[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
OPTIONS TO BRING THE POSTAL SERVICE BACK FROM INSOLVENCY
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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
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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
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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
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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
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Material Submitted for the Hearing Record
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