[Senate Hearing 106-480] [From the U.S. Government Publishing Office] S. Hrg. 106-480 ANNUAL REPORT OF THE POSTMASTER GENERAL ======================================================================= HEARING before the INTERNATIONAL SECURITY, PROLIFERATION, AND FEDERAL SERVICES SUBCOMMITTEE of the COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED SIXTH CONGRESS FIRST SESSION __________ SEPTEMBER 16, 1999 __________ Printed for the use of the Committee on Governmental Affairs U.S. GOVERNMENT PRINTING OFFICE 61-702cc WASHINGTON : 2000 ______________________________________________________________________ For sale by the Superintendent of Documents, Congressional Sales Office U.S. Government Printing Office, Washington, DC 20402 COMMITTEE ON GOVERNMENTAL AFFAIRS FRED THOMPSON, Tennessee, Chairman WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut TED STEVENS, Alaska CARL LEVIN, Michigan SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii GEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey THAD COCHRAN, Mississippi MAX CLELAND, Georgia ARLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina JUDD GREGG, New Hampshire Hannah S. Sistare, Staff Director and Counsel Joyce A. Rechtschaffen, Minority Staff Director and Counsel Darla D. Cassell, Administrive Clerk ------ INTERNATIONAL SECURITY, PROLIFERATION, AND FEDERAL SERVICES SUBCOMMITTEE THAD COCHRAN, Mississippi, Chairman TED STEVENS, Alaska DANIEL K. AKAKA, Hawaii SUSAN M. COLLINS, Maine CARL LEVIN, Michigan PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey ARLEN SPECTER, Pennsylvania MAX CLELAND, Georgia JUDD GREGG, New Hampshire JOHN EDWARDS, North Carolina Mitchel B. Kugler, Staff Director Richard J. Kessler, Minority Staff Director Julie A. Sander, Chief Clerk C O N T E N T S ------ Opening statements: Page Senator Cochran.............................................. 1 Senator Stevens.............................................. 2 Senator Akaka................................................ 3 Senator Domenici............................................. 9 Senator Levin................................................ 11 WITNESSES Thursday, September 16, 1999 William J. Henderson, Postmaster General, U.S. Postal Service Testimony.................................................... 4 Prepared statement........................................... 5 APPENDIX Letter from William J. Henderson, to Senator Levin, dated June 15, 1999....................................................... 13 Brochure entitled ``The First Green Post Office,'' Fort Worth, Texas.......................................................... 21 Letter from William J. Henderson, to Senator Domenici, dated October 26, 1999............................................... 23 The information entitled ``Domestic Mail Manual,'' section E670 supplied for the record........................................ 24 Questions and responses for Mr. Henderson from: Senator Akaka................................................ 34 Senator Collins.............................................. 36 Senator Lieberman............................................ 37 Senator Cleland.............................................. 38 ANNUAL REPORT OF THE POSTMASTER GENERAL ---------- THURSDAY, SEPTEMBER 16, 1999 U.S. Senate Subcommittee on International Security, Proliferation, and Federal Services, of the Committee on Governmental Affairs, Washington, DC. The Subcommittee met, pursuant to notice, at 2:05 p.m. in room 628, Senate Dirksen Building, Hon. Thad Cochran (Chairman of the Subcommittee) presiding. Present: Senators Cochran, Akaka, Levin, Stevens, and Domenici. OPENING STATEMENT OF SENATOR COCHRAN Senator Cochran. The Subcommittee will please come to order. I was apologizing to the Postmaster General on the condition of the weather outside. As a matter of fact, this morning, as I was preparing to come in to the Capitol, I thought about the inscription that is supposedly written on the General Post Office in the City of New York, and I couldn't remember it exactly. Neither could my wife, so we spent a little time doing some research. For the general edification of those here, the quote is as follows: ``Neither snow, nor rain, nor heat, nor gloom of night stays these couriers from the swift completion of their appointed rounds.'' We further investigated the source of that, and it is Herodotus' history, volume number 8, and he is referring to the couriers of Xerxes. And for those of you who want to know who or what Xerxes might be, he was King or Emperor of Persia. Now that we are all well grounded---- [Laughter.] In the subject of today's hearing, I want to welcome the distinguished Postmaster General of the United States, who is here today to deliver his annual report to the Congress. When the Postal Reorganization Act of 1970 was passed, we converted, by that act, the Post Office Department from a Federal Government department, depending upon substantial subsidies from U.S. taxpayers, to an independently-managed U.S. Postal Service. Since that time it has become a very large and modern enterprise, with almost 800,000 employees and more than $60 billion in annual revenues. In May of last year, William J. Henderson was appointed to serve as U.S. Postmaster General, having served several years as the agency's Chief Operating Officer. With the rapid development of technology, the question of what role the Postal Service will play in e-commerce has become the topic of much discussion within the Postal Service and the postal community. The Postal Service recently introduced a new website to assist businesses using Priority Mail to ship products ordered over the Internet, and last month the Postal Service introduced a new product called ``PC Postage'' which allows customers to print digital stamps from their personal computers. It will be interesting to hear the Postmaster General bring us up to date on these and other developments in the Postal Service. We welcome you, Mr. Postmaster General, and we look forward to your report. Before hearing your report, I am going to yield now to our distinguished colleagues on the panel--first, if the distinguished Senator from Hawaii will permit me, to Senator Stevens, who is chairing the Appropriations Committee in a markup that meets in 10 minutes, for whatever comments he would make, and then to our distinguished Ranking Minority Member, Senator Akaka. Senator Stevens. OPENING STATEMENT OF SENATOR STEVENS Senator Stevens. Thank you very much, Mr. Chairman. Thank you, Senator Akaka. Mr. Postmaster General, I have just told my colleagues that I think this is the 31st year that I have listened to this report, and it will be the first time that I will have left it before it is completed. I am sorry that we do have this conflict with the Appropriations Committee and the VA/HUD bill, which we have to get to this afternoon. I ask unanimous consent that my statement appear in the record in full. Senator Cochran. Without objection, so ordered. [The prepared statement of Senator Stevens follows:] PREPARED STATEMENT OF SENATOR STEVENS Thank you Postmaster General Henderson for appearing before this Subcommittee today and for your comments about the progress of the Postal Service. I also want to thank you publicly for visiting Alaska this past March for the dedication of the Arctic Animal Stamps. I often say that our true friends are the ones who come to Alaska in the winter months. The Postal Service is the lifeline of Alaska--many of my colleagues who have visited my home State witnessed this first-hand. The bypass mail system delivers food and other personal items at a fraction of the cost of regular freight. There are many remote areas who do not yet have access to the Internet and their television and radio reception is very limited. For the residents of those areas, the U.S. Mail is the most reliable form of communication. I commend you for the Postal Service's recent arrangement in Alaska for the new fuel cell system at the Anchorage Mail Processing Center. As you know, the new fuel cell will be the primary source of power for the Anchorage facility--producing one megawatt of electricity--while producing virtually no pollution. This power system not only ensures the continued success of the Postal Service in Alaska, but it represents a form of power that could revolutionize cost-effective electricity throughout America. Congratulations on your fifth straight fiscal year of positive net income and for your achievements in high delivery rates. However, I am concerned that while the Postal Service modernizes and improves the traditional mail system, it could miss out or fall behind in the e- revolution. I note your recent projections that increased use of the Internet for business traditionally done through the mail could cost you nearly $17 billion. I urge the Postal Service, through your leadership and direction, to fully embrace e-commerce and all of its capabilities so that the Postal Service remains strong in the new millennium. I note that the Postal Service has partially embraced e- commerce by allowing private companies to develop and sell postage over the Internet. I am eager to see the results of this technology as information is made available. Last, I sit on the Special Committee on the Y2K problem and we receive regular reports on the progress of vital services with respect to the Y2K bug. You may recall that I asked you last year about the Postal Service's efforts in fixing this problem and would like to hear about your progress over the past year. Thank you again for appearing today and for all that the Postal Service does in Alaska and throughout the United States. Senator Stevens. I think everyone should realize that this is the fifth straight fiscal year of positive income for the Postal Service, and on your watch it has gone up, so I congratulate you. I will tell you, Mr. Chairman, and I often tell others, about the time Postmaster Bolger came to Alaska with me; he wanted to see what the winters were like, and I took him up to Prudhoe Bay. As he got off the plane, we had the bus right there so that he could get right on the bus, and we went over to the postal substation, which is what I think we had there at the time. As we opened up the door, there was a digital thermometer there, and it said minus 99. [Laughter.] I never had the heart to tell him that that was as far down as it would go. [Laughter.] It was a wind chill factor thermometer, and the wind chill was lower than 100 below. And that Post Office was open; that's my point. The Post Office does keep up with and match that motto today, and I think Mr. Henderson is an excellent example of a person who is really managing this Postal Service of ours very well. You have some tremendous challenges now, with the Internet and the whole concept of the global economy, but I am proud to say that I think the Postal Service is staying ahead of the curve. So thank you very much, and I look forward to reading your report, Bill. Senator Cochran. Thank you very much, Senator Stevens. Senator Akaka. OPENING STATEMENT OF SENATOR AKAKA Senator Akaka. Thank you very much, Mr. Chairman. I am pleased to join you in welcoming Postmaster General Henderson to our hearing. I met with Mr. Henderson earlier this year and came away from that discussion with a renewed appreciation of the U.S. Postal Service--not only for its accomplishments, but for the challenges it faces in the future. We cannot escape the many news reports and articles on today's rapidly changing business climate. Not only has the Internet opened up a global marketplace for American products, but it has also created a growing need to deliver the packages generated by e-commerce. I know the Postal Service is thoroughly analyzing all aspects of its operations and management in order to remain a key player in this arena. Competing delivery systems, domestic and international, have also resulted in the review of products. I understand that the need to develop new revenue sources while maintaining increased service levels is one of the reasons that the Postal Service supports the McHugh postal reform bill. Should postal reform legislation be referred to the Senate, I hope our Subcommittee will have ample opportunity to review these issues. On a more personal note, I would also like to express my continued strong support for a U.S. postage stamp to honor Duke Kahanamoku, a five-time Olympic medal winner, the father of modern surfing, and Hawaii's best-known citizen. Although Duke Kahanamoku passed away in 1968, his spirit continues to embody all Hawaii, and even part of the mainland. And I will tell you that if Senator Stevens were here he would certainly support me, because he is an avid surfer. [Laughter.] A commemorative stamp celebrating the life of one of my State's most respected citizens will be welcomed not only by the people of Hawaii, but by sports enthusiasts worldwide. I supported this effort for a long time, and I appreciate knowing that a proposed stamp is under serious consideration by the Citizen Stamp Advisory Committee. The time has come to honor the Duke, who holds a place unequal to any other person in surfing history, and whose Olympic skills are legend in Hawaii and in our country. Like Senator Cochran, I look forward, Mr. Postmaster General, to your testimony, and your presence here is certainly welcome. Senator Cochran. Postmaster General Henderson, you may proceed. STATEMENT OF HON. WILLIAM J. HENDERSON, POSTMASTER GENERAL, U.S. POSTAL SERVICE Mr. Henderson. Thank you, Mr. Chairman. Rather than read my testimony back to you--I know you have already reviewed it--I will just touch some of the highlights from a personal perspective about the Postal Service. First let me thank you for sponsoring the Senate Resolution designating October as Stamp Collecting Month. That is a great hobby; it's a great family hobby, one of the largest hobbies in the world, and it does give national recognition to something that is very important. And as a result of your action, there have been resolutions passed all across this great Nation supporting stamp collecting, so I thank you for that. The bottom line, the U.S. Postal Service is concluding another excellent year. We will have a net income this fiscal year, as we predicted, in spite of the fact that our revenues fell about $700 million short of what we had planned. The revenue shortfall is, in essence, the result of, one, aggressive planning; and two, the impact of the sweepstakes issue on the country, the fact that people stopped responding to sweepstakes for a period of time, and that impacted our volume. Also, the rate increase has some impact on our volume. But in spite of that $700 million, we are still going to reach our predicted net income. The most interesting aspect about being in the Postal Service today is not only the competition it receives, but also the effect of the Internet and how that is changing the marketplace very rapidly. The Internet seems to be knocking profits out of commodities at a very rapid pace; therefore, when people look for shippers, they look for low-cost, high- quality shippers. And if you buy a CD from AMAZON.COM for $6, you're not going to pay $7 to have it delivered. So the Postal Service has benefited from its high quality and is taking advantage of the Internet, and I think it will prosper as long as it maintains low costs and high quality. So we see a bright future for our organization, and we continue to be very aggressive in the marketplace, making sure that Americans have the kind of choice that the U.S. Postal Service represents, and that is high quality and low cost. Thank you, Mr. Chairman. [The prepared statement of Mr. Henderson follows:] PREPARED STATEMENT OF MR. HENDERSON Mr. Chairman and Members of the Subcommittee, I welcome the opportunity to discuss the U.S. Postal Service with you today. I appreciate the time and energy you invest in oversight and helping us fulfill our mission to bind our Nation together by delivering to everyone, everywhere, every day. Today, I want to talk with you about the performance of the Postal Service as we near the end of this century and our plans as we look forward to the next. In 1999, the Postal Service has put the finishing touches on what has been a decade of progress. When the decade opened, the Postal Service had just begun independently measuring First-Class Mail service performance in metropolitan areas. By 1992, when the first overnight results were announced, only two out of 86 locations broke 90 percent and the national score was just a notch above 84 percent. Today, even though we have expanded our measurements to represent more than 80 percent of our First-Class delivery volumes, every single location in the contiguous United States is at 91 percent or better for local mail service. The national average stands at 94 percent or better for local mail service. The national average stands at 94 percent, tying our record high. Service for First-Class Mail with 2- and 3-day commitments is also our best ever. When the decade began, we used to enter each holiday mailing season, our busiest time of the year, with only the most basic of preparations. Today, we start the season with integrated, focused fall and holiday plans that we begin developing shortly after the last season has ended. We now gather information on customer mailings well in advance, so that we have proper staffing and equipment on hand at our processing facilities. We have a national operations center to keep track of weather conditions, respond to customer concerns, and prevent bottlenecks in our system. We open additional transportation hubs and use dedicated air transportation to speed delivery of holiday gifts. This season, new automated technologies will help us process record holiday volumes more efficiently than ever by reading and barcoding more than half of America's handwritten greeting cards. At the start of the 1990's, the Postal Service had also requested a 5-cent increase in stamp prices, and customers were voicing concerns about price hikes that were consistently above the rate of inflation in the economy. This January, we implemented our second straight increase below inflation. The rate change was our lowest ever, just a penny more for a First-Class stamp and 2.9 percent overall. When the decade began, the Postal Service was routinely bleeding red ink and had rarely posted surpluses in consecutive years. In 1999, even though we imposed a daunting management challenge upon ourselves by delaying our smallest ever rate increase by 7 months, we will end this fiscal year with our fifth straight positive net income, which has helped us significantly reduce prior negative equity. And we mastered the challenge of reducing costs by about $700 million without eroding service performance. We are confident that we will continue that success in FY 2000, even though we will not raise rates as we had originally planned. By delaying the implementation of the rates and deferring our rate filing by a year, we in essence gave the American mailers a dividend of more than $2 billion. When the 1990's got underway, the automated processing of letter mail was in its infancy and just a fraction of letter mail was barcoded. Today, after $5 billion worth of investments, more than 88 percent of all letter mail currently carries a barcode, and 85 percent of our city carriers are receiving 60 percent of their mail sorted in delivery order each day. Robotics, sophisticated handling and transport systems, and even automation for flats are being introduced into postal plants. Within the next several years, fully automated processing facilities and a computer-driven information platform will revolutionize the way we manage the mail and create an information-rich mail stream that will give postal managers and customers alike real-time performance information. When the decade began, the Postal Service lacked a coordinated method of managing its entire operations. Today, we rely upon a Baldrige-based performance system to drive consistent improvement by focusing the energies and resources of this vast organization on common goals and targets. The Postal Service is heading into the next century with the best performance, planning, technology, and management systems in our history. As always, we owe that success to the extraordinary effort of our managers, postmasters, supervisors, and craft employees. At the same time, though, we enter the new millennium knowing full well that the most significant challenges in our history await us. Tomorrow's marketplace will offer Americans more powerful and plentiful communications choices than ever before. Private delivery carriers, already industry heavyweights, will continue their aggressive efforts to dominate their respective markets. Newly privatized and deregulated foreign posts, hungry for revenues, will not only offer an increasing range of international services to American customers, but are also likely to begin creating delivery networks right here on U.S. soil. The revolution in electronic communications may not be proceeding as fast as some have predicted, but no one questions its momentum. Today, nearly half of America's homes own a computer. More than a third have access to the Internet. Already, powerful forces in the banking, telecommunications, and computer industries are scrambling to create networks for e-payments. As the speed, security, and convenience of these networks increase--and more and more consumers grow comfortable with logging on to pay their bills--these efforts will reach critical mass. The eventual result could be the erosion of our total revenues. We believe nearly $17 billion is at risk. The Postal Service cannot predict precisely when or to what extent these and other competitive pressures will take their toll on our bottom line in the coming century. But our extensive market research suggests that First-Class Mail volumes may actually decline over the next 5 years, although we will continue to work on increasing the value of that mail by keeping costs low and quality high. But losing First-Class Mail is a real possibility--this factor, along with the rising costs associated with maintaining a national infrastructure of 38,000 facilities and a delivery network that grows by a million steps a year--means we can't sit still. We have to tap into new revenue streams as old ones begin to taper off if we expect to maintain affordable prices and continue our investments in better service. That is why we have been so vocal over the past few years in calling for postal reform, and why we have worked closely with John McHugh in the House to develop a fair, meaningful reform bill. The legislation includes some tradeoffs, but on balance, we believe it provides pricing and product flexibilities we need to stay relevant and attractive to our customers. That is also why--in addition to our many efforts to improve the value of the mail for our customers--we are already exploring ideas and developing innovative strategies for the future. We believe, in fact, that we have a responsibility to the American people to ensure a healthy and meaningful postal system in the next century. What's at stake is not just the continuation of perhaps the most visible and personal of all Federal services, but the endurance of a delivery system that touches every American, helps bridge our vast distances and differences, and binds our Nation together. The mail is an experience that we all share, and it is a powerful one. Most of us look forward to getting our mail each day. There are magazines and catalogs to browse. There are birthday presents and post cards from friends on vacation. There are bills, coupons, and offers galore. Going to the mailbox is such a pervasive habit that one of the leading Internet companies has helped build their business on the slogan, ``You've got mail.'' Mail is a unique moment in our day, a moment at the mailbox, one that is happening in every home, in every community, every day. In many ways, the mail has become the gateway to the household, a channel for commerce and communication that connects families and friends, governments and citizens, businesses and customers, publishers and readers, charities and sponsors. Maintaining that connection in the next century, we believe, may well hinge on our ability to blend the trust, security, and ubiquity of hardcopy mail with the speed and capabilities of the electronic world. Our strategies are just beginning to take shape, and our role vis- a-vis the private sector will have to be defined in concert with all of you and our many stakeholders and customers. Already, though, we see several areas of opportunity. We will build on our strong Internet presence. Our public homepage is the most heavily trafficked government site, receiving about 3 million ``hits'' each month. Customers use this site to find ZIP Codes, calculate rates, buy stamps, track packages, and get other key postal information. We intend to use the speed and access of the Internet to offer customers information about their mail and access to our products and services. As on-line purchases continue to explode, both businesses and consumers want prompt, reliable delivery, and easy access to a carrier who can handle returns. We want to be the carrier of choice for merchandise purchased on the Internet and the inevitable returns that result. We already have a universal business and residential presence. We are low-priced and we don't impose surcharges. Our carriers visit every address, everywhere, 6 days a week. So, despite many challenges, the Postal Service sees the 21st Century as a great opportunity to build on our legacy of service to our Nation. During this past decade, we have worked hard to combine the efficiency and customer focus of private sector organizations with the public service focus of government. We look forward to working with this Subcommittee to assure that the American people can continue to rely on the Postal Service for high-quality, low-cost mail services. Thank you, Mr. Chairman, that concludes my statement. Senator Cochran. Thank you very much, Postmaster General. You mentioned that you ended the year with a profit--a net income balance. I wonder, do you intend to use this profit to reduce the cost of postage? Mr. Henderson. We will do that in real terms because we extend the rate increase--the rate increase which was planned to go in this year, or early in the year 2000, we are now trying to postpone that rate increase until the year 2001. And as you will recall, we also extended the rate increase from June of last year; we didn't implement it until January. So we are, in effect, giving back our net income, as much as we can, to our customers. Senator Cochran. These increases that you have planned for the future are going to have some effect on mail volumes, won't they? Will they negatively affect mail volumes? Will there be other ramifications of future rate increases, as well? Mr. Henderson. Well, rate increases generally negatively affect volume, and customers are demanding more and more for less. And so that puts huge pressure on the Postal Service to both generate revenue and to control its costs, for which we have massive efforts under way right now. Senator Cochran. I know a lot of this is affected by the rate of inflation. As prices and costs to the Postal Service go up, those costs have to be passed on to mailers and the users of the Postal Service. Some mailers, such as those who use the mail for advertising, have expressed concern to me that their rates may go up faster than inflation in this next round of increases. What's the outlook for price increases in the next rate case, and what is the Postal Service doing to control its costs and thereby reduce the need for large rate increases? Mr. Henderson. Well, we've taken several billion dollars in costs out of the organization. I think it is evident to our customers that you can see that in both our monthly and our quarterly expense reports. We agree that it is imperative that we keep rates as low as possible, and certainly, Standard A is very sensitive. Advertising mail is very sensitive to rate increases. We certainly are trying to keep the rate of increase as low as possible. Senator Cochran. In my opening comments I mentioned the fact that there have been some obvious changes in technology that have affected the future role of the Postal Service. For example, as I understand it, there is a good deal of discussion within the Postal Service about e-commerce and how to take advantage of these new technologies to improve the way the Postal Service provides its customers with what they want and what they need. You recently introduced a new website, for example, to assist businesses using Priority Mail to ship products ordered over the Internet, and last month you introduced a new product called PC Postage which allows customers to print digital stamps from their personal computers. Could you tell us more about the specifics of this and how it's being received in the marketplace? Mr. Henderson. It is probably--short of a new Postmaster General being announced, it's probably the most publicity we've received over any one event in the 28 years I have been in the Postal Service. It has been very well received. There are two companies that went commercial August 9, STAMPS.COM and E- STAMPS. They essentially provide postage off your PC. Each postage imprint is unique, so it can't be counterfeited, and it's just a way for us to create ease of use for our customers. We're trying to use the Internet; it is a new channel, and we're trying to make postal services available on that new channel, and PC postage is one of the obvious ones. It should eventually save us money, depending on how many customers adopt it, but it has been received in the marketplace with real enthusiasm. There are two more companies coming behind E-STAMPS and STAMPS.COM; that's Neopost, which is a French company, and Pitney-Bowes, both of whom are in the developmental stages. So we see a real proliferation of PC postage. Senator Cochran. Senator Akaka. Senator Akaka. Thank you, Mr. Chairman. My question is along environmental issues. As a member of both the Energy and Governmental Affairs Committees, I am naturally interested in the lead that the Postal Service has taken in its efforts to protect the environment. I know the Postal Service has received numerous environmental awards in recognition of its energy conservation, pollution prevention, and recycling programs. The Postal Service, as the Nation's largest civilian employer, is well positioned to continue its role as a leader in alternative energy and fuel use, and I applaud the Postal Service on its leadership in this arena. Could you describe some of the Postal Service's efforts in conserving energy and the benefits that the Postal Service has gained from its efforts? Mr. Henderson. Well, the U.S. Postal Service has saved millions of dollars in its very, very aggressive environmental and conservation efforts. We use energy-efficient lights; we have an active recycling program that saves millions of dollars; and just last month, we ordered 500 electric vehicles. I think we are the leader in that area. Also in alternate fuel vehicles we are the leader. So we are very proud of that program. At one point, when I was the Chief Operating Officer, I told the then-Postmaster General that the head of our environmental efforts got more publicity than he did, because every time I turned around they were giving our environmental program an award. Charlie Bravo at that time was heading it up; Charlie has moved on to some other things, but just for the record, he did an outstanding job. Senator Akaka. I was interested to hear about your new ``green'' postal facility in Fort Worth, Texas. Could you provide more information on the new facility and whether there are more ``green'' facilities in the works? Mr. Henderson. Yes, I will. In fact, I went to the ribbon- cutting in Fort Worth, Texas, at that facility, where we have straw in the walls, and it has an R-factor of some phenomenally high number for energy conservation. It is a one-of-a-kind, and I will be happy to provide you all the background information.\1\ --------------------------------------------------------------------------- \1\ The brochure entitled ``The First Green Post Office,'' appears in the Appendix on page 21. --------------------------------------------------------------------------- Senator Akaka. Recently the Postal Service implemented a new system involving fuel cells for generating power at its Anchorage mail processing and distribution facility. This system is virtually pollution-free and requires little maintenance. What are the expected benefits from this system? And will this technology be expanded to other postal facilities throughout the country? Mr. Henderson. Yes, that is an experiment. The fuel cell is much like a battery that generates energy and hot water from a chemical reaction. It saves several thousand kilowatts over traditional energy sources. It provides our plant and distribution center with energy. If, for example, the grid went down in Anchorage, our plant would still operate. The energy which it generates beyond what is needed is turned back into the Chugash Electric Grid, so it does help out the local community. We are very interested in seeing how this operates over a period of time. Senator Akaka. From time to time I receive complaints from residents in some of the rural areas of Hawaii expressing dissatisfaction with the quality of postal service at contract stations. What criteria is used to establish a contract station, verses a U.S. Postal Service facility? And what oversight exists once a contract station is set up? Mr. Henderson. In Hawaii, as in other places, we have very strict criteria, much similar to establishment of a Post Office. In your case, Ed Broglio, who is the District Manager in Hawaii, is directly responsible for that, and I will be happy to relay those complaints to him, and I'm sure that he will jump right on it. Senator Akaka. Mr. Chairman, I have other questions, but I will come back to them. Senator Cochran. Thank you, Senator. Senator Domenici. OPENING STATEMENT OF SENATOR DOMENICI Senator Domenici. Well, thank you very much, Mr. Chairman. I have not had occasion to question you or meet with you since you took your new job, and I want to commend you and congratulate you. Obviously, the Postal Service is doing very well. The revenues the Postal Service is generating mean that the subsidies don't have to go up as they have in the past, because you've been very innovative. But I would like to say, in reading your statement, I think you do analyze the problem in future years correctly. The only thing is, I read in it that you said, ``Even if the new modes of communication are not growing as rapidly as we thought''-- from what I read, they are growing more rapidly in some areas than we ever imagined, and they are all more or less competitors in some sense. So I know you are very concerned about it from the standpoint of getting a good analysis and seeing where the Postal Service will stand under that kind of competition. But I guess I would just like to ask you, what do you go through in an effort to analyze just what will happen--whose brains are you picking? And what kind of people are giving you advice as to where things are going and whether first class mail, which is your staple, will be what it is today 15 years from now in terms of demand by Americans? Mr. Henderson. Well, we talk to a cross-spectrum of people, in addition to having our own market research folks. For example, I meet with CEOs around the country, folks like Lou Gershner at IBM, Jeff Bezos at AMAZON.COM; we pick their brains about where--in Mr. Gershner's case, where technology is going, and in Jeff Bezos' case, how he is going to use the Internet in the future, what's he going to do with it. The most vulnerable mail in the U.S. Postal Service are bills and payments, which account for about $15 billion. But on the other hand, as I mentioned in my opening statement, the Postal Service is in a unique position for e-commerce, because the Internet has squashed the profits out of products; and as profits get squashed out, people look for low-cost delivery outfits. I use the example that if you pay $6 for a CD at AMAZON.COM, you're not going to pay $7 to have it delivered. I mean, it just doesn't make any sense. So we sit there at $3.25 with Priority Mail and a unique package, and we become AMAZON.COM's shipper of choice because of our price and our quality. So there are pluses and minuses. Personally, I don't think anybody has a handle on where all of this is going. I think it changes so rapidly. And to the credit of this country, it is so inventive and so innovative that the landscape almost changes weekly, so that from Business Week to Time Magazine, you read a new angle. So we grope with it as best we can, and we look for every opportunity, whether it's PC Postage or being the shipper of choice for packages. We're looking at it from every angle, as everybody else is. Senator Domenici. Well, I'm pleased that you are, and I think it's very important. Just one parochial issue. In my home State and home city of Albuquerque, you have many facilities, but the main one is a very old one, located on Broadway and Central Avenue. I have heard concerns from some who patronize the place, some who work there, some who try to manage things there, that maybe it's in need of replacement because of its age, and lack of current technological sophistication for current needs. I wonder if you would mind having somebody take a look and give me some kind of a report as to its status, in your opinion? Mr. Henderson. Absolutely.\1\ --------------------------------------------------------------------------- \1\ The letter from Mr. Henderson to Senator Domenici with information about the Albuquerque facility project appears in the Appendix on page 23. --------------------------------------------------------------------------- Senator Domenici. Thank you, Mr. Chairman. Senator Cochran. Thank you, Senator Domenici, for your contribution to the hearing and the work of this Subcommittee. Senator Levin has joined us. Senator, you are recognized for any comments or questions you may have. OPENING STATEMENT OF SENATOR LEVIN Senator Levin. Mr. Chairman, thank you. Welcome, Mr. Henderson. Mr. Postmaster General, you are very familiar with our sweepstakes effort in this Subcommittee. We passed a bill recently--I think it was a unanimous vote in the Senate--which is aimed at, among other things, giving more authority to the Postal Service to stop deceptive mailings, and the Postal Service has worked closely with us on that legislation. I would like you to comment on that, why you view it as being important, whether you think it goes far enough, does it give you the tools that you need? Mr. Henderson. The answer to whether it goes far enough is, we think it does. We think it is a very good piece of legislation. The practices in the industry were hurting the industry. In my opening statement, I said sweepstakes response rates had fallen anywhere from 20 to 40 percent, so the whole industry was hurt by the deception. I think it was a very responsible act to bring some health back to that industry. It hurt our volume; our net volume was hurt this year because the American public were really put out over deceptive mailings, and I think the legislation was a key answer. Senator Levin. One of the issues that has come up relative to the sweepstakes is the question of postal subsidies for nonprofit organizations. I understand that basically, on sweepstakes from a profit organization, you do not lose money on that mailing; that mass mailing is not a money loser for you, there is no subsidy involved in it---- Mr. Henderson. Right. Senator Levin [continuing]. And you might even make a little money on it. But some of the promotions by some of the nonprofits use some of the same deceptive practices that we've seen in the profit-making organizations. Some of the techniques that we object to from some of the big sweepstakes companies are problems, whether they are used by them or whether they are used by a nonprofit organization. The difference is that where a nonprofit organization uses a sweepstakes which is deceptive, at that point we are subsidizing that because there's a subsidy for nonprofits in our Postal Service. My question is this. If a nonprofit organization which has been given a subsidized postal rate is found to have engaged in a deceptive practice, can they lose that subsidy? Is that one of the remedies you can apply? Mr. Henderson. I'm not sure. I don't know. I can provide that answer to you. I do know that nonprofits that engage in commercial activities--and this is a technical thing--can lose their nonprofit status, and we would certainly not be supportive of any deceptive mailing by anyone. Senator Levin. In terms of my question, would you answer that one for the record? Mr. Henderson. Yes, I will. Sure. The Information Submitted by Mr. Henderson for Senator Levin follows: An organization is eligible to mail at the Nonprofit Standard Mail rates if it is not organized for profit and none of its net income accrues to the benefit of any private stockholder or individual. Revocation of a nonprofit mailer's eligibility to mail at Nonprofit Standard Mail rates is based upon the determination that the organization is not qualified to mail at the Nonprofit Standard Mail rates in accordance with the regulations in Domestic Mail Manual, Section E670. Attached is that section of the ``Domestic Mail Manual'' \1\ that applies to eligibility for and revocation of an authorization to mail at the Nonprofit Standard Mail rates. --------------------------------------------------------------------------- \1\ The information entitled ``Domestic Mail Manual,'' section E670, supplied for the record appears in the Appendix on page 24. Senator Levin. You and I have had some correspondence about semi-postal stamps where the buyer pays more than the cost of a first class mailing, and the increment above that cost goes to a particular cause. For instance, we did it with breast cancer research. The Postal Service issued that. There were many of us who thought it was a mistake; I was one of them that did, and voted against it, because I thought that it gets us into an area where the Postal Service, by its own regulations or advice--its own criteria--had decided it would not go anymore. Your stamp subject selection criteria specifically says that semi-postals shall not be issued; that was your criteria. It seems to me it was right because there are so many valuable causes. As it was said in this criteria as the reason for it, there is such a vast number of worthy fundraising organizations in existence that it would be difficult to single out specific ones to receive such revenue. Now, we recently had a bill that came through our Committee which would provide a semi-postal, with the proceeds going, apparently, to a nonprofit organization, which I think is also perhaps unique, called ``Operation Lifesaver.'' I'm sure it's an extremely good organization, but that's not the issue. I don't know whether we've ever had public funds going to a nonprofit that way through a semi-postal, whether it's ever been used in that way. But putting that issue aside, no matter how worthy an organization it might be, you wrote me a letter urging us not to proceed with any additional semi-postal stamps, including the ``Look, Listen, and Live'' Stamp Act, S. 712, until the sales period of the breast cancer research stamp has expired and the GAO has completed its audit. I wonder whether you would give us the reasons for why you feel that we should hold off on any additional semi-postal stamps being authorized until we can see what the audit of the breast cancer research stamp looks like? Mr. Henderson. When the breast cancer semi-postal was introduced, it was introduced for a period of time, in which case there would be some look-back to see how successful it was, both from an intent to generate money, and from a postal obligation to administer production, distribution and sales. I think it's just prudent to wait, since breast cancer research was the first semi-postal, to wait and do the work on the semi- postal before we issue additional ones. Senator Levin. Mr. Chairman, I would ask that the letter from Mr. Henderson to me be included in the record at this point. Senator Cochran. Without objection, it is so ordered. [The referenced letter follows:] United States Postal Service Washington, DC 20260, June 15, 1999. Honorable Carl Levin United States Senate Washington, DC 20510. Dear Senator Levin: This is in response to your May 11 letter concerning information regarding the breast cancer research semi-postal stamp. As you know, on August 13, 1997, the President signed into law the Stamp Out Breast Cancer Act that mandated the Postal Service to issue within 12 months a special first-class postage stamp with a differential, not to exceed 25 percent or 8 cents. On July 29, 1998, the stamp was issued and will be available to the public for 2 years. The Act provides that before the end of the 2-year period, the General Accounting Office will perform an audit on the Breast Cancer Research Stamp operation. The Postal Service historically believed that as America already has a philanthropic tradition unmatched by other nations, semi-postals would be perceived as yet another solicitation and a public intrusion in an area where private initiative and generosity have had very beneficial results. We also believed that were the Postal Service to issue semi-postal stamps, either we or the Congress would be placed in the very difficult position of determining which organizations should be funded and which should not. However, as the Congress expressed itself so strongly on this issue, the Postal Service has enthusiastically embraced the breast cancer semi-postal stamp. To ensure the success of stamp sales, the Postal Service developed a comprehensive advertising and promotions plan to support the national launch of the Breast Cancer Research Stamp. The promotional initiatives include post office sales kits, television/radio interviews, a video news release featuring First Day of Issue ceremony, postal communications to all our employees, and press kits to major media and health organizations. To date, over 92 million of the breast cancer semi-postal stamps have been sold. While the Postal Service has developed guidelines for tracking costs, we have not yet fully defined which incremental costs associated with the stamp will be offset against revenue. We have, however, issued payments to the National Institute of Health and Department of Defense, as intended by the law, totaling over $6.9 million, after expenses. With regard to S. 712, the Stop, Listen and Live Stamp Act, introduced by Senator Lott, the Postal Service would prefer that no additional semi-postal stamps be authorized until the sales period of the Breast Cancer Research Stamp has expired and GAO has completed its audit. We are concerned that a competing semi-postal stamp would have a negative effect on sales and ultimate success of the Breast Cancer Research Stamp. We believe the success and cost of the stamp should be fully evaluated before another semi-postal stamp is authorized in order to determine the value this type of stamp brings to charitable fundraising. Thank you for the opportunity to clarify our position on this issue. If I may be of assistance in other postal matters, please let me know. Sincerely, William J. Henderson Senator Levin. And finally, I wonder if you would go back into the semi-postal issuances historically and provide for the record whether or not there has been an occasion where the incremental amount--for instance, $0.07, I think, in breast cancer research--has ever gone to a non-governmental entity, whether we have ever turned over that funding that is raised to a private entity, or whether we'd be setting an example with S. 712? If you know now, you could please tell us; if not, you could tell us for the record. Mr. Henderson. There has never been a semi-postal of that nature, and the breast cancer stamp was the first semi-postal. So we don't have any experience in the past with these sorts of things. That's why we wanted to do a full review of the breast cancer issuance. Senator Levin. Where did the extra money go for that breast cancer research? Mr. Henderson. It went to the Department of Defense and NIH. Senator Levin. You said we've never issued a semi-postal? Mr. Henderson. I don't believe so. Senator Levin. In the history of the country? Mr. Henderson. It's the first one ever. Senator Levin. Thank you, Mr. Chairman. Senator Cochran. Thank you, Senator. Mr. Henderson, what is the status of the Postal Service's efforts to prepare for the year 2000? We understand that you have undertaken to deal with this, and we wonder what you can tell us about the status of the Postal Service's preparations for providing mail delivery services after the beginning of the new year. Mr. Henderson. Well, we've had an extensive effort, as you might imagine. We have 100 million lines of code in the Postal Service, and of those, we have identified 137 systems as mission-critical, and we have created over 700 contingency plans, and we've had a full dress rehearsal in which the systems all worked. We think the Postal Service is well prepared for Y2K. We even have a notion of an advertising program that when all else fails, you can always put it in the mail. Senator Cochran. I know that you have tried to identify a number of the major challenges that the Postal Service faces going into the next decade, as well as the next millennium. Can you tell us anything about the priorities that you have set to help meet these major challenges? Mr. Henderson. Sure. I think that the first and foremost challenge that the Postal Service faces internally is to maintain a strong vigilance on its costs. The key to being a high-quality, low-cost provider is the key to being in the marketplace in the new millennium. I also think that the Postal Service needs to look thoroughly at the Internet to see what opportunities it provides Americans from the Postal Service, such as PC Postage, ease of use, our website, that you can get Priority Mail. And I also think that the Postal Service needs to look at new opportunities for revenue--as, for example, facilitating bill payments, areas like that. But we see a very strong future for the U.S. Postal Service. We, in fact, are the only organization that goes to every house every day around the same time each day. So as people disaggregate and begin to have offices that are only connected by PCs, we've become a vital link in connecting the physical merchandise to these households. Senator Cochran. As you have probably noticed, the bells have sounded for a vote over on the Senate Floor, and my colleagues have all deserted me. [Laughter.] I don't want to be the only Member of the Subcommittee to miss the vote, so I am going to suspend the hearing at this point, go over and make this vote, and come right back, if you will indulge us for just a little. Mr. Henderson. Sure. Senator Cochran. The Subcommittee will stand in recess. [Recess.] Senator Cochran. If the Subcommittee will come to order, we will resume our hearing. One of the areas of interest in the annual report you have submitted is the international mail area and the competition that is developing, with the Postal Service actually losing volume in some areas of the mail market internationally. How do you intend to improve upon your competitive relationship in the international market for Postal Service delivery and increase your international mail volume? Mr. Henderson. I think the answer to that lies in the answer to many of the other issues, and that is to provide a low-cost, high-quality product. As a tactical matter, we have partnered with people like DHL to provide consistency in transportation, and in some instances, delivery. We have also partnered with private posts, such as Japanese Post, and we have maintained strict quality control between the two posts. But competition is fierce internationally, not just from the U.S.-based competitors but also from the foreign posts. You know, foreign posts are coming to the United States. Germany has an organization, Deutsche Post USA. The British have offices in New York, Chicago, and California. The Dutch Post is here. So there is a globalization of activity of postal administrations around the world. One of the principal drivers for our volume drop-off this year is that the bulk of international mail had been letter mail, and electronic diversion clearly has impacted that significantly. The other is the fact that our focus had been on Asia, especially with partners like L.L. Bean in Japan, and the ``Asian flu,'' if you will, the Asian economy created a problem for us. But we expect to come back. We will be in the game. Senator Cochran. Recently there has been some controversy over the proposed amendments that you have developed to regulations regarding commercial mail receiving agents, or CMRAs as they are called. These regulations govern mail that is delivered by the Postal Service to private businesses that rent out mail boxes to customers. As I understand it, the proposed amendments were intended to protect consumers from mail fraud, primarily by requiring the boxholders to provide additional information and to list the address as a private mailbox. But boxholders and small business owners have raised concerns to us about the impact that these new requirements may have. What has the Postal Service done to address these concerns? Mr. Henderson. Well, customers had concerns about their stationery, so we extended the period of time to comply so that customers would have ample time to change the stationery. That was their big issue. The PMB, or private mailbox, was another concern. If you use a post office box, you have to say, ``Post Office Box 152.'' On the private mailboxes, folks were using addresses like ``Suite 16,'' and then the address of the PMB. A lot of fraud was being perpetrated. Law enforcement actually got together with the U.S. Postal Inspectors and said, ``We really need to remedy this. We need to protect the receiver of the mail.'' So we are just requiring CMRA customers to show that they are a private mailbox, that's all, so that as a consumer you won't think that you are doing business with this ``suite'' in some building. Senator Cochran. Senator, I have a couple more questions to wrap up the hearing, but I am prepared to yield to you for any further questions you might have at this point. Senator Akaka. I thank you. I have a few more questions too, Mr. Chairman. Postmaster General, you have touched on one of the areas frequently mentioned as a major challenge for the Postal Service, and that is labor management relations. How are these relations now? And what efforts are planned or needed to develop an effective partnership between management and employees, management associations, and labor unions? Mr. Henderson. I think the biggest success in labor management relations in the last year has been the agreements with the American Postal Workers Union and the Mail Handlers Union. We are currently in negotiations with the National Rural Letter Carriers Association. The biggest disappointment in labor management relations was the inability to reach an agreement with the NALC, which is now in arbitration in its final days. Labor management relations remain for me a top priority, but it's a huge challenge. I think that part of the challenge is that the parties have to learn to work together to resolve problems and not rely on a third party, and I think the blame for that lies both within management and within the unions, and we are--at the leadership of the unions and management--trying to do something about that. Senator Akaka. Over the years, employee violence has been a major concern within the Postal Service. What ongoing efforts are being undertaken by the Postal Service to address the problem of violence? Mr. Henderson. Well, we have an independent study being done on violence, headed by Joe Califano, and it has other distinguished members, like Doug Frazier from the Auto Workers, and we expect that report to be concluded in June. In addition, we have threat assessment teams all over the United States that react to any potential threat. We have an extensive employee assistance program that is a model for the public and the private sector, and we have employed activities, strategies like that--and we think we've made progress in communication between employees, which is really important. If it gets hostile, we intervene. It is, though, a tough issue. It's not one where there is a simple formula. Violence in America, as you well know, is a tough problem to solve. Senator Akaka. It seems as if the employee assistance program has been successful in its efforts to combat workplace violence, and that program is supported by postal employee unions. I have been informed that $2.7 million will be cut. What percentage of the program's total budget does this represent? Mr. Henderson. I couldn't tell you off the top of my head, but I will be happy to tell you for the record. Senator Akaka. All right. Certainly, we will want that information. How will these cuts affect the program? Mr. Henderson. Well, it is my recollection that about 30 to 40 counselors would be reduced. That's what I recall. But we don't take that as a lack of support for the program. We do housecleaning now; we've said that we're not going on a diet, we're changing our lifestyle. We're having to do more with less in every aspect of the Postal Service. That's just a part of cost containment. So while the employee assistance program gets a little reduction, so does every other department. Senator Akaka. Thank you. You answered the other part of my question which was going to be the reason for the cuts. In October 1997, a study on postal workforce diversity was released that made recommendations intended to help the Postal Service address diversity issues and concerns. In response to the study, the Postal Service developed initiatives that were generally designed to help strengthen the diversity program. What progress has the Postal Service made in implementing these initiatives? Mr. Henderson. There were 23 recommendations, and a task force chaired by the Chief Operating Officer and the Chief Financial Officer. We have implemented all of the recommendations. Senator Akaka. How do the Postal Service's recruitment and hiring practices help ensure that it has a diverse workforce? And what improvements have recently been made in this area? Mr. Henderson. We have proactive recruitments in communities, in minority communities. We list job postings. We talk to minority organizations about opportunities in the Postal Service, and we've been very successful with this. Senator Akaka. Thank you, Mr. Chairman. Senator Cochran. Thank you, Senator. I know that other Senators who are Members of the Subcommittee may also have questions to submit for answers that will be included in the hearing record, and we hope you will be able to respond to those in a timely fashion.\2\ --------------------------------------------------------------------------- \2\ The questions and answers from Senators Collins, Lieberman, and Cleland for Mr. Henderson appear in the Appendix on pages 36-41 respectively. --------------------------------------------------------------------------- I have only one concluding question. We were in debate last year on the subject of post office closings and relocations, and some Senators wanted to write into the law some requirements for the Postal Service to follow in such situations. As you may remember, there were new regulations that the Postal Service came up with for notifying communities about changes in their Postal Service buildings. Can you tell us how these are working and whether there is any need for Federal legislation on this subject, in your opinion? Mr. Henderson. In my opinion there is no need for Federal legislation, certainly no process that would require all of the issues in the community to be adjudicated in Washington. It would put our capital improvement effort into gridlock nationwide. We have issued new rules requiring very active, proactive community involvement. Essentially, we want to be a friend to the community. We don't want to put post offices where the community doesn't want them. But at the same time, we can't be held hostage by one individual in the community. We have a policy of working with the community; for example, taking post offices out of downtown areas--we don't ordinarily do that. We leave a retail section; we may separate the plant from the retail section. So we stress very much to our field officials that we want to be a positive part of the community. We do not want to be an issue in the community, and I think we've had success in that regard. Senator Cochran. I want to ask a parochial question. I went to a postal facility to buy a Federal duck stamp last year, and there was a big, long line at this postal facility. It was one of those bad, rainy early-fall days that we have in the south, and it seems like that's when everybody wants to go to the post office, and we all went at once. There must have been about 20 people standing in line. There were four or five windows at this facility, but there was only one window open and one person standing there, it seemed to me, very casually interested in serving the public. Of course, I didn't run up and say, ``I'm a United States Senator and I'm here to buy my duck stamp'' or anything like that. As a matter of fact, I tried to be as in disguise as I possibly could because they might all hold me responsible for this clerk's very negligent, I thought, and carefree attitude about the situation. [Laughter.] I hear complaints like this, and I've personally experienced that one, and I just thought I would bring it to your attention. What are you doing about that? Mr. Henderson. Well, we have a national policy--obviously it wasn't followed in your case--of customers waiting in line less than 5 minutes, and obviously we have a range of management skills in the field. I think this Postmaster needs a little personal counselling. If you will give me the name off the record, I assure you that you won't stand in line the next time you walk into that post office. [Laughter.] Senator Cochran. Well, I'm not interested in it so much for myself, but I know the general public runs into that from time to time. I hear about it and I'm sure other Members of the Senate occasionally hear about the same thing. Senator Akaka brought up the contract situation in his State. But these are the day-to-day problems that I think a lot of Americans are concerned about. Being interested and showing that you are interested in serving the consuming public in a polite and efficient way, that would really go a long way, I think, toward improving the image of the Postal Service and improving the way Americans are able to use the Postal Service facilities throughout the country. I know that's the goal, and I hope you can lend a little energy to the effort to instill that attitude into Postal Service workers nationwide, most of whom I am sure are very courteous and efficient. But there are some who are not. I hope that we can get them other work of some kind. Mr. Henderson. Maybe in another organization. Senator Cochran. Maybe in another part of the building. I don't know. Or another job description. Well, you have been very good to be patient with our questions and give us this interesting and helpful report on the status of the Postal Service. We appreciate the good work that you have done in this job up until now. I am very impressed with the energy and experience that you have brought to the job, and I commend you for the effort that you are putting into it. Mr. Henderson. Thank you, Mr. Chairman. Senator Cochran. Senator Akaka. Senator Akaka. Yes. I would like to add my applause to what you are doing, Postmaster General, and tell you that I personally know that you are managing the people in the Pacific, and they do a great job for you and our country. We look forward to the great leadership that you give to the Postal Service. To know that we're in the black and doing pretty well and that we are meeting the challenges that are ahead--I feel good about that, and I want to thank you so much for what you are doing. Mr. Henderson. Thank you. Senator Cochran. Thank you. 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