[Senate Hearing 110-340]
[From the U.S. Government Publishing Office]
S. Hrg. 110-340
THE ROAD AHEAD: IMPLEMENTING POSTAL REFORM
=======================================================================
HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, FEDERAL SERVICES, AND
INTERNATIONAL SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
APRIL 19, 2007
__________
Available via http://www.access.gpo.gov/congress/senate
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and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
THOMAS R. CARPER, Delaware GEORGE V. VOINOVICH, Ohio
MARK L. PRYOR, Arkansas NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana TOM COBURN, Oklahoma
BARACK OBAMA, Illinois PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri JOHN WARNER, Virginia
JON TESTER, Montana JOHN E. SUNUNU, New Hampshire
Michael L. Alexander, Staff Director
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Trina Driessnack Tyrer, Chief Clerk
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES,
AND INTERNATIONAL SECURITY SUBCOMMITTEE
THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan TOM COBURN, Oklahoma
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
BARACK OBAMA, Illinois GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri PETE V. DOMENICI, New Mexico
JON TESTER, Montana JOHN E. SUNUNU, New Hampshire
John Kilvington, Staff Director
Katy French, Minority Staff Director
Liz Scranton, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Carper............................................... 1
Senator Coburn............................................... 4
Senator Akaka................................................ 6
Senator Collins.............................................. 7
Senator Stevens.............................................. 10
WITNESSES
Thursday, April 19, 2007
Hon. John E. Potter, Postmaster General and Chief Executive
Officer, U.S. Postal Service................................... 12
Hon. Dan G. Blair, Chairman, Postal Regulatory Commission........ 14
Katherine Siggerud, Director, Physical Infrastructure Issues
Team, U.S. Government Accountability Office.................... 16
Alphabetical List of Witnesses
Blair, Hon. Dan G.:
Testimony.................................................... 14
Prepared statement........................................... 44
Potter, Hon. John E.:
Testimony.................................................... 12
Prepared statement........................................... 35
Siggerud, Katherine:
Testimony.................................................... 16
Prepared statement........................................... 51
APPENDIX
Questions and Responses for the Record from:
Mr. Potter................................................... 84
Mr. Blair.................................................... 112
Ms. Siggerud................................................. 119
THE ROAD AHEAD: IMPLEMENTING POSTAL REFORM
----------
Thursday, April 19, 2007
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, Federal Services,
and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:30 p.m., in
room 342, Dirksen Senate Office Building, Hon. Thomas R.
Carper, Chairman of the Subcommittee, presiding.
Present: Senators Carper, Akaka, Coburn, Collins, and
Stevens.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. We ask the Subcommittee to come to order. I
would like to begin by thanking each of our panelists for being
here today and for all the folks in the audience and those that
aren't here who have worked with a bunch of us over the last,
for me, 6 years, for others, as long as 10 years to update and
attempt to make the first really major change in our postal
system since Senator Stevens and his colleagues some 37 years
ago worked to separate the U.S. Postal Department from where it
was to bring it into, at that time, really into the 20th
Century, and what we are endeavoring to do is to bring it into
the 21st Century. I am proud of what we were able to accomplish
and I am grateful to all who have played a role in its passage.
I really want to thank Senator Stevens. One of the first
meetings I had as a new Senator--I don't know if you remember
it, but we had breakfast together and we talked about how you
worked to develop consensus all those many years ago and I
thank you for that counsel and certainly for your support as we
tried to improve on your work today.
As I have noted a number of times in the past, one of the
first hearings that I attended of this Subcommittee some 6
years ago was about the Postal Service's dire financial
situation. I believe the Postal Service was nearing, at the
time, its statutory borrowing limit and appeared to be close to
financial collapse. Things have improved remarkably, thank
goodness, since then, and under the leadership of Postmaster
General Potter, the Postal Service has survived September 11,
2001, survived anthrax attacks, and is currently on sound
financial footing.
Setting aside a one-time charge relating to a provision in
the postal reform bill, financial data released in early
February show that revenue at the Postal Service was up by a
little more than 6 percent in the first quarter of fiscal year
2007, and there is also another increase in productivity.
These numbers are, I think, emblematic of the leadership
that Mr. Potter and his management team have shown. But they
also mask some serious long-term problems that threaten the
viability of the Postal Service as we know it.
As we are all certainly aware, the Postal Service must
compete these days with cell phones, compete with e-mails,
compete with fax machines and electronic bill payment
technology. Mail volume in some areas, particularly First Class
mail, has been declining in recent years, although I understand
it was flat for the most recent year. In many cases, letter
carriers are bringing fewer pieces of mail to the homes or
businesses they visit each day. At the same time, the number of
delivery points on the postal network, as we know, is still
increasing by, I am told, some one million per year.
Many observers have been saying for years that the Postal
Service, due to the cost of its obligation to provide universal
service, was entering a so-called death spiral of declining
volume, leading to higher rates, leading to more declines in
volume and yet still higher rates.
The legislation that we enacted at the end of last year was
intended to prevent or at least to slow this decline. We
clearly could not outlaw e-mail or electronic bill payment in
the legislation, but what we could do and what I believe we did
do is to provide the Postal Service with more of the tools
necessary to compete in a modern economy.
Up until now, the Postal Service has been operating under a
business model created by Senator Stevens and his colleagues
some 37 years ago, a model that worked remarkably well. In
order, though, to change its prices, postal management was
forced to go through a ratemaking process that often took more
than a year to complete, and at the end of the day, the Postal
Service was given little incentive through that rate system to
modernize its organization and modernize its operations because
they were essentially entitled to receive whatever price
increases they needed to cover their costs, whatever those
costs might be.
Well, that will soon no longer be the case. Under the rate
system currently being developed by the Postal Regulatory
Commission (PRC), the Postal Service will have significantly
more freedom to price their products according to what the
market will bear and tailor prices to the needs and demands of
their customers. It will also be forced to live for at least 10
years under a tight rate cap based on the Consumer Price Index
that will force the continuation of the streamlining process
that was begun under the Postmaster General.
At the same time, the bill signed into law last December
strengthened management and transparency at the Postal Service
and it gave the Postal Regulatory Commission significant new
authority to ensure that the Postal Service is complying with
applicable laws and regulations. And the authority of the
Commission will extend for the first time to service in
addition to rates.
The bill also looks to the future, requiring the Postal
Service to come up with long-term goals for the right-sizing of
its workforce and facilities network, and for the deployment of
cheaper, more customer-friendly retail options. It also
requires regular reports on the Postal Service's future. This
will include recommendations on changes to the universal
service obligation and the postal monopoly that are needed to
ensure that those who depend on the Postal Service are getting
the service that they need.
And finally, the bill seeks to shore up the Postal
Service's finances for years to come. Over the next 10 years,
the Postal Service will be making aggressive payments toward
paying down its more than $50 billion retiree health care
liability, and at the end of this period, the Postal Service
will have full use of billions of dollars every year that they
had been paying first into the old Civil Service Retirement
System Pension Program, and then for the last couple of years
into an escrow account. This money will give the Postal Service
the ability to maintain rate stability and continue carrying
out its universal service obligation in the future when the use
of electronic forms of communication can only be expected to
grow.
Starting today, it is the job of this Subcommittee to make
sure that postal reform is implemented properly. In addition to
hearing testimony about the current state of the Postal
Service, I want us to closely examine some key provisions of
the bill and the plans in place to carry them out.
Mr. Blair, you and your team at the Postal Regulatory
Commission certainly have your work cut out for you. You have
got a number of regulations and reports that must come out in a
very short period of time, as you know. We structured our bill
this way not to test you, but to ensure that the Postal Service
has the ability to access the significant pricing flexibility
we gave them as soon as possible.
We also wanted to give postal customers as soon as possible
the benefit of the predictability and the stability that the
rate cap offers them. This is especially important now that the
Postal Service is implementing a rate increase and there is
fear out there that another increase could be just around the
corner. Personally, I would rather have the next rate increase
occur under the new rules, not the old rules, so I look forward
to hearing from you, Mr. Blair, and I know I have read a little
bit of your testimony on this point already, but hearing from
you about where we are in the rulemaking process and what help
you might need from us and from the Postal Service in getting
this new system up and running sooner rather than later.
If I could, let me just close by noting that those of us
who had a role in drafting the postal reform bill--and we have
been joined by Senator Collins--I think nobody had a greater
role, certainly in the Senate, than Senator Collins in drafting
this compromise and helping to get it done, getting the support
of the Administration.
I want to just note that those of us who had a role in
drafting a postal reform bill chose not to privatize the Postal
Service and not to erode in any way the service level that the
Postal Service provides. I have been concerned, then, with
information my staff and I have learned about in the press and
from postal employees and customers about the contracting out
of mail delivery. I know that the Postal Service is under
tremendous pressure to streamline and to cut costs and that
this pressure will only grow once the rate cap being developed
is in effect. I also know that contractors have always been a
part of mail delivery, always have been, probably always will
be, probably always should be, and I recognize that there may
be some areas where the use of contractors could be expanded.
However, I am concerned if what we are seeing now is the
beginning of a rapid and wholesale transition from postal
employees to contract employees in the area of mail delivery.
If more mail delivery is to be contracted out, the Postal
Service needs to be more open about its plans. Customers need
to hear about the impact contracting decisions will have on
service and employees need to know that they will be treated
fairly. I, for one, would like to know some more about the
process being used to solicit and review bids, and once a
contract has been signed, to oversee the work done by
contractors and whoever it is that they may subcontract with.
Letter carriers are often the only contact most Americans
have with the Federal Government almost every day. In many
cases, they are also probably the only part of the Federal
Government that people have, too often, positive feelings
about. I think it is important, then, that there be more
openness from the Postal Service about what their plans are if
contracting out of mail delivery truly is to become more
common.
With that having been said, Senator Coburn, you are on.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Thank you, Mr. Chairman. I have a statement
for the record I would like to have admitted. I won't spend the
time and I will apologize to our guests that we have a
Judiciary hearing of some importance going on now and I will be
called to that momentarily.
I want to thank Senator Collins as well as Senator Carper
and all those that worked on the postal reform bill. It is one
of the few bills that I didn't try to stop last year and I want
to be appreciated for that. [Laughter.]
I had no part in its delay. I want to talk about long term.
We have hundreds of thousands of great employees that work for
the Postal Service. This is an estimate of revenues and
expenses. You all didn't prepare this, I prepared this, looking
at what is happening and where it is going under the revised
postal reform bill that was passed. What we see very soon is
red. We saw red, $600 million. The real number was $600 million
this past year. I believe that what has happened is a great
intermediate step and I think we have to keep our eye on the
ball.
People claim that I am an idealist. I am not. I am a
realist that thinks in the long term, and so, therefore, that
is reflected as being an idealist in the short term. But I
think that the decisions that we ought to be talking about is
what happens 10 years from now.
I appreciate very much the Chairman having this hearing,
but I also think it is important that we continue. What is the
next step? What has happened is the Postal Service has watched
its costs grow faster than its revenues since 2003. It needs to
be freed up to run more like a business and less like a
bureaucracy if it is ever to dig out of what that chart is
estimated on our behalf. I am not sure that everybody would
agree with that, but I will show that again in 3 or 4 years and
we will see how accurate it was.
The recently-passed reform legislation provided only for
ways to increase postal rates without really creating ways to
cut costs. Simply raising rates without cutting costs won't do
anything in the long run to help the Postal Service because of
who you compete with and how the world is changing. If Congress
truly wants to reform the Postal Service, it will need to move
beyond the traditional reforms that prop up monopolies and
bureaucracy and move towards those that promote competition,
markets, and innovation.
Senator Carper mentioned the technologic changes that have
come about that have impacted First Class mail, and I had a
wonderful conversation with the Postmaster General in my
office, I believe it was this week or last week--last week, the
weeks run together--and I am committed to seeing and believing
that his management and those that work under him are great and
are what we need, and so I would compliment you in that regard.
But my hope is that we are thinking 10 years down the road,
because if we are and if we give you the tools, right now,
three-quarters of your costs are labor costs, and yet on a
large majority of those labor costs, you have no capability to
control those. I don't begrudge the fact that the average
postal employee in this country makes, with benefits, $20,000
more than the average person in this country. That is the
facts. But if that is the case, and it is, then efficiency
ought to be the No. 1 thing and performance ought to be the No.
1 thing and the power of management to get that efficiency that
postal workers want to give ought to be there. The tools ought
to be there.
So I look forward to your hearing. I have some questions
that I would like to submit. My staff will stay here during the
hearing. And again, I apologize to you for not being able to
stay. I have reviewed the testimony and I thank each of our
witnesses today.
[The prepared statement of Senator Coburn follows:]
OPENING STATEMENT OF SENATOR COBURN
My view of the U.S. Postal Service is akin to an iceberg floating
in the Caribbean: even the best efforts can only help a little. This
might seem harsh for an agency that recently had life breathed back
into it through reform legislation passed late last year. But, if we
are honest and face the facts, it is difficult to imagine a postal
service in twenty years that looks anything like it does today.
For years, pressures inside and outside the Postal Service have
mounted, pushing it dangerously close to the breaking point. Without
the recently passed Postal Reform legislation the situation would be
worse, for sure. But, it's is my opinion that the reforms we passed
will do no more than simply keep the agency afloat a little longer than
it otherwise would--I don't believe it can reverse the downward trend.
To roughly outline the problems, we have a situation in which
revenues are growing at a rate of less than 2.5% per year while costs
are growing around 5% per year. First-Class mail volume is plummeting,
electronic communications are increasing, and labor costs are
threatening to eat up any revenues that the postal service makes. It
doesn't take much to realize that none of this adds up to a healthy
bottom line.
The problems faced by the postal service, though, cannot simply be
laid at the feet of management. Although every large organization can
rise or fall on good management--which the postal service has had under
Postmaster Potter--I want to emphasize that I believe the problem is
primarily structural. By that, I mean that the postal service's
problems cannot be solved with new management or by tinkering around
the edges. The Postal Service must operate under conditions placed on
it by Congress, and those conditions, if unchanged, will bring
inevitable failure to thrive in the market and a financial millstone
around the taxpayer neck.
There are three things I'm primarily talking about:
Structural Challenges Facing the Postal Service
Competition
First, competition with private industry is a significant challenge
and it does so with its ``competitive'' products--Express Mail,
Priority Mail and Parcel Post. Most other products are protected by a
Congressionally-mandated monopoly, though, which shields the Postal
Service from having to compete in everything it does. But, even limited
competion has proven to be a huge challenge as we see in the fact that
since 2002, revenues for Priority and Express Mail have been stagnant
and volume has been down.
Competing with the private sector is good for the American public,
and the fact that it is bad news for the Postal Service is a sign that
the Postal Service is fundamentally structurally unsound. The only
response to tough competition is to provide better services at better
prices or continue to lose its share of the market. No reform
legislation can completely address the challenge of competing with
industry.
Labor Costs
Second, labor costs are another significant structural problem
facing the Postal Service. Despite a decrease of 10,000 employees since
2004, the Postal Service's costs for compensation and benefits have
increased by over $4 billion annually. Right now, labor costs account
for over three-quarters of their annual operating budget. On the
contrary, the Postal Service's competitors face far lower labor costs
and are able to keep them under control.
Again, this is not necessarily the fault of the Postal Service,
it's been imposed by a Congress that lacks the accountability that Fed-
Ex or DHS owes to its shareholders. Powerful politicians and employee
unions have combined forces to thwart any effort of the agency to
control its labor costs. Until it is able to do so, labor will eat an
ever-growing percentage of its budget and threaten to drag the agency
into ruin.
Technological Advances
Even without the problems of competition and labor costs, the
business model of the Postal Service would be fatally flawed. That's
because the most significant problem facing the Postal Service is that
it is losing relevance in the face of technology advances. The
Internet, telephone and fax have displaced much of what was previously
sent by mail. Instead of sending bills or taxes by mail, more and more
Americans are going online. In fact, according to the IRS more than 73
million Americans filed taxes online last year.
These advances are revolutionizing the world of communication in
business, entertainment and social relationships. This is a great
thing--consumers are getting high-speed, well-documented, convenient
services and these have revolutionized our world. We should be
applauding these changes. It is the American people who are our
``clients'' not the Postal Service--and we must first and foremost
think of what they want, need and expect--what's good for them, not
what's good for the government.
Where Do We Go From Here?
The three factors I've laid out--competition, labor and
technology--were not challenges created by the Postal Service, but they
are real, and they must be faced.
Facing these challenges will require the Congress to go beyond the
typical ``reform'' legislation that addresses how rates are changed,
escrow accounts are tallied or members are appointed to boards. Rather,
we will need to reconsider the very fundamental questions such as:
Is it essential that mail delivery remain a core
government function?
Is it time to rethink the definition of ``universal
service''?
Whose needs are being served by the current system? The
American public or others?
These, I believe, are the questions that need to be asked and the
questions I hope to answer in this hearing in the months to come.
Senator Carper. Let me yield now to Senator Akaka for any
statement he might have.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Mr. Chairman. I am
pleased to be with you here this afternoon. I want to add my
welcome to the witnesses. I first want to commend my
colleagues, especially you, Chairman Carper and Senator
Collins, who worked tirelessly to craft a bill that will
hopefully not only preserve the Postal Service, but also
improve it.
I am pleased to see that the Postal Service has been taken
off the GAO's high-risk list, in large part due to the passage
of the Postal Accountability Enhancement Act (PAEA). One area I
am particularly interested to hear about is the effort to
implement the new accounting standards called for PAEA. While
the Postal Service has made strides in the area of financial
transparency, including quarterly reporting of data and making
that data more accessible, the Postal Service will now be held
to similar disclosure standards as private companies are under
the Sarbanes-Oxley Act.
Another issue is the creation of new regulations that will
give the Postal Service increased flexibility in responding to
costs by allowing them greater latitude in setting new rates.
It is my hope that the Postal Regulatory Commission will be
able to write strong regulations in a timely manner. I also
hope that if the final rate change case under the old system is
put into motion this year, that the Commission can still work
to develop these regulations as soon as possible.
I have also been made aware about issues regarding the use
of contractors for delivering mail. While the Postal Service
has long used contractors for extremely rural routes and for
limited highway routes, we have seen an increase in the use of
contractors for more urban routes. I believe there is a place
for contractors in the Postal Service, but the practice should
never be abused or unnecessarily expanded. Mr. Potter, I hope
that you can share with us what the Postal Service is doing in
this area.
Chairman Carper, again, I thank you for calling this
hearing and look forward to the testimonies here and look
forward to working with you on this matter. Thank you.
Senator Carper. Senator Akaka, thanks much. Thanks for
joining us today. Thanks even more for your counsel and input
and that of your staff as we worked on this endeavor for the
last half-dozen or so years.
I want to yield now to Senator Collins and just say, thank
you so much not for just being here, but for allowing me to be
your sidekick as we tried to craft this legislation and to get
it done last year. Senator Collins.
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. Thank you very much, Mr. Chairman. I very
much appreciate the opportunity to join you today.
You know, the last postal reform bill before ours was more
than 30 years ago and the author of it was Senator Stevens.
This has taught me that postal reform only comes around every
30 years, and I don't know about you, but after working so hard
over 3 years to get our bill passed, I think we should wait
another 30 years before there is another one.
Senator Carper. Senator, I don't plan to be around then.
Senator Collins. Neither do I.
Senator Carper. Senator Stevens might be, but I will be
long gone. [Laughter.]
Senator Collins. I would ask unanimous consent that my full
statement be put in the record, but I do want to make just a
few comments, if I may.
Senator Carper. Without objection.
OPENING STATEMENT OF SENATOR COLLINS
Thank you, Mr. Chairman. I appreciate the opportunity to join you
today for this very important hearing.
This Committee has invested a great deal of time and effort on the
issue of postal reform. This process, which began in 2002, included
numerous hearings and close consultation with the entire range of
experts and stakeholders, from the managers of the United States Postal
Service and employee unions to non-profit organizations and other
members of the mailing community.
I was proud to stand alongside Senator Carper last December as the
President signed the postal reform legislation that bears our names
into law. Through the long and complex process of crafting this
comprehensive modernization of the Postal Service, it became clear to
us why postal reform is enacted only every 30 years.
But enacting legislation is only part of the equation. The other is
implementation, and that is why we are here today. Although the issues
that we confronted were many and complex, our purpose was
straightforward: to position the Postal Service for the 21st Century,
to ensure the affordable universal service that is essential to the
American people, and to strengthen a service that is the linchpin of a
$900-billion mailing industry that employs 9 million Americans in
fields as diverse as direct mailing, printing, catalog production,
paper manufacturing, and financial services. The health of the Postal
Service is essential to the vitality of thousands of companies and the
millions that they employ, as well as to the more than 750,000 postal
employees.
Given the important contributions of the mailing industry to the
Postal Service and our economy, I am particularly concerned by the
sudden and sharp rate increases proposed by the Postal Regulatory
Commission for Standard Mail flats. These proposed rates could drive
smaller catalog companies out of business or at least undermine their
profitability. This is exactly the kind of double-digit, unpredictable
jump in rates that our reform bill was designed to prevent.
Let me illustrate the damage this proposal will cause to the
catalog mailing industry with some examples from my home state of
Maine. Geiger Brothers, a family business in Lewiston, is a
manufacturer, supplier, and distributor of catalogs, calendars, and a
wide variety of other printed materials, including the world-famous
Farmer's Almanac. This company estimates this decision would cause an
increase in mailing costs of 29 percent. This proposed increase would
cost Geiger Brothers an additional $600,000 this year.
Another fine Maine company, Cuddledown is a nationally renown
manufacturer of luxury down comforters and other high-quality bedding
products with a heavy reliance on mail orders. This family-owned
business, located in Portland, estimates that this proposal would
increase its mailing costs by 18 percent.
I have also heard from L.L. Bean, Maine's legendary outdoor
outfitter and a world leader in catalog sales, which would be
negatively affected by the rate increase and may need to reduce its
mailings in order to maintain postage costs at a sustainable level.
These unexpected and steep increases will cause similar harm to
catalog mailing businesses throughout the nation. Not surprisingly, the
comments filed in response to the proposed rates indicate that this
increase will cost jobs and stifle economic growth of companies vital
to communities throughout our country.
In addition to the concerns I have with the current proposed rate
increase, I would strongly discourage the Postal Service from filing a
``final'' rate case under the old rate setting rules before postal
reform is fully implemented. Filing a new rate case would divert
resources and effort from developing a modern system of rate
regulations as required under the new postal reform law.
I look forward to the testimony we will hear today concerning how
the PRC and the Postal Service are working to ensure predictability and
stability in the rate setting process and implementing other core
principles of the postal reform act.
Thank you, Mr. Chairman.
Senator Collins. We are very proud of the postal reform
legislation that all of us on this panel worked so hard to get
signed into law last year, but enacting legislation is only
part of the equation. The other is implementation and that is
why I really commend the Subcommittee Chairman for holding this
hearing today and that is why we are here.
Although the issues that we confronted in enacting this
legislation were many and complex, our purpose was
straightforward and that was to position the Postal Service for
the 21st Century to ensure that affordable universal service
that is essential to the American people was continued and to
strengthen a service that is the linchpin of a $900 billion
mailing industry that employs some nine million Americans in
diverse fields such as direct mailing, printing, catalog
production, paper manufacturing, financial services--the list
goes on and on.
Given the important contributions of the mailing industry
to the Postal Service and to our economy, I am particularly
concerned by the sudden and sharp rate increases proposed by
the Postal Regulatory Commission for standard mail flats. These
proposed rates could drive smaller catalog companies out of
business or at least undermine their profitability. This is
exactly the kind of double-digit unpredictable jump in rates
that our reform bill is designed to prevent.
Let me just illustrate the damage that this proposal would
cause to the catalog mailing industry with some examples from
my home State of Maine. Geiger Brothers is a family-owned
business in Lewiston, Maine, that is a manufacturer, supplier,
and distributor of catalogs, calendars, and a wide variety of
printed materials, but it is probably best known to most of you
as the publisher of the famous Farmer's Almanac. This company
estimates that the proposed decision would cause an increase in
mailing costs of 29 percent. This proposed increase would cost
this family-owned business an additional $600,000 this year.
Another fine Maine company, Cuddledown, is a nationally
known manufacturer of luxury down comforters and other high-
quality bedding products. It, too, has a heavy reliance on mail
orders. It is essentially a catalog company. This is another
family-owned business. It is located in Portland, Maine, and it
estimates that the proposal would increase its mailing costs by
18 percent.
I have also heard from L.L. Bean, Maine's legendary outdoor
outfitter and a world leader in catalog sales. It would be
negatively affected by this sudden and substantial rate
increase and tells me that they are looking at whether they
need to reduce mailings in order to maintain postage costs at a
sustainable level, and that is what happens when you have a
sharp increase in postal rates. Then mailers look for other
ways to deliver their products and that causes a decline in
volume, which is the last thing we want for the Postal Service.
Not surprisingly, the comments filed in response to the
proposed rates indicate that this increase would cost jobs and
stifle economic growth of companies vital to communities
throughout the country.
In addition to the concerns that I have with the current
proposed rate increase, I want to publicly and strongly
discourage the Postal Service from filing ``a final rate case''
under the old rate-setting rules before postal reform is fully
implemented. All of us knew that this particular rate increase
was going to come about, but the authors of the bill certainly
hoped this would be the last one under the old system. Filing a
new rate case would divert resources and efforts from
developing a modern system of rate regulations as required
under the new postal reform law. We did give a substantial
implementation time, but frankly, we did not expect two rate
filings during that time and I hope that this is the last one
that we will see under the old system.
Again, I appreciate how vital the Postal Service is for our
economy, for our society. You have no stronger supporter than
the Members who are here today and we want to continue to work
with you to ensure predictability and stability in the rate-
setting process, to ensure a strong Postal Service not only for
the dedicated employees of the Postal Service, but also for the
Americans throughout this country who rely upon it. We hope you
will work closely with us in implementing the core principles
of the Postal Reform Act.
Thank you, Mr. Chairman.
Senator Stevens, I should have come to you--I apologize. I
should have come to you sooner. I didn't, but we are delighted
that you are here and hope that you are not disappointed with
the work that we have done to carry on after you.
OPENING STATEMENT OF SENATOR STEVENS
Senator Stevens. I am delighted with the work that you and
Senator Collins have done, there is no question about that. I
am saddened that we did not get started at two o'clock, because
I had hoped to hear the statements. I do have a conflict, as
Senator Coburn did. I greet you all.
I understand that we have this rate increase scheduled for
May 14. It will affect everyone nationwide, I am sure, but no
one will be affected the way rural Alaskans will be because of
bypass mail. As you all know, we are in a situation where 70
percent of the cities and villages of our State can be reached
only by air, so very few people out there, Mr. Potter, know the
President's name, but they all know your name. [Laughter.]
They all know the Postmaster General, and there is no
question about it that this increase--for example, my staff
tells me that in terms of shipment to Barrow in bypass mail, a
gallon of milk will increase from $8 to $9 a gallon. You buy it
at the store for, what, $1.50? A 10-pound bag of flour will
increase from $11.50 to $13. That is the cost that it is going
to go up on these goods and foods that my people, really our
people, totally depend upon. This is the lifeline to Alaska, is
the Postal Service, and these communities already pay twice as
much for their necessities as the average American.
So this is something that bothers me considerably. I do
hope, and as I said to the Postmaster General, I am working
even today, tonight, with a group of Alaskans who are trying to
suggest ways we might change the way packages are prepared and
are handled so that we can take some of the costs off of the
Postal Service and deliver a product to them that would reduce
your costs with the hope that somehow or other those could be
reflected in adjustments of the cost increases that are
proposed.
We understand it costs. We understand right now some of our
people are paying more than $5 a gallon for diesel fuel. We
know we are all paying around $3 a gallon for gasoline; they
are paying $12. Even though we have all of that oil, it still
has to be delivered in cans that you deliver through bypass
mail. So this is a very important subject for us.
I would hope, Mr. Blair, that sometime you would bring the
Commission back up to Alaska. They haven't been up there for
about 15 years, as I recall. I think it would be good for
people who inspect the Post Office to come take a look. It is a
workable system, but we cannot break it down by forever
increasing costs that make it impossible for the people to pay.
I think we can make some suggestions to you that will alleviate
this need for increasing as much as it will the cost of bypass
mail in Alaska.
I appreciate your concern, and thank you, Mr. Chairman.
Senator Carper. Thank you, Senator Stevens.
Let me just take a moment, if I could, to introduce our
witnesses. We apologize for not starting at 2 o'clock. We had a
vote that was called. In fact, two votes were called and we
ended up having just one. Maybe when I get to be leader of our
side, then we can schedule these votes at a time that is more
convenient for subcommittees like this one to meet, but that
hasn't come yet.
I want to just take a moment, if I can, to introduce our
witnesses. Jack Potter is the 72nd Postmaster General of the
United States. He assumed his current duties in June 2001,
almost 30 years after going to work for the Postal Service. He
started there in 1978 as a clerk and has served through the
years as Chief Operating Officer, Vice President for Labor
Relations, and in a number of other key posts here in
Washington and out in the field. He holds a Bachelor's degree
from Fordham University and a Master's from Massachusetts
Institute of Technology, where my oldest son, by the way, is in
his freshman year.
Dan Blair is the chairman of the newly-created Postal
Regulatory Commission. Congratulations, I think. He was
confirmed by the Senate as a Commissioner on the Postal Rate
Commission, the predecessor agency to the Regulatory
Commission, on December 6, 2006, and named as chairman by the
President, no less, on December 15. Prior to coming to the
Commission, Mr. Blair served as Deputy Director of the Office
of Personnel Management. He also worked for 17 years here on
Capitol Hill, including some time on the full Committee. How
long were you on this Committee?
Mr. Blair. Four years.
Senator Carper. Four years. He holds a B.A. and a J.D. from
the University of Missouri at Columbia.
Kate Siggerud is a Director of the Physical Infrastructure
Issues Team at the Government Accountability Office. She has
directed GAO's work on postal issues for several years,
including recent reports on delivery standards and performance,
processing and network realignment, contracting policies,
postal stamps, and biological threats. She has an M.A. in
public policy from the Hubert H. Humphrey Institute of Public
Affairs at the University of Minnesota and a B.A. from
McCallister College.
We welcome each of you here today. We thank you for your
help in crafting the legislation that we are beginning our
oversight hearing on at this time. So thank you for coming, and
Mr. Potter, you are the lead-off hitter.
TESTIMONY OF HON. JOHN E. POTTER,\1\ POSTMASTER GENERAL AND
CHIEF EXECUTIVE OFFICER, U.S. POSTAL SERVICE
Mr. Potter. Good afternoon, Chairman Carper. I will have to
get used to that now.
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\1\ The prepared statement of Mr. Potter appears in the Appendix on
page 35.
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Senator Collins. So do I. [Laughter.]
Mr. Potter. Senator Collins, Senator Akaka, and Ranking
Member Senator Coburn, I am honored to be here as America's
Postal Service enters a new era.
The Postal Reorganization Act of 1970 converted a heavily
subsidized Post Office Department into a self-supporting Postal
Service, one defined by excellent service, customer
satisfaction, and productivity. Our people have done an
outstanding job. Unfortunately, significant changes in the
communications and delivery markets have made continued success
under the original law problematic. That is why our Nation is
so fortunate that so many have recognized this and acted to
preserve universal affordable service to the American public.
I appreciate the extraordinary efforts of the Members of
this Subcommittee. I know that we wouldn't have had that
package had it not been for the leadership of Senator Collins,
particularly in the financial area, and the leadership of the
Chairman, Senator Akaka, Senator Stevens, everyone, Senator
Carper, everyone supported this effort and it is our job to
make it work. Both Houses of Congress, the Comptroller General,
David Walker, the Administration, the President's Commission on
the Postal Service, all made great contributions to the new
law. It is my hope that 30 years from today, a future
Postmaster General will sit at this table and report on the
progress made possible by the Postal Accountability Enhancement
Act of 2006.
Unfortunately, our business model remains broken, even with
the positive pricing and product changes and all of the
positive changes when it comes to employee retirement benefits
that are built into the new law. With the diversion of messages
and transactions to the Internet from the mail, we can no
longer depend on printed volume growing at a rate sufficient to
produce the revenue needed to cover the costs of an ever-
expanding delivery network. This is not to say that the new law
does not offer opportunities. We are in better position than
ever to respond quickly to market conditions and we will
operate more nimbly in the expedited and package product
sectors. Growth is our greatest challenge as we shift from a
transaction-based mail stream to one centered on lower-margin
marketing and advertising mail.
People are also finding new uses for the mail and I am
encouraged by that. For example, the State of Oregon conducts
elections through the mail, resulting in greater voter
participation. Not only is this encouraging from a mail point
of view, but it presents a unique opportunity for our
democracy.
We will continue our work with all mailers and use the
latest technology to add even more value to the mail. One
example is the new intelligent mail bar code. It improves
quality. It cuts costs. And it increases convenience for
mailers and for the Postal Service.
The good news for us all is that marketers have learned
that direct mail adds to the value of campaigns and that mail
complements other advertising media, including the Internet.
Overall, direct mail is among the fastest growing and most
effective advertising channels in America today. That is why I
am very bullish on the mail.
But I am also a realist. Success under the new law will not
be easy. We have never worked under a fixed rate cap. We have
never had to manage our costs by class of mail. Both are
extremely challenging. Because we have little control over some
of our major costs, such as fuel and employee retirement and
health benefits, we must maintain an intense focus on managing
those costs. Keeping our rates under the rate cap and being
able to pay our employees a fair wage requires us to find ways
to remove an additional $1 billion a year in costs from our
system.
Our preferred path to staying under the rate cap is to
achieve productivity targets consistent with the needed $1
billion savings. Management and the unions can and should work
together to increase productivity in processing, retail, and
delivery operations, thus keeping costs at or about the rate of
inflation. If we do not do that, we will have created a
situation that requires other actions, such as contracting out.
Since the earliest days of the American Postal Service,
contractors have transported and delivered the mail safely and
securely. They are screened by the Postal Inspection Service,
and like career employees are subject to the legal penalties
under Title 18 of the U.S. Code for criminal mishandling of the
mail. Procedures governing contracting out are contained in the
labor-management agreements with our unions. They are a product
of the complex give-and-take that marks collective bargaining.
Let me assure you that it is not our intention to take
delivery work performed by postal employees today and contract
that work out. We do contract out, though, new deliveries, but
only in those locations where it makes sense and in accordance
with our national agreement. Ninety-four percent of new
deliveries, that is homes and businesses in 2006, some 1.8
million new deliveries, today are performed by U.S. Postal
Service city and rural letter carriers. I do not foresee laying
off any carriers as a result of outsourcing because we are only
outsourcing new deliveries, and we are only doing it on a very
limited basis, and that is something I pledge not to do, not to
lay anybody off. I stand ready to work with our unions to
secure the future of our organization, its people, and the
people we serve.
In closing, let me reiterate my sincere belief that the new
postal law offers opportunities to the Postal Service and the
entire mailing community to have success going forward. We will
take full advantage of these opportunities in support of our
historic mission of providing affordable, universal service to
our Nation.
Once all the other panelists are done, I would be pleased
to answer any questions that you might have, and I also have a
longer version that I ask be put into the record. Thank you.
Senator Carper. We will be happy to put that longer version
in the record and thank you for summarizing your testimony.
Mr. Blair, you are next. Thanks very much.
TESTIMONY OF HON. DAN G. BLAIR,\1\ CHAIRMAN, POSTAL REGULATORY
COMMISSION
Mr. Blair. Thank you, Mr. Chairman, Senator Collins,
Senator Akaka, Members of the Subcommittee. Thank you for the
chance to testify today on the operation of the new Postal
Regulatory Commission and our strategy for implementation of
the Postal Accountability and Enhancement Act.
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\1\ The prepared statement of Mr. Blair appears in the Appendix on
page 44.
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I wish to particularly thank you, Chairman Carper and
Senator Collins, for your unrelenting efforts on behalf of
postal reform, but I would also like to thank other Members of
the Subcommittee for the confidence they have shown in the
Commission. I would also like to acknowledge my fellow members
of the Commission in the audience today, Vice Chairman Dawn
Tisdale, Commissioners Ruth Goldway, Tony Hammond, and Mark
Acton.
The Act represents a profound change in our regulatory
functions and significantly enhances the Commission's
authority. As noted, the Postal Service will have more autonomy
in setting rates, particularly for its competitive products.
However, the ability to increase rates for market-dominant
products will be limited ordinarily by increases in the
Consumer Price Index.
To ensure transparency and accountability under this new
system, the Act assigns continued oversight responsibilities to
the Commission. The law provides the PRC with new enforcement
tools, including subpoena power, the authority to direct the
Postal Service to adjust rates and take other remedial actions,
and levying fines in case of deliberate noncompliance with
applicable postal laws.
The Commission is fully engaged in implementing the Act as
well as completing pending business. We understand that
transforming the Commission into the regulator envisioned by
the reform legislation will result in changes to our
organizational structure and workforce capacity. The PRC is
working with an outside expert in this regard.
As you know, on February 26, 2007, the Commission rendered
its recommended decision on the most recent omnibus rate case.
We audited the Service's projected revenue needs and made
adjustments to their initial estimates. We also made
improvements in the design of rates for many postal products at
the Postal Service's request to better align rates more closely
with shape. Our decision relied on well-established ratemaking
principles, including a reaffirmation of the principle that
work sharing discounts should be limited to the amount of cost
savings accrued to the Postal Service, the approach ratified by
the Act.
I would like to point out that the current ratemaking laws
require the Commission to design rates that encourage efficient
practices by mailers and the Postal Service. This last rate
case was the first fully litigated case in 7 years. Therefore,
the need for rates that encourage efficiencies was greater than
normal because the past two rate cases resulted from
settlements that didn't focus on changes in the cost of postal
operations.
On March 19, 2007, the postal governors endorsed the
Commission's rate recommendations with three limited
exceptions, including those for standard rate flats mail. On
March 29, 2007, the Commission issued an order establishing
procedures for further consideration of these issues and we
invited comments from interested parties before the end of this
month. Because the Commission's deliberations are ongoing, I
hope you will understand that it is inappropriate for me to
address them specifically at this time.
One of the most critical responsibilities the Act assigns
to the Commission is the establishment of a modern system for
regulating rates and classes for market-dominant postal
products. We are moving quickly to develop regulations for the
new ratemaking system. The Commission published an Advance
Notice of Proposed Rulemaking on January 30, 2007, soliciting
public comments on how the Commission can best fulfill these.
The initial round of comments was due on April 6, 2007, and the
reply comments are due on May 7, 2007. To date, 32 parties have
submitted comments.
Creating a new regulatory framework for the establishment
of a more modern rate setting system is only one of the many
actions facing the Commission. The Act directs the Postal
Service, in consultation with the Commission, to establish
service standards for market-dominant products and assigns
regulatory oversight to the Commission. The Act also directs
the Postal Service and the Commission to consult on developing
a plan for meeting these standards. We look forward to full
consultation as envisioned by the Act with the Postal Service
later this spring and summer.
A key aspect of the Commission's ongoing efforts is
outreach, soliciting input from postal stakeholders, specialty
mail users, and consultation with other covernment agencies,
such as the Department of the Treasury, State Department, the
FTC, Customs and Border Protection, the Postal Inspector
General, and the GAO. Appearing before this Subcommittee today
and hearing your views and concerns is a critical part of this
process.
Mr. Chairman, the benchmarks established for the Commission
pose some daunting challenges, and especially in light of the
Postal Service's opportunity to file one last omnibus rate case
under prior law. There is no question that this final rate case
would divert Postal Service and Commission resources that, in
my opinion, would be better devoted to developing a new system
of regulatory oversight. Nevertheless, the Commission is
committed to a timely performance of all of its statutory
obligations and to doing so in a reasoned and balanced manner.
Mr. Chairman and Members of the Subcommittee, thank you for
this opportunity to testify today. I appreciate being on the
panel with the Postmaster General and with Ms. Siggerud. I ask
that my written statement be included in the record and I am
happy to answer questions you may have.
Senator Carper. Thanks, Mr. Blair, and your written
statement will certainly be included in its entirety in the
record.
Ms. Siggerud, you are recognized. Welcome. Thank you.
TESTIMONY OF KATHERINE SIGGERUD,\1\ DIRECTOR, PHYSICAL
INFRASTRUCTURE ISSUES TEAM, U.S. GOVERNMENT ACCOUNTABILITY
OFFICE
Ms. Siggerud. Thank you. Chairman Carper, Senator Akaka,
thank you for your invitation to testify at this hearing on
implementation of the Postal Accountability and Enhancement
Act. To begin, I wanted to recognize the Congress's efforts,
particularly yours, Chairman Carper and Senator Collins, in
passing this law. It provides tools for establishing an
efficient, flexible, transparent, and financially sound Postal
Service, one that can more effectively operate in an
increasingly competitive environment.
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\1\ The prepared statement of Ms. Siggerud appears in the Appendix
on page 51.
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My remarks today will focus on, first, why we recently
removed the Service's transformation efforts and outlooks from
our high-risk list; second, the Service's financial condition;
third, opportunities and challenges facing the Service; and
finally, issues and areas for continued Congressional
oversight.
First, when we placed the Service on our high-risk list in
2001, we stated that a structural transformation was needed to
address the financial, operational, and human capital
challenges that threaten its ability to deliver on its mission.
We use this list to bring attention to issues that we think
need action from the Administration and the Congress. We
decided to remove the Postal Service from the high-risk list
because of the significant changes that occurred.
Specifically, the Service issued a transformation plan in
2002 and demonstrated commitment to the plan by cutting costs,
improving productivity, downsizing its workforce, and improving
financial reporting. The 2003 law reduced the Service's
payments for pension obligations, allowing it to achieve record
net income, repay debt, and delay rate increases.
Elements of the 2006 postal reform law that were responsive
to our concerns include, first, a framework for modernizing the
ratemaking process; second, an opportunity to preserve
affordable universal service by reassessing customer needs and
identifying efficiencies; third, recognition of the Service's
long-term financial obligations by pre-funding retiree health
benefit obligations, resulting in short-term costs but long-
term benefits; and fourth, enhanced transparency and
accountability.
Turning now to the Service's current financial condition,
it will be affected by the postal reform law and the upcoming
rate increase. The law has better equipped the Postal Service
to control its costs and operate in a financially sound
business-like manner. It places the Service on the path to
eliminating its multi-billion-dollar retiree health
obligations, which in turn provides an opportunity to better
position the Service financially in the long term.
Changes to the Postal Service finances this year besides
the pre-funding of retiree health and transferring
responsibility for military pensions include expensing escrowed
funds and eliminating future escrow payments and eliminating
certain pension funding requirements. The Service expects to
lose $5.2 billion this year, largely due to the one-time
expensing of $3 billion escrowed last year and then transferred
this year to the Retiree Health Benefit Fund and the additional
contribution to this fund the Service must make. The Service
plans to borrow $1.8 billion, $600 million more than it had
originally planned for this year. Nevertheless, other expenses
and revenues have closely tracked projections. Factors that
could still affect the Service's finances this year are the
impact of rate increases on mail volumes, changes in fuel
prices, and the resolution of labor agreements.
Although we removed the Service from our high-risk list,
there are continuing and new challenges. These include
generating sufficient revenues to cover costs as the mail makes
changes; controlling costs, particularly for compensation and
long-term health benefits; and improving productivity while
operating under the price cap structure; promoting the value of
mail by providing affordable, quality service and establishing
mechanisms to measure and report on performance; providing
useful and reliable financial data; and managing the Service's
infrastructure and workforce to respond to operational needs
and financial challenges.
The reform law provides opportunities, tools, and
flexibilities to address these challenges. A series of new
regulations, frameworks, and studies over the next few years
for both the PRC and the Service will be key to implementing
the law.
Finally, with regard to potential areas of Congressional
oversight, two particularly important areas are: Ensuring the
Service's future financial condition remains sound; and
ensuring that the new legal and regulatory requirements are
carried out in accordance with the intent of the postal reform
law.
Other areas that warrant continued monitoring include:
First, the impact of the upcoming rate increases on mail
volumes, mailers, and the Service's financial condition;
second, actions by the PRC and the Service to establish a new
price-setting framework; third, the Service's ability to
operate under a price cap while some of its cost segments are
increasing above the rate of inflation; fourth, actions to
establish modern service standards, monitor delivery
performance, and the Service's plan for meeting those
standards; and finally, the Service's ability to provide high-
quality delivery service as it takes actions to deliver costs
and realign its infrastructure.
Successful transformation of the Postal Service will depend
heavily upon the innovative leadership by the Postmaster
General and the Chairman of the PRC and their ability to work
effectively with employee organizations, employees, the mailing
industry, Congress, and the general public.
Mr. Chairman, this concludes my statement. I am happy to
answer any questions from the Subcommittee.
Senator Carper. Thanks, Ms. Siggerud. I am going to ask the
first question of you, and just give me a fairly short answer,
if you would, and then I am going to go to Mr. Blair with some
questions regarding how quickly he and his team might be able
to put the new ratemaking process into place.
Ms. Siggerud, I think it was about 6 years ago that David
Walker, the Comptroller General, sat, I think here, and talked
about the Postal Service being a high risk. Two or 3 months
ago, there was good news that GAO has taken the Postal Service
off the high-risk list. Why were they put on? Why were they
taken off?
Ms. Siggerud. Sure. Let me give you a couple of answers to
that. Let me re-mention the reasons that we typically put
agencies on the high-risk list. That is because there are a
number of indicators which are giving us concern which we feel
can be addressed through Administration and Congressional
action.
At that time, there was a very high level of debt, reduced
capital investment, flat productivity, and the changes in the
mail mix that we have all mentioned today that were threatening
continued revenue. We also did not see in place a plan to deal
with those very significant challenges to the Postal Service's
continued financial health and operations.
Since we put the Postal Service's outlook on the high-risk
list, we have seen significant action both from the Postal
Service and from the Congress in dealing with these issues. We
felt it was important to recognize that in taking the Postal
Service off.
Second, on all of the indicators that I mentioned that were
underlying causes, we saw progress on all of those in the 6
years since we put the Postal Service on that list. We thought
it was time to recognize that progress and the actions by the
Service and the Congress and to recognize that and to take them
off the list.
Senator Carper. Thank you. Mr. Blair, I think Senator
Collins and I both touched on this and if I don't ask it, she
will. She might ask it anyway. As we both mentioned in our
opening statements, I would prefer that the next rate case,
whenever it needs to happen, happen under the new rate system
rather than under the old one. The determining factor in
whether or not that happens will be how long it takes for you
and your staff to issue the regulations implementing the new
rate system.
The legislation enacted gave you, I think, 18 months from
December to put that new system in place, and I understand
there has been discussion around the possibility of a final
roll-out happening much sooner.
Let me just ask to share with us your time line, and what
you need from us and from the Postal Service in the coming
weeks and months in order to get the new rate system up and
running as quickly as possible.
Mr. Blair. Thank you, Mr. Chairman. I appreciate the
interest in this. You are right that we think it might be a
better idea to focus our resources on getting the new system up
and running than working on a rate case under the old system.
But we will do whatever it takes and we will do what is
required of us under the law.
We were very proactive from the beginning and in January
put out that Advanced Notice of Proposed Rulemaking. We were
pleased to see 32 unique comments come into the Commission. We
have gone through those and we are waiting for the reply
comments at this point. Some have said they think it is a good
idea to get it up and running sooner. Others have come back and
said, they think we need to wait a little bit longer just
because they want to make sure that we think fully through the
regulatory structure.
Over the next few weeks, and I say few weeks--I used to
have the luxury of saying months, now I say the next few
weeks--we will make some decisions on how we are going to
proceed. I have had good discussions thus far with the
Postmaster General. We have highlighted some areas for
potential discussion, including transition issues, at what
point do we have a rate date each year, and I think those are
all going to be helpful as we proceed to getting a new
regulatory system in place.
At the summit that was held last month, I threw out the
idea of getting a framework in place by October. I stand by
this. I think it would be a good idea, and I know that the
Postmaster General on Tuesday, before your House counterpart,
said he wanted to get a better idea of what that system would
look like. I think that is fair, and so within the next few
days and weeks, we will be having further discussions as to
what that system will hopefully look like. We can hopefully be
able to have a better idea sometime this summer on what the
timing for this will be, if it is going to be this October or
if it is going to take the full 18 months.
Senator Carper. Alright. Let me just reiterate again, I
appreciate the need to receive input from a number of different
interested parties. I am glad you have done that and am glad
they have shared their comments with you. I just really do hope
that the next rate case, whenever it needs to happen, happens
under the new rate system rather than the old and I would ask
that you and your colleagues take that to heart.
Mr. Blair. We will, and that is why we would like to get it
done sooner rather than later. I would note that decisional
filing isn't mine, so we will have to wait and see on that. But
I think that your sentiments expressed are good ones and that
is why you enacted a new system. You didn't want to see the
kind of jumps in rates that we saw in the last case, and I
think it is a good idea to get the new system up and running.
Senator Carper. And in case I failed to mention it, let me
just say that I personally prefer that the next rate case--no,
I have said it enough. You get the message. Thank you.
Let me ask a question, if I could, of Mr. Potter, and Ms.
Siggerud, I may ask you to comment as well. I think you have
already commented on this to some extent, so I probably won't
ask you to comment. But Mr. Potter, it was in a little bit of
discussion in some of the statements here and some of what you
all have testified to on this front, but I just want to come
back and close the loop on it.
I think in the early part of February, I am not sure what
the date was, but Postal Service, you were good enough to call
me, I suspect you called Senator Collins and others, but the
Postal Service issued a press release announcing that you
reported a $2.7 billion loss in the first quarter of fiscal
year 2007 and the Postal Service was projecting, I think, about
a $5 billion loss by the end of the current fiscal year. I
understood from that conversation and what I have heard since
that these losses are due largely, maybe entirely, to an
accounting anomaly brought on by the enactment of the postal
reform bill late last year and your actual financial results
for the first quarter were actually pretty good. I am told they
were in line with your plans. I believe the Postal Service may
have actually had about a $1.2 billion budget surplus if you
take out those sort of one-time anomalies.
Let me just ask you again to take a minute to explain to
us, why has the Postal Service had to report such a loss of
that magnitude.
Mr. Potter. Senator, last year under the old law, Public
Law 108-18, the Postal Service was required to hold about $3
billion in a restricted cash fund and that was held and we had
$3 billion in cash ready to pay in whatever direction we were
directed by the Houses of Congress. This year, once the law was
enacted, that $3 billion that we had as restricted cash became
an expense, as well as the monies that we planned to set aside
this year for an escrow fund. So where we had planned to have
at the end of fiscal year 2007 about $6.2 billion in restricted
cash on the books, that $6.2 billion became an expense.
And so as I said to you on the phone and I also had a
conversation with Senator Collins and Comptroller David Walker,
that although there was an accounting change and we had to
conform to Generally Accepted Accounting Principles, in terms
of our cash flow there was no change and that the Postal
Service was still in a very favorable cash position and that we
would have to incur some debt as a result of it. It was a very
awkward situation. You are sitting with restricted cash. How do
you approach a rate case without that cash being defined as to
what you are going to expend it on.
So it is strictly a matter of the transition from the old
law to the new law with the added complexity of Public Law 108-
18, which gave us relief from overpayment of CSRS for 3 years
after which we had to put money into an escrow account. So
again, from a cash flow standpoint, we are sound and we will
work hard to try and pay down that $4.1 billion in debt in the
years going forward.
Senator Carper. Alright. Thanks very much. My time has
expired. Senator Collins.
Senator Collins. Thank you, Mr. Chairman.
Mr. Blair, there obviously is a substantial difference
between what the Postal Service asked for or recommended for
rates in the flats and catalogs category versus what the PRC
decided. I realize there is a limit to what you can tell us
today and I am not trying to cross that line, but it would be
helpful for us to know generally to what extent does the PRC
take into account rate shock? In other words, do you look at
what the impact of a rate increase is going to be on a specific
segment of the mailing community?
Mr. Blair. That is a good question and I think I can answer
that without giving my general counsel too much heartburn. We
do look at rate shock. It is one of the factors that we balance
in deciding how much of a rate increase will be decided. We
look at the attributable costs of the subclasses. We assign
this attributable cost to the subclass. We divvy up the
institutional costs. But we also look at--there are certain
factors in the Act that can help mitigate and one of those is
rate shock. Others that would be considered would be whether
rates are properly aligned with costs and the extent to which
the rates are fair and equitable.
In this specific case, I would just urge the Subcommittee
to consider that these proposed rate increases came on the
heels of two settled cases over the course of the last 7 years.
The settled cases produced some across-the-board increases and
were not the result of the fully litigated case that this last
rate recommendation came under. Because of these settled cases,
some mailers benefited and were insulated somewhat from higher
rates than they would have received had those cases been fully
litigated. What happened this time was we had a fully litigated
rate case in which the rates were intended to be more fully
aligned with costs.
The Postal Service came to us and proposed rates that were
shape-based, meaning that the shape of the mail actually has
costs causing attributes and those were recognized in the
regulations. The bottom line is that we attempted to align the
rates with the costs. We understand that these are high
increases and may be a heavy burden for some mailers. The
governors have asked us to reconsider and that is the process
in which we are in.
I hope I shed a little bit of light on what the
Commission's thought processes were along those lines.
Senator Collins. And what is the process from here on for
this particular case? You have made your decision. The Board of
Governors has given you its judgment. It asked you to take a
second look at three elements, I believe. So what happens now?
What is the time line?
Mr. Blair. The governors have asked us to reconsider our
recommendations. I think the first two items that they asked us
to reconsider, we can dispatch pretty quickly. But this one, we
have asked the parties to comment. A coalition of catalog
mailers has asked to reopen the record. They asked to do this
last week and we gave interested parties an opportunity to file
reply comments until the end of today. We will take those into
account and we will be making our decision over the course of
the next few days, if not this week, whether or not to reopen
the record.
At that point, even if we don't reopen the record, we will
still be asking parties to submit their briefs, reexamining the
old record to see what we could find and cull from that that
might benefit the parties involved. A number of interested
parties have commented thus far. We have heard from the catalog
folks. We have also heard from other flats mailers. We have
heard from other mailers, as well, and so this is proving to
draw quite a bit of interest.
Senator Collins. Thank you. Mr. Potter, I want to switch
issues and bring to your attention an issue that the Maine
Postmasters have brought to my attention, and that is some of
your local postal managers believe that they are not being
given the opportunity to adequately staff carrier routes and
window positions. Front-line managers are communicating to us
that inadequate staffing is, in turn, hurting their ability to
provide the kinds of first-rate service that all of us want to
see. I don't know whether you get the Pine Cone Postmaster
publication. If not, you should. But this is the monthly
periodical that is published by the Maine Postmasters and the
cover story talks about this problem.
First, let me ask you, are you aware of concerns about
inadequate staffing at postal windows at post offices and also
on carrier routes?
Mr. Potter. The Postmaster organizations have brought to my
attention concerns about, not on a national level because
statistically on a national level, we have sufficient staffing
for carriers, but on a site-specific basis, they have brought
that to my attention. They have also brought to my attention
that in some cases staffing is a concern and is causing stress
in the workplace. I have asked them to bring that back to me
and let me know where that exists, because I very much want to
deal with that right away.
In addition to that, I have asked the folks at headquarters
to do a review from the top down, because we have the data on
all these post offices, to make sure that we have sufficient
staffing per route, and we are in the process of going through
that. Unfortunately, I can't be everywhere, nor can the people
at headquarters, so in some cases, people in the field
substitute their judgment for ours about what an appropriate
staffing level is and we have to address them when they are
brought to our attention or when in the process of analysis we
find out that somebody has been shortsighted in terms of their
hiring plans.
We do have other issues, though, Senator, where we have
attendance issues and we have people on light and limited duty
and places where we have to use casual or non-career workers,
according to the contract, to cover those jobs. In some cases,
people aren't quick enough to make that happen. For example, if
somebody goes and is called back to service, to serve in Iraq,
we can't fill their job on a permanent basis. We have to hold
it, and so there were some issues around that, as well.
So we are addressing them and we are working with our
Postmaster organization, as I have said. We have asked them to
bring specifics to our attention so that we can address their
concerns, not only with staffing, but as well as any kind of
workplace climate issues that they perceive.
Senator Collins. That brings me to the last issue, and let
me just touch on it very quickly because my time has expired,
if I may, Mr. Chairman.
Senator Carper. Certainly.
Senator Collins. I toured Maine's new processing plant in
Scarborough recently and I know you have been there, as well.
It is an absolutely beautiful plant. But I did hear from some
of the employees continued concerns again about staffing, about
schedules, and I would just ask that you work with me to try to
make sure that we are looking at the concerns both at the
Scarborough processing plant and the concerns that the
postmasters in Maine have brought to my attention. I realize
you have an enormous operation and clearly you can't be
everywhere at once, but I would very much appreciate your
working with me to take a look at both of these concerns.
Mr. Potter. I would be very happy to.
Senator Collins. Thank you. Thank you, Mr. Chairman.
Senator Carper. Thank you, Senator Collins. Senator Akaka,
would you like to proceed?
Senator Akaka. Thank you, Mr. Chairman.
Mr. Potter, thank you so much for your testimony. As I have
indicated in my opening statement, I have had some concerns and
one of them has been on contracting out. In your testimony, you
mentioned that 94 percent of the deliveries are made by postal
employees and that among the actions that you have taken, you
said other actions could be contracting out. So let me ask you
about contracting out. What are your criteria for deciding to
contract out a new route or to give it to a Federal postal
employee?
Mr. Potter. Thank you, Senator. First, let me clarify. When
I referenced that 94 percent, I put it in a positive way of
mail being delivered by postal employees. That is of new
deliveries in 2006. Overall, I think it is a little more than 2
percent of deliveries are contracted out and they have been
historically since, I think it is 1785 when the Congress
directed us to do some contracting out of delivery. And so
therefore, of the 97 percent, I think it is about point-five
percent of all deliveries in America are done by National Rural
Letter Carriers or members of the National Association of
Letter Carriers.
Going forward, what we have done is we are taking a look at
our challenges as described on that chart, our costs are going
up and so we are looking at what is the most economical way to
perform new delivery. So from a criteria standpoint, since
about 2005, we have been looking at some city delivery areas,
all city delivery areas, and saying where does it make sense to
potentially contract out delivery, and what we have concluded
is that the only place it does is if you have a body of work
that would lend itself sufficiently to be sufficiently big to
contract out.
So since 2005 when we began this program, we have been
working very hard at it and we have contracted out a total of
18 routes, some of which have as few as 50 deliveries because
they are in places that will grow to be 500 or 600 deliveries.
So we are really just, in terms of National Association of
Letter Carriers and big cities, we are just scratching the
surface now, trying to figure out does this make sense, how
would it work, and we have criteria around who we hire and how
they deliver, but we are really just kind of at the infant
stages of that.
In rural and suburban America, we have always used highway
contract routes, particularly for those deliveries where there
was a greater distance than a mile between each delivery stop,
and now we have expanded that. And again, it is along the lines
of new territory, where are new communities being built, and
what is the most economical way to provide that level of
service.
I know concerns have been raised about security and
sanctity of the mail, and believe me, we are very much in tune
with that. The contractors are screened by our Postal
Inspection Service. They are monitored by the Postal Inspection
Service. And in my experience, we have human beings doing the
work, and so nobody is perfect, including our own, and so
occasionally problems crop up and they are dealt with just as
they are with our own employees.
Senator Akaka. Well, as you know, we take pride in the
Postal Service employees because they are Federal workers and
in many cases, especially in isolated places, the only
connection people have or citizens have with the Federal
Government is the Postal Service employees. We want to keep
this as close to that as we can.
Mr. Potter, does the Postal Service tell managers at any
level whether specific routes should be filled by a contractor
instead of a postal employee?
Mr. Potter. If there is an existing route with a postal
employee, they are replaced by a postal employee. The only
contracting out we are doing is new territory. So if there is
an established delivery route and somebody builds a building
and there are 20 deliveries in that building, it goes to
whatever craft currently delivers that. So if it is the NALC or
the Rural Letter Carriers, it would go to that person. Again,
the focus here is on new territory.
Senator Akaka. Mr. Potter, I have heard from postal
employees in Hawaii that this may not be the case. I have been
told that regional managers have been told to contract out any
new routes. I urge you to go back and confirm that the Postal
Service is not giving specific direction in requiring
contractors for new routes. That is the word that I get back
and I thought I would pass it on to you.
Mr. Potter. I appreciate that and we would be happy to
share the data with you that would show you that is not the
case.
Senator Akaka. Director Siggerud, thank you for attending
today. As I said in my statement, I am pleased to see the
Postal Service removed from GAO's high-risk list. However, I am
concerned that in the short term, the Postal Service's
financial situation has taken a turn for the worse, and this,
of course, was mentioned by Mr. Potter as something that
concerns him. In light of this, do you believe they will be
able to stay off the high-risk list?
Ms. Siggerud. Well, it certainly is our hope, Senator
Akaka, that the Postal Service's outlook will stay off the
high-risk list, but I assure you we will be in an oversight
mode together with this Subcommittee to monitor the financial
condition and the very significant revenue and cost challenges
that Mr. Potter mentioned. I think some particular issues to
keep an eye on are the debt level, for example, was one of the
reasons we originally put the Postal Service on the high-risk
list.
I would observe that we are in a several-year period of
transition as this new rate-setting process and the new
flexibilities are to be implemented and it is hard to tell
exactly what the result of that will be. The Postal Service
today is in a relatively good financial condition and our hope
is that will be true going forward. We will be monitoring that
situation.
Senator Akaka. Thank you very much. I want to tell you, I
am glad to hear that. I am sure Mr. Potter is glad to hear
that, as well. Thank you very much, Mr. Chairman.
Senator Carper. Thank you, Senator Akaka.
I would like to come back, Ms. Siggerud, to you for a
question relating to productivity and then maybe to bounce that
one over to Mr. Potter, as well. It is really remarkable, going
back 6 years, and I said earlier when I first sat in on a
hearing and we considered some of the reasons why the Postal
Service was on the high-risk list and some of the challenges
they faced, challenges that came across the bow, September 11,
2001, and the anthrax attacks that followed that, but it has
been a remarkable turnaround. I would like to think that our
legislation that we enacted late last year had some impact on
the GAO's decisionmaking----
Ms. Siggerud. Yes.
Senator Carper [continuing]. But a lot, frankly, occurred
before that in the good work done under the leadership of Mr.
Potter working with a lot of folks, the employees, the
governors, the Postal Regulatory Commission, and some of the
folks in this room.
Let us talk about productivity. One of the reasons why, in
the eyes of this layman, you have come out of the woods to get
off the high-risk is because you were able to harness the
technology that had been purchased. It was put in place, but
you really harnessed it, and I think you have been able to trim
your workforce, I am told by close to 100,000 people. You have
not fired anybody that I know of or laid people off but it has
really happened through attrition. We still have very high
ratings in terms of customer satisfaction. I think you are,
what, 92 percent excellent, very good, or good. That is
probably higher than me and most of my colleagues who work down
here.
But I looked at the productivity numbers. I think one of
the reasons why you made great progress is productivity, and
the productivity growth that occurred. I think, again, for the
last year, it slowed a bit and I would like to talk about that
and focus on that a bit. Ms. Siggerud, if you could share your
thoughts with us, I don't know how closely you follow that, but
then to go back to Mr. Potter.
Ms. Siggerud. Well, Senator Carper, we certainly have
followed that particular trend and I think it was somewhat
harder in the last year or two for the Postal Service to
achieve the type of and level of productivity increases that it
had in the years previous to that. We have not looked at the
specific reasons for that. I suspect that there are a fair
number of low-hanging fruits in terms of work hour decreases
and other types of efficiencies that were undertaken in the
last 6 years and it may be difficult to continue to achieve
that kind of productivity increase.
The Postal Service does plan to enter into a new round of
automation in the next few years. I think it is looking to that
with regard to flat sorting as another opportunity to increase
efficiency and productivity. But I think that Mr. Potter may be
in a better position to say exactly why there was a struggle
with productivity in the last year.
Senator Carper. Mr. Potter, should we be alarmed or
concerned? As Ms. Siggerud said, maybe you have gotten the
long-hanging fruit.
Mr. Potter. That is what I always look for at first.
Instead of operating under the new law--with or without the new
law, operating in an environment where you have an increasing
work base of deliveries and a flat or declining mail base is a
problem, and we have that mail base moving to--as we have
gotten more effective at delivering mail on time, people have
moved down the ladder in the sense that they have moved from
First Class mail to the standard rate because we have delivered
it. In my opinion, one of the reasons they were able to do it
is because we have improved the delivery times on that standard
mail.
But when I look back at the last 5 or 6 years, I am very
proud of the fact, the total fact that productivity has gone up
in each and every year and I am also very proud of our
employees, because when all is said and done, it was them that
had to make the changes that were necessary in order to improve
that productivity. And we did take advantage of automated
equipment investments that had occurred in the 1990s and that
continue to occur in the new century.
In addition to that, I think we have to give a lot of
credit to the relationship that we have with the mailer base.
Mailers have made their mail more efficient, and the way they
have done that is by bar coding their mail, making it
compatible with our machines, and by depositing the mail in
locations upstream of origin. So they are able to do things at
a more reasonable price. We have opened our systems to allow
them to use that. And so this notion of least combined cost
between mailers and the Postal Service, I think has also made a
significant contribution.
Going forward, as Ms. Siggerud said, I think we have an
opportunity to invest in equipment that will walk sequence our
flat mail and make that more productive. In addition to that, I
am excited about the intelligent mail bar code, and the reason
I am really excited about that is because of the quality
improvements that I believe we will see in mail that is being
deposited into the system.
What that system will do, once we have it up and running,
it will track mail from the time a mailing list is thought
about, through the printing process, through the logistics
process if the Postal Service is not used, to the time that
mail is deposited into the system. Using an expanded bar code,
one with 39 digits of information, we will have information
about who sent the mail, what class of mail that was sent. We
will have a unique identifier for each piece and we will have a
code that tells us where it is being delivered to.
What that will enable us to do is eliminate the need to
count mail when mail is deposited. It will allow us to count
mail as it is being sorted. And the most exciting part from a
quality standpoint, it is going to allow us to give us
information--produce information that we can give back to the
mailer to improve the quality of what they have put into the
system.
Senator Carper. When do you expect to have that capability?
Mr. Potter. We have that capability today, but not on a
scale that would allow everyone to do it. We have asked mailers
to put that new code on beginning in 2009, but we have done
test mailings today with what we thought were some very high-
quality mailers. We found out that we were able to count the
mail and do verification, postage statements by counting mail
on automated systems, and we are also able to improve, on
average, the quality of the mail base by about 7 percent.
If we put this system in place, I believe that we can drive
over $1 billion worth of costs out of the system just through
the implementation of this system, and I believe that we can
improve the value to the sender because our systems will be
totally transparent, not only ours, but the whole mailing
industry system will be transparent. They will know where their
mail is. It will be coded. Trays will be coded. If they put
mail on pallets, it will be coded. We will have a transparent
system and we will have a much more efficient and effective
system and the value of product in the mailstream will go up.
So I am excited about the future. I think that we probably
don't talk enough about the opportunities that are out there.
Now, in addition to that, we are seeing mailers continually
moving to make their mail more efficient, not just with this
new bar code, but also by making it compatible with equipment,
by taking advantage of discounts that are out there. Some of
the rates that were referred to earlier are a concern to us. We
don't want to drive anyone out of the mail stream. We want them
to think about how they could use or package their mail a
little differently so that they can continue to stay in the
mail.
One thing we were concerned about with the recent rates,
the ones we proposed as well as some of the changes at the Rate
Commission, we want to make sure that we communicate to people
and the message is not to drive people out of the system, but
make your mail compatible with automation and take advantage of
discounts because we want everyone to stay in the mail stream.
Senator Carper. I would like for Mr. Blair to comment. One
of the responsibilities that you have in light of the new
legislation is to focus on service, what we can do to make the
products that the Postal Service delivers more valuable to
customers. My time is expired, so I am just going to ask you to
be ready, when I ask another question, to respond to that and
to follow up with what Mr. Potter said.
And Mr. Potter, I want to come back to you and talk about
some of the partnerships that you have begun, working with
people like e-Bay. What you are doing with e-Bay, I think, is a
really interesting partnership. Also, the kind of opportunities
that you have maybe out in Oregon and as people vote by mail as
opposed to just going to the polls. But I want to ask you to
explore with us some of those new opportunities.
Senator Akaka, thank you.
Senator Akaka. Thank you very much, Mr. Chairman.
Mr. Potter, employees at the Postal Service have contacted
me about involuntary reassignments or repositioning rules that
cover the assignment of displaced management and supervisory
employees in downsizing situations. This, in particular,
concerns me as Chairman of the Veterans Affairs Committee.
These employees allege that such action is directed against
veterans. They charge that these rules are a way of
circumventing the prohibition on designer reductions in force.
If true, such repositioning rules appear to violate the spirit
of veterans' preference laws.
Can you tell me how many veterans have been subject to
these repositioning rules and what rights and protections are
available to veterans of the Postal Service who are subject to
these repositioning rules?
Mr. Potter. Senator, I am sorry. I don't have a specific
number of people who are affected, but we can try and generate
one for you. Let me just describe for you in layman's terms,
because I am not a warrior and I don't know the exact verbiage,
but what we are trying to do, and we are trying to live up to
the spirit of OPM's efforts to place people in jobs
voluntarily. So when there is a RIF, what we basically have
done is allowed people to volunteer to get out from under the
RIF, so that if we are moving people and they can get closer to
home or they have a job that works for them, we allow them to
volunteer first.
Now, unfortunately, some people have taken that, the way we
are trying to do this, as a means of being anti-veteran. It is
not. We are very proud employers of veterans. We have more
veterans working for us than any company in America. So we are
very proud of all our veterans. But when there is a need to
have a reduction in force, our preference would be that we
allow people to volunteer to go to other locations, and in the
process of doing that, hopefully avoid a reduction in force.
And again, I believe that we are very consistent with
guidelines that have been put out by OPM, and I believe in the
spirit of those guidelines. I believe that we should allow
people to volunteer. And again, unfortunately, I guess, some
people are assuming that there is some other motivation. There
is absolutely no other motivation other than to try and allow
people to volunteer for assignments and give people the
opportunity to do that.
Senator Akaka. Thank you for that response.
Mr. Potter, because of Hawaii's geographic location,
consumers and businesses are dependent on the U.S. Mail for
many commodities, including prescription drugs. In areas of
rapid growth, such as the islands of Hawaii and Maui, there are
insufficient postal facilities to serve residents. On the big
island of Hawaii, many residents do not have home delivery.
Rather, they must pick up their mail at the post office.
However, we now see that post office boxes in some areas are
over-subscribed and residents must use a post office that can
be up to 30 minutes from their homes. So my question to you is,
what steps are being taken to address these types of problems?
Mr. Potter. This is the first that I am hearing of that
problem, so what I will do is I would rather work with you and
your staff to get the specifics of it and then come back to you
one-on-one and let you know what we are doing to address those
specific concerns.
Senator Akaka. I would appreciate that, Mr. Potter.
The Postal Accountability and Enhancement Act requires the
Postal Service, in consultation with the Postal Regulatory
Commission, to set service standards for mail products. I
understand that the PRC has sat in on meetings of the Mailers
Technical Advisory Committee, which is reviewing the needs of
mailers. Do you view the PRC's current involvement in these
meetings, attending them, as fulfilling the consultation
required by the Act?
Mr. Potter. First of all, let me speak from a Postal
Service perspective and then perhaps Mr. Blair would like to
speak from a Regulatory Commission standpoint.
When we are establishing--the new law says we have to
reevaluate our service standards and then put measurement
systems in place to measure our performance against those
standards and then establish goals. The first thing we did was
said, well, OK, if we are going to establish standards, then we
need to reach out to the mailing community and we have the
Mailers Technical Advisory Committee. We formed subcommittees
around standards for different classes of mail, subcommittees
of the Mailers Technical Advisory Committee, to give us some
guidance on what the requirements of the mailing community are.
This is not about the Postal Service, this is about the mailing
community.
And as part of that effort, we invited members of the
Postal Regulatory Commission to participate in that process. We
want to be open and transparent around the process that we are
going through and the procedures. We invite them to sit in and
listen and participate in the discussions around the
establishment of standards. And then as soon as that is
complete, we are going to enter into a discussion around
measurement systems and how that might be accomplished, and we
might have differences of opinion on that, but we will, over
the course of time, come to some agreement on how that should
be done.
You asked a very technical question. I don't know if that
fulfills the obligation for their comment. I would rather let
Mr. Blair respond to that.
Senator Akaka. Mr. Blair.
Mr. Blair. Thank you, Senator Akaka. I think this will
probably also go to part of the question that you may be asking
next, too, Mr. Chairman. Our observance on the Mailers
Technical Advisory Committee is a good first start. But the
legislation clearly requires consultation and we believe that a
vigorous consultation and a true consultation that should take
place would be a give-and-take between the two bodies, as well
as hearing from the mailers. That hasn't taken place yet, not
that the opportunity has been foreclosed at all. We are in the
very initial stages of that.
But my discussions with the Postmaster General and with
others in the community is that my view of consultation is a
vigorous give-and-take here. The Postal Service clearly has the
power of the pen in this, but that we would expect to see our
input into subsequent drafts and into subsequent iterations of
what these standards will eventually look like. We look forward
to that full consultation. We have high expectations for it and
we think that our initial observance on the impact is a
productive prelude to these consultations.
Senator Akaka. Mr. Blair, it sounds like the Postal Service
may think this is the extent of your statutory involvement.
What makes you believe that the Postal Service will collaborate
with the Commission further outside of these meetings?
Mr. Blair. Well, I am an optimist and I think that the
Postal Service and my good friend Mr. Potter will engage fully
in the consultation, and I really do expect that. But I also
know that this Subcommittee has high hopes for this
consultative process, too, and so I know that the exercise of
your oversight authority will also spur these activities
forward, as well.
Senator Akaka. Thank you, and I thank you all for your
responses. Thank you, Mr. Chairman.
Senator Carper. Thank you, Senator Akaka.
Mr. Chairman, let me come back to you and just ask you to
follow up in terms of the kind of value added that Mr. Potter
was talking about earlier to products. Any comments that you
might have on that?
Mr. Blair. I think that the idea, and what I have heard so
far of intelligent mail is exciting. I think it is providing
value to the mail. It is providing a reason that people will
continue to use the mail stream. And in moving forward on
something like that, I know he said at this hearing that they
have the capabilities today. The question is, at what point
will the implementation be? I think that is something the
Regulatory Commission, the mailing community, and this
Subcommittee will have high hopes for seeing good
implementation strategies. I think it is an example of giving
value to a product that otherwise might not be used as heavily.
And so the ability for the Postal Service to move forward
into these areas, using technology to their advantage, will
hopefully stem off that red and blue on the chart--and I hope
that is red and blue because I am colorblind--but the red and
blue converging, or if that convergence is well out into the
future.
Senator Carper. Alright, thanks.
Mr. Potter, talk to us for a minute or two about some of
the opportunities that you see. You obviously have a good one
with e-Bay. The folks out in Oregon decided they would rather
mail their ballots in. We have 49 other States, some
territories, what kind of opportunities do you have there? And
I think there are some others you probably mentioned in your
written testimony that I read.
Mr. Potter. Well, the Secretary of State from Oregon came
and visited me recently in Washington, DC and he told me that
he was hosting a conference of his peers this summer out in
Oregon and we quickly decided we would help sponsor that event
and that I would be a keynote speaker at the event because I
see the value of expanding the use of the mail, particularly
for elections, where it drives participation up and makes it
very convenient for people to vote. I am basically out there
looking for any new users and uses of the mail, and there is
one that is a great example, where the Postal Service has the
ability to, I think, enhance the democracy of the United States
because of more ubiquity and the ease of use of using the mail.
We have worked closely with NetFlix, as an example, for the
rental of DVDs, and I think if you look at the fact that their
competitors are also offering a similar product, there is a
case where the convenience of the mail has become a competitive
advantage in that marketplace. We have opened up our network so
anyone that wants the Postal Service to deliver a package the
last mile is free to bring the mail to our delivery units with
a parcel select product and we will take that package and
deliver it the last mile.
It is interesting that, of our top four customers, three
are the ones you would think of as our natural competitors
because of the fact that there is an efficiency, an inherent
efficiency in the rural areas to have one person who is already
going there every day because of delivering letter and flat
mail to also carry packages. So we are basically looking at
this infrastructure that the American public has built and we
are trying to figure out how we can get that infrastructure to
best serve the American public.
One of the areas I would love for the Federal Government to
think about is the notion of the fact that we have 37,000
retail outlets. I would hope the Federal Government would think
of them having 37,000 physical locations throughout the
country, and what in the future that might mean and how you
might use it is something that I think we have to let our
imaginations run wild here.
But we have a dilemma going forward. How do we maintain
that infrastructure, and believe me, Americans love their post
offices and I know that, but how do we find new sources of
revenue so that we can maintain that brick-and-mortar structure
going forward?
So today, we help the State Department with passports. In
the future, we would like to help other Federal agencies with
whatever services that they need to bring to the American
public. One person came to me and said, what do you think about
having a kiosk in a post office? And I said, for what? And they
said, well, so that John Q. Public could come in and get in
there and sit in a cubicle and talk to somebody at the Secret
Service, talk to somebody at Medicare, Medicaid, or any other
service that they might need to be provided by the Federal
Government, and it would take some infrastructure out of the
Federal Government. When you say to somebody, go to your post
office, it is kind of a no-brainer. They know where their post
office is. We could work something like that out.
So we are very open minded about taking the infrastructure
we have, whether it is delivering hard-copy mail or packages
and making sure that we have as open a system as possible for
people to use it so that we can generate revenue going forward
to keep universal service available to the American people, and
we would also entertain anything that would make our post
offices serve the government or any other function that would
make a contribution to our maintenance of universal service.
Senator Carper. Alright. Thank you. My little State of
Delaware is small and a lot of times people have said, well,
isn't that a disadvantage? And what we have done in my State is
we have taken that disadvantage and made it our advantage.
Because we are small, we are able to be responsive, turn on a
dime, and think quicker and smarter, hopefully, to do any
number of things.
You clearly have the opportunity to do that, as well, to
take what can be a big disadvantage in that you have got this
huge infrastructure, all these routes and the requirement to go
to everybody's house every day or everybody's business every
day, but there are advantages there and you just mentioned some
ways to more fully capitalize on those advantages.
Mr. Blair, as I have mentioned, predictability and
stability in rates for mailers was one of the major goals of
postal reform, at least from my perspective. We did, however,
include a provision in the legislation calling for the creation
of a mechanism within the new rate system whereby the Postal
Service may raise rates above the CPI cap that we put in place,
and when we went back and forth on this exigency language, as I
am sure some of you recall--I see Ann Fisher out in the
audience. I am sure she recalls going back and forth on that,
as does John Kilvington over my left shoulder here.
But we came up finally with language that says the Postal
Service can raise rates above the CPI cap during, I think,
extraordinary and exceptional circumstances. My definition of
extraordinary and exceptional circumstances has been something
like the September 11, 2001 attacks, a major natural disaster,
or some other event that causes a significant spike in costs or
drop in volume that the Postal Service really couldn't be
expected to handle in the normal course of business.
Senator Collins and I laid all this out in a letter to you,
Mr. Blair. Your thoughts in responding to that letter?
Mr. Blair. I think your sentiments speak for themselves. It
is, indeed--I think that most in the postal community believe
that it is a high bar for an exigency rate case. It wasn't
considered to be routine. We have had a number of comments on
that. I think one of the comments that the Postal Service made
is that you evaluate it on a case-by-case basis. We are still
evaluating all the comments, but I think those are all good in
helping guide the Commission into what the procedure should be
for the consideration of a case like this.
It clearly is a September 11, 2001 or anthrax-like
situation. While those are not deemed to be the two cases in
which it should be exercised, I think it gives us some
framework for how we would consider that. I think that if you
don't have a strong exigency case, it makes almost a mockery of
the rate cap. So you want to make sure that, indeed, it is the
rare bird case, and that while you evaluate it in my view, I
would want to evaluate it on a case-by-case basis, we
hopefully, during my tenure, wouldn't have to see something
like that. But we will evaluate the comments, evaluate the
reply comments, and come forward again. But your sentiments are
appreciated.
Senator Carper. Good. Thank you. I don't pretend to speak
for Senator Collins, but in this case, I will. Both she and I
appreciate the words that you have just said, your response.
I just have maybe one more question for Mr. Blair, and I
will yield to Senator Akaka if he has anything further. As we
have discussed a little bit here today, the Postal Regulatory
Commission is currently considering, I think, three requests
from the Postal Service to revise rate recommendations that you
made earlier this year, and I just want to clarify for the
record one point, if I may, about these rates.
If the Commission does decide to alter its initial
recommendation by lowering rates in some cases and those
recommendations are accepted by the Postal Service's Board of
Governors, rates for other mailers may need to go up to cover
the shortfall. I would ask, is that true? Will this be a factor
during the Commission's consideration of the rate request?
Mr. Blair. Not to be unresponsive, but since this is
pending litigation, I am reluctant to go into that area. Let me
just speak hypothetically, however, that under the general rate
regime now, with the Postal Service's revenue requests, you try
to build in a rate structure in which you have rates that meet
that revenue request. If you don't raise rates in one area,
then you have to raise rates in another area. It is a zero-sum
game.
Now, we will see what happens with the reconsideration.
Again, the one party has asked that the record be reopened. New
evidence may be introduced. Should that record be reopened,
other parties will have the opportunity to respond, as well. So
the process will play itself out.
But just to give you a flavor of what cost-of-service
ratemaking is like is that it oftentimes can be a zero-sum
game.
Senator Carper. Well, this hearing has not been a zero-sum
game. This has been a good hearing and this is probably not the
last hearing that we will have of this nature.
We are, again, mindful of all the work that was done by so
many people and organizations, some represented in this room
but a lot not, and I just want to express on my behalf, and I
think certainly Senator Collins, for the good work and the
spirit, including the participation of the Administration, that
was pivotal in adopting the legislation that we did.
I think everything that I have ever been a part of doing, I
know I can always do better. We can do better and my guess is
that we will certainly be able to improve on the work of the
last several years and the bill that was enacted last December.
One important thing for us to do from time to time is just to
sit down, to invite you in to talk with us. We are mindful that
there are going to be ways to improve our legislation. We don't
know what they are yet. I think for the most part, we want to
let this play out for a while and make, as best we can, this
system work. But as we go down the line, we will find ways that
we can improve on this.
I want to thank each of you for taking your time to be with
us today. We thank you for your testimony. We thank you for
responding to our questions. I ask that you especially remember
us to Postmaster General Walker. We thank him for being present
about 6 years ago when we sort of kicked this into gear and he
has been a good counselor to us in the intervening years.
Ensuring that postal reform is implemented properly is real
important. I will just mention this. There is a trillion-dollar
mailing economy. It depends on the efficient operation of our
Postal Service, so we look forward to working with our
colleagues, Senators Akaka and Collins and others, and with the
Postal Service and the Postal Regulatory Commission in the
months and years ahead to come to make sure that this new
business model turns out the way that we intended it.
The hearing record is going to stay open for 2 weeks for
the submission of additional statements and questions. I just
ask each of our witnesses for your cooperation in getting
prompt responses to any questions that might be submitted for
the record.
With that having been said, this hearing is adjourned.
Thank you all so much.
[Whereupon, at 4:15 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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