to deliver the mail to approximately 150 million delivery sites a day and it grows, so the cost of delivering to all those delivery sites every day is a growing item; while there is a tremendous decline in the mail. So it is a system that, without other changes, is going to absolute failure. You can't continue to have decline in mail. And my colleagues pointed out several times that through 2020 we project a decline in first class mail, and it is not that we don't necessarily think there may be a decline after that; that is just as far out as we projected it. Personally, as a board of governors and for all the things, I think mail will continue to decline forever because of the ability of electronic diversion and other methods of communication. Mr. Cardenas. Thank you. I yield back my time. Mr. Farenthold. Thank you very much. I see I am up now, so here we go. I would like to start out with Mr. Dodaro. You are with the Government Accountability Office. You are a nonpartisan organization. You were designed to be the neutral arbitrators, the guys with accountants, green eyeshade deals. To quote the old Dragnet TV show, you are the just the facts, ma'am, people. Would that be a fair characterization of your organization? Mr. Dodaro. That is correct, without the green eyeshade. [Laughter.] Mr. Farenthold. All right. So as a representative of a large district in South Texas and now the chairman of the postal subcommittee, I hear from a lot of postal workers. They will come into my office, we will have a nice chat, or they will stand out in front of my office with signs. Either way, I hear a lot from them. And I have made some promises to them, and that is we need to get down to some of the numbers with prefunding. And I know we have talked about that a lot today, but I want to be perfectly clear on this so there can be no question. My fear is some of these postal employees are getting some bad information through the grapevine or from some outside organizations. Correct me if I am wrong here. If we were to do away with all prefunding completely, the Postal Service would still be losing money. Is that correct? Mr. Dodaro. That is correct. Mr. Farenthold. If we were to go to, as some of my colleagues on the other side of the aisle have suggested, a more actuarial based with the Senate, we would save about $2 billion to $3 billion over what the prefunding requirement is today, is that correct? Mr. Dodaro. That is correct. Mr. Farenthold. All right. And as Mr. DesJarlais asked, we are not prefunding for people who haven't been born yet, and we are looking at a rational deal accumulating money to pay these postal workers the benefits that they have been promised. If we don't put money away, it is going to be up to the whim of Congress as to whether or not there is money there to pay them if they don't accrue for it. Would that be a fair statement? Mr. Dodaro. That is absolutely correct. Mr. Farenthold. All right. Mr. Barnett, would you agree that those are accurate statements as well? Mr. Barnett. Mr. Chairman, I agree. Mr. Farenthold. All right. So let's talk a little bit about Saturday. Chairman Issa, Mr. Barnett, asked you which law you chose to break, whether the prefunding payments or the Saturday delivery. My question on that is, as a business person, if I had the opportunity to go to court to save several billion dollars, even if my lawyer said, well, it is a questionable issue, it might be safer to go ahead, I think I might have gone ahead with it. You pointed out earlier in your testimony that there was a concern about the money that the private sector would have to do to adapt their shipping mechanisms and the like. Didn't you already put a similar burden on the private sector when you said, well, we are going to stop Saturday delivery for all but packages and priority mail? Didn't a good many of those people already spend the money and at least start to make those plans and adaptations? Mr. Barnett. Mr. Chairman, I don't have any personal knowledge of what they started, but there is no disagreement, the board has been unanimous now for over three years that it is going to be necessary to go from six days to five days. Mr. Farenthold. Okay. Mr. Barnett. It will happen. I can't tell you when, but it will happen. Mr. Farenthold. All right. I want to get one more thing to meet my commitment to my postal workers to get to the bottom of this. An actuarial-based prepayment of retirement in health care benefits is consistent with what is required by Federal law of UPS, Federal Express, and almost every other corporation in the Country; it would be very similar. Mr. Dodaro. I am informed it is not exactly. I can provide a detailed list for the record. Mr. Farenthold. Would you provide the details of how an actuarial would be different from what private sector companies are doing? Because I would like to know and I would like to make that available to the postal employees that I represent and throughout the Country. Mr. Dodaro. Yes. You are correct for pensions, but it is not the same for health care benefits. Mr. Farenthold. Okay. Mr. Dodaro. So I will provide a more detailed record for the record. Mr. Farenthold. And you are saying that the Postal Service is in the hole 140 percent of current revenue, is that the number you gave? Mr. Dodaro. Their debt and unfunded liabilities are 147 percent. Mr. Farenthold. Okay. Now, if there were a private company in that situation, bankruptcy would probably be where they are, is that correct? Mr. Dodaro. You would be teetering. Mr. Farenthold. Okay. Finally, let me go to Mr. Barnett on something relatively unrelated. You testified that you all wanted more flexibility in rates, and I can understand that with respect to packages, but you have a monopoly on first class mail; you have a de facto monopoly on third class mail, catalogs and what a lot of people would refer to as junk mail; there are some people who will door hangers and things like that, but nobody that has the reach that you guys do. How do we give you that flexibility without giving you the power to do sweetheart deals and pick winners and losers based on political? I can understand maybe coming up with a frequent mailer program where, based on volume or objective standards, you come up with something, but there is a case with respect now you are offering a company that competes with newspapers, talking about offering them a sweetheart deal on rates. How do we give you that flexibility and, as a quasi-governmental agency still make sure you treat everybody fairly and in an objective fashion? Mr. Barnett. Mr. Chairman, as I indicated, I think one way of doing it is to allow the board of governors and the Postal Service to implement immediately, with some notice, but relatively short notice, these rates or these changes, subject to the Postal Regulatory Commission then having the authority to say, no, you have unfairly calculated your numbers by improperly allocating what to monopoly status as opposed to the competitive side of the house. So I don't think it should be completely unfettered, I don't think that would necessarily work; although I think you would find the board of governors equally up to the task of balancing all of the aspects you just described as you would the Postal Regulatory Commission. Chairman Issa. Mr. Chairman? Mr. Farenthold. Yes, sir. Chairman Issa. Perhaps the chairman would make sure that on the question of pensions, which I know you covered very thoroughly, the question of if a private sector pension did not fully accrue and have all the money in, for example, United Airlines when they went bankrupt, what would occur versus what would occur in the case of the post office. I think Mr. Dodaro is pretty qualified to contrast the outcomes. Mr. Farenthold. I am about out of time, but I do think that question deserves an answer. We will get that question. Hopefully somebody will yield on my side and we will get that. I am already way over. I do want to get that answered; we will do it within the constraints of the time rules. So we will go to Mr. Cartwright now for five minutes. Mr. Cartwright. I have no questions for this panel. Mr. Cummings. Would the gentleman yield? Mr. Cartwright. Yes. Mr. Cummings. Thank you. I want to go back to the question that was just asked, in fairness. With regard to what the chairman just asked, can you answer that? Mr. Dodaro. Yes. The Pension Benefit Guaranty Corporation would step in and have to take over that situation. In that case they have a minimum amount that they pay to the pensioneers. It may or may not be anywhere close to what they were promised under the programs, but PBGC, the Pension Benefit Guaranty Corporation, would take over as they have for other plans where companies have failed in the private sector. Mr. Cummings. Now, what about health benefits? Mr. Dodaro. The health area, I don't believe there is any comparable situation. I will go back and think about that, and if I have a different answer, I will provide it for the record, but I don't believe there is so. Mr. Cummings. Your aid is swiftly jotting down the praecipe there. What do we have? Mr. Dodaro. Basically that the participants lose. The benefits will be cut. Mr. Cummings. But your recommendation with regard to the health benefits is what, now? Mr. Dodaro. That prefunding take place in a fiscally responsible manner. We believe this protects the Postal Service employees, as well as the Postal Service as an institution, and helps preserve their benefits; that it be done on an actuarial basis consistent with the Senate legislation that was passed; that a goal be set for 100 percent funding over time. Those are our recommendations. Mr. Cummings. And you would feel comfortable that they would be sufficiently taken care of no matter what? Mr. Dodaro. Yes. Yes. If that happens, along with-- now, you need the comprehensive legislation to make the Postal Service have the ability to make the prefunding arrangements. That is where the flexibility comes in and other issues. But assuming the Postal Service has the financial ability to make those prepayments, yes, I think that is in the best interest of the employees and the Postal Service. Mr. Cummings. You also talked about making sure that they have the opportunity to raise rates, is that right? Did you say that? Mr. Dodaro. Yes. I think they need flexibility in both pricing and in delivery. You know, in the delivery area, 80 percent of their costs are personnel costs. You are not going to eliminate your personnel costs unless you change your delivery stand. Mr. Cummings. Right. Mr. Dodaro. And when you have the mail volume dropping the way it is dropping, and projected to continue to drop, you need to have flexibility to change your delivery methods. Five day delivery is something we think should be considered. But they need pricing options with flexibility, too. Their main competition is the introduction of new technologies. They are occurring very rapidly, changing how people are communicating. If they don't have the flexibility to make those changes, they are not going to be able to be competitive in the future. The Postal Rate Commission could stay in place as a check against what they are doing, but unless they are given the flexibility, I just don't see how they are going to be able to bring their costs in alignment with revenues. Mr. Cummings. And so I take it that there is research that has been done to say that if the postmaster were to raise the rates, that that would not interfere with future business? In other words, you can raise your rates to a certain degree and lose business. I am assuming that you all have already taken all of that into consideration, is that right? Mr. Dodaro. Well, you need to balance raising the rates. I mean, many of our suggestions go to cutting the costs. Our point is that you need to bring costs in alignment with the revenues. So I am not saying you should solely do raising the rates. I think you have to cut the costs first and use rate abilities, particularly for products where you are losing, not covering your costs already, as I mentioned with periodicals and catalogs. But you have to balance those issues appropriately. Mr. Cummings. And on the downsizing, you know, there has been substantial downsizing already, and I take it that when you talk about downsizing, I think you mentioned that there should be some type of incentives for downsizing, people retiring? Mr. Dodaro. Yes. Mr. Cummings. And why did you come to that recommendation? What was the basis of that, sir? Mr. Dodaro. Well, I think if you look at the decline in the mail volume, we have looked at there is excess capacity in the system, in the mail processing network, and they are already trying to consolidate the mail processing centers. And if you look at the decline, Mr. Barnett mentioned they went from 213 million pieces of mail to 160 pieces of mail, and they are expected to go further over a relatively short period of time. So you have excess processing capabilities and also in your retail operations as well. They are already cutting back the number of hours, as he mentioned, some places to two hours a day; and that is under just the current volume. If the volume drops further, the excess capacity will build, and then you are going to have to downsize because you don't have revenue to support that network. Mr. Cummings. Thank you very much, Mr. Chairman. Mr. Farenthold. All right, patiently waiting has been the gentleman from Michigan. Mr. Bentivolio, you are recognized. Mr. Bentivolio. Thank you, Mr. Chairman. Chairman Barnett, I have a few questions. I want to recap, make sure I understand this correctly, but I also want you to know that I have a fond affection for the post office; as a soldier overseas, it was the highlight of my day and a big morale booster to get mail from home. And I think I carried that over home; I always look forward to looking in my mailbox. But there are a few things that are clear: some days there is no mail at all and other days there is maybe one or two, in contrast 10 years ago, 15 years ago, before the Internet, there was all kinds of mail. Always looked forward to it and always looked forward to my postal delivery person to say hello to him. Always had good relationship with the post office. But there are a few facts, and you have indicated those. You have a declining volume in first class mail, in which you have a monopoly, correct? Mr. Barnett. Correct. Mr. Bentivolio. Right. And you have increasing locations to deliver that mail, which you are required to do so. Where you are increasing, if I understand, your marketing shares in package delivery, correct? Mr. Barnett. Mr. Chairman, Representative, that is correct. Mr. Bentivolio. Okay. But you are required to compete with other commercial businesses in that area. Mr. Barnett. That is correct, Mr. Chairman. Mr. Bentivolio. So you have to compete on something while there are other competitors, of course. All right, now, for cost cutting, you are consolidating some sorting locations or mail---- Mr. Barnett. Mail processing plants, yes, sir. Mr. Bentivolio. Mail processing. Thank you very much. Now, you also are looking at cutting delivery down to five days versus six. Have you ever done any testing anywhere in the Country, any region, where you have done that; you have said, okay, folks, in this particular area we are only going to deliver five days; measure your cost savings and measure your customer satisfaction or whatever, some kind of evaluation? Have you ever done any tests like that? Mr. Barnett. Mr. Chairman, Representative, I am unaware of any tests except that the presentations made to the board show that delivery over time has been all over the place. In New York City, I was told, in 1900 they delivered in New York City five times a day. In as late as in the 20th century they delivered twice a day to many areas of the Country. There are areas of the Country now that don't receive mail delivery six days a week, I mean, the proverbial bottom of the Grand Canyon, that kind of thing. Mr. Bentivolio. Okay. Mr. Barnett. So there has always been some flexibility. But, Mr. Chairman, Representative, you hit the nail on the head: if you are not getting any mail and there is no volume, we have no choice but to eventually cut back the delivery time. Mr. Bentivolio. Right. But you may have to deliver to my neighbor on that same day I don't get any mail. So you still have to be there, correct? Mr. Barnett. We do. Mr. Chairman, Representative, today that is our problem. The cost of going, whether you go by that mailbox or not, the cost is still there. In fact, there are enough people using one of our innovative ideas, Every Door Direct, which has been a real success. You can go as a small local businessman in a town and you can pay to go to every door within a zip code for a much lower price; and it is not large monies yet, but it is certainly an innovative idea that is working. Mr. Bentivolio. Okay, excluding medicine delivery, pharmaceuticals, emergency mail, possibly a few other things, have you ever looked at delivering, for instance, using one carrier to deliver to one route Monday, Wednesday, and Friday, and route two, for instance, same delivery person on Tuesday, Thursday, and Saturday? So you get the six day delivery. I mean, does that count? Is that something you could consider? Mr. Barnett. Mr. Chairman, Representative, I think that postal management is considering every option that is available. Obviously, there are logistics and legal issues surrounding universal service. The union agreements, the union contracts, most of those would have to be renegotiated to accommodate some of that. But I am not sure the cost savings would be there sufficient to justify it. But I think they have thought of and are looking at every option that is available out there. Mr. Bentivolio. So is there any test results or any areas where you have done this that maybe we can look at? Mr. Barnett. Mr. Chairman, Representative, I don't know of any test results. I do know we have polled it extensively. The board has asked and management has provided extensive polls over the last 24 months showing very high numbers, in the 70 percent range of the public, is in favor of reducing delivery from six days to five days. And the business community has been, by and large, very favorable to closing. As a matter of fact, most of the governors report, as I do, back from my local businesses, I don't get enough mail anymore that I care about Saturday delivery. Additionally, you should know that all the post offices are open on Saturday and that any businesses or individuals that need Saturday delivery can get a post office box, because it will be delivered on Saturday and will be available at post offices. So this would only primarily be those that didn't have the need and don't get a post office box. It is not a perfect scenario, and certainly you can come up with people that will be inconvenienced, but we are billions in the hole and somebody somewhere is going to have to be inconvenienced. Mr. Bentivolio. Because I get the impression from the surveys and all the data that I have read, plus just looking in my own mailbox, that mail is declining. And I think, as everybody explained here, we are under dire circumstances. I think maybe looking at some more drastic measures might be at least worthwhile to look at. With that, I will yield back my time. Thank you very much, Mr. Chairman. Mr. Farenthold. Thank you very much. At this point we will recognize the gentlelady from New York, Mrs. Maloney. Mrs. Maloney. I want to thank all the panelists, thank you for your public service, and to be identified with my colleague on the other side of the aisle who said the highlight of his day was getting the mail. That is certainly true with the military and with many of us, and they do a terrific job in many ways getting mail to all across our Country. It has become a dangerous job, with ricin being discovered in the mail going to a United States Senator. Of course, it went through the mail service, workers were exposed to it. I know that in New York, many workers were exposed to anthrax. So with the new terrorism that, unfortunately, is with us, they are really in the line of fire in many ways. Postal services are very appreciated by communities, and nothing gets them more excited than a consolidation or a notice to close. And I have two notices in the district that I am honored to represent, and one of them, in the Old Chelsea area, is in a beautiful building that is owned by the post office, and they are proposing to sell the building and then to a place they are going to lease. And they are proposing to do this before they find the place they lease, and I respectfully request and believe that you should know where you are going before you sell a post office because, in New York, in an urban area, it is cheaper to stay in a building you own than to lease. So if our project and our goal is to save money, I think we should know where we are going before we close a post office and have some type of cost-benefit analysis. Also, do you look at other creative ways. Maybe in a post office, some are very large and beautiful, you could possibly rent some space to an attorney or someone that would help with the cost if the goal is to raise money. So my question is why in the world are you selling post offices before you even know where you are going to lease? Because I bet you money if you do that in my district, you are going to end up paying more money leasing than owning your post office site. Mr. Barnett? Mr. Barnett. Mr. Chairman, Representative, in every case like that a cost-benefit analysis is done by the real estate division of the Postal Service. This specific question is probably better addressed to the Postmaster General on the next panel, but the board of governors would agree in general with your statements. We would not wish to do anything that would cost more money. Mrs. Maloney. Well, I truly do believe it is a mistake to close anything before you know where you are going. Now, they are making a commitment to stay in the community. It is a post office that makes money, and, again, if our goal is to make money, I don't understand why you would consolidate, close, sell, or do anything with a center that is literally making money. Can you explain that to me? Mr. Barnett. Mr. Chairman, Representative, again, there will be a written, fully available cost-benefit analysis to any real estate transactions that are going to occur. We are in hundreds, if not thousands, of those around the Country today. Mrs. Maloney. But where in the process is it done? It should be done now, while it is being considered, not after the fact. If there is any such analysis now, I don't have it; and I have asked for it. So if there is not a law that says you have to have the cost-benefit analysis before the decision is made and before you move forward, I think it should be. That is just good government and good business. I can't imagine a business selling their building to go lease something without first knowing where they are going to go and how much it is going to cost. And I am not kidding you, in New York it could be more expensive, considerably, to lease than to own your own building. The easiest way to live in New York in an urban area is to own your own building. And I would say in upstate New York, too. So I would like a clarification for the committee on what exactly is the procedure. And if you are doing this cost- benefit analysis, when do you get that cost-benefit analysis. Maybe GAO knows. Mr. Dodaro. We are aware they have a process. We haven't looked at it for a while. I can provide some additional information for the record. Mrs. Maloney. Well, I would appreciate that. Now, is there a law or a procedure that if it is, in fact, making money, you don't close it? I would share with you that there were efforts to close other post offices in my district and I showed that they were making more money than any place in the State, so why are you trying to close them? And I think that you touched on it, Mr. Barnett. We are in a very competitive process right now, and if you close something people have other options, not only the Internet, but they can go to private providers. And if you think they are going to walk blocks away to someplace else, they are not going to do it; you are going to lose those customers. So it doesn't look to me like a good business plan. Anyway, I am very concerned about it. I would also like to know the law on community outreach. Believe me, my community is reaching out to me, and I want to know are you required to have a community meeting so the community can be heard, or is that a discretionary decision, or how is that handled? I must say that the post office has been very responsive to many of my requests, but I would like to know what is the official procedure. Chairman Issa. [Presiding.] The gentlelady's time has expired, but the gentleman may answer briefly. Mr. Barnett. The PRC and the Postal Service do have procedures in place. There are community meetings in every case and it is all set out with Postal Regulatory Commission procedures and USPS procedures. Mrs. Maloney. Thank you. My time has expired. Thank you, Mr. Chairman. Chairman Issa. Thank you. For the record, the postal laws of the United States, August 2011 edition, on page 21, item 411 specifies cooperation with other government agencies as to subletting. But if the gentlelady would like it, we would arrange a bipartisan briefing on a number of the issues she brought up here today. With that, we go to the gentleman from Tennessee, Mr. Duncan. Mr. Duncan. Thank you, Mr. Chairman. I have been given the figures that there are now 471,000 postal retirees and 522,000 current employees. Are those numbers roughly accurate? Mr. Barnett. Mr. Chairman, Representative, I am informed those are fairly correct. Mr. Duncan. And what I am really wondering about, I am assuming or guessing that you are paying the health benefit not only for them, but their families as well, is that correct? Do we know how many people total that you are paying health benefits for at this time? Mr. Barnett. Mr. Chairman, Representative, I don't. The Postmaster General will be up shortly. He will have those numbers. I am sorry, at the board level we don't get into quite that detail. Mr. Duncan. Okay. Well, have you changed or reduced the retirement and health benefits for newly hired employees in the last few years? Mr. Barnett. Mr. Chairman, Representative, one of the things we hope that the comprehensive postal reform will do is clarify some of that. But when you say there are changes, there are only changes in the collective bargaining agreements with the unions, and they are some modifications as to new hires. Mr. Duncan. But basically you are still paying the retirement and the health benefits? Mr. Barnett. The answer, Mr. Chairman, is yes. Mr. Duncan. Well, I guess what I am getting at, it is less than 20 percent. In fact, I think it is only 16 percent of employees in the private sector have retirement plans with their companies, and also I was given the figures that the hourly pay for postal employees right now is running from around $24 an hour to $29 an hour; and in most places, almost every place in the Country, those are really good salaries. And I am just wondering, we all want to give people as much as we can possibly give them, but do you think the Postal Service would have trouble getting employees if you told these new hires that we were just going to pay you $25 or $30 an hour, but you weren't going to get any pension or health benefits, since those seem to be the big expenses here or the big problems here? Mr. Barnett. Mr. Chairman, Representative, without much detail, I can tell you recently we had some jobs available at $15 per hour and there were 90,000 applicants. Mr. Duncan. Well, all I am saying is that you certainly wouldn't have any trouble getting employees in, I think, probably 98 percent of the Country, paying those kind of wages, $24, $25 an hour, even if you told new employees that, unfortunately, we can't continue to pay the retirement and health benefits that we have always paid. On top of that, I think the retired postal employees should be the ones that are demanding the most fiscal conservatism in the future, or we are going to have real trouble paying these benefits that have already been promised, it seems to me. And I see you shaking your head up and down, Mr. Barnett. Mr. Barnett. Mr. Chairman, Representative, we discussed these at length in the board and it is why I said earlier that we hope that the comprehensive postal reform will look at the possibility of going to defined contributions in the future, allowing us to run our own health plan, things of this type. Yes, we would like to run it more like a business, which will ultimately be to the benefit of the consumers, as well as our employees. Mr. Duncan. One last thing, just so that I have it straight. I saw where you have reached the debt limit of $15 billion, is that correct? Mr. Barnett. Mr. Chairman, Representative, that is correct. Mr. Duncan. And you defaulted on the $11 billion prepayment. Mr. Barnett. That is correct, Mr. Chairman and Representative. Mr. Duncan. So it is really worse than the $15 billion. And then the postmaster, in his testimony, says you are losing $25 million a day, which comes out to a little over $9 billion a year. So it seems like it is almost worse than what we have been talking about in the past. Mr. Barnett. Mr. Chairman, Representative, very respectfully, I can tell you that we have our five-year plan, which we adopted years ago, has had some modifications to it, we can operate in the black, but 100 percent of the reason that we cannot operate in the black today is because we cannot get postal reform through the Congress. Mr. Duncan. All right. Thank you very much. Chairman Issa. If I could ask unanimous consent just to follow up for 10 seconds. Mr. Barnett, you were asked about lower wages. Based on your assessment, if we put in all of the efficiency changes and we optimize with current volume how we deliver, what we deliver, where we deliver it, can we break even and still pay the good wages and benefits we currently pay to our employees? Mr. Barnett. Mr. Chairman, I don't have an absolute answer to that, but it would be very difficult. Chairman Issa. So the answer is almost close, that sort of thing? You are not sure we would break even, but you could come pretty close? Mr. Barnett. Well, Mr. Chairman, we have a lot of things. The flexibility and the workforce rules, all of those things, defined contributions, the health plans, all of it are a part of the entire structure. Chairman Issa. Okay. Well, my indulgence from the members should expire. As we go to the gentlelady from New Mexico, I do want to let everyone know that in the last Congress, and intended in this Congress, is to have substantially same wages and benefits going forward as we do. Our reforms were intended to, and I believe on a bipartisan basis we are going to try to keep the wages and benefits as close to what they are for the purpose of making sure that what we are looking for is efficiency to break even and not necessarily wage reductions. The gentlelady is recognized. Ms. Lujan Grisham. Thank you, Mr. Chairman. And I want to thank both of our panelists for being here today. And a point of personal privilege, Mr. Chairman, panelist Barnett and the chairman of the board of governors is, of course, from my district, and that is the most important, from the State of New Mexico; and I am grateful for your service and for both panelists for engaging in this really important issue. My questions, like many of the others of my colleagues who have gone before me, we are clear that we have a revenue issue. We are clear that we have a loss of revenue problem. But what has not been, I think, stated by the panelists as robustly as I would like is, unlike a private business, this was a public service, and as we talk about cost-benefit analysis, about figuring out where some things are going to be more expensive than they might be in the private sector, it is because we are delivering a public service. And in a State like New Mexico, where we are rural and frontier, and including in my district, which is the most urban district, since 2011, with 27,000 people out of the workforce for the Postal Service and work hours reduced by 40 million hours across the Country, the number one complaints I get in my office are long lines, having to travel long distances to find a post office. And I am very concerned about States like New Mexico as we try to figure out that the fixed cost here is personnel, and to change that means that we don't have an effective public service. So specifically more than just you need reforms and flexibility, what is the process for making sure that you have a high quality, very dependable, and an infrastructure that is going to benefit and protect States like New Mexico that have rural and frontier issues that are critical to having an open post office? Mr. Barnett. A lot of answers to that, Mr. Chairman, Representative, but the concept of the village post office is most effective in the rural areas. The concept of a village post office is that we would put post offices in grocery stores, Targets, Walmarts, any place that might be like that, Home Depots, Office Depot, things like that; because they are open more hours than typical post offices, so you have more coverage. It is done at a lower cost, typically. And most people don't need all of the services of a post office; they only need a stripped down version of the post office. Additionally, we are and we need to be more innovative at getting out the word that you can do most of your things on the Internet today. If you need stamps, all you need do is go on the Internet, order them, and they will be delivered to your house in a couple days, or your business. You don't need to go to the post office to get stamps. We need to have more of that done. Our flat rate shipping boxes have been a real boon to that. You know, a box costs $5.65, $5.95, or, for the bigger boxes, a little more. You don't need to go to the post office; you just need to put your things in there and put the postage on it. You can order your postage online. So we are doing as many things as we can to get more village post offices. Ms. Lujan Grisham. And I love the village post office concept in many ways, and I am very fearful about whether or not you are going to get the kind of quality and relationship building between those folks and their constituents. And, really, a lot of these post offices and postal workers toot these folks, particularly older folks who aren't using the Internet to the same degree. We have a huge growth rate in that population, but also in rural and frontier States you don't have Internet coverage. And I think about people in areas where that is not going to be a possibility, and the more rural you are, the less opportunity you have for the kinds of Home Depots and Walmarts or big box stores don't exist because they don't have the population centers to support them. And in many areas, of course, as you know, in our State we don't even have grocery stores; we might have a convenience store. And there are issues I have about consumer protection in that environment. So while I appreciate it is a concept that could work, we need strategies that are going to take into consideration their main factors and that the goal here, in addition to being able to be in the black, is that you have a public service and we have to serve these constituents. So I would really encourage you, with your leadership on the board of governors, to really think about ways that are going to be unique; more than just the flexibility to get there, but that you are looking at quality, productivity, those relationships, the rural fabric in these States related to the post office; and when I was in aging, the Postal Service was a very effective partner in reaching those constituents. Thank you. I yield back. Mr. Mica. [Presiding.] Thank you. We recognize the gentleman from Georgia, Mr. Collins. Mr. Collins. Thank you, Mr. Chairman. Just in listening and writing down notes, we went all over the map, from the importance of the Postal Service. I don't think anybody will detract from that. We have talked about how you have been in committees before. I serve on the Postal Service subcommittee. What concerns me about this is some of the things that are said. And really, as we go forward, and I know the next panel will have a similar issue, but we talk about Department of Defense, we talk about the post office and the prepayments being made, there is one truism among both, and I think we can just nod our head, is that if, on both counts, the taxpayer is ultimately on the hook. Yes. So it is not an issue of is this just a quasi-government organization. Both DOD and these prepayments, we are ultimately on the hook, the taxpayer is. What concerns me here is that in a time in which, admitted, Mr. Chairman, you're low liquidity, you are not really sure you can get down as low as two days later this year, in a time in which the discussions have been made; and I read about the board of governors and your role. You do believe you have a fiduciary duty in your role to the Postal Service in your role, correct? Mr. Barnett. Mr. Chairman, Representative, yes. Mr. Collins. Okay. That means there is a trust, that there is a trust with you and the board of governors, not just strictly you, but also I believe with the Postmaster General and others in this situation. What I keep hearing is, well, we thought of and we are looking at that; we have a five year plan that was many years ago; we have discussions that we want to do; we are exploring ideas--and these are direct quotes from today -- exploring ideas that do not have high likelihood of being implemented. One, we keep talking about going to dealing with your health benefit plans. Now, let's just get it out in the open here. To go to that without congressional intervention, which in this time, in divided government, is not going to happen, you are not going to be able to break these collective bargaining agreements and these health agreements to get that to happen. We are focusing on things that don't matter. Because in the big picture they may sound great, they may help you get the flexibility, they may help you, but we are just throwing it out. Can we cut to the chase here? Are we just waiting on Congress to do this for you all? Mr. Barnett. Mr. Chairman, Representative, we are waiting on comprehensive postal reform, because we cannot do any of these things unilaterally. Mr. Collins. Well, what can you do? Mr. Barnett. We can't go from six to five days. Mr. Collins. What can you do? Mr. Barnett. Oh, what can we do? We are doing. We have reduced the workforce by over 200,000 employees in four years. That is a significant reduction. Mr. Collins. Excuse me just one moment. Reclaiming my time. But we are also still entering into agreements, in a postal hearing just the other day, that are basically lost money type of agreements, sweetheart agreements, however you want to contact it. We are still doing things that, again, from a picture--what really strikes me here is we are reshuffling the deck on the Titanic and you are sinking. And we are saying, well, eventually, Congress, you have to come in and let us do these things, but I believe there are other things that we are not doing. In a sense saying that it doesn't matter how great the post office, and the postal employees are wonderful people. I have greatest respect and admiration for them. But you are in an environment right now where they are being put as pawns is probably a good way to put it, in a situation in which we continually talk about what we could do, and if the Congress would just step in or the Congress would just do this. There are things that have been reported from the GAO that can be done that we are not doing. My only question is why. Are we depending on legal opinions? Are we depending on other things so we can't do these things? Are we just a political aspect? I mean, I am sitting here asking for--you know, if it had only been Congress and there has been discussion about, and I know there is discussion out there about just turning it all back over and putting it back under the Government. That is just not a viable answer at this point. The people are not going to take a bailout of the Postal Service. It just seems to me that instead of making decisions in which you can--and there have been things and I don't want a listing--there are things right now that I believe we could be doing, that have been reported out, we are not doing, and I think the American people just ask one simple question: Why not? Mr. Barnett. Mr. Chairman, Representative, respectfully, we are doing them. We are consolidating plants. Mr. Collins. You have implemented every report from the GAO on things that you can do, everything that you can do at this point? Mr. Barnett. Mr. Chairman, Representative, respectfully, yes. Mr. Collins. And also taking the six to five day, you are going to say that that has to come back to us and that you can't touch that because of a legal opinion? Mr. Barnett. Mr. Chairman, Representative, not just because of the legal opinion; Congress voted three weeks ago to say no, you cannot do it. Mr. Collins. But also the chairman of this committee basically stated as well that that was not the opinion in passing. It is in the record. Of the rider coming out. Mr. Barnett. Mr. Chairman, I am unaware of any legal opinion by anybody anywhere that has ever been shown to me. Mr. Collins. Not a legal opinion. I think the biggest point here, and I will be working with you on this, working for others as we go forward on this, and just to simply say find something that can be done. Find something that can be done so we can move this forward. And if you want to blame Congress, then that is the easy thing to do; then it is going to be happening and we will have to do that, and we will move forward on it. But I think the Postal Service is a valued organization, constitutionally mandated, that we need to fix and we need to get it back to a way that it serves what we need served. Thank you. Mr. Mica. I thank the gentleman and yield to the gentleman from Missouri, Mr. Clay. Mr. Clay. Mr. Chairman, I am going to forego my time and ask unanimous consent if I can have 10 minutes on the second panel. And I will yield to him. Mr. Mica. Ten minutes? Well, I don't have the authority to do that. [Laughter.] Mr. Clay. Well, I am trying. [Laughter.] Mr. Mica. I don't want any mistake here. I want to be full committee chairman, but I am not, so I don't have that leeway. But I think that would be taken into consideration. Really, I guess some of it is up to the minority, to give him double time later. What do you think? Mr. Cummings. I think that would be good. But is the gentleman yielding his time? I just want to make sure I understand what is going on here. Mr. Mica. Well, if he yields his time, then he is not going to get double time. Mr. Clay. No, I ask unanimous consent for 10 minutes on the second panel. Mr. Mica. On the second panel. It is up to you. Then he gets nothing? Mr. Clay. Then I won't yield. Mr. Mica. Okay. All right, without objection, he will have 10 minutes on the second panel. I didn't say in what order. Have all members had their five minutes? We want to be fair to all of the members. Well, we are going to go for a second round. Mr. Cummings. No, we are not. Mr. Mica. We are not was the decision made. Okay, look at the sigh of relief there. But I thank both of you for coming today and for being available as witnesses and both of you for your job in trying to help us find a resolution. It is an important service that the Government provides, the U.S. Postal Service. So with that I will excuse the witnesses and we will call the next panel, and, as we change, the chairman will recognize them and swear them in. Chairman Issa. [Presiding.] We will take a short, necessary break. [Recess.] Chairman Issa. The committee will return to order and I would now remind the witnesses they have previously been sworn and, with that, will recognize the Postmaster General. WITNESS STATEMENTS STATEMENT OF THE HONORABLE PATRICK DONAHOE Mr. Donahoe. Good morning, Mr. Chairman, Ranking Member Cummings, and members of the committee. Thank you, Mr. Chairman, for calling this hearing. The Postal Service is currently operating with a broken business model. Since the economic recession of 2008, we have been experiencing a significant imbalance between revenues and costs. This imbalance will only get worse in the coming decade unless laws that govern the Postal Service are changed. In the past two years, the Postal Service has recorded $21 billion in losses, including a default of $11.1 billion in payments to the United States Treasury. The Postal Service has exhausted its borrowing authority and continues to contend with dangerously low liquidity. We are losing $25 million a day, and we are on an unsustainable path. Primarily due to the rise of online bill payment, the use of first class mail has dropped 28 percent since the year 2007, which roughly equates to $8 billion in annual revenue that we would have otherwise had today. That steep decline in our most profitable category is not the cause of our financial problems. Our financial problems are due to the fact that we have restrictive laws that prevent us from fully responding to these changes in consumer behavior. Any private sector company could quickly adapt to market changes that we have experienced and remained profitable. However, we do not have all the flexibility that we need to grow revenue, reduce costs, and adapt in a changing marketplace. There are areas that we can act within the law, and we have been very aggressive in these areas. Since 2006, we have reduced the size of our workforce by nearly 200,000 career employees. That is 28 percent, without any layoffs. We have done it in a very careful manner. We have consolidated more than 300 mail processing facilities. We are in the process of modifying hours in more than 13,000 post offices. We have eliminated 21,000 delivery routes. These actions have bent the cost curve and reduced our annual cost base by $15 billion annually. So this year's cost is $75 billion. It would have been $89 billion had we not taken these actions. We have examined and acted on every reasonable and responsible action to match volume loss with cost reductions. No other organization, public or private, that I am aware of can claim a similar cost reduction while continuing to function at a high level. And yet we have to go much farther, much faster, and we are prepared to do so. In February of this year the Postal Service announced that it would introduce a new national delivery schedule designed to reduce our costs by approximately $2 billion annually. We did so after receiving advice from our legal counsel. We did so because the continuing resolution in existence at that time did not prevent us from taking this fiscally responsive action. The law was set to expire on March 27th and we urged Congress not to act to block our new delivery schedule when it enacted the next continuing resolution to fund the Government for the rest of the fiscal year. However, according to our legal opinions, House Resolution 933, to fund Government operations for the remainder of the fiscal year included language specifically designed to prevent the Postal Service from changing its delivery schedule. According to the law, we are now required to deliver mail as if it were the year 1983. The Postal Service is a law-abiding arm of the Federal Government. Congress passed the law, we reviewed it, we complied with it and informed our customers, which we did last week. Our customers require certainty, especially of something as fundamental as our delivery schedule, and so we announced that we would delay implementation of our new schedule until we gained legislation giving us the ability to move forward. Mr. Chairman, we need the flexibility under the law to implement our new delivery schedule. We need the ability to develop and price products quickly; the ability to control our health care and retirement costs; the ability to switch to a defined contribution retirement system for newly hired employees; the ability to quickly realign our mail processing delivery and retail networks; we need a more streamlined governance model; and we need more flexibility in the way that we leverage our workforce. Contrary to the arguments that we hear from some parties, it is not enough to merely resolve prefunding of retire health benefits. We can implement our five-year business plan, close the $20 billion budget gap that will be here if we don't act by 2017, and return the Postal Service to long-term profitability, but only if we gain the flexibility in each of these areas. If we do not gain this flexibility, our losses will continue and we will risk becoming a significant burden to the taxpayers. It is that simple. Mr. Chairman, we need Congress to affirmatively grant us the authority to operate the Postal Service in a financially responsible manner. We need full authority to carry out our responsibility and provide universal service to our Nation. Every day we record a loss of $25 million. Every day our financial hole gets that much deeper, and we cannot stay on this current path. Let me conclude by thanking this committee for its willingness to address tough issues and pass comprehensive postal reform legislation this year. The Postal Service is a tremendous organization with tremendous people and we need your help. Thank you. [Prepared statement of Mr. Donahoe follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Issa. Thank you. Mr. Rolando. STATEMENT OF FREDERIC ROLANDO Mr. Rolando. Thank you, Chairman Issa and Ranking Member Cummings and the other members of the committee for inviting me to testify at today's hearing. This hearing is vitally important to the 190,000 letter carriers I represent, as well as the 7.5 million private sector workers that are employed by the printing, publishing, paper, direct marketing, e-commerce, and shipping industries that rely on a strong Postal Service. Indeed, our affordable universal service is crucial to the American economy and to American businesses that generate 95 percent of all mail. My written testimony offers a comprehensive set of options to restore the Postal Service to solvency. This afternoon I will cover the issues you specifically asked me to address in your invitation. On cost savings, the NALC and the other postal unions have contributed billions in savings through collective bargaining. That process concluded for us just 12 weeks ago. The new NALC contract emerged from an interest arbitration that focused on the financial condition of the Postal Service and led to an award that will provide the Postal Service with huge savings in the years to come. As we did during the great recession, when we worked tirelessly with management to adjust routes in response to reduced mail volume, we have done our part to preserve the viability of the Postal Service through the bargaining process, but more must be done and we need the Congress to do its part as well. I will highlight two cost-cutting reforms from my written testimony. First, the Congress should repeal or dramatically reduce the retiree health prefunding mandate that has caused over 80 percent of postal losses since 2007 and pushed us towards insolvency. Applying private sector retiree funding standards to the Postal Service will give us the best chance to adapt, expand our e-commerce delivery volume, and develop new services for our customers as traditional mail volume declines. Some suggest that lifting or reducing the prefunding burden amounts to a taxpayer bailout, but no taxpayer funds will go to the Postal Service; and retaining the current prefunding policy will increase, not decrease, the risk of a future taxpayer bailout. Forcing the Postal Service to slash service, reduce quality, and degrade its unique last mile delivery network will simply drive more business away and tip us into a death spiral. We cannot destroy the village to save it. Second, we recommend that Congress give the Postal Service the flexibility to negotiate with its unions to establish a set of postal-only plans within FEBA. This would allow us to use incentives to reduce costs and improve health among postal employees. FEBA does a good job of controlling premium costs, but we could cut postal employee health care costs further if our health plans used single network providers for hospital services and prescription drugs. We could also cut costs for future retirees by better integrating our plans with Medicare and by taking advantage of low-cost prescription drugs through an employer group waiver plan. Most of the savings that the Postal Service wants to achieve by leaving FEBA can be achieved within FEBA with the right kind of reforms. Your invitation also asked about our position on an annual federal appropriation for the Postal Service. Of course, for most of its history, the Postal Service in America has been funded by both taxpayers and ratepayers, even though we have received no taxpayer subsidies since 1983; and it is certainly true that the Postal Service benefits the Nation as a whole, not just ratepayers, by facilitating national markets, strengthen democracy through postal voting and campaign mailings, and promoting local communities with newspapers and periodicals. But we do not support an annual appropriation to strengthen the Postal Service. Other reforms can do the job without help from taxpayers. Finally, you asked for our views on governance reform. We strongly support a fundamental reform of the governance structure of the Postal Service. The goal should be to attract dynamic and entrepreneurial management to the Postal Service and to create a board comparable to private sector boards of directors that govern multibillion dollar enterprises. Creating a board with men and women that have deep experience running large national companies and partnering with unionized workforces would help us preserve affordable universal service. In the context of such a restructuring, NALC is prepared to work with Congress, the White House, the Postal Service and its stakeholders to develop a strong and viable business and regulatory model for the 21st century. Let me conclude by saying the potential insolvency of the Postal Service is no accident. It is not merely the result of technological change, the bad economy, or poor management, though those factors have contributed. Intended or not, it is primarily the result of congressional decisions in 2006 to mandate retiree health prefunding and to impose strict price controls on postal rates. We will have to continue to make difficult changes, but reversing or revising these policy choices are crucial to saving the Postal Service and I urge this committee to do so. Thanks again for inviting me. [Prepared statement of Mr. Rolando follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Mr. Farenthold. [Presiding.] Thank you very much, Mr. Rolando. Since the chairman has stepped out, I will recognize myself first for questions, and I would like to start with you because the prefunding really is a big issue that we are facing, and I want to be perfectly clear on where you and the members of your organization are on that. You do believe we do need to set aside some money. Are we really just arguing about how much money we set aside? You don't want to do away with prefunding completely, correct? Mr. Rolando. We believe prefunding is a good thing, and the gentleman from GAO said this about five times this morning, if it is done in a fiscally responsible way. It is not fiscally responsible to exhaust your borrowing authority, to drain your savings, and to use all your resources to take money from one of your pots and put it in another pot. It is not fiscally responsible. As long as the Postal Service has the surpluses to do what was intended, to then fund for prefunding, we think it is a great idea. Mr. Farenthold. All right, we heard testimony from the GAO that if we completely did away with prefunding, there would still be a deficit. So under your scenario there, we would put no money away for your retirees. Is there a number that they have to work into their budget and their planning that is a reasonable amount to put away to ensure that your retirees are paid the benefits and given the health care that they were promised? Mr. Rolando. The number is $45 billion. That is how much we have put away. Mr. Farenthold. But that is not going to last. So you want to zero it out and just use what you have until it is out or until the Postal Service is making money? Mr. Rolando. No. When we have surpluses, we should continue to prefund. But as we are right now, we have $45 billion. Again, you have to look at the source of the prefunding. It was thought that at the time, in 2006, looking out over--the gentleman earlier said it wasn't 75 years. He is correct; it is more like 92 years is the amount of time that they did the assumptions for, for about a 92 year period. What he is confused about is the time that they were going to take to pay it off was 50 years. Mr. Farenthold. Would you all support a, I think the term was actuarial-based accrual system or payments? Mr. Rolando. Yes. We have several options in my written testimony. There are several ways to prefund. We do believe in prefunding, we do believe it should be fiscally responsibly done, and we do believe it should be done out of the surpluses. Mr. Farenthold. All right, so I guess we are arguing about what fiscally responsible is. And, again, I don't want to put words in your mouth, but you are saying only if there is a profit or an excess do we put some away; we don't actually find efficiencies or make changes to our service, dropping down to five days, for instance, or raising postal rates to get there. Mr. Rolando. What is not fiscally responsible is taking all your money out of the bank, all your borrowing authority, and all your resources, and pretending that you are in default to put money of your own into another account and call it prefunding for the future. Mr. Farenthold. All right, we will go to the Postmaster General. Thank you, as well, for being here. I would imagine there is a slightly different opinion on your part as to what needs to be done with respect to meeting the obligations and keeping the promises you made to current employees? Mr. Donahoe. Yes. First of all, we stand very firm in making sure that we keep the promises to the employees. This organization, when we were hired, Fred and I, we had the promise of health care, and we have to live up to that. I would tell you that rather than worrying about how much to prefund, we need to step back and take the suggestion that you heard from both of us, that we take over our own health care plan. And, truthfully, we could work it within the FEHBP. I have no issue with that. As long as we were able to compete it, make it affordable and cut the cost for our current employees, and then use the full effects of Medicare, which we pay into--ratepayers are paying Medicare; postal employees are paying Medicare--and conduct our health care like any other business. As a matter of fact, Mr. Chairman, if we did that, we are on record in our testimony showing that we actually break even and there is no further need to prefund. We would provide top quality health care for all the postal employees employed right now and into the future. Mr. Farenthold. Well, I know the OPM is looking at some of the same ideas you want for the entire Federal workforce. Mr. Donahoe. I would love to spend more time with the OPM, and I would invite them to spend time with us as a group, the unions and the management associations, and we can sit down and go through step by step. What we find with the OPM, truthfully, Mr. Chairman, is they play four corners offense on us; and that was something that used to happen before the time clock for basketball. So we would encourage you guys to take the lead, force that issue. We are ready to step up. Mr. Farenthold. All right, let's talk a little bit about the current path the Postal Service is on. Assuming we in Congress do nothing and you continue down the path you are on, what are your plans for when you run out of money? Mr. Donahoe. Well, let me address that in a couple ways. Number one, we are accused very often of moving the goal posts here. The reason the goal posts move is because we have very efficient employees who do a great job every day, and we have worked very hard to make up the substantial drop in revenue. I told you the first class revenue is dropping; it will continue to drop. We think we will lose another $5 billion in first class revenue. We will make some up from a package perspective; that will close some of the gap. But what we need is congressional action now so that we do not face that problem. The biggest problem we face is a concerned confidence in the mail itself. That is something that goes across all postal employees, including the industry itself. So the faster you act to give us the flexibility to get this place back on firm financial footing, the better the entire industry will be. Mr. Farenthold. Thank you very much. I see I went over. We will give Mr. Cummings six and a half minutes. Mr. Cummings. Thank you very much. Thank you, Mr. Chairman. Mr. Donahoe, tell me something. Are you familiar with what Mr. Rolando just said about his suggestions with regard to health care and the postal system? Are your plans almost identical or what would be the difference, if you know, between what he is talking about and what you are talking about? Mr. Donahoe. I don't think it is radically different. Fred and Cliff Guffey, from the APWU, have both talked to us about the importance of controlling our own health care plans. It is fair for our current employees and for our retirees. From our perspective, what we propose has been any changes that we will take on with health care, including taking over our own, we would include the union in terms of oversight of that plan. So I think we are pretty close as far as where we would like to go. There may be a difference as far as Fred's statement around the FEHBP. I think that we could live with it as long as we were able to achieve the bottom-line savings that we think we need. Mr. Cummings. Mr. Rolando, the letter carriers have been a strong proponent of the Postal Service maintaining a six day mail delivery. You testified that ``it is a strategic asset that must be protected to return the Postal Service to health'' and it should not be ``sacrificed to maintain the disastrous retiree health fund prefunding policy.'' You also mentioned that the postal regulator of the United Kingdom concluded last month that six day delivery should remain part of the rural mail's universal service obligation. Can you elaborate on the reasons for that decision, and are there specific characteristics of the mailing industry in the United States that may have led to that decision? In the United Kingdom, rather. Mr. Rolando. I believe it has to do with the whole downsizing strategy of sacrificing your networks that you need to achieve the growth to replace the revenue that is being lost. Once you start out with a strategy of dismantling your network, you lose the ability for growth, especially in what we are facing here in the United States, and I don't believe it is much different in the United Kingdom, with what is going on in the whole retail world and what we are seeing with e-commerce and so forth, and the way the American people are going to shop and the way they are going to want to use the mail. You have your e-commerce same day, next day delivery, you have Amazon, eBay, Google, Walmart, the major chains all competing for that retail market, and the one thing they have in common is the United States Postal Service in order to receive those packages, whether it is same day, one day. And if we start out our growth plan with a strategy of downsizing the very network that is going to get us all that business, I think we are going in the wrong direction, and I believe the United Kingdom sees it the same way. Mr. Cummings. I would assume, Mr. Donahoe, that you would have a little different answer there, and I am assuming that you would say that we have a situation where perhaps we need to right-size our workforce so that--and some testimony came up in the previous panel where they were saying that you are going to have a lot of capability, but you are not going to have the work. So how do we balance all of that? You follow me? Mr. Donahoe. Sure. Mr. Cummings. There has to be a balance, because I think, at the rate we are going, we are getting ready to fall off a cliff; and if we are not careful, I know I heard others talk about alternative plans, but I am trying to figure out how do we do that at the same time and be reasonable with regard to an outcome? Mr. Donahoe. Yes. I think the key thing for the Postal Service is to look at the revenue lines going forward, and we think that we can halt revenue at about $65 billion. Now, with that $65 billion in revenue, you have changes going on in terms of the products themselves; a slower decrease in first class, pretty stable in terms of direct mail, standard, and an increase in packages. Given that $65 billion in revenue, resolving the health care alone is worth saving somewhere between $6 billion and $7 billion a year. Our current cost structure right now has us at about $74 billion with that included. So if you address that, if we continue with the consolidations we have been making, we employ the work that we have been able to do with the unions for a lower cost employee, which has worked out very good coming out of the negotiations and arbitrations, and address the six to five day of package delivery for six days, mail for five days, we can get our cost structure down to about $61 billion to $62 billion. That $2 billion in profit every year can be applied against our debt, get us back on firm footing, and put us in good shape going out in the future. The thing we have to be very careful in terms of a country like Great Britain, they charge $0.95 for a stamp now. If we charge $0.95 for a stamp, we would completely lose our first class volume, and that would bankrupt this organization. So it is a very careful balance of pricing, product, taking cost out, more flexibility in labor, and addressing these big killer costs like health care. Mr. Cummings. Are you frustrated that when you want to go into an area, a new area, that you seem to run into obstacles, some of them placed by members of Congress? Mr. Donahoe. We run into obstacles. We run into obstacles. One of the things that we try to do is focus on core growth. Fred mentioned the package business. It has been great. The carriers have been doing a great job; the rural carriers have been doing a great job. We have been growing faster than the competition, picking up market share, as well as working with the competition, FedEx, UPS, DHL. So that has been a real bright spot there. We have other areas; trying to merge up direct mail with electronic communication these days, where something that comes in your mailbox can actually be scanned by your cell phone and you can make a purchase that quick. So we have been able to take advantage of those. Where we get a little bit worried and sometimes frustrated is suggestions that we get into some areas that we don't think we can really make money, nor compete, nor even really have a part in those areas. So there is a little bit of frustration there. Mr. Cummings. Thank you very much. Mr. Donahoe. Thank you. Chairman Issa. [Presiding.] The gentleman from Tennessee. Mr. Duncan. Thank you, Mr. Chairman. I am very interested in all the big picture testimony that I have heard today, but I have a more specific question I want to ask in just a few minutes, but you heard me ask the last panel. Do you know how many people, total, you are paying for their health care now, counting families? Mr. Donahoe. I will get you that information. We have health care for retirees, health care for currents. But we do have some people that we employ who opt out of health care because their spouse provides it or something like that. So I will get you that information. Mr. Duncan. Okay. And, of course, the children would come under that plan also. Mr. Donahoe. Yes. Mr. Duncan. So I just was curious about the total number. Mr. Donahoe. Yes. Mr. Duncan. But I had a man from Tennessee who has run a shipping store and he has participated in your approved shipper program for many years, but he recently had to renew his contract and was told he can no longer be able to use the click and ship site, and would have to go some private sites. And he wrote me this, he said: Now I apparently am grandfathered in, but I won't be listed on the post office's online locator because I use the post office's website to process mail rather than a private vendor. Again, I can be an approved shipper for the U.S. Postal Service so long as I don't use their own website to process my mail. This is both stupid and ridiculous on the face of it. As I note, I can and, in the short-term, will have to use a private vendor, and all these issues go away except that this level of stupid shouldn't go unchallenged. The post office should have any such programs go to their site first, if not exclusively. And someone who has some influence with them will have to raise the issue because according to folks at the Postal Service, they can't do anything about it. Now, do you know what he is talking about? Mr. Donahoe. I have an idea. I will follow up if you could get me that information privately. But what we are doing is this: We are actually bidding a system out in the private sector right now to replace some of the click and ship software that we have, and we are transitioning companies onto that. That is what he sounds like he is getting caught in the middle of that, so we will follow up. Mr. Duncan. All right. Thank you very much. Mr. Donahoe. Thank you. Mr. Duncan. Thank you, Mr. Chairman. Chairman Issa. Would the gentleman yield? Mr. Duncan. Yes, I will yield. Chairman Issa. I would like to use this time to ask a question of the postmaster. We have inquired a little bit about the so-called Velassis contract. Is it fair to say that this is a low-profit contract or a no-profit contract to the post office? That is what we have as figures, is that correct? Mr. Donahoe. I think it is a contract that we feel that we can grow revenue with. Velassis came to us with a proposal, as many other companies---- Chairman Issa. No, no, I appreciate it, Mr. Donahoe. Profit and revenue are two different things. Mr. Donahoe. Right. Chairman Issa. We already heard you are losing money in this category. So you are going to get more volume of something you don't make money on at the expense of the newspapers of America, basically, because that is really what this contract does, is, to a great extent, it takes what people usually pay for in their newspapers, moves it through the postal system, increases your volume. But do you exist to move volume or do you exist to provide an essential service? And the reason I ask that is if the service is being provided elsewhere by entities, although it is a declining area, entities, they make a profit on it and the private sector, but you are going to take it in, not make any money on it. What is the basis for it other than revenue? I mean, is it justified against reducing the rate of decrease of the post office? Mr. Donahoe. We will make money on this because what happens, Mr. Chairman, is we bring that type of volume in across all of our routes. You are spreading that cost across routes and the revenue per delivery actually goes up. Chairman Issa. Okay, so let me rephrase that. You are losing a lot of money. Mr. Donahoe. Right. Chairman Issa. You don't currently have a pathway to break even. This is about maintaining or increasing volume in a losing operation by including nonessential services being provided by others, is that correct? Mr. Donahoe. No, no, no. We will make money on this product. We will make money on this product the way the price is structured. What we are saying is our routes are going out today on a Monday through Saturday basis, and even in a Monday through Friday world. The key for us in the future is revenue per delivery. So you have first class revenue and packages at a high end, but things like standard mail and periodicals, they still bring revenue to the organization. Chairman Issa. You lose money on periodicals. Mr. Donahoe. Yes, we do. Chairman Issa. Okay, so you lose money on periodicals; you lose money on nonprofit; you lose money on political mail; you lose money on basically all the work you do on behalf of people, all the junk mail I get soliciting me to give somebody else money, they do it because they make a profit doing fund- raising by direct mail, and you lose money on that, is that correct? Mr. Donahoe. In terms of nonprofit and periodicals, we do lose money. Chairman Issa. And you lose money on Saturday delivery. Mr. Donahoe. And we lose money on Saturday delivery. We would be better off delivering packages on Saturday, mail Monday through Friday. It gives us the ability to collapse the volume that we have in the system, down 27 percent in the last five years, to a much more tighter network. That is why we are making that proposal. Chairman Issa. Thank you. We now go to the gentleman from Virginia for five minutes. Mr. Connolly. Thank you, Mr. Chairman. With respect to the chairman's point about making a profit, Mr. Donahoe, is postal service referenced in the Constitution of the United States? Mr. Donahoe. Yes, sir. Mr. Connolly. Does it mention FedEx or UPS? Mr. Donahoe. No. When the Constitution was written, they weren't around. Mr. Connolly. Does it mention a profit, that that service is dependent on a profit? Mr. Donahoe. Post roads, if I am not mistaken. Mr. Connolly. So it is actually a service mission. I am not saying you should lose money, but we have to take into account the fact that the Constitution actually mandates your service. Mr. Donahoe. Yes. Mr. Connolly. So that makes you unique, does it not? Mr. Donahoe. Well, PAEA also instructed us to move towards a more profitable---- Mr. Connolly. I understand. I am only talking about the constitutional issue here. Mr. Donahoe. Okay. Mr. Connolly. Mr. Donahoe, you announced in February your determination that you were going to eliminate, except for parcel delivery, I believe, and maybe some other exceptions, six day delivery and go to five, is that correct? Mr. Donahoe. That is correct. Mr. Connolly. And you said you thought you had the legal authority to do so at that time. Mr. Donahoe. When we made the announcement in February, yes. Mr. Connolly. In November, however, prior to that, you signed a document dated November 15th to the SEC, part of the Sarbanes-Oxley compliance, in which you said that actually the language requiring six day mail delivery frequency remains in effect. Mr. Donahoe. We believed that at the time. Mr. Connolly. So what happened between November and February that changed? Mr. Donahoe. Here is what happened. As you well remember, the time ran out on the lame duck session. We were able to see no completion with postal legislation. Our board had a meeting and our board said you have got to do whatever you can do to continue to move to either raise revenues or cut costs moving forward. So they asked us to come back with a plan, and we came back with a plan in the January meeting with a couple of options. For years and years, Congressman, we always assumed that we would have no control over health care until we dug in and saw that we had options. Mr. Connolly. Mr. Donahoe, thank you. Unfortunately, my time is limited and I am trying to follow the logic here. So I appreciate that. So at that January board of governors meeting, did they endorse your legal reasoning with respect to your power to go from six to five? Mr. Donahoe. We laid out the fact that the way the CR was written, we felt we were on firm legal ground to do that and they endorsed our move. Mr. Connolly. They had a formal vote and endorsed it? Mr. Donahoe. They did not have a vote. We discussed it and they said proceed and proceed at haste. Mr. Connolly. So when the GAO, in March, responded to my inquiry and opined otherwise, at the time you issued a statement saying you disagreed with the GAO, is that correct? Mr. Donahoe. The GAO issued a statement after the CRs were both passed in the House and in the Senate. We still are not so sure that we agree with the GAO's statements back on the original CR, but after the CR-933 was passed, we felt we were required by law to deliver mail six days a week. Mr. Connolly. You felt you were no longer required? Mr. Donahoe. No, I am sorry. We felt that we were required to deliver, and that is why we made the statement. Mr. Connolly. Okay. And what persuaded you, was it the King & Spalding memo? Mr. Donahoe. Yes. What happened was we used the same firm for both interpretations. King & Spalding gave us an interpretation for the first CR, along with our internal legal counsel; the second CR internal legal counsel and King & Spalding. We did not want to disrupt our customers; we felt it was prudent, because we knew there would be a lawsuit coming somewhere, to make the right decision. Mr. Connolly. Right. Okay, understood. Mr. Chairman, I would ask, if there is no objection, that the King & Spalding memo be entered into the record. Chairman Issa. It has already been entered. Mr. Connolly. Oh, great. I thank the chair. I am going to run out of time. I want to pick up on Mrs. Maloney's question about metrics, because one of the things, frankly, a lot of us actually would like to be supportive of reforms that can streamline and save money and make us more efficient, but in looking at decisions made, they are sometimes, frankly, puzzling in terms of the metrics. What analysis, what empirical data is going into making decisions to close this but keep that open, or to move to a leased rent in New York and sell a building you own? And I am wondering if you can provide the committee with some kind of background by way of what is informing you to make decisions under the rubric of cost savings, and are these net decisions? Are you also taking into account the fact that they may also be associated with the loss of revenue, so that the net savings may be something else again? Mr. Donahoe. Well, all of those decisions are based on the fact that we have too much infrastructure in the organization, and the infrastructure boils down to two things. If you want to maintain six days and all the infrastructure, if you are a customer, you have to pay for it. If you want to maintain it, if you are an employee, you have to take lower wages, because that is the only differential. What we have done from a real estate perspective, to give you an idea, in the last six years we have sold $1.1 billion worth of real estate. The chairman mentioned that he would sponsor a seminar here, I guess you would call it that, where we would come in. I would be more than happy to walk through, for you and your staff and anybody here, exactly our approach on large facilities, small facilities, lease versus buy, and all of the opportunities we have in there to make decisions. Mr. Connolly. I would welcome that. Chairman Issa. I look forward to moving forward in a forum environment. I might note for the gentleman from our founding State that the Constitution reads that the Congress shall have the power to, and in this case, to establish post offices and post roads. I will take note we no longer establish post roads, and there is no constitutional mandate to have a post office. It is, in fact, a tradition, it is an establishment of Congress, and, most importantly, it is something everybody on this dais believes in and wants to make work. But I think for purposes of citing the Constitution, we have the ability to eliminate the post office, spin it off as a completely private entity. We have a lot of abilities. I do believe it can be fixed, and I think that is the reason that we have the hearing here today. With that, I would like to go to the gentleman from Wisconsin at this time. Or, Mr. Cartwright, the gentleman from Pennsylvania. Mr. Cartwright. Thank you, Mr. Chairman. Mr. Donahoe, the Postal Service was required by the Postal Accountability and Enhancement Act to make fixed annual payments of between $5.4 billion and $5.8 billion over 10 years to prefund the costs of future retiree health benefits accrued by current employees and retirees. As a result of its deteriorating financial condition, the Postal Service defaulted on $11.1 billion in prefunding payments for fiscal years 2011- 2012. The Postal Service has also stated that its financial condition may prevent it from making its $5.6 billion due in September. Now, many have criticized this prefunding requirement. In fact, you said in your statement that it is set at unrealistic levels, is that correct? Mr. Donahoe. I think that it is, but as I have also said, I think there is a solution to eliminate prefunding with our own health care. Mr. Cartwright. The fact is that no other business or government entity has to face this kind of prefunding requirement, am I correct in that? Mr. Donahoe. Mr. Dodaro said that the Federal Government, through the military, does. I think that most companies that provide retiree health benefits are required in some way, shape or form to fund them. Mr. Cartwright. Mr. Donahoe, do you agree that the prefunding mandate, as it applies to the Post Office, is unfair? Mr. Donahoe. I think it has hurt us financially. But I think it is the responsible thing to do. If we expect, as employees, to have health care in retirement, we have to pay for it. It cannot be funded by the taxpayers. And I think that we owe it to this body to put our plans forward. I think Fred and I both agree, there is a solution here. And we would ask Congress to act on those and give us the opportunity to compete health care. Mr. Cartwright. I want to jump in here, Mr. Donahoe. In April 2012, the Senate did pass the 21st Century Postal Service Act, which contained a provision easing this burdensome prefunding payment requirement. The provision would have required the Postal Service to fund 80 percent of the actuarial liability of retiree health costs over 40 years. Mr. Donahoe, what financial relief would the Senate's provision provide for the Postal Service, and do you believe more can be done? Mr. Donahoe. Yes. The Senate provided some relief based on changing the actuarial formulas and requiring us to only pay 80 percent. What we would propose, and we would ask Congress to sit down and look at our plans to actually move away from the current health care structure we have now. It is much more efficient, it includes Medicare and we wouldn't need to be arguing about prefunding at all. We think we have a solution. Mr. Cartwright. President Rolando, I have a question for you. The media often reports that labor costs represent a much higher percentage of the Postal Service's total expenses compared to competitors. And they frequently cite an 80 percent figure at USPS. Can you explain for us why the USPS's labor costs are higher than their competitors? Mr. Rolando. Yes. Actually that figure has come down about 10 percent over the last few years. The answer is simple: we are very labor intensive. We go to every house six days a week. You can lower that labor cost. You could eliminate delivery altogether and have everybody come pick up their mail at the post office. But again, we are here with a universal service obligation. We are not looking to turn this thing into a corporate profit machine. Mr. Cartwright. Mr. Rolando, do you feel that the percentage of labor cost is appropriate for the kind of service that we get from our national Postal Service? Mr. Rolando. Absolutely. The productivity, and I think the Postmaster General has said this many times, the productivity is not the problem. The employees are working harder than ever. Their street time has increased by 25 percent over the last few years. Mr. Donahoe. If I can comment on the labor, if you don't mind. Mr. Cartwright. Please. Mr. Donahoe. I think an interesting thing to look at, I mentioned before when we were talking about total costs, the goal would be to get down to a $62 billion cost level. That would put us in reasonably profitable territory and give us the opportunity to pay debt down. But even at that level, our labor costs still consists of about 76 percent of all costs. Because as you shrink your labor costs down, we also are going after a lot of the other non-labor type, non-personnel type costs, transportation, fuel, things like that. So to the first point, we are labor-intensive. The key is shrinking the pie, it is not worrying about what portion of the pie is in there. Mr. Cartwright. Thank you very much. I yield back. Chairman Issa. Thank you. Mr. Donahoe, if you were a private company, and you defaulted on your health care for your retirees, the Federal Government doesn't step in and provide the money, do they? Mr. Donahoe. No. We would not have health care for the employees. Chairman Issa. Okay, and you don't pay your health care for retirement, it is substantially paid by the ratepayer, is that right? Mr. Donahoe. I pay a portion of it, 30 percent. The ratepayers pay 70. Chairman Issa. So the only reason that we could just forego that money would be if we didn't mind having the taxpayer pick up what the ratepayer and the employee do not pick up eventually. We have already had a legal decision that you would still get it, even if you don't pay into it. You are aware of that, right? Mr. Donahoe. I think we are absolutely, positively responsible for paying for our own health care. Chairman Issa. I agree. You gave a figure of 70 some percent, your goal to get to $62 billion. What would be the head count, the full time equivalent, a number of personnel today versus if you reach that goal, forgetting about how you reach it? How many people would work for the Post Office? Mr. Donahoe. We think that by 2016, with what we have laid out from a consolidation standpoint, including the six to five day change, it would be about 400,000 career employees, with about 60,000 non-career full-time employees. They are a 40-hour person that works at a substantially lower cost. Chairman Issa. And that is a hundred and how many thousand less thank you have today? Mr. Donahoe. Right now, as we sit here today, 497,000, it is about 97,00 people. Chairman Issa. Okay, so you need 100,000 less people, round number. Mr. Donahoe. Yes. Chairman Issa. Mr. Rolando, are you prepared to lose your share, obviously you are only one of the unions, of that 100,000 people through attrition, retirement and buyouts? Mr. Rolando. Well, again, we don't agree with that downsizing strategy. Chairman Issa. Do you agree that you need to pay your health care costs? You already said you don't want a bailout. You don't want taxpayer money. You do agree that going to actuarial, you are still going to have about a $14 billion loss. How do you propose to make it up? Mr. Rolando. As I said earlier, we believe that the downsizing strategy is what is going to put us in a position of insolvency. It would actually increase our chances of that happening. We believe that we need to maintain these networks. Chairman Issa. So you are maintaining your $14 billion, after adjustment, net loss. Who is going to pay for it? You have already said you didn't want the taxpayers' money. You are not bankable. Mr. Rolando. Who said we need the taxpayers' money? Chairman Issa. You said you didn't need the taxpayers' money. Mr. Rolando. Yes, that is correct. Chairman Issa. So the bottom line is, you have no money, you are insolvent. Whether you agree or disagree with the kinds of changes the Postmaster and his predecessor have done, they have been done. What is your end game to get out of this? I made it very clear from the dais, we are happy to work with the Postmaster and the board on all kinds of changes, including, obviously, consideration of health care, actual health care changes that would be chosen in alternative to the current one. Obviously, rescheduling the actuarial payments necessary to meet the obligation of your current and future retirees. But you have a $14 billion loss. I called you in here today, not to beat you up, but to make you tell us how do you get there. If we go from six to five and reschedule your health care today, if we do that today, we take the loss, recognized loss from $16 billion to $12 billion, we take it down by $2 billion by rescheduling, we take it down another $2 billion by getting rid of six day. If we did both of those, it has dominated most of the time the ranking member and I and others have spent, we get you to a $12 billion loss. If we go to cluster boxes and quickly move America to secure storage, to where your letter carriers put a package, particularly medicines and so on, they put it in a lock box instead of trying to slip it through a chute which it doesn't fit through most of the time, we save $6 billion. That takes you from $12 billion loss to a $6 billion loss. But it does substantially reduce the number of letter carriers, through efficiency, not through a cut in service. If we did those things today we could get you to a $6 billion round loss. Are you supportive of those changes, putting in cluster boxes so that there would be secure storage, so that your letter carriers, your remaining letter carriers, would go to clusters, they wouldn't go to chutes at 37 million homes? Yes, it reduces the number of union employees. But yes, it also saves the Post Office. Can you be supportive of that? Mr. Rolando. Yes, sir, we are very supportive of whatever size workforce it takes to make the Postal Service have a plan for growth. We don't believe those savings exist to go from six to five day. To the contrary, we think it would cost us money. We do believe, if the Congress will help us out with the prefunding and give us what we need to negotiate the health benefit changes we need, which will certainly decrease the liability in prefunding, address the pension surpluses, give us some pricing relief and some of the other things that we have been discussing in these bills the last couple of years, that we will be fine, without destroying our networks. We are prepared to have whatever workforce, whether it is more or less, to make sure that the Postal Service can grow into the future. Chairman Issa. You didn't answer the question. I appreciate all that, and we want to work with you on all that. But the cluster boxes are important. Because if the Postmaster, who has currently dropped to a dribble the amount of these conversions, was given a mandate to make these changes, to supply secure storage for every American, so that in fact over the next few years, you transition to where Mr. Cummings, who I think has a chute at his house, my old house I grew up in, a chute in the house, if we went to a cluster box but knew our medicine was locked securely in there, the Post Office would save $6 billion by CBO estimate. Can you support that? That doesn't reduce service. In fact, for 105 million people, it doesn't change service, because three out of every four people already have a box they walk to. Can you support that? Because it affects letter carriers more than anybody. Mr. Rolando. I can't speak to alleged savings. But I can tell you this. If the Postmaster General decided that that is what they were going to do with new, current, whatever deliveries, and whatever they had to deal with with the public regarding that, we would certainly conform to whatever workforce was necessary to do that, of course. Mr. Cummings. Would the chairman yield? Chairman Issa. Of course I would yield. Mr. Cummings. I usually don't do this, but I am listening very carefully. Chairman Issa. You always listen very carefully, Elijah. Mr. Cummings. Mr. Rolando, I am trying to really make sure that your testimony is clear. But it is not really clear to me. I want you to clarify this. It is based on what the chairman just asked. We are trying to figure out, all of us up here know that there is probably going to be some downsizing. We call it right-sizing. And there is nobody that I can think of that wants to have jobs more than I do. I want jobs. I want jobs. I want to keep as many people working as possible. The question becomes, though, I have been listening to what you have been saying about maintaining the networks, that is what you call them. But if you have more people than the work, the work to do, I am trying to figure out, what is the value of the network if it possibly destroys the very entity. I think this question goes to your credibility. Because we are trying to, I think the chairman has been fair, he said okay, help me, help me to help you. We need to know that. What is the answer to that? Because we want people working. But at the same time, we don't want to destroy the entity at the same time. And the question is, these networks, if the networks don't have the work to be networking, am I missing something? Mr. Rolando. Not at all. We are interested in the Postal Service being able to grow and replace the revenue that we have lost through the different technology, recession, whatever it might be. We want to replace that revenue. We want to maintain the networks to the extent we need those networks to accomplish that type growth, as I spoke to earlier with regard to e-commerce and so forth, and the unique advantage that we have, the competitive advantage in the ability to adapt to the way people shop in the future, whether that is six days a week, seven days a week, five days a week, whatever that ends up being. But we don't want to start out with a downsizing strategy of changing a network, eliminating a day of delivery, opening those mailboxes to competitors right off the bat, before we even enter into that market. Whatever that workforce looks like afer we have accomplished that and see what our place in the retail market is, of course that is what we are going to do. Because we have, of course, an interest in the solvency of the Postal Service and the growth of the Postal Service. Mr. Cummings. Just this last question. I guess what I am trying to get to is, do you believe in the concept of right- sizing, and right-sizing as I have said many times, with compassion? Mr. Rolando. Let me tell you how compassionate it is. We have lost 193,000 jobs in the Postal Service in the last few years. My union is probably 40,000 of those jobs. That was done jointly, NALC and the Postal Service, put aside the manuals. We were going through the recession, and we jointly adjusted and eliminated thousands and thousands and thousands of routes and jobs in order to right-size. So we know first-hand what right- sizing is all about. Mr. Cummings. Are you saying that enough right-sizing has now been done? This is my last question, Mr. Chairman. Are you saying that you believe that we have now had right- sizing? And you will never hear me say that the unions phenomenally cooperative. I think the Postmaster would say the same thing. Mr. Donahoe. I agree Mr. Cummings. You all have been phenomenal. But I am just trying to get to where you are, so I can understand it. You are saying that perhaps the right-sizing now is done? Enough has been done? Mr. Rolando. No. I didn't say that. Mr. Cummings. What are you saying? Mr. Rolando. I am saying let's look and see what we are going to do with the retail market and see what kind of workforce we need to grow the business. Mr. Cummings. Okay, thank you. Thank you, Mr. Chairman. Chairman Issa. Thank you. I think you helped make it very clear. The gentleman from Missouri I believe is next in line, next in time and has a little extra time. [Laughter.] Mr. Clay. Thank you so much, Mr. Chair. And thank you for conducting this hearing. Let me start with the Postmaster. In an April 11th, 2013 Bloomberg article, Postmaster General Donahoe, you were quoted as saying ``Without being able to cut back to five delivery days from six, the Postal Service will take its board's advice and ask its employee unions to renegotiate multi-year contracts.'' Mr. Donahoe, have you asked the postal unions to renegotiate existing contracts? Mr. Donahoe. I sent the union presidents and the management association presidents a letter yesterday. I asked them to please consider that. What I would like to do is sit down before we do anything as a group and have a session where we kick around some ideas. There may be some opportunities in there we should look at. Mr. Clay. So that will be, renegotiating existing contracts. Now, I hope that the management of the Postal Service realizes that we are kicking numbers around, but these are real people, real lives, who have planned their futures and those jobs mean something to them. I am going to get Mr. Rolando into the discussion too. Have you thought about that? Mr. Donahoe. Yes. I come from western Pennsylvania, where our steel industry dissolved right in front of everybody's eyes. We lost 100,000 jobs in four years there. I have cousins to this day that are my age, 57 years old, who have never been able to get a reasonable-paying, full-time job again. I do not want that to happen to the Postal Service. As a group, I will commend the unions for being very good as a management associations to be very flexible. We have made some big, big changes. But there are some things we still need to do to get us to a point where we can get the costs under the revenue line, pay the debt down and provide a very good, secure environment for people going forward. I am proud of the fact that the 200,000 jobs that we have reduced in the last six years, we have never laid anybody off. That goes back to my western Pennsylvania roots, where I saw families get crushed because people didn't have that consideration. Mr. Clay. Two years ago, on April 11th, 2011, the Postal Service announced that a tentative agreement had been reached with the American Postal Workers Union that would save the Postal Service an estimated $3.8 billion over the life of the contract. Mr. Donahoe, if the Postal Service is slated to save an estimated $3.8 billion under this agreement, how much more do you reasonably believe could be saved by renegotiating that agreement, and what types of provisions would have to be renegotiated to achieve additional savings? Mr. Donahoe. I think that the contract that was signed with the APWU is a breakthrough contract. I think that Mr. Guffy stepped up in a very courageous way and did for his members, both present and future, the right thing in terms of employment. What I would propose, again, and as I have said, I don't want to talk about any ideas that we have publicly because I think it is disrespectful until we have a discussion with the union presidents and the associations. We may find coming out of there that we can't agree on anything. But there may be something there that we should at least talk about going into the future. That said, this request from the board, direction from the board to me on the renegotiation is again a concern from the board that if we don't do something, we will run out of cash. We have heard this discussion today. Passing comprehensive postal legislation can resolve this. Our business plan gets us back to profitability without having to do anything until we get with the unions again in 2015, when the regularly scheduled talks begin again. Mr. Clay. Additionally, both the National Association of Letter Carriers and National Postal Mail Handlers Union recently concluded their arbitration processes with the Postal Service and agreements with both unions are now in place until 2016. Mr. Donahoe. Yes. Mr. Clay. Did either of these agreements provide significant savings? Mr. Donahoe. Yes, they did. With the Carriers' agreement, I think we reached a breakthrough on flexibility for what we call city carrier associates. I think that gives us the ability to deliver packages on the weekends in a very affordable manner. I think that was a breakthrough. I also think that if you take a look at what we have been able to come up with with the Carriers going forward in terms of affordable career employees for the future, that sets a good tone. Now, saying that, I will also say, and I know it is a hot spot with people, I think it is critical that we as an organization consider defined contribution retirement systems for our people going into the future. I know, and we have done a lot of work on this, it scares people sometimes. But with the uncertainty in the Postal Service in the future, I think that we could assemble a very good benefits package for retirement that is not only good for a person in the shorter run, 20 years, but is transportable. Mr. Clay. And you are probably going down the correct path, because that is the model that most American businesses have taken. Mr. Rolando, you have sat through the testimony today in this hearing. We know that the business model has to change in order for us, for the postal system to survive. Has there been any contemplation of replacing the FEHBP with the Affordable Care Act? Under the law, which is about to be implemented in 2014, the Affordable Care Act says that if an employer does not provide health insurance, then they will be penalized, and then perhaps if an employee doesn't have it, or an American doesn't have it then they will be penalized. Has anybody done a balance sheet on that? Mr. Rolando. Let me start out with your first comment. With regard to the business model, we do believe there needs to be a change in the business model. We just one with some vision for the future, for growth, not down-sizing. With regard to the health care and the whole business about the agreement, when I saw that from the board of governors, it had an insulting component to it that I won't get into. But it had another component that it was unnecessary. A major part of the arbitration award that we got with the Postal Service was a memorandum of understanding about health care that allows us to pursue. That is where all the potential, as the Postmaster General has alluded to, that is where all the potential is for further savings with regard to our collective bargaining agreement, is what we can negotiate in terms of how we handle health care. We have a task force that came as a result of that memorandum of understanding. That is why it is unnecessary, we need to just get busy on that task force. With regard to the Affordable Care Act, our arbitration award provides for all new employees, our non-career employees, currently when they are hired, they have no health insurance and no retirement. Every new employee is non-career. At such a time as the Affordable Care Act comes into play, part of that arbitration award indicates how those individuals will be insured pursuant to the Affordable Care Act and the required contribution by the Postal Service by virtue of that law. Mr. Clay. Let me toss this out for both of you. That is the sticking point for this Congress, that is the prepayment of the health benefit. Apparently we are stuck on this side of the table. Because one side won't give. And so that is the hurdle, the major hurdle. I would love to hear from both of you. What do we do? Let's start with the Postmaster. Mr. Donahoe. As we have said before, I think that the one thing that the NALC, the APWU and the Postal Service are in agreement on is exploring, as Fred just mentioned, with the memorandum of understanding, the Postal Service taking over the full administration of its own health care plan, including for the retirees. Again, there are different models out there. We are flexible, Fred has mentioned in his testimony that they would like to see it done through the FEHBP. As long as the outcome is what the outcome needs to be, and that is elimination of the prefunding, providing a very good health care plan at a much more affordable competed price, not just out there with the 217 plans now, and retiree coverage, I think it would be a gigantic breakthrough, not only for the Postal Service but the rest of the Federal Government. The rest of the Federal Government faces the same problem we do. Mr. Clay. Mr. Chairman, can I have an additional minute? Chairman Issa. I certainly think that ten minutes was not nearly enough. [Laughter.] Chairman Issa. I certainly think Mr. Rolando does want to comment on his view on the health care, FEHBP and so on. So I will allow time there, of course, as is necessary for the gentleman from Missouri. Mr. Clay. Thank you so much. Mr. Rolando. You asked what the Congress should do, because you are stuck. We have one major area of dispute with the Postal Service, I think. We think dealing with the five-day, we would lose $2 billion, they think that maybe they would gain $2 billion. We see it as down-sizing, we want a vision for growth, Beyond that, it is beyond me why the Congress can't consider, we have $45 billion in that fund. Nobody else has to do it. We can pay as we go. There are all kinds of options to earn interest on that money and to continue to put money in that fund as we become profitable. If you look at the pensions, even under the anti-business OPM rules that we have for our pension funds, we are 99 percent funded in civil service. The average agency, I believe, is 40 percent funded. We are $3 billion overfunded in FERS. If you use the independent companies assumptions of how you are supposed to do that, the fair allocation between the old postal department and the U.S. Postal Service, we have surpluses of $50 billion to $75 billion in civil service. If you use the current OPM assumptions and apply just postal assumptions, you will see that we have a $12 billion surplus in FERS, and we are about 99 percent in civil service. This is a wealthy broke company in terms of pensions and health care and so forth. So if we could go forward and fix the pre-funding, address the pensions, give us some pricing freedom, allow us to do what we need to do with health care, maybe open up some products and services, I think that we have a vision for the future that will make the Postal Service flourish for years to come. And I don't see where it is a partisan issue. This is America's postal service. Chairman Issa. I thank you. Would the gentleman yield some of his time to me? Mr. Clay. Whatever is left, Mr. Chairman. [Laughter.] Chairman Issa. Just one follow-up. Mr. Clay was asking a series of questions and you were very generous in talking about the health care component. It is an area that although you disagree slightly, you agree a great deal. As a rhetorical question, knowing that the rank and file would ultimately make the decision, if the Federal Government was prepared to hand you the $45 billion in prefunding, and allow you the liberty of making the many changes that you together would negotiate in your contracts, are you prepared to leave the Federal Government off the hook for any eventual shortage? In other words, take responsibility to make sure that future payments match future obligations, both for retirees and current employees. Is that something that labor would consider doing? Mr. Clay rightfully said we should all agree on this, it is a sticking point. One of the sticking points is that what if 20 years from now we get asked to give $50 billion because there isn't enough there? Obviously the $45 billion would earn more money in a conventional investment rather than Treasury bills. Obviously the changes the Postmaster has asked to do with Medicare taking primary position and then what appears to be a mutual agreement that you could bid out more efficiently than you do on behalf of your various groups of letter carriers, is that something that you would be prepared to do? Mr. Rolando. That is one of the many items that we need to talk about in the task force that involves a whole lot more than you and me and the Postmaster General as far as the actuarial effect. That is why we put the task force together. Chairman Issa. I can only say that those bold moves, like the gentleman from Missouri is suggesting, we would love to be able to say we have a request and a concurrence, so that we could consider putting those into legislation as a win-win. I have been unfair to the gentleman from Wisconsin. Mr. Clay. But we are getting close to putting out a bill. Chairman Issa. I think we are close. The ranking member and his team and our team worked pretty well in the last Congress to get close. The reason we are not putting one out right now is that we would like to get even closer to what we need. Mr. Clay. With the two sides here. Chairman Issa. Not just with these two sides, but quite frankly, with the Senate, who started off with no pathway to savings. But they did have some great referrals. I think we came in on a bipartisan basis with some savings, and I think you see some of it here today. We do look forward to that. Mr. Pocan, I am so sorry that you have been relegated to the most important position, one that gives you the anchor position on the first panel. [Laughter.] Mr. Pocan. Thank you. Thank you, Mr. Chair, and than you, gentlemen, for being here. I do have some questions for Mr. Donahoe in a second about some of the questions I have as you are looking at some of the savings. But Mr. Rolando, I am going to paraphrase something, and tell me if I am fair in this. Just briefly, what you are essentially saying is, you are concerned that we keep the core of the services that people have expected all my lifetime, but the important part is, if we need to find ways to keep those core services, additional revenue or other ways, we should do that, rather than what some people might call some of the proposals have been more austerity proposals. You want to keep the mission and the core mission of the Postal Service to be what it has been, but how we best supplement that, you are open to having those conversations. Mr. Rolando. That is correct. We want to maintain the universal service for all Americans, regardless of where they live, how much money they make, what was intended. Mr. Pocan. Thank you. Mr. Donahoe, I have a couple of questions. One in the health care area. I know there have been conversations about how you are potentially changing things. So do you presently have any postal-specific FEHBP claims data on health premiums? Mr. Donahoe. We have looked at that. I am going to have to get back to you on that, because our people have talked to the OPM on that. We will have more information coming up soon with the health care plan we are sponsoring for non-career people, Mr. Pocan. How about any postal employee demographic information specific for health care? Mr. Donahoe. We can provide you that information. We have that. Generally, we are a little older group than most of the rest of the Federal Government. Mr. Pocan. If you could get us that information, Mr. Chairman, I would appreciate having that. A second question is something I am hearing back home on mail sorting. There has been a talk about a pilot program of moving mail sorting from Madison to Milwaukee. The concern we have in our area is, is that going to provide a delay in some of the service. One, is there a pilot program being proposed in my area, and two, how do you ensure that you don't have a delay that I think people are anticipating if this would happen? Mr. Donahoe. I mentioned in my testimony we have consolidated 300 facilities. We have another 120 under review right now, and some are actually being consolidated as we speak. I am not positive that Madison is in this year, 2013, or if it is going to be in 2014. I know we are looking to consolidate. What we are trying to on the 2014 is figure out how to make the consolidations and maintain a degree of overnight service. That is what we heard back from customers. That has been the big complaint. With the ones we are doing now, we were able to make those changes in maintaining overnight service. Mr. Pocan. If you do have any specific information in that area, I would like to see it. Mr. Donahoe. How about if we have somebody come up and sit down with you and walk through everything? Mr. Pocan. I would appreciate that. It would be helpful. Because we do have some providers in our area, for example, a biotech firm that the average product they have is one-fifth of one drop of a product that breaks down DNA. They do all their overnight shipments with dry ice. I just want to make sure we have that service still for them. Mr. Donahoe. Yes. Mr. Pocan. The final area is around the Saturday delivery. The question is, I know that FedEx, their Smart Post program is the fastest growing sector of their market. It is based out of Wisconsin. How they are doing it, it is about 19 percent up, I think, from a year ago. Part of that is, we are doing the final mile. We are delivering that last mile of delivery of service. If we are not delivering to every single home, which gives us that advantage in doing that, how could that affect that service as well as our competitiveness with other firms, if we are not hitting every single home on Saturdays? Mr. Donahoe. What we have looked at is employing the same kind of technology FedEx and UPS use, which is dynamic routing. When we sort the packages on Saturday for the carrier routes, the software packages would actually put them in efficient delivery order. So the people that are now lower cost employees would work on Saturday and they would deliver the packages in those areas. Mr. Pocan. And you have actually got some kind of financial model? Mr. Donahoe. Yes, we have done all the financial modeling. Mr. Pocan. If we could just set that up, I would really appreciate it. Especially around the mail sorting. That is probably the issue back home I am getting the most often. Mr. Donahoe. Well, sir, the health care, the Madison and go through the dynamic routing for you. Mr. Pocan. Thank you very much. Chairman Issa. I thank the gentleman. Mr. Donahoe, I think if I didn't ask you briefly a couple of questions on now multiple ricin attacks, that we believe have occurred, I would be remiss. I hope to the extent you are prepared, I hope you can answer. We understand, obviously as many as two Senate offices at this point, plus a potential letter to the President. Are there steps that you are taking to protect your employees and to at the same time see if there is any additional sources of this material at this time that you can make us aware of? Mr. Donahoe. Sure. What we do, Mr. Chairman, as you know we have had these incidents before, going back to the anthrax attacks over 10 years ago. What we learned back then was the importance of having protocols in place where, anything happens, we react. Over the course of years we have had some situations where there have been ricin scares. Until this date, there has never been actually proved that have gone through the system. We have a process that we make sure that our employees know, we can actually track the mail back through the system to double check from an employee health standpoint where we are. Another thing we have done with our inspection service, we have the absolute best detection systems going. So our inspection service works in concert with the FBI not only to detect what we have, but they also work back to catch these criminals. Chairman Issa. Thank you. We often talk about rain nor sleet nor dark of night. I think the fact that people would be so vicious as to put a deadly poison that can poison all along the way is another risk that we often don't think of postal carriers as being involved in. Today we did not cover the processing centers, and at a future time obviously they are a major factor. Quite frankly, Mr. Rolando, the one that I am most concerned about, I believe letter carriers can be worked out on an attrition basis, where processing centers are a little bit more specific so that you can have a disruption if you are doing the right thing on right-sizing that portion, I want to ask you just one closing question, Mr. Rolando. Do you believe that the post office should deliver on Saturday and Sunday if it can profitably do so? Mr. Rolando. Yes. Chairman Issa. Now, the Postmaster has on different occasions, not just this latest one that prompted today's hearing, has proposed the idea of finding ways to have premium services on Saturday and Sunday. The current proposal, which we are respectful on this side of the dais, too, that sometimes you just take the lawyers' opinion and you live with it, but the current situation is one in which the Postmaster proposed a $5.60 of getting a Saturday flat envelope delivered. My question to you, and it is to you because you represent 200,000 letter carriers, you represent the largest single portion of the workforce and the one that we relate to the most, do you believe that goal should be to find the right price, so that in fact we could have seven-day delivery, not six, but seven, but make sure that it is paid for, so that whether it is a bottle of medicine, pain patches or other things that one of our members referred to, that in fact there could be a scheme in which the Post Office could provide, to the greatest extent possible, to every point in America, every single day of the week, as long a they can do so profitably? In this day and age, would you support an attempt for the Postmaster to find the right price for that delivery? Mr. Rolando. I believe pricing should certainly cover our costs. It certainly doesn't do that now. I think we have to be real careful with what that proposal entailed with not having letter mail delivery when you are delivering parcels. I believe that could, having the shared network of keeping costs down with the overhead, be a problem. Chairman Issa. I appreciate that, although I believe letter, not called letter, but the flat pack, the express mail, was envisioned. I think, Mr. Donahoe, it was like $5.60 for a letter. Mr. Donahoe. That is a priority flat rate letter, yes. Chairman Issa. Maybe I will pose this to you to keep the dialogue on both sides. If you were given a mandate to find the ability to deliver all mail but have a premium Saturday stamp, what would that price look like at optimum volume for Saturday or Saturday and Sunday? Less than $5.60, more than 47 cents? Can you give us a target number? Mr. Donahoe. Off the top of my head, it would be awfully hard. I think the point of the $5.60 for a priority envelope, we would treat that like a package. That is why we said that would be the way we go with it. I think what would happen would be, the mailers, whether a first class mailer or standard mailer, they are very price sensitive. As we have discussions of price goes up to keep Saturday or get rid of Saturday and keep prices down, the keep prices down winds hands-down. So I wouldn't even venture a guess to say that people would pay more other than your point of a priority envelope at $5.60. I don't think we would see a ton of volume there, because most people said, hey, I would do without Saturday delivery. Chairman Issa. I will close with just a comment on this. When I send a card to my mom or other people and I don't know whether it is going to get there on Friday or not, and somebody says it is a dollar to make sure that if it doesn't get there on Friday, it gets there on Saturday, I think every son in America would put that dollar stamp on. That is one of the reasons I mentioned it is, the what-if. Maybe it won't get until Monday because Saturday delivery, when you send it on Friday, because you forgot, even though you think you are a good son, that is a dollar wasted. You send it on Wednesday and it gets there on Friday, and you put the stamp on because you want to be sure, that is a dollar wasted. But then if you are aggregating costs, it could in fact represent a very affordable price for the what-if. I mention that because in the private sector, we have variable pricing for variable services. I think one of the challenges that the letter carriers are facing, that the ranking member and I are facing is, we don't want to arbitrarily tell you to stop doing six-day. What we want to tell you is, we want to work with you, we want to be your partner in maintaining quality living wages for your Federal employees doing the public service, do it within a budget without appropriation if at all possible. We hope without any appropriation. And maintain the service. I have serious doubts about the innovation leading to vast new products. But having said that, in our bill we did have a fund to expand innovation. And we will in the next bill. So we called you here today because we thought the American people deserved to hear about this confusion between five-day anticipated and six-day, which we will continue to have at least until October. I have a long list of things my staff has given to beat you up, to be honest, Patrick. And I considered using every bit of it. But to be constructive, I know you have a tough job. I have been a CEO, I know what it is like when you have rising revenues and you just throw money at it, everything looks great. Sadly, I also was sitting on the board as we went through some tough times. And you have been through some tough times for your entire time, both in the number two position and number one. Mr. Rolando, I don't know what it is like to represent hundreds of thousands of people. I do know what it is like to be a rank and file union member and to look to your union and say, why am I giving back? Why are things not always better? So my hope is that this is the beginning of a cycle where by the time October comes this year, we will have at least language that can pass out of the House that can maintain the respect for people who already work or are already retired from letter carrying and other services for the Post Office, but meet the requirement of getting a pathway to break even. If we can do that, I think we set the stage for America believing that there are adults on this side of the dais, which according to current polls, they don't believe. That is one of the goals I have. So I will throw away all the other questions. I have a couple that I would ask if we give you questions to be answered after the fact, would you agree to answer them? Mr. Donahoe. Yes. Chairman Issa. We will have staff give you, for some of the members that couldn't. Does the ranking member have any other statement? Mr. Cummings. Very, very quickly. Thank you very much, Mr. Chairman. I started off this hearing by reminding us that we must minimize our distractions to reach our goals. And the other thing that I reminded us of is that you can lose what you have by trying to hang on to what you used to be. That is a serious statement. And it sounds like, Mr. Postmaster General, you are trying to make the adjustments that you have to make. And Mr. Rolando, I understand, and I thank you for being patient with me and answering my question. Because I understand what you are saying. You are saying, okay, the Post Office is going to change and you want to make sure that the personnel is there for those changes. Still, it is going to be a kind of interesting dance. Because we have to figure out what that future looks like so that we can even figure out what we need and at the same time try to make sure that we maintain a healthy postal system whereby the rates are not skyrocketing, there is no uncertainty, unreasonable uncertainty. All of those things. So I just hope that all of us can sit down and come to an agreement. Because one thing is for sure. We can do this. Mr. Donahoe. Yes. Mr. Cummings. If we can't do this, we might as well go home. I am serious. Or go play golf, even if you don't play golf. Do something. But the American people expect us to get this done. I think all of us agree that we need to have some kind of comprehensive legislation. So I am looking forward to working with the Chairman as we try to resolve these matters in good faith. Again, I thank you all. Thank you, Mr. Chairman. Chairman Issa. I thank you all. We stand adjourned. [Whereupon, at 1:30 p.m., the committee was adjourned.] APPENDIX ---------- Material Submitted for the Hearing Record [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]