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HEARING OF THE FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES AND INTERNATIONAL SECURITY SUBCOMMITTEE OF THE SENATE HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS COMMITTEE SUBJECT: "THE U.S. POSTAL SERVICE IN CRISIS" CHAIRED BY: SENATOR THOMAS R. CARPER (D-DE) WITNESSES: PANEL I: JOHN POTTER, POSTMASTER GENERAL, UNITED STATES POSTAL SERVICE (USPS); RUTH GOLDWAY, COMMISSIONER, POSTAL REGULATORY COMMISSION (PRC); DAVID WILLIAMS, INSPECTOR GENERAL, UNITED STATES POSTAL SERVICE (USPS); NANCY KICHAK, ASSOCIATE DIRECTOR, STRATEGIC HUMAN RESOURCE POLICY, OFFICE OF PERSONNEL MANAGEMENT (OPM); PHILLIP HERR, DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE (GAO); PANEL II: FREDERIC ROLANDO, PRESIDENT, NATIONAL ASSOCIATION OF LETTER CARRIERS; WILLIAM BURRUS, PRESIDENT, AMERICAN POSTAL WORKERS UNION, AFL-CIO; DALE GOFF, PRESIDENT, NATIONAL ASSOCIATION OF POSTMASTERS OF THE UNITED STATES; JAMES WEST, DIRECTOR OF POSTAL AND LEGISLATIVE AFFAIRS, WILLIAMS-SONOMA INC; MARK SUWYN, EXECUTIVE CHAIRMAN, NEWPAGE CORPORATION LOCATION: 342 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C. TIME: 10:00 A.M. EDT DATE: THURSDAY, AUGUST 6, 2009
HEARING OF THE FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES AND INTERNATIONAL SECURITY SUBCOMMITTEE OF THE SENATE HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS COMMITTEE SUBJECT: "THE U.S. POSTAL SERVICE IN CRISIS" CHAIRED BY: SENATOR THOMAS R. CARPER (D-DE) WITNESSES: PANEL I: JOHN POTTER, POSTMASTER GENERAL, UNITED STATES POSTAL SERVICE (USPS); RUTH GOLDWAY, COMMISSIONER, POSTAL REGULATORY COMMISSION (PRC); DAVID WILLIAMS, INSPECTOR GENERAL, UNITED STATES POSTAL SERVICE (USPS); NANCY KICHAK, ASSOCIATE DIRECTOR, STRATEGIC HUMAN RESOURCE POLICY, OFFICE OF PERSONNEL MANAGEMENT (OPM); PHILLIP HERR, DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE (GAO); PANEL II: FREDERIC ROLANDO, PRESIDENT, NATIONAL ASSOCIATION OF LETTER CARRIERS; WILLIAM BURRUS, PRESIDENT, AMERICAN POSTAL WORKERS UNION, AFL-CIO; DALE GOFF, PRESIDENT, NATIONAL ASSOCIATION OF POSTMASTERS OF THE UNITED STATES; JAMES WEST, DIRECTOR OF POSTAL AND LEGISLATIVE AFFAIRS, WILLIAMS-SONOMA INC; MARK SUWYN, EXECUTIVE CHAIRMAN, NEWPAGE CORPORATION LOCATION: 342 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C. TIME: 10:00 A.M. EDT DATE: THURSDAY, AUGUST 6, 2009
SEN. CARPER: (Sounds gavel.) Good morning. Our hearing will come to order.
Our thanks to our witnesses and to our guests for joining us today. This hearing is the latest in a series of hearings over the past half dozen or so years that this subcommittee and this committee has held on the Postal Service's struggle to adapt to a changing mail and communications industry and now through a deeply troubled economy.
As we all know, the economic crisis that our country is currently battling has had an impact on just about every family and just about every business. This downturn has impacted the Postal Service and some of its biggest customers far more than most. The financial data that the Postal Service released yesterday for the third quarter of their current fiscal year bears this out.
Those data that also tells me that the title of this hearing is accurate. Our Postal Service is indeed in crisis.
According to the Postal Service, mail volume was down last quarter more than 14 percent when compared to the third quarter of last year. This led to a loss of some $2.4 billion dollars, an amount that nearly equals the Postal Service's total losses for all of last fiscal year.
This latest quarterly loss brings the Postal Service year-to-date loss to some $4.7 billion and current projections point to a record loss of more than $7 billion by the end of this fiscal year. And this projected loss takes into account some $6 billion in savings -- in cost savings that the Postal Service and its employees are expected to achieve by the end of next month.
These numbers are indeed sobering. Some would say alarming. But I should point out that our postmaster general has said -- and I'm sure he'll say again here today -- that the mail will continue to be delivered as it's always been delivered and postal employees will continue to be paid.
I would also add that the path out of this situation we find ourselves in is -- at least in my estimation -- clear. First, it is imperative that the Postal Service, next month, be given some measure of financial relief -- not a bailout, not lip service, not berating; instead a prudent measure of fiscal relief and perhaps even a little bit of tough love.
I mentioned earlier that the postmaster general's assurances that the mail will continue despite the dire financial projections we'll be discussing today. And having said that, absent some action from Congress and the president in the very near term, however, we cannot promise that that will always be the case.
In recent months, a number of us have come to the conclusion that the most appropriate way to give the Postal Service a measure of relief in the throes of this deep recession is to restructure the aggressive retiree health prefunding schedule that was imposed on it in 2006. That schedule has the Postal Service paying enormous payments of more than $5 billion per year through 2016 to prefund its future health obligations to its retirees. This is on top of regular payments of $2 billion or more for current retiree premiums. The combination would be enough to sink many businesses in this economic downturn that has buffeted out nation and our world over the past year.
Senator Lieberman and I have introduced legislation -- S. 1507, the Postal Service Retiree Health Funding Reform Act -- to restructure the Postal Service's retiree health payment schedule to give it the financial breathing room to get through the next several years. Our proposal works much like a mortgage renegotiation would for a family in which someone has lost a job and needs to find a way to keep their family home.
The example that I used to explain this to some of my colleagues is to take an example of a young couple that get married, no children, both employed at good jobs -- they buy a home. They have a choice to take a mortgage 10 years, 15, 20, 25, 30 years. They say we'll go with the 10-year mortgage, and that's what they start to take. That's what they start to pay.
Life goes on. Kids come along. Somebody loses a job. The economy's tough. And they go back to the mortgage company and say we'd like to restructure that mortgage. We feel that we need to restructure that mortgage. We can't meet the payments on a 10-year mortgage; it's too aggressive given the financial reality that we face today and we'd like to have a 20-year mortgage, or a 25 or 30 -- not a 50, not a 100, but something more reasonable than a 10 in the current economic condition that that family would face.
Our bill is something very similar to it. It must pass and be signed into law before the current fiscal year ends in September. That said, our bill is not a silver bullet. It does not solve all the Postal Service's problems. It merely sets the stage for the work that needs to be done in a number of areas to streamline postal operations further and to bring back at least some of the business that has been lost.
Much of the cost-cutting discussion since our last hearing in January has focused on the Postal Service's proposal to move from a six-day to a five-day delivery, perhaps by eliminating Saturday service.
The Postal Service estimates that making this change would save it upwards to $3 billion per year or more.
And based on a recent polling, a clear majority -- not all, but a clear majority of the American people would not oppose the elimination of Saturday service. And Congress unanimously endorsed language included in our postal reform bill in 2006 that gave the Postal Service the authority to make the business decision to reduce frequency of delivery if it felt like it needed to do so.
But every year since then, Congress, through language included in the annual appropriations bill, has decided to prevent the Postal Service from exercising that new authority. With the situation that the Postal Service is facing now, I believe it is time for us to re- evaluate this prohibition.
Congress also needs to re-evaluate the position it often takes on facility closures. The Postal Service currently maintains that 35,000 retail outlets and more than 400 processing plants around the country -- it maintains that many. This network was developed for a time before e-mail, before electronic bill pay, and before any number of communications revolutions in our society.
We simply don't need all of these facilities in this day and in this age. But all too often we in Congress put up roadblocks whenever the Postal Service even mentions that it might be time to close or consolidate some of those facilities. We just can't afford to do that anymore either.
The Postal Service itself needs to continue to find new ways over time to make their products and services it offers more relevant and to increase demand for them. We did give the Postal Service some new commercial flexibility back in 2006 -- postal reform law. They've been able to take advantage of that flexibility in some instances, and one example is the flat-rate box promotion that I'm sure a lot of us have seen on television -- the commercial. I think that's been successful and very well received.
It is a great partnership, I think, between the Postal Service and UPS and FedEx where the Postal Service delivers its packages and packets the last mile -- their last five miles. I understand you share their aircraft. And there's a variety of things that you're doing to be more entrepreneurial, and we need to see more of that.
I understand the response has also been good for a so-called summer sale that the Postal Service hopes will bring back additional advertising and other commercial mail back in the system in the coming weeks. But I'm also certain that more can be done in infusing a new -- or kindling a new entrepreneurial spirit at the Postal Service and we're going to explore that today.
And finally, I would be remiss if I didn't mention labor costs. All four major postal unions' contracts are set to expire in 2010 and 2011. It is my hope that these unions will continue to work constructively with the Postal Service through these negotiations to address pay, benefits and work rules to reflect the reality that the Postal Service faces in the mailing and communications market today.
And in conclusion, let me just say, there are many services that the government -- our federal government provides to the people of this country. Few of them are as appreciated as much as the work of the Postal Service. I've seen ratings -- approval ratings of a lot of us who serve in the Senate. I've seen customer satisfaction ratings for the Postal Service that most of the American people hold. The Postal Service numbers are better than most of ours and we applaud the efforts -- the years of efforts that have led to that achievement. And we want to make sure that that level of service and that level of satisfaction is continued to be held by the American people; the customers of the Postal Service and the folks who work at the Postal Service will continue to be proud of the work that they're doing.
And with that, let me turn to my colleague in crime here, Senator McCain.
Senator McCain, welcome.
SEN. JOHN MCCAIN (R-AZ): Well, thank you, Mr. Chairman, and thank you for that very comprehensive statement. And I want to thank you and Senator Collins for the very hard work that you and other members of the committee have done on this issue over the years.
I would point out in 2006, I believe, the legislation was passed overwhelmingly, if not by voice vote, and we had addressed the problem. Three years later here we are with a bigger problem. So we didn't address the problem in 2006. And according, obviously, as we all know this morning, the post office loses $2.4 billion in one quarter.
And I read your statement, Mr. Potter. I see no specific proposals you have, except perhaps that maybe we should close some post offices. In other words, Potter would not commit to an exact number of post office closures but said some urban facilities are likely to consolidate certain operations while others will vacate expensive locations. Mr. Potter, it's about time we got some specific -- absolute specific proposals to get the post office back onto at least a zero-loss basis.
Now, we've had lots of hearings. We've passed legislation. So far this year I guess the estimate is a $7 billion loss. We can't do that to the taxpayers of America. We have every right to expect some specific recommendations, both from Mr. Potter and the administration, so that we can enact them into law. And, obviously, a lot of this is due to the fact that America has changed.
Just as we went from horses and buggies to automobiles, we have gone from hand-delivered mail to the Internet and text messaging and e-mails and Twitter and all of the other new means of communications. The post office has got to adjust to it or they will go the way of the horse and buggy and the bridles. And so far we have not seen, either from the administration or from you, Mr. Potter -- who I understand are well compensated for your work -- a specific, concrete proposal to bring the situation under control.
The 2006 bill was advertised as solving the post office's problems. It didn't.
And also, Mr. Chairman, I recommend in the future maybe we have some consumer advocates come and testify before this committee as to their ideas as to how we can solve this problem, because clearly, we're not getting them from the administration.
SEN. CARPER: Thanks very much.
And let me turn now to our chairman, Senator Lieberman. And I want to thank you for being an original co-sponsor of our legislation.
SEN. JOSEPH I. LIEBERMAN (ID-CT): Thanks, Senator Carper. I want to thank you and Senator Collins for the extraordinary work you've done over the last several years at the request of the full committee. Normally I don't come to the subcommittee meetings, but I think we're at such a moment of crisis that I felt it was my responsibility to be here, first, to thank you for what you've done.
The Postal Reform Act of 2006 represented quite a remarkable accomplishment in terms of the variety of different stakeholders that were brought together on its behalf. And I think it was a constructive and progressive piece of legislation, but, as we know now, the problems confronting the Postal Service of the United States went beyond what the Postal Reform Act of 2006 could do.
In one way that we were already well familiar with at that time, which was the extraordinary revolution that has occurred in communication in our time as the result of digital technology and electronic mail -- e-mail, that's just a new reality of our life. The second painful reality that we didn't foresee at that time, of course, was the great recession that we have gone through in the last couple of years.
In my own view, the Postal Service, its workers, its employees have made some very great efforts to try to put the boat back on an even keel. And, I mean, I cite these numbers again: USPS has reduced cost by more than $6.1 billion this year by reducing 87 million work hours, re-aligning carrier routes, halting construction of new postal facilities, freezing postal officer and executive salaries at 2008 levels, reducing travel budgets and the like, also trying to reduce the cost of more than 500 existing contracts that will result in short- and long-term savings.
But the obvious reality is, notwithstanding all those efforts -- as most graphically demonstrated by the quarterly report yesterday -- loss of $2.4 billion -- that the Postal Service is in a dizzying downward spiral.
And unless we act forcefully, this great American institution created in our Constitution -- that's how serious the founders of our country believed the responsibility was to provide for, as they said, post offices and post roads -- created in our Constitution. And unless we apply some tough medicine here and we do it working together, this dizzying downward spiral for the U.S. Postal Service could become a death spiral. And none of us, obviously, want that to happen.
Last week this committee voted to report out S. 1507, which I was proud to co-sponsor with Senator Carper. It's the U.S. Postal Service Retiree Health Benefits Funding Reform Act. I think it's a good first response to the current crisis. I think without it the post office, effectively, doesn't have enough money to pay its bills as of October 1st of this year.
The Postal Service has made clear that they'll continue to deliver the mail and pay salaries, but there's a lot else it's not going to be able to do. So to me, this one might change what we propose this way or that way, but I think it's critically necessary to do this rescheduling of payments into the Retiree Health Benefits Fund -- payments that are now being done at a level that is way above any other governmental program of its kind and most any private-sector program of its kind as well.
The reality is, though, that that's not going to be enough. That's a short-term step to enable the Postal Service essentially to keep going after October 1st. We've got to agree on a broader strategy that will save the Postal Service because it's not going to stay alive if we continue to business as we've been doing business, notwithstanding what's been happening.
And when I say that, I speak not just of the Postal Service, its workers at management, I speak of us here in Congress, because none of the measures that we've talked about is going to be enough to make this work. All of us have to think about doing things that we never would have thought about for the Postal Service.
I know in the S. 1507 an amendment was introduced by one of our colleagues in committee that requires the binding arbitrator in a labor management dispute to consider the financial condition of the Postal Service. I know that our friends in the unions who represent workers for the Postal Service are very upset about this.
Frankly, I didn't see how I could justify voting against that amendment. It is permissive. It is not mandatory. And it is a statement of reality. That same reality has to now be adopted by those of us who are privileged to serve and have responsibility here in Congress. That's why I know that there are discussions of consolidating more branch offices of the Postal Service, of going to five-day-a-week mail delivery. These are onerous responses. We would never have considered them at an earlier time, but I don't see how we can keep this venerable American institution, which so much of America and American commerce still depend on, going without taking steps exactly like that.
And our constituents are not going to be happy. But every time they express their unhappiness to us, I think we've got to say if we don't take some of these tough moves, what it means is that we're going to either have to raise your taxes to make payments -- greater payments to the Postal Service from the U.S. Treasury, or we're going to have to put it on the government credit card, which is an act of irresponsibility because we're turning the burden of repayment over to our children and grandchildren and those who follow. Those are the choices we're going to have to make.
I remember some years ago there was a little post office in Connecticut that the Postal Service wanted to stop. People were furious. They loved that little post office. It wasn't very busy, but they loved it. All of our congressional delegation went to bat. The post office was kept open. But those were different times and we simply cannot do that anymore.
This great Postal Service of ours is an iconic American institution that has always delivered for the American people. Now it's time for the management workers and Congress to deliver for the Postal Service. If we don't apply the kinds of tough measures -- call it tough love, if you want -- this institution which we depend on is simply not going to be there.
Thank you, Mr. Chairman.
SEN. CARPER: Thank you very much for that statement and, again, for your strong support of this legislation.
No one on this committee has worked harder than Senator Collins to enact the postal reform legislation of 2006. I was proud to be her partner in doing that and thank her for her work then and now on these issues.
SEN. SUSAN COLLINS (R-ME): Thank you, Mr. Chairman.
First, let me commend the chairman for holding this important hearing this morning and I appreciate the opportunity to join you. I must say, however, that it is most disappointing to once again be discussing the dire financial condition of the U.S. Postal Service.
Just two and a half years ago Congress passed crucial reforms that Senator Carper and I authored that rescued the Postal Service from the GAO's high-risk list.
Today the Postal Service is once again in a financial crisis and once again it has landed on the high-risk list. In 2008, the agency lost $2.8 billion and this year, as my colleagues have indicated, it is projected to have a net loss of a staggering $7 billion.
The Postal Service matters to our economy. It is the linchpin of a $900 billion mailing industry that employs 9 million Americans. So what we're talking about affects far more than the employees who are working in the local post office or distribution centers. It affects 9 million Americans working in fields as diverse as paper manufacturing, printing, publishing, direct mail and financial services.
And indicative of that is one of our witnesses today. It is the chairman of NewPage, which is a paper company that has a large plant in Rumford, Maine. NewPage is representing many other businesses, non-profits and organizations whose operations are inexorably linked to the Postal Service.
If the Postal Service, for example, were to resort to excessive rate hikes or decrease delivery service, it has ramifications for all of these companies. They may have to respond with layoffs, increased prices to consumers, or reduce services. Any of these adjustments would contribute to an even more perilous condition for the Postal Service.
Why? Because when businesses cut their costs, they reduce mailing costs. And that leads to a further erosion of the Postal Service's shrinking mail volume, which in turn will prompt more proposals for rate increases and renewed calls for truncated delivery services.
As Senator Lieberman has indicated, this is a vicious cycle that has no good outcome. We must prevent this death spiral. We all must put our shoulders to the wheel and accomplish the difficult task of transforming the postal service.
The Postmaster General has offered three major proposals for Congress to consider.
First: adjusting the payments to the retiree health benefits fund. Now, I would note that while I support an adjustment in this area, the bill approved by this committee would result in an increase in the unfunded liability of $4 billion. And I think that's a problem.
Second, the Postmaster General has proposed to eliminate six-day- a-week mail delivery. And third, he has proposed closing our consolidating postal facilities.
The Postal Service is reviewing 677 of its 3,200 stations and branches nationwide for closure or consolidation. This proposal, like the Postal Service's plan to reduce delivery from six to five days a week, would result in reduced service to its customers.
Is that really the right response to this crisis? The question is, will it make a real difference in the cost structure of the Postal Service? If it will, we obviously should consider those moves, but when you look at where the costs are in the Postal Service, it raises a lot of questions in my mind. The Postal Service also cannot expect to gain more business, which it desperately needs, if it is reducing service.
Now, let's look at just the proposal for closing or consolidating the 677 branches and stations.
The non-personnel costs of these facilities on the list account for about six-tenths of 1 percent of overall Postal Service operating costs. That's right. If the Postal Service were to close all of the branches and stations that are on the list, and that's not the plan, but let's say they close every one of them, it would reduce the operating cost, when you exclude personnel, by less than 1 percent.
So we need to look at whether that is worth it or whether there are better, more effective means of reducing costs. Last week, before this committee approved the bill to provide some relief to the service from the required payments to the retiree health benefits fund, a bill that I voted to report from this committee, our committee adopted several amendments to address some of the cost drivers and to make the bill more fiscally responsible.
I believe that additional changes need to be made on the Senate floor, but there is no question that we do have to act. We simply must rescue an institution dating to the early days -- the earliest days of our nation. We cannot allow the Postal Service to fail because it is too fundamental to our economy.
But it is going to take an honest assessment of where the costs are and it's going to take everyone working together -- Postal Service management, employees, members of the mailing community, this Congress, and the administration -- to contribute to the solution. We must work together to find a real, lasting and fiscally responsible solution.
Thank you, Mr. Chairman.
SEN. CARPER: Senator Collins, thank you. Thanks for your statement. Again, thanks for your hard work on this literally for years and for your staff as well.
Senator Collins has said that our bill increases the Postal Service's unfunded liability by $4 billion. It does, but any bill that reduces the Postal Service's payments this year and for the next several years would do that. It would happen because the fund that we created in the Treasury to prepay, pre-fund postal retiree health benefits will have less money in it and thus earn less interest. And it's a drawback of extending relief, really at all. So I just want to note that for the record.
All right, Senator Burris has joined us.
Senator Burris from Illinois, we're delighted you're here and you are recognized for your statement. Thank you for coming.
SEN. ROLAND W. BURRIS (D-IL): Thank you, Mr. Chairman, Ranking Member McCain, and Chairman Lieberman, Ranking Member Collins. I'm pleased to be here today as we consider the challenges facing the U.S. Postal Service and its employees.
I know that we have a large group of witnesses here today, so Mr. Chairman, I will withhold giving a major opening statement. I certainly will have some questions during the Q&A -- the question and answer session.
SEN. CARPER: Okay. We're delighted you're here. Thank you for your attendance and your faithful participation.
Our first witness today will be John Potter, the 72nd postmaster general of the United States. Mr. Potter began his career in the Postal Service in 1978 and held a number of senior management positions there before being named postmaster general in 2001.
Our next witness is Ruth Goldway. Ms. Goldway was reappointed commissioner of the U.S. Postal Regulatory Commission by President Bush, I believe in 2008, and is scheduled to serve till at least 2014. She previously was appointed to this position by President Carter -- not President Carter -- (laughs) -- President Clinton in 1998. Seemed like President Carter, but -- in 1998 to the Postal Rate Commission, which is a predecessor to the Postal Regulatory Commission.
Welcome. Thanks for coming. Thank you for your service.
Our third witness today is David Williams, inspector general of the U.S. Postal Service. Mr. Williams has a breadth of experience in the federal government, serving as inspector general for a total of five federal agencies during his career.
Our next witness is Nancy Kichak.
Is that correctly pronounced?
Nancy Kichak, associate director of the Human Resources Policy Division at the Office of Personnel Management. In her position Ms. Kichak leads the design, development and implementation of new merit- based human resources policies.
Thank you for that work and for coming today.
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