[Senate Hearing 114-579]
[From the U.S. Government Publishing Office]
S. Hrg. 114-579
LAYING OUT THE REALITY OF THE UNITED STATES POSTAL SERVICE
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
JANUARY 21, 2016
__________
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
RON JOHNSON, Wisconsin Chairman
JOHN McCAIN, Arizona THOMAS R. CARPER, Delaware
ROB PORTMAN, Ohio CLAIRE McCASKILL, Missouri
RAND PAUL, Kentucky JON TESTER, Montana
JAMES LANKFORD, Oklahoma TAMMY BALDWIN, Wisconsin
MICHAEL B. ENZI, Wyoming HEIDI HEITKAMP, North Dakota
KELLY AYOTTE, New Hampshire CORY A. BOOKER, New Jersey
JONI ERNST, Iowa GARY C. PETERS, Michigan
BEN SASSE, Nebraska
Keith B. Ashdown, Staff Director
Patrick J. Bailey, Chief Counsel for Governmental Affairs
Jennifer L. Scheaffer, Professional Staff Member
Gabrielle A. Batkin, Minority Staff Director
John P. Kilvington, Minority Deputy Staff Director
John A. Kane, Minority Senior Governmental Affairs Advisor
S. Alexander Fiske, Minority U.S. Postal Service Office of Inspector
General Detailee
Laura W. Kilbride, Chief Clerk
Benjamin C. Grazda, Hearing Clerk
C O N T E N T S
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Opening statements:
Page
Senator Johnson.............................................. 1
Senator Carper............................................... 1
Senator Tester............................................... 18
Senator Booker............................................... 20
Senator Peters............................................... 22
Senator Heitkamp............................................. 27
Senator Baldwin.............................................. 29
Senator McCaskill............................................ 34
Prepared statements:
Senator Johnson.............................................. 57
Senator Carper............................................... 58
WITNESS
Thursday, January 21, 2016
Megan J. Brennan, Postmaster General and Chief Executive Officer,
U.S. Postal Service............................................ 5
Robert G. Taub, Acting Chairman, Postal Regulatory Commission.... 7
Lori Rectanus, Director, Physical Infrastructure, U.S. Government
Accountability Office.......................................... 8
David C. Williams, Inspector General, U.S. Postal Service........ 10
James E. Millstein, Former Chief Restructuring Officer at the
U.S. Department of the Treasury, and Founder and Chief
Executive Officer, Millstein & Co.............................. 12
Fredric V. Rolando, President, National Association of Letter
Carriers....................................................... 43
John ``Chip'' Hutcheson III, President, National Newspaper
Association.................................................... 46
Kathy Collins, General Manager, Rothschild Mill, Domtar Paper
Company........................................................ 48
Alphabetical List of Witnesses
Brennan, Megan J.:
Testimony.................................................... 5
Prepared statement........................................... 61
Collins, Kathy:
Testimony.................................................... 48
Prepared statement........................................... 188
Hutcheson, John ``Chip'' III:
Testimony.................................................... 46
Prepared statement........................................... 177
Millstein, James E.:
Testimony.................................................... 12
Prepared statement........................................... 133
Rectanus, Lori:
Testimony.................................................... 8
Prepared statement........................................... 110
Rolando, Fredric V.:
Testimony.................................................... 43
Prepared statement with attachments.......................... 152
Taub, Robert G.:
Testimony.................................................... 7
Prepared statement........................................... 78
Williams David C.:
Testimony.................................................... 10
Prepared statement........................................... 128
APPENDIX
Statements submitted for the Record from:
American Consumer Institute.................................. 193
Alliance of Nonprofit Mailers................................ 194
Alliance of Nonprofit Mailers et al.......................... 196
Amazon et al................................................. 199
American Quarter Horse Association........................... 202
Americans for Tax Reform..................................... 203
Association for Postal Commerce.............................. 206
Benedictine Mission House.................................... 208
Consumer Reports............................................. 209
Credit Union National Association............................ 210
DMA--Direct Marketing Association............................ 212
Envelope Manufacturers Association........................... 214
Financial Services Roundtable................................ 224
Guideposts................................................... 226
International Warehouse Logistics Association................ 228
MPA--The Association of Magazine Media....................... 235
National Associaton of Letter Carriers....................... 239
National Association of Postal Supervisors................... 240
National Association of Postmasters of the United States..... 244
NARFE--National Active and Retired Federal Employees
Association................................................ 249
National Catholic Development Conference..................... 255
National Committee to Preserve Social Security and Medicare.. 257
National Taxpayers Union..................................... 258
Quad/Graphics, Inc........................................... 260
R Street Institute........................................... 262
Charles Shelby............................................... 265
Steve W. Smith............................................... 266
Time Inc..................................................... 268
Taxpayers Protection Alliance................................ 269
Responses to post-hearing questions for the Record from:
Ms. Brennan.................................................. 270
Mr. Taub..................................................... 277
Ms. Rectanus................................................. 282
Mr. Williams................................................. 291
LAYING OUT THE REALITY OF THE UNITED STATES POSTAL SERVICE
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THURSDAY, JANUARY 21, 2016
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Washington,
The Committee met, pursuant to notice, at 9:30 a.m., in
room 342, Dirksen Senate Office Building, Hon. Ron Johnson,
Chairman of the Committee, presiding.
Present: Senators Johnson, Lankford, Enzi, Carper,
McCaskill, Tester, Baldwin, Heitkamp, Booker, and Peters.
OPENING STATEMENT OF CHAIRMAN JOHNSON
Chairman Johnson. This hearing will come to order.
I want to welcome all of the witnesses. Thank you for your
time and for your testimony.
I am going to keep my opening statement incredibly brief
because I am going to want to spend more of my time asking
questions once we hear from the witnesses. I have an opening
statement, which I will ask to be entered into the record.\1\
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\1\ The prepared statement of Senator Johnson appears in the
Appendix on page 57.
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My questions will all be about eliciting the reality of the
current situation and what is going to be happening in the next
couple of months and why it is so important that we address
this issue. So, that is what I am hoping that we are going to
hear in testimony and that will be the thrust of my questions.
Chairman Johnson. With that, I will turn it over to the
Ranking Member for his opening statement.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. Thank you, Mr. Chairman. Good morning,
everybody.
[Chorus of responses.]
This is a chipper looking group. I am glad that we are
doing this today and not on Saturday. This is pretty good
timing. I want to thank our Chairman for scheduling this
hearing and all of you for showing up, giving us your thoughts,
and responding to our questions.
As we are all aware, the United States Postal Service
(USPS) has been struggling with some serious longstanding
financial challenges for a while. One of my top goals since I
joined this Committee 400 years ago---- [Laughter.]
No, 15 years ago--has been to address these challenges and
to help the Postal Service find a way to thrive in the 21st
Century.
The Postal Service operates, as we know, as the center of a
$1.4 trillion mailing industry that employs, I am told, about
7.5 million people across our country. This industry provides 6
percent of our Nation's jobs, and that puts it on par, when it
comes to total jobs and revenues, with the airline industry
and, I am told, the oil and gas industry as well. And
businesses, both large and small, depend on the Postal
Service's one-of-a-kind retail processing and delivery network,
a 200-year-old legacy delivery network.
But, as we sit here today, there are some real questions
that continue to be asked about what the future holds for the
Postal Service.
Despite having finished 2015 with an operating profit, the
Postal Service continues to report billions of dollars of
losses. On top of that, it has maxed out its $15 billion line
of credit with the U.S. Treasury. This has left Postal
management with no other choice but to default on another $5.7
billion health care payment last year, the fourth year in a row
that the Postal Service has been unable to fulfill that
statutory obligation. When the Postal Service closed its books
on fiscal year (FY) 2015, it announced a $5.1 billion loss, its
ninth consecutive multi-billion-dollar loss.
Complicating matters is the fact that the emergency rate
surcharge that went into effect in 2014 to compensate the
Postal Service for its losses during the recession, is set to
expire--I believe in late March or early April. And by all
accounts, the income being generated by this increase is now
the biggest thing keeping the Postal Service's head above
water. When the surcharge expires, rates for the Postal
Service's core products will decline, diminishing the Postal
Service's revenues and liquidity as well as erasing the small
operating profits that it has recently shown.
But, I think that we can still be optimistic about the
future of the Postal Service. I am, and I hope that you are,
too. And I say that because, despite what the Postal Service
has been through, we have seen some significant growth in an
important area, and that is package delivery. The Postal
Service's total volume for this line
of business jumped more than 14 percent--is that right,
General?--14 percent last year. In addition--this is even more
encouraging, at least to me--the steady decline of First-Class
Mail volume since 2006 appears to be leveling off, and by some
accounts, we may be starting to see some new demand for this
product, which has always been the biggest money maker for the
Postal Service. If that happens, then we are off to the races,
so we will keep our fingers crossed. This past holiday season
was much stronger for the Postal Service than anticipated, with
mail volume related to e-commerce reportedly exceeding
expectations.
For the Postal Service, though, to truly be successful in
the digital age, Congress must enable--we need to be enablers--
the Postal Service to take full advantage of the opportunities
offered by the package boom and other recent successes. I like
to say, as they say at Home Depot, ``You can do it, we can
help.'' And that is our job, to help.
Nearly 10 years have passed since major Postal reform
legislation was last signed into law, although we have made
several attempts in recent years without getting the ball into
the end zone. It is now time for Congress to get off the bench,
get into the game, and let us score a touchdown.
Absent legislative intervention, the Postal Service will
continue twisting in the wind. It will remain unable to fully
invest in its future. Its employees and customers will continue
to be uncertain about what the future holds for them.
There are a handful of Postal reform provisions that we
have debated on this Committee, as some of us know, for years.
Taken together, they would set up the Postal Service and its
leadership up to turn the agency's finances around further and
set it up to succeed in the years to come.
The most important of these provisions, we know, is to
address health care costs at the Postal Service. And, in fact,
this agency is the single largest payer into Medicare, yet it
does not receive
full value from the program for its contributions. I put
forward legislation in the last Congress with our former
colleague Dr. Coburn--many of our colleagues here have
supported it--and this year, with Senators Moran, McCaskill,
and Blunt, that would allow the Postal Service to do what
private businesses do when they coordinate their health care
plans with Medicare. This has the potential to largely
eliminate the unfunded liability for the retiree health
benefits (RHB) and to save the Postal Service some $32 billion
over the next 10 years.
Our proposal would also give the Postal Service significant
savings when it comes to pension costs, which the Office of
Personnel Management (OPM) now determines using inaccurate data
that does not account for the makeup of the Postal Service's
workforce and other important factors. Requiring OPM to use the
right data would also reap more than $2.5 billion in savings
over the next 5 years alone.
We also freed, in our legislation, the Postal Service to
innovate and explore new business opportunities by removing
dated restrictions, in current law, on the type of products and
services that they can offer. This part of our bill would let
the Postal Service do some specific things, like join United
Parcel Service (UPS), Federal Express (FedEx), and others in
offering and delivering beer, wine, and spirits. It would also
encourage the Postal Service to test new innovations, much like
its existing authority to initiate Sunday package delivery, and
to experiment with things like grocery delivery in other parts
of the country. Coupled with our proposal to make permanent the
emergency rate increase currently set to expire, this part of
our bill has the potential to bring in significant revenues in
the coming years.
Finally, our bill will also push or prod the Postal Service
to do what the last Postmaster General often told me was his
top goal if we are able to get Postal reform done, and that is
to put the ``service'' back into Postal Service. Since 2002,
the Postal Service has made great strides to be more efficient,
cutting total work hours by nearly 30 percent, fueling $17
billion in savings. We have also seen the number of mail
processing centers cut in half, from more than 600 to about 300
today.
But the solution to the challenge that the Postal Service
faces today cannot be just about more cuts. Cutting costs was
certainly necessary. Concern has been raised that further cuts
will only degrade service and end up chasing customers away. I
share those concerns. We may also be seeing service suffer due
to deep cuts that have been made in some areas.
In order to thrive in coming years, the Postal Service
actually needs to invest in a new generation of delivery
vehicles--we know that--as well as in its processing plants and
in its Post Offices themselves. It needs to harness and deploy
new technology that can improve service and contain costs,
rather than continue to make cuts that will further erode
service.
All right. Coming to the end. That is why our bill, a
bipartisan bill, would pause further service standard changes
for 5 years and mail processing closures for 2 years. This will
give the Postal Service and the Postal Regulatory Commission
(PRC) time to explore what the appropriate level of service
should be and, hopefully, to return service to the levels that
were provided to customers until last year, when service
standards were set at the modified 1-,
2-, and 3-day delivery standard that many of us supported.
So, in sum, I believe that our bill, a bipartisan bill,
represents real and lasting reform that can help the Postal
Service be just as important for my sons' generation as it was
for my generation--our generation--and for my parents'
generation. We have offered legislation that enjoys wide
support among the Postal stakeholders, whose often widely
diverging priorities and goals have made Postal reform hard to
achieve in recent years. And that is because after months of
effort to find common ground, the Postal Service, its unions,
and large contingencies of Postal customers and stakeholders
have finally succeeded in coming to an agreement on a number of
key provisions that they feel--that we feel--need to be
contained in any Postal bill for the Postal Service to succeed,
truly succeed. These key provisions are contained in our bill.
Lastly, while working together, it is important that
Congress provides some certainty to both Postal employees and
customers and that it ensures that taxpayers--along with all of
the fiscal challenges that we face--are not saddled with
shoring up a failing Postal Service. We cannot afford to be
here a year from now discussing how we can dig ourselves out of
yet another Postal crisis. I do not believe any of us want to
do that. I sure do not. We do not want to kick the can down the
road one more time.
As it turns out, if we are smart enough and creative enough
and bold enough, we do not have to. We can do what needs to be
done to actually fix the problem.
So, Mr. Chairman, thank you again for holding this hearing,
thank you to everybody for attending and for providing
testimony, and thank you to my colleagues for being here. I
look forward to working with our colleagues in the weeks ahead
to promptly enact Postal reform legislation that will enable
the Postal Service and its employees to seize the day and
provide the services that are needed in the 21st Century.
I think that they really have it right at Home Depot when
they say, ``You can do it, we can help,'' and the time has
come. Let us just do it. Thank you.
Chairman Johnson. Thank you, Senator Carper.
We will, I believe, have a vote scheduled at 10:30, at
which point in time I am going to have to leave and I will be
turning the gavel over to Senator Carper. You have some
experience with this, right, so----
Senator Carper. I am pretty new at it. [Laughter.]
Chairman Johnson. It is the tradition of this Committee to
swear in witnesses, so if you will all rise and raise your
right hand.
Do you swear the testimony you will give before this
Committee will be the truth, the whole truth, and nothing but
the truth, so help you, God?
Ms. Brennan. I do.
Mr. Taub. I do.
Ms. Rectanus. I do.
Mr. Williams. I do.
Mr. Millstein. I do.
Chairman Johnson. Thank you. Please be seated.
Our first witness is Ms. Megan J. Brennan. Ms. Brennan is
the Postmaster General of the United States Postal Service. She
began this post in February of last year, having served prior
to that as Chief Operating Officer (COO) and Executive Vice
President of the Postal Service. Ms. Brennan began her Postal
Service career as a letter carrier in Lancaster, Pennsylvania.
Ms. Brennan.
TESTIMONY OF MEGAN J. BRENNAN,\1\ POSTMASTER GENERAL AND CHIEF
EXECUTIVE OFFICER, U.S. POSTAL SERVICE
Ms. Brennan. Thank you, Mr. Chairman. Good morning. Good
morning, Ranking Member Carper and Members of the Committee.
Thank you, Chairman Johnson, for calling this hearing. I am
proud to be here today on behalf of the dedicated men and women
of the United States Postal Service, who work hard every day to
serve the American people.
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\1\ The prepared statement of Ms. Brennan appears in the Appendix
on page 61.
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The Postal Service currently operates with a business model
that is unsustainable. In the past decade, total mail volume
has declined by 27 percent, and First-Class Mail, our most
profitable product, has declined by 35 percent. To put this in
perspective, the annual value of the revenue loss as a result
of this volume decline is $21 billion per year.
We continue to make difficult, but necessary, business
decisions within the constraints of our business model to adapt
to a rapidly changing marketplace. We have streamlined our
operations, restructured our networks, and have improved
productivity for six consecutive years. As a result of these
efforts, we have achieved annual cost savings of nearly $15
billion. We have also been successful in stabilizing marketing
mail revenues and growing our package delivery business, which
together enable America's e-commerce. However, all of these
actions cannot offset the negative impacts caused by the
continuing decline in the use of First-Class Mail.
Since 2012, the Postal Service has been forced to default
on more than $28 billion in mandated payments to the U.S.
Treasury for retiree health benefits. Without these defaults as
well as the deferral of capital investments and aggressive
management actions, we would not have been able to pay our
employees, our suppliers, or to deliver the mail.
Without legislative reform, our net losses will continue to
grow, regardless of our continuing efforts to grow revenue and
improve operational efficiencies. If allowed to continue, this
will have a devastating impact on the future of the
organization and the customers that we serve.
Mr. Chairman, we need legislation now. Over the past year,
we have been working with key stakeholders, including our labor
unions and a cross-section of the mailing industry, to identify
potential key reforms about which there is broad consensus and
which would return the Postal Service to financial health. As
part of this process, we have sought to understand the
interests and concerns of our stakeholders and to educate them
about the needs of the Postal Service.
The legislation that we are seeking reflects the results of
these discussions and includes the following provisions:
Requiring Medicare integration for Postal retiree health plans,
continuing our exigent price increase for market dominant
products, calculating all retirement benefit liabilities using
Postal-specific salary growth and demographic assumptions, and
providing some additional product flexibility.
By enacting legislation that includes these provisions, the
Postal Service can achieve an estimated $27 billion in combined
cost reductions and new revenue over the next 5 years. Together
with other important initiatives, this would make us
financially stable.
Medicare integration is the most important of these
provisions. As the second largest contributor to Medicare, our
proposal allows the Postal Service and our employees to fully
utilize the benefits for which we have already paid. By
requiring Medicare integration for Postal Service retirees, we
will essentially eliminate the current unfunded liability for
retiree health benefits. Further, in most cases, it will cost
less for our employees and retirees while providing them with
the same or better health coverage.
Also significant is the need to make the exigent rate
increase a part of our rate base. The continuation of the
exigent pricing surcharge is critical to the Postal Service's
financial health. An expiration of the surcharge, which is
expected to occur this April, will reduce our revenues by
approximately $2 billion each year, further worsening our
already precarious financial condition.
Mr. Chairman, our financial challenges are serious, but
they can be solved. While the set of proposals we are advancing
today are narrower in scope than we previously sought, they are
fiscally responsible. They enable the Postal Service to invest
in the future and to continue to provide affordable, reliable,
and secure delivery to every business and residential address
in America. Importantly, we believe that these provisions are
capable of gaining broad support among key Postal stakeholders.
Mr. Chairman, I look forward to working with this Committee
to restore the financial health of the United States Postal
Service.
This concludes my remarks and I welcome any questions that
you and the Committee may have. Thank you, Mr. Chairman.
Chairman Johnson. Thank you, Postmaster General.
Our next witness is Robert Taub. He is the Acting Chair of
the Postal Regulatory Commission. He has been on the Commission
since October 2011 and prior to that was the Special Assistant
to the Secretary of the Army. Chairman Taub.
TESTIMONY OF ROBERT G. TAUB,\1\ ACTING CHAIRMAN, POSTAL
REGULATORY COMMISSION
Mr. Taub. Chairman Johnson, Ranking Member Carper, and
Members of the Committee, good morning. I will hit on a few key
points from the Commission's very detailed written testimony.
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\1\ The prepared statement of Mr. Taub appears in the Appendix on
page 78.
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In 2015, the Postal Service had a total net loss of $5.1
billion, which is an improvement from 2014. However, this is
the ninth consecutive net loss since 2007 and has increased the
cumulative net deficit since then to $56.8 billion. These
continuing losses have negatively impacted liquidity, requiring
the Postal Service to use all of its $15 billion statutory
borrowing capacity and causing total liabilities to far exceed
total assets by almost $50 billion.
In the past 5 years, the Postal Service has not made any of
the required prefunding payments into its future Retiree Health
Benefit Fund. This accruing nonpayment into the fund has skewed
the Postal Service's current liabilities in relation to its
assets. To reduce its debt ratio to historic averages, the
Postal Service would have to significantly increase its cash
position or investments in capital assets as well as reduce its
obligations to the Retiree Health Benefit Fund.
Low liquidity levels in recent years have impeded the
Postal Service's ability to make capital investments in
infrastructure. It now operates an aging vehicle fleet,
increasing the need and, consequently, the cost for maintenance
and repair. Also unmet is the need to invest in sorting and
handling equipment to fully capitalize on business
opportunities in the growing package delivery markets.
Total mail volume in 2015 dropped to levels not seen in
more than 27 years, and the Postal Service anticipates further
reductions in total volumes in 2016. The continuous decline in
First-Class Mail seriously jeopardizes the Postal Service's
ability to cover its fixed overhead costs.
Recent increases in revenues and subsequent higher
liquidity are largely due to the temporary market dominant
product exigent surcharge. The additional revenue from
competitive products, which are mainly parcels, is not
sufficient to offset the future revenue loss resulting from the
termination of the exigent surcharge when it is removed this
April. At that point, in order to maintain the operating net
income that it is currently achieving, the Postal Service would
have to make up the loss of that revenue, which is
approximately $2.1 billion annually.
With the growing liability of retiree health benefits, the
inability to borrow for needed capital investments, and the
continued loss of high-margin First-Class Mail revenues, the
important task of improving the financial condition of the
Postal Service is daunting.
Despite the financial news, there is still strength in the
system. The Postal Service is the one government agency that
touches every American on a daily basis. It is an organization
that literally serves 150 million American households and
businesses on a typical day. It facilitates trillions of
dollars in commerce. The fundamental problem is that the Postal
Service cannot currently generate sufficient funds to cover its
mandated expenses and also invest in critically deferred
capital needs.
Where can we look for answers? I would argue that the
starting point is to look at ourselves. What do we, as a
Nation, need from a Postal and delivery system and what is its
cost? What exactly is universal mail service in the United
States? The Commission has determined that, unlike in other
countries, the universal service obligation (USO) in the United
States is largely undefined. Instead, it is comprised of a
broad set of policy statements with only a few legislative
prescriptions. The Commission estimates the cost of providing
universal service to be more than $4 billion annually. When
assessing the current State of the Postal Service, policymakers
should look at this fundamental issue and decide exactly what
we, as a Nation, need from the Postal Service, and most
importantly, how those expectations are to be funded. I note
that Senator Carper's bill would require an assessment of the
USO.
Thank you, Mr. Chairman, for convening this hearing to
shine a spotlight on this important part of our infrastructure.
I know that you appreciate deeply the importance of these
matters.
Senator Carper, it has been a long journey, fifteen years
ago, when we met with then-Congressman McHugh off the Senate
floor when you were first exploring how to modernize our Postal
laws. It took us in the House a dozen years to see the 2006 law
enacted, and we could not have done so without your leadership
here in the Senate. Thank you for your continued commitment.
There are no easy answers, but answer, we must. The
Commission stands ready to assist in the search for solutions.
On behalf of all the Commissioners and the hard working agency
staff, thank you for the opportunity to testify.
Chairman Johnson. Thank you, Chairman Taub.
Our next witness is Lori Rectanus. Ms. Rectanus is the
Director of Physical Infrastructure at the U.S. Government
Accountability Office (GAO), overseeing GAO's audit portfolio
for Postal issues, Federal fleet management, currency and coin
production, and Federal building security. Ms. Rectanus.
TESTIMONY OF LORI RECTANUS,\1\ DIRECTOR, PHYSICAL
INFRASTRUCTURE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Ms. Rectanus. Thank you. Chairman Johnson, Ranking Member
Carper, and Members of the Committee, I am pleased to be here
today to discuss the Postal Service's financial challenges.
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\1\ The prepared statement of Ms. Rectanus appears in the Appendix
on page 110.
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The Postal Service is a critical part of the Nation's
communication system, but its financial situation, as we know,
is dire. We placed the Postal Service on our ``High-Risk List''
in 2009, where it remains.
Today, I will discuss the factors affecting the Postal
Service's deteriorating financial condition, the status of its
unfunded liabilities, and the choices that Congress faces in
addressing these financial challenges.
The Postal Service's financial struggles are well
documented. Beginning in 2007, expenses began consistently
exceeding revenues and it has lost over $56 billion since then.
The situation is primarily caused by a decline in mail volume,
as we have heard, particularly in profitable First-Class Mail,
commensurate with increasing expenses, largely because of
salary increases. Increases in compensation and benefits alone
will add over a billion dollars in additional costs in fiscal
year 2016. The gap between revenue and costs continues despite
significant efficiency initiatives undertaken by the Postal
Service.
Regarding unfunded liabilities and debt, they are a large
and growing burden on the Postal Service. At the end of fiscal
year 2015, the Postal Service had about $125 billion in
unfunded liabilities and outstanding debt, which accounted for
about 182 percent of its revenues. Retiree health benefits
accounted for about $55 billion of the unfunded liability,
partly because the Postal Service has not made required
prefunding health payments for the last 5 years and does not
expect to make the required 2016 payment.
Given this history and future events, it is not likely that
the Postal Service will be able to make its required retiree
health and pension payments in the near future. Beginning in
fiscal year 2017, the Postal Service will be required to start
making annual payments for health benefits on top of annual
pension payments. Using available data, we determined that
these payments could total about $11 billion. Although this is
less than what was required in fiscal year 2015, it is about
$4.6 billion more than what the Postal Service paid.
The expiration of the temporary rate surcharge and a lack
of major cost savings initiatives will further stress the
Postal Service's ability to make these payments.
Having large unfunded liabilities for Postal retiree health
and pension benefits places taxpayers, employees, retirees, and
the Postal Service, itself, at risk. Postal retirees
participate in the same health and pension benefit programs as
other Federal retirees, so if the Postal Service does not
adequately fund these benefits and Congress wanted these
benefits to continue, the Treasury and, hence, the taxpayer may
need to step in. Alternatively, unfunded benefits could lead to
pressure for reductions in benefits or pay. For the Postal
Service, unfunded benefits endanger its future viability by
saddling it with bills later, after employees have already
retired.
Postal Service actions alone, under existing authority,
will be insufficient to achieve financial solvency.
Comprehensive legislation is needed. In doing so, Congress
faces difficult decisions and tradeoffs in key areas.
First, what is the level of Postal services needed in the
21st Century and what are we willing to pay for those services?
Given how communication is changing, Congress could consider
what Postal services should be provided on a universal basis
and how those services should be provided.
Second, what is the appropriate level of compensation and
benefits that should be paid in an environment of revenue
pressures? Congress could consider revising the statutory
framework for collective bargaining to ensure that the Postal
Service's financial condition be considered in binding
arbitration.
Third, what is the continued viability of the Postal
Service's dual role of providing affordable universal service
while remaining self-financing? In assessing any alternatives
to the current structure, Congress should consider costs that
might be transferred from the Postal Service, which is financed
by rate payers, to the Federal Government, which is funded by
taxpayers.
In conclusion, we must take a hard look at what level of
Postal services we need and what we can afford. The status quo
is not sustainable.
This concludes my prepared statement. Chairman Johnson,
Ranking Member Carper, and Members of the Committee, I would be
pleased to answer any questions that you have.
Chairman Johnson. Thank you.
Our next witness is David Williams. Mr. Williams is the
Inspector General (IG) of the United States Postal Service and
has been Inspector General since 2003. Prior to that, he served
as the Deputy Assistant Administrator for Aviation Operations
at the Transportation Security Administration (TSA). Mr.
Williams.
TESTIMONY OF DAVID C. WILLIAMS,\1\ INSPECTOR GENERAL, U.S.
POSTAL SERVICE
Mr. Williams. Thank you, Mr. Chairman, Ranking Member
Carper, and Members of the Committee.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Williams appears in the Appendix
on page 128.
---------------------------------------------------------------------------
There are two sharply opposing views of the reality facing
the Postal Service and judgments are difficult to make when
viewing ongoing financial data through the distorted lens of
prefunding expenses.
The first view is that the financial situation is dire and
that the Postal Service's mission is antiquated. The Postal
Service is losing more than $5 billion every year and has
exhausted its borrowing limit of $15 billion. First-Class Mail
volume, which has always supported the network, is in decline
and will never return, and the Postal Service owes nearly a
billion dollars in unfunded liabilities for retiree benefits
and workers' compensation.
The second view is more elaborate. First, the Postal
Service has weathered the storm of the digital disruption with
much opportunity on its horizon. Technological advances are
paradoxically creating new societal needs that the Postal
Service's extensive network is uniquely positioned to fulfill
regarding e-commerce, e-Government, and coming smart
infrastructure services. For example, the Postal Service could
provide physical transaction points for industries that have
gone partially virtual and offer neighborhood logistics support
for emerging smart cities.
Second, the Postal Service ended 2015 with more cash
reserves than it has had for many years, $6.6 billion. It has
set aside an unprecedented $337 billion and possesses
significant real estate to meet future contingencies. The $15
billion Treasury debt is entirely due to required payments for
distant and vacillating future retiree health obligations.
Now, it is very difficult to decide exactly what is needed
to stabilize the infrastructure when prefunding activities are
commingled with actual ongoing financial operating data. The
arbitrary $5 billion prefunding payments show up as annual
losses in financial statements, even if no cash is spent at
all. Most stakeholders are simply lost attempting to understand
postal financial reports. The Postal Service either made a
controllable profit of $1.2 billion last year or it lost $5
billion. Since 2007, did the Postal Service make a billion
dollars or did they lose nearly $57 billion? Decisions are
extremely difficult with this kind of seemingly conflicting
data--and these numbers do not include the neglect of
infrastructure investments and that some of the savings were
achieved through service cuts.
The Postal Service has historically been required to break
even. So, there was no extra money when the sudden 2006 Postal
Accountability and Enhancement Act (PAEA) mandated $5 billion
annual payments went into effect. A Consumer Price Index (CPI)
price cap, and prohibitions against entering new business lines
and closing certain facilities, barred the Postal Service from
attacking these problems using normal business strategies, such
as price increases, rightsizing, and product diversification,
which are available to other world posts and private express
carriers.
The Postal Service's survival is a tribute to the men and
women working there, as well as to the American people, who
demand that, like every nation, we have a Postal Service
infrastructure to connect the world to our homes and our
workplaces.
Legislative efforts to provide relief for the Postal
Service have failed for the last 6 years, but recent
legislative proposals offer some needed solutions. Replacing
the arbitrary retiree health funding schedule with actuarially
based payments will make prefunding retiree health payments
more affordable for the Postal Service and improve transparency
of financial reporting. Proposed Medicare changes for postal
retirees will likely eliminate much of the remaining unfunded
retiree health care liabilities.
Another useful proposal is to permit the Postal Service to
explore offering modernized services in response to changing
citizen needs and also to enable private sector strategies.
Collaboration between the Postal Service and the private sector
has worked well. It is a good deal for citizens, and it is a
great deal for American business.
Finally, a more flexible, responsive pricing regime is
needed to help ensure the Postal Service's financial stability
at a time of rapid change.
In recent years, stakeholders have been starved for clear
information, causing confusion about the road ahead for the
Postal Service. In this age of extraordinary threats and game-
changing opportunities, other nations are not confused. Other
world posts are racing to support innovators, citizens, and
businesses. The United States cannot afford to stagnate in
decisions regarding investments for its public infrastructures
if we hope to enable citizens and maintain our leading position
among nations.
Thank you.
Chairman Johnson. Thank you, Mr. Williams.
Our final witness is James Millstein. Mr. Millstein is the
founder and Chief Executive Officer (CEO) at Millstein and
Company. Mr. Millstein is the former Chief Restructuring
Officer at the U.S. Treasury and has an extensive background in
the restructuring of large private and public entities. Mr.
Millstein.
TESTIMONY OF JAMES E. MILLSTEIN,\1\ FORMER CHIEF RESTRUCTURING
OFFICER AT THE U.S. DEPARTMENT OF THE TREASURY, AND FOUNDER AND
CHIEF EXECUTIVE OFFICER, MILLSTEIN & CO.
Mr. Millstein. Thank you, Chairman, Ranking Member Carper,
and Members of the Committee.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Millstein appears in the Appendix
on page 133.
---------------------------------------------------------------------------
I am here today because the Postal Service is in trouble--
trouble that we can fix, but it does require a financial
restructuring to restore its ability to meet its ongoing
obligations and, frankly, a restructuring of the regulatory
regime under which it operates, to enable it to deal with the
challenges of a very rapidly changing market for its products
and services. Some of these challenges require immediate fixes.
Others can be handled in a more deliberate fashion after
further study and public debate.
If I can, in the short time that I have for an opening
statement, I think that I will lay out the four challenges that
I see and we can discuss the fixes down the road.
So, Congress intended the Postal Service to be a self-
sustaining governmental entity. The sale of its postage
products and services was intended to cover the cost of its
operations with no governmental or taxpayer support.
Nevertheless, the Postal Service faces four significant
challenges that have put its ability to sustain itself, in that
fashion, in jeopardy.
First, as a result of the growth of e-mail and Internet
advertising, physical mail volume is down over 24 percent since
the financial crisis. Running a nationwide delivery network
with shrinking volumes makes it increasingly difficult for the
Service to cover its network operating costs.
The second challenge is the rigid regulation of its
pricing. Established under the 2006 Act, Congress presumed that
the Service would have a monopoly in its First-Class and
standard mail products, and so to protect the public against
price gouging and to protect competitors in the package space
against unfair competition, the Service is prohibited from
increasing rates on its First-Class and standard mail by more
than the rate of inflation. Hit by the double whammy of a
downturn in volumes resulting from the great recession and from
the rapid growth of e-mail and Internet advertising, this
regulatory regime has left the Service with very little
flexibility to adjust its prices to recapture lost revenue so
as to be able to cover the operating costs of its network and
be self-sustaining.
Employing the only safety valve in the statute, the Service
applied for and received a so-called exigent price increase
from the PRC, allowing it to cover its costs and make a small
operating profit. However, this temporary price increase
expires this coming April, which will again leave the Service
unable to be self-sustaining in covering its operating costs.
The third challenge is the Postal Service's legacy
liabilities, and in particular, the statutory mandate imposed
under the 2006 Act, in which the Service was required to
prefund its post-retirement health care plan. The Act required
the Service to make 10 annual installments of $5 billion each,
the last of which would be due next year. Not surprisingly, the
Service has defaulted on the majority of these payments, as it
would have had to raise prices well beyond what its price
regulation permitted--or that the market could bear--to
generate $5 billion in incremental revenue every year to
satisfy this mandate. As a result, its Retiree Health Benefit
Fund remains $55 billion underfunded, based on projected
liability of $105 billion.
The fourth challenge is presented by the universal service
obligation, an obligation to touch all 155 million delivery
points on a regular basis at uniform prices in an era of
overall declining volumes and limited price flexibility. The
cost of this obligation is assumed to be offset by the benefit
of the mailbox monopoly that the Service is alleged to enjoy.
But in an era of rapidly growing electronic alternatives, it is
unclear, at least to me, that the Service has any monopoly at
all and, therefore, is being saddled with a financial burden it
is not being adequately compensated to carry. With competitors
skimming the most profitable business away, electronic
alternatives reducing its volumes, and rigid price regulation
limiting its flexibility, the universal service obligation, as
currently conceived, is slowly choking the Service to death.
So, in the short term, in my business, in the financial
restructuring business, the first job is to keep the patient
alive, and in this instance, that means making sure that it has
sufficient cash revenue to service its operating expenses.
In the long term--and these are the big questions that this
Committee and this Congress has to face--the question is, what
do we want this Postal Service to be? How are we going to
permit it to transform itself to meet the challenges--the
technological challenges, the market challenges, and the
competition--that it faces, and at the same time, serve the
public interest by keeping this Nation connected--keeping those
155 million delivery points connected with each other?
Thank you very much.
Chairman Johnson. Thank you, Mr. Millstein.
Again, I kind of reserved my opening statement so that I
can spend a little more time asking questions. I do want
everybody to refer to this basic balance sheet with a number of
columns, and what I have tried to do is--because we have a
financial problem and we have to look at numbers--I just want
to quickly lay out for my colleagues and for the witnesses how
this thing is set up.
The first column is the current balance sheet the way that
it is reported by the government, which is not using Generally
Accepted Accounting Principles (GAAP).
The second column puts on the balance sheet the fund
balances, as well as the unfunded liability, of the retirement
system and the health care system.
Then as to the columns A, B, and C, the first scenario, A,
simply reamortizes the short-term liability back into where it
really should be classified. It basically reclassifies the
long-term liability to where it should be. Then you start
talking about Medicare integration as well as current debt
restructuring.
Now, I realize that this is relatively complicated, but if
you really take a look at this, I think that it really lays out
and crystalizes the main problem here, and that is the point, I
think, of this hearing: to let us try and make this as simple
as possible. I think, Mr. Millstein, that you did a really good
job of laying out the four main problem areas.
Let us go to number two. We talked about rigid regulation
of pricing. I know that in the last go-around here, we compared
U.S. Postal Service price increases to their competitors, UPS
and FedEx. Off of the top of my head, I think that over a 6-
year period--this was a couple of years ago--UPS and FedEx had
increased their prices about 33 percent. The Postal Service was
somewhere between 14 and 16 percent, depending on which service
you are looking at. Is that--do you have any information on the
current status of that, of how far the Postal Service is behind
competitively, in terms of raising prices?
Mr. Millstein. I do not, sir, but in the materials that we
provided, there is one interesting statistic. The Postal
Service carries, in the package business, about the same volume
as FedEx, and yet it earns half of the revenue of FedEx. The
market--the dominant market package deliverer is UPS. So, the
Postal Service is a real competitor and a growing competitor in
that package space and it is the future, I think, of the
business, but it is hamstrung in competing in that package
space by the price regulations under which it operates. In
part--it is not limited in the package space in the same way
that it is limited in the First-Class Mail and standard mail
space.
But, the key here is that the Postal Service must maintain
a network that reaches all 155 delivery points, whereas UPS and
FedEx can pick their spots, can pick dense urban markets, where
the cost per delivery--per unit of delivery--is much lower than
servicing all 155. So, the issue that we face surrounds giving
the Service the pricing flexibility to be able to price all of
its products in a way that will allow it to be able to maintain
that network.
Chairman Johnson. OK. Again, I want to go--when the exigent
price increase is no more, and, basically, they have recovered
the amount of money they were supposed to recover--it is not
about timing, it is about how much business they have done--I
do want to talk about what that would actually do to Postal
rates when you combine the--I would say the misclassification
of the long-term liability, as it was forced to be classified
as a short-term liability. The combination of those two
things--I will go to the Postmaster General. Can you talk about
what effect that would have in pricing?
Ms. Brennan. Let me say, Mr. Chairman, first, if I may
address the comment about competitive pricing, we do
consistently evaluate where we have had room to take price on
the competitive side. We recently just raised our prices
roughly 10 percent, the first time in 3 years.
Now, on the market dominant side, the challenge is, those
products generate roughly 76 percent of our revenue and they
are capped. So, that is why the urgency of addressing the
exigent surcharge and the rollback in April is critical to us,
because it will impact us, causing a billion dollar negative
hit on our top-line revenue this fiscal year and $2.1 billion
going forward.
Chairman Johnson. And it will require legislation to
prevent that rollback, correct?
Ms. Brennan. Sir, yes. The PRC order requires that once we
achieve or collect the $4.6 billion, we need to roll prices
back.
Chairman Johnson. As an accountant, I have always been a
little bothered by the talk of prefunding the health care plan,
because we really did not prefund it. We just really
reclassified a long-term liability into a short-term liability,
correct? I mean, it has really just been a balance sheet entry,
correct?
Ms. Brennan. Yes.
Chairman Johnson. There really was not any funding going
on. We just borrowed more money. It was short-term borrowing,
and we have just, I think, improperly reclassified a long-term
liability into a current liability. Is that basically true?
Ms. Brennan. Yes, sir.
Chairman Johnson. So, in terms of what we must do, I mean,
from my standpoint, just according to GAAP, we should
accurately reflect this as a long-term liability, as opposed to
a short-term liability. But, you have a four-point plan. Having
done this a couple of years ago and having the scars on my back
for trying to actually come to a compromise here, what are the
areas of agreement between all of the interested parties--and
there are a lot of them--what are the areas of agreement? I
know that Senator Carper wanted a touchdown. Maybe we ought to
be thinking about a field goal.
What are the things that we absolutely must do to avoid a
real calamity in terms of the Postal system or pricing, and
what is going to be possible to do here in the short term?
Ms. Brennan. Sir, in terms of pricing, it would maintain
the exigent, making that part of the rate base. That will
generate $2.1 billion annually. In terms of the large----
Chairman Johnson. Is there any resistance to that?
Ms. Brennan. Yes. Now, I will say that there are many in
the industry, a broad cross-section, who support that, because
part of the proposal that we put forth would bake the exigent
into the rate base and then forego any CPI price increase in
calendar year 2016 or 2017, and then in 2017, we will have the
price review that the PRC will undertake--and that is
critically important.
Chairman Johnson. OK. So, again, in business, you try not
to roll back prices----
Ms. Brennan. Right.
Chairman Johnson [continuing]. Particularly when you are
already at lower prices than your competition anyway. So, to
me, that would be somewhat of a no-brainer, but OK. So, that is
the first thing. We do not have total agreement on that, but I
think that, if you really have a level head, and you want to
see a vibrant, viable Postal system, then you have to agree to
that.
What is the next area of agreement?
Ms. Brennan. Sir, cornerstone--and I have heard no one
dispute the fact that we should ensure that we are fully
integrated with Medicare for retirees 65 and older. As
mentioned, the Postal Service has paid $29 billion into that
fund and our employees should benefit from it. We are asking to
be treated like any self-funded entity.
Chairman Johnson. What the game plan there would be,
though, would be to offload the roughly $100 billion liability
of the health benefit plan, the pension health benefit plan,
onto Medicare, but without transferring the assets in that
health benefit plan? So, you are going to offload about a $100
billion liability into Medicare, but the Postal Service is
going to maintain the $50 billion of assets in their fund?
Ms. Brennan. Well, and I think, as discussed, accounting
principles would indicate that that should shift, as well.
Chairman Johnson. But right now, according to the proposal
as it is being laid out for me, that is not being contemplated
and we would not integrate it.
Ms. Brennan. I think that is----
Chairman Johnson. So, the Postal Service holds on to the
$50 billion and offloads a $100 billion liability onto
Medicare, the American taxpayer. I would agree that you would
probably get some credit for the $29 billion, and as we talked
about earlier in the anteroom, we do not know, out of that $29
billion funding from payroll deductions, how much the Postal
Service has actually used----
Ms. Brennan. Yes. We do not have access to that
information.
Chairman Johnson. They have used some of it, correct?
Ms. Brennan. Correct.
Chairman Johnson. OK.
Ms. Rectanus, you talked about a $100 billion unfunded
liability. According to the balance sheet here, it is about $79
billion. Looking at the summary figures here, can you tell me
where the difference comes from?
Ms. Rectanus. You mean $100 billion for retiree health
benefits?
Chairman Johnson. OK. You are only talking about that.
But that is not unfunded because they have $50 billion of
offsetting assets in their fund.
Ms. Rectanus. Yes. According to the Congressional Budget
Office (CBO) data that we used, the unfunded obligation left
over was $101 billion. That was based on the $50 billion that
they do have in assets.
Chairman Johnson. So, the total liability is $150 billion,
offset by $50 billion in the asset fund.
Mr. Millstein, can you address that?
Mr. Millstein. I do not think that that is right. I think
that the CBO liability is $105 billion and the asset offset is
around $50 billion.
Chairman Johnson. OK. Well, sure. Let me just say that this
is--and, again, I am not beating up any witness here--this is
the problem that I have been having for a number of years.
Again, as an accountant, I understand numbers and I cannot get
them. There is just so much confusion on this issue, and yet we
are--we passed the 2006 law that reclassified a long-term
liability into a short-term liability that created a real pinch
on the Postal Service that never should have occurred. So, if
we are going to pass something, we need the information and we
need it to be accurate. So, we have a long way to go.
I guess that I will stop at this point in time. I guess
that I have kind of made my point. I am still not there in
terms of understanding the financial condition of the Postal
Service, exactly what these proposals would do, as well as who
is for these proposals and who is against them.
The way that you get results--and we have actually proven
this in this Committee--is by looking for areas of agreement
that unify, as opposed to exploiting differences. You can
actually get results that way. We have actually passed 55
pieces of legislation through this Committee. Sixteen have
already been signed into law. We have to find that sweet spot
here, because everybody that I talk to says that we have to
keep the Postal Service viable--and I agree with that--and yet
we have not had all of those parties come together and find an
agreement.
So, the first thing you have to agree on, though, is we
have to have the numbers right and we have to know what we are
actually doing--and we are not there yet.
Mr. Williams, you can quickly comment before I turn it over
to Senator Carper.
Mr. Williams. Thank you, Senator. I think that the
liability, as you said, the $79 billion, that is the mandate.
We have additional liabilities, though. Workers' Compensation
brings it up to about $98 billion. And when you add the
Treasury debt, it is $125 billion. Those are all of our
liabilities. The mandate is to prepay $79 billion.
Chairman Johnson. OK. So, again, I have been after this--I
have been at this for quite some time, trying to get--so, what
we need to do is, working with you, let us come up with a
relatively simplified balance sheet that lays it out so that
there are not any questions about this, and so that we are not
dealing with a bunch of different numbers. ``Oh, that is not
included here,'' or ``This is off of the balance sheet there.''
I think that this is a pretty good format and I am really just
going to ask people, just for my benefit if for nobody else's,
to give me the information. OK, work on this, and we will talk
to you afterwards. Senator Carper.
Senator Carper. I am going to yield my time to Senator
Tester, who needs to leave. But, I do want to say something
before I do that.
First of all, your testimony is very good and, I think,
very helpful and very instructive. But, what we really have
been doing with the Postal Service is requiring them to
maintain this universal network, 150 or 160 million delivery
points. They have to do that. And while making that the
requirement, we limit their ability to increase prices for a
number of their products. We limited, in some cases, the kind
of products that they can offer through their distribution
network.
And we require the Postal Service to do something that I do
not know if any other business in America does--not only to
recognize the liability associated with their 65-and-over
retirees for health care, but to address that and to pay that
down--not over 30 or 40 years--but over 10 years. I am not
aware of any company in America that does that. So, that is a
pretty good to-do list there for us, and our job is to do it.
I have wrestled with the numbers, as Senator Johnson has
alluded to, and I do not pretend to be an expert on this, but
if I can understand it, I think that most of us can. And one of
the things that we need from the Postal Service, Postmaster
General, is something that we talked about just yesterday, and
that is a 10-year financial statement laying out your expected
revenues and your expenses. Give us an opportunity to see what
happens and where that leaves us in a cash position each year,
and see if that cash position is sufficient to enable us, not
just to meet some of these liabilities and to pay them down,
but also to capitalize--or recapitalize--the Postal Service's
vehicles, modernize their fleet, modernize their package
handling facilities, and modernize their Post Offices. That is
our challenge. And, actually, I think that we can do that.
Senator Tester.
OPENING STATEMENT OF SENATOR TESTER
Senator Tester. Thank you, Tom, for your generosity.
I will make this very quick. First of all, I appreciate all
of your testimonies. I mean that. I think that you pretty much
all said the same thing in a different way.
But, I am going to start with you, Mr. Williams. You have
been around the block in the IG world, and you can answer this,
too, Jim, if you would like. Is there any other agency in the
government that has to prepay their benefits?
Mr. Williams. There is not.
Senator Tester. OK. So, the Postal Service is alone in
this.
Mr. Williams. Right.
Senator Tester. And, I think that you made the point very
well in your testimony, about getting numbers that make sense,
whether the Postal Service made money or lost money, as they
move forward. But, I think that the prepayment thing, if we do
not get our arms around that, along with the Medicare thing--I
do not know if you guys will ever get to a point where you
would be solvent. Would you agree with that, Postmaster
General?
Ms. Brennan. Senator Tester, if I may, first, to the
Chairman, the Postal Service will provide certainly the current
assets and liabilities to ensure that we have valid numbers.
Senator Tester, looking ahead, based on our projection----
Senator Tester. Yes.
Ms. Brennan [continuing]. We would be liquid, have
manageable debt with legislation. We still would have
liabilities, and the discussion then would be about how to
amortize those liabilities to make----
Senator Tester. But without dealing with the prepayment
issue, would you still be liquid?
Ms. Brennan. Without dealing with the prepayment issue?
Senator Tester. Yes.
Ms. Brennan. No, sir.
Senator Tester. OK. So, unless we are willing to agree on
that single issue, we are never going to get you to a point--
and then be able to deal with the others, also. I would agree
with that.
Did anybody on this panel, and I am not making any
accusations, take a look at the contracts between the private
carriers in the last mile to see if they are appropriate? Go
ahead.
Mr. Taub. Senator Tester, the contracts that the Postal
Service has, to the extent that they are negotiated service
agreements----
Senator Tester. Yes, that is correct.
Mr. Taub [continuing]. That goes before the Postal
Regulatory Commission.
Senator Tester. Yes.
Mr. Taub. Under the law, we look at that to ensure that
they cover their costs and that, collectively, all competitive
products have to contribute to the overhead. So, that has to go
through review through the Commission.
Senator Tester. So, is it a zero-based thing or do they
make profit?
Mr. Taub. As long as they are covering their costs, it is
in compliance with the law. But, I would note that for
competitive products, we require that, collectively, they
contribute 5.5 percent to the institutional costs. This last
year, they contributed over 13 percent.
Senator Tester. OK. The universal service obligation was
brought up several times during the testimonies, and the
thought occurred to me, who are you going to prune off? I mean,
Heidi and I have customers that live a long ways apart from one
another. If we prune those folks off, it would probably save a
lot of money, but arguably, they may be the folks who most need
the service.
So, Jim, do you have any ideas on how we can deal with this
issue?
Mr. Millstein. Yes. I do not think that we have to invent
this out of whole cloth. Obviously, you can vary service in
terms of how often it is done to try to manage the costs.
But, other countries that have an equal interest in making
sure that all of these points of contact are maintained on a
regular basis allow their postal services to do other things to
subsidize that universal service obligation. We have tightly
restricted the Postal Service's products and services and so it
does not have the ability to earn revenue and profit from other
lines of business that it could enter into in order to meet
that universal service burden--and it is a burden. So, it
really is a question of, if the Congress wants to keep it up,
it could subsidize it----
Senator Tester. OK.
Mr. Millstein [continuing]. But you have determined, as a
group, that you want this thing to be self-sustaining. If you
want it to be self-sustaining, you have to give it the ability
to generate the revenue necessary to meet that universal
service obligation.
Senator Tester. David, do you want to respond?
Mr. Williams. I really do not think that we need to begin
down that trail.
Senator Tester. Good.
Mr. Williams. But if we do start down that trail, I
honestly think that it is time to give up. When we cut off that
first person----
Senator Tester. Yes. I would agree 100 percent with that,
and I am glad that you guys clarified that within your
statements. I appreciate that.
I will just say one last thing. Those who think that the
Postal Service is antiquated need to come to my house, because
without the Postal Service, I am in a world of hurt--and I have
fiber coming into my house. So, it is a big deal.
And, the last thing that I will say, with OPM breach that
this Committee has dealt with--I just met with Beth Cobert the
other day--the most secure way to send information to the folks
who have been breached is through direct mail, and we need to
keep that in mind as we go forward.
Thank you, Mr. Chairman.
Chairman Johnson. Thank you, Senator Tester. Senator
Booker.
OPENING STATEMENT OF SENATOR BOOKER
Senator Booker. Just for the record, I heard that Senator
Tester said, ``Those who think that the Postal Service is
antiquated should come to my house.'' I am going to take that
as an invitation, which he has never given me before, to his
house. [Laughter.]
Senator Tester. I look forward to that, Booker.
Senator Booker. I appreciate that. I am one of those house
guests that will never leave. [Laughter.]
I do think that the Post Office is antiquated, but not in
the ways that have been discussed, and not in the ways that
would make my friends in rural States annoyed. I am just
concerned about some of the updates to equipment that could
make it more efficient and more effective.
I have introduced legislation, the Postal Innovation Act,
which stresses the urgent need for the U.S. Postal Service just
to modernize, from updating the 190,000 vehicles in the Postal
fleet with new crash avoidance technologies to investing in
innovation. USPS has the opportunity to really show leadership
in technology and safety efforts that could help in some ways,
as the government did with seat belts, to lead the way into a
new era of protecting lives, as well as integrating technology.
And on top of that it could accrue long-term savings, which
seems to be one of the buzz words here.
So, to the Postmaster General, I would just like to ask,
how will USPS be working to incorporate new safety technology
in the Postal fleet to reduce accidents and to lower greenhouse
gas emissions?
Ms. Brennan. Thank you, Senator Booker. In terms of the
next generation delivery fleet, we are working with industry
experts and we are looking at industry best practices in terms
of safety. The requirements assessment, as we move forward in
this process, is the safety, ergonomics, fuel emissions, fuel
efficiency, and also, from an operational standpoint, having
enough cargo space, given the change in the product mix for the
vehicles.
Senator Booker. So, when I was the mayor of a city, the
challenge that I often had was that, if we made a significant
up-front investment, then it would cost a lot of money, but the
savings would accrue over many years. And, do you all have the
resources to invest in the kind of innovations that would
create long-term savings, or is that a problem for you?
Ms. Brennan. Well, Senator, legislation will give us some
additional capital moneys that we can invest in the
infrastructure, because, as mentioned, we have deferred capital
investments in the past due to not having money available. We
will continue to prioritize the available capital moneys that
we have. But we need to be in a position where we are able to
invest in the infrastructures, repairs, and alterations of our
more than 30,000 buildings, as well as the new vehicle fleet.
Roughly 212,000 vehicles are on the road 6 days a week, and
increasingly 7 days a week, traveling nearly four million
miles. So, we have to invest in our infrastructure to enable us
to continue to compete in this critical marketplace.
Senator Booker. I completely agree. I appreciate that.
I also believe that, in order to maintain the robust
delivery service and continue to reap the benefits of a
thriving connected country, we must take action toward forming
a comprehensive Postal bill, which you all seem to be calling
for and some of my colleagues seem to be calling for. I am
really happy that Senators Carper, McCaskill, Moran, and Blunt
have put forth what I think is a very balanced, bipartisan
proposal that could keep the USPS afloat, although I am hoping
that some other innovations will be included in it as well.
And, so I just want to ask the panel real quick before I
conclude, do you agree that there is this need? What is the
urgency, in terms of the timeline for this legislation? How
urgent is it to act? I would like to sort of highlight that.
Ms. Brennan. Senator Booker, the time is now.
Senator Booker. And the consequences of delay?
Ms. Brennan. The consequence is that it would necessitate
us making decisions around defaulting on additional obligations
and potentially put our core mission, delivering the mail to
every American, at risk.
Senator Booker. So, this is not something that should wait
until after a Presidential election or until the next Congress?
This is something that really needs to be done right now?
Ms. Brennan. The time is now, sir.
Senator Booker. Thank you very much.
Mr. Chairman, I appreciate the time.
Chairman Johnson. Thank you, Senator Booker.
There is a vote called at 10:30 and I really do have to
leave, so I will turn it over to the capable hands of Senator
Carper. You are going to have to figure out how to--if you want
to recess to have everybody vote or whatever, that is fine and
that will be up to you.
Again, I want to thank the witnesses. This is an issue, as
Senator Booker's question elicited, that we have to address.
Literally, failure is not an option. So, I wanted to hold this
hearing, and Madam Postmaster General, I will definitely be
sitting down with you----
Ms. Brennan. Thank you.
Chairman Johnson [continuing]. And I think you understand
my passion to get the actual facts and figures straight----
Ms. Brennan. Yes, sir.
Chairman Johnson [continuing]. So that I know exactly what
we are dealing with when we head to some kind of markup, in
terms of the areas of agreement that we need to get resolved.
OK?
Ms. Brennan. Thank you, Mr. Chairman.
Chairman Johnson. So, again, that is my commitment. We will
definitely jump into this.
And with that, I will turn it over to Senator Carper. Thank
you.
Senator Carper [Presiding.] What I would like to do is to
play tag team here. Is there someone who would like to go vote
and then come right back and I will continue to--OK. That would
be great. Gary, I think that you are next. Thank you, Heidi.
OPENING STATEMENT OF SENATOR PETERS
Senator Peters. Thank you, Senator Carper, and thank you to
the panel for your testimony. We definitely have a significant
issue here, one that is going to take a lot of effort to work
through.
And I have some questions, but before I do that, I actually
want to begin by reading an e-mail that I received from a
constituent, someone who is very agitated about mail service. I
promised that I would read this beacuse I was going to be with
the panel. I think that it highlights the challenges that we
have with the service and how we need to be part of the
solution to help you.
But, this is a quote from the gentleman's e-mail, ``I am on
the Martin Luther King Holiday Commission and we proudly give
$15,000 in scholarships each year. The students apply to the
Commission via mail and were informed to provide their
applications this year postmarked by December 4, with the
actual judging to be held on December 12.
I went to the Post Office every day between December 4 and
December 12 to be sure to get every application. They seemed to
trickle in this year, but for some odd reason, they only came
from the Lansing schools and there was an unusually small
number of them. I even went to the Clerk's desk on the morning
of December 12, asked them if there was any other way that our
mail could have been misplaced. They checked the sorting room
and said that everything had been received. I continued to get
our mail the following week and did not receive any other
applications, and aside from the normal checks, receipts, ads,
et cetera.
On Tuesday, December 22, one of our Commissioners in my
absence went to the Post Office to check the mailbox and [oh my
goodness] there were found 40 applications all postmarked
December 4 and routed through Grand Rapids. Forty young people
within a stone's throw of Lansing were denied a chance at up to
a $5,000 scholarship because our government has made the Postal
system inept.''
We certainly do not want the government to make the Postal
Service inept and allow for something like this to happen. If
you do the math here, it took 18 days for applications that
were postmarked on the day that they were supposed to be to
actually get into the hands of this Commission.
So, I hear these types of comments frequently in Michigan
and I guess I feel like we are in somewhat of a death spiral. I
understand the impact on First-Class Mail and revenues and the
financial stress that that puts on the Service, but as service
degrades, then people figure, ``I am not going to use the
Service anymore. I am going to have these students just do it
electronically going forward.'' And I know that there have been
a number of closures related to that.
Postmaster, it looks like you want to respond to this. I
was not going to ask for a response to this, but I would love
to hear your thoughts.
Ms. Brennan. No, Senator Peters, I just would like to say
that service is foundational and it is key to growth for the
Postal Service. It is in our name. So, we are working day in
and day out to improve service reliability. This particular
example is certainly unacceptable and not indicative of the
caliber of service we typically provide. But, know that we are
committed to improving service.
Senator Peters. Well, I know that you are and I did not
mean to suggest that you were not. I meant that, as a
situation, this shows that we have a problem here. And I know
that the folks, the men and women who work in the Postal
Service are hard working and dedicated individuals. But, also,
as you cut costs and close facilities and do these types of
things, it is going to have an impact on service, and we have
to figure out a way so that that does not happen, so that we
are not in this death spiral.
And, I think, Mr. Millstein, that your testimony was
particularly interesting. The comment that you made was that
the Congress and the government treat the Postal Service as a
monopoly--when it clearly is not a monopoly, and yet we saddle
USPS with the regulations that you would expect from an
electric utility--perhaps even more than an electric utility,
which we know is a monopoly since it is only that one line into
the household. There is no monopoly occuring in this space--and
it is not happening, particularly, when taking into account the
universal service obligation.
I want to pick up on the universal service obligation, as
well, because I also represent--Michigan has a number of very
rural areas, as well, and I am concerned about that universal
obligation. And your comments to Senator Tester, that we should
not end that, I agree with. We have to continue that service.
You mentioned that other countries have flexibility, but
are there any countries that do not subsidize that type of
thing? And, I look at subsidies--Congress currently subsidizes
because we want airline service to extend to rural areas. We
subsidize airlines to fly airplanes to those areas. We are
expecting the Postal Service to make a profit in very rural
areas. Are there countries that do not subsidize, or is that
only related to flexibility, or is there more to it?
Mr. Millstein. Yes. There are a number of countries. Japan,
Italy, Britain, and Australia have privatized their postal
services, and in the context--having privatized them--require
them to still meet a universal service obligation. And you do
not have to go down the full road to privatization in order to
do this, but what you do have to do is permit what
privatization permitted in these countries, which is to allow
those postal services to engage in other lines of business and
to use the profits made in those other lines of business to
subsidize their ability to meet the universal service
obligation.
So, you can do this in a couple of different ways. The
Congress, itself, could do it by direct appropriation in order
to ensure that rural communities are served and those 155
million points of delivery have regular service. Or, you can
expand the kinds of businesses that the Postal Service is
permitted to be in so as to generate incremental revenues to
foot that bill. But, either way, it costs something to maintain
this network, and clearly, the price constraints under which
the Service is currently operating, do not permit it to do this
very well for very much longer without incremental price
increases or incremental revenues.
Senator Peters. Mr. Williams.
Mr. Williams. Thank you, sir. Actually, the hallmark--the
world posts are doing much better now, but the hallmark of
their success has been pricing flexibility as well as the
ability to diversify. World posts now make--last year, they
began making more money on non-mail than on mail.
As far as privatization, it has some intriguing aspects to
it, but when you talk about privatization, there are posts that
are moving in that direction. The only ones that are privatized
so far are in tiny places, and we would be really foolhardy to
try to extrapolate from what the city-State of Singapore is
doing--they are privatized--or Belgium, the size of Maryland,
and others. The larger countries, in terms of geography, have
not privatized--or else they have only partially privatized.
The Postal Service is partially privatized. The work share
discounts and the partnerships that they have constitute
probably around 25 to 28 percent privatization. We have just
done it in a different way, and we have done it in a way that
preserves our promises to our people.
Senator Peters. Mr. Millstein.
Mr. Millstein. Yes, but I think that there are some larger
industrial nations that have begun the process of privatizing
their postal services. They are not fully done. They still own
a substantial majority of the equity, but they are in the
process of selling that equity into the public markets.
That said, that is a big step. You do not have to go there
to fix the short-term problems that the Postal Service faces.
But what you do have to do is find a way to give the Postal
Service flexibility to raise prices and increase revenues to
maintain this universal service obligation. They cannot do it--
it costs money to do it. They have to be able to generate the
revenues to cover the burden.
Mr. Williams. There is a reason that the large countries
are not finished privatizing. It is because they stopped. They
started forward, they began to sag, and they have halted the
effort.
Senator Peters. Yes.
Mr. Williams. The only one that is a little bit larger is
England. When England privatized, they took over all of the
liabilities. Not only is that not on the table, to take over
our liabilities, but, in the past legislation, you asked that
we prefund them. I know that you are trying to do some really
interesting, clever things in the proposed legislation, but as
far as large countries that have privatized--there are not any.
They started and they stopped.
Senator Peters. Yes. Well, I appreciate that. Certainly, I
am a big proponent of maintaining universal service. I think
that it is a critical part of the Postal Service. I appreciated
the comment that you lose your soul if you end that feature of
the Postal Service. But understand that you are also being
cannibalized, your business, by very aggressive private
companies that are out there taking the real profitable parts
of your business.
So, I just want to say, my time has ended, but I am here
for you in figuring out a solution to this. I look forward to
working with you. Sorry about the time constraints on this
panel, but I know that all of you are committed to finding a
solution, and I am, as well. I look forward to working with you
in the--it will have to be in the months ahead--not years. Too
many years have already gone by. We have to figure this out and
we have to figure it out as soon as possible.
Ms. Brennan. Thank you, Senator Peters.
Senator Carper. I like that sense of urgency. That is a
sense of urgency that all of us on this panel need to feel--all
of us. Thank you, Senator Peters.
I joined Senator Peters and Senator Stabenow about 10 days
ago in Detroit for the opening of the Detroit Auto Show, and
before I left, I stopped by one of the restrooms there, Gary,
and as I was coming out, there was a janitor waiting to go in.
And, as you know, there were tons of people, the place was just
packed with thousands and thousands of people there for the
opening day.
And, I said to the janitor, ``The restrooms here are really
clean. I mean, this is amazing, all of these people and they
look so presentable and they are clean.'' And, I said, ``Who
does this? '' And, he thought for a second and he said, ``Well,
I do.'' And, I said, ``Well, you are doing a good job.'' He
said to me, I will never forget--he said, ``That is my job and
I am proud to do it.'' And, I said, ``Terrific.'' And, he said,
``We all have our jobs. We need to do our jobs well.''
He was right. And our job here is to be an enabler. We
cannot fix this problem by ourselves, but we can certainly
enable the Postal Service to do a lot of what others have
suggested that they need to do. So, we are going to do our job.
Part of our job is to unleash innovation and creativity
within the Postal Service. General, you and I have talked a bit
about some of the innovations that are being pursued, that
could be pursued, and I would just like for you to share with
us some of what you are doing now that you think is promising,
in terms of generating additional revenues. I am not interested
in the Postal Service owning a bank. In some countries, the
postal services own banks. I do not know, could we lease space
for bank branches like we do in supermarkets? That might make
sense. I am not interested in the Postal Service owning an
insurance company.
But, those things notwithstanding, there are some
innovations that can be made and we can do a number of things.
The Postal Service can do a number of things if you want to and
if we let you. So, go ahead and just give us--and then I am
going to ask the other panelists to react to those ideas and
maybe give us some of your own. Please, General.
Ms. Brennan. Thank you, Ranking Member. If you consider our
infrastructure, it is important that we innovate at the core,
which we have been doing when you consider the growth in market
share of our package volume, looking at customized delivery
solutions with this exponential growth in e-commerce.
When we look beyond the current statute--and fundamentally,
we are looking for more flexibility in pricing and product. One
example that we should consider is that, if we have more than
200,000 vehicles, as I mentioned, traversing more than four
million miles on any given day--Inspector General Williams
mentioned smart cities--is there an opportunity for us to
partner with these local municipalities and apply sensors to
our delivery vehicles that could capture air quality samples,
that could consider road conditions, traffic patterns, and the
like? That is just one example.
Also, we are currently partnering with the Census Bureau on
onboarding Census employees, similar to our passport operation
that we have in our retail offices, where you come in, we
validate your information, and we authenticate your identity.
Something that we are currently doing with another Federal
agency, but maybe there is application there, as well, that we
can pursue. So, these are just two examples.
I think that we have been very innovative with the mail, in
terms of bridging hard copy and digital and working with the
industry to look at promotional pricing to say, ``How do you
enhance the value of hard copy communication?'' So, I think
that there are a number of opportunities--certainly within our
current constraints and then with some additional flexibility--
that we can pursue.
Senator Carper. Can you talk about what is going on with
respect to delivering groceries in a couple of metropolitan
areas.
Ms. Brennan. Yes, sir. We actually started grocery delivery
in San Francisco roughly 2 years ago and we have since expanded
to other markets. And we look at that, again, as an opportunity
to innovate at the core, leveraging our infrastructure and
looking for other ways to generate revenue. So, we are talking
with a number of potential customers about expanding that type
of service, and also looking at other physical goods that we
could deliver.
Mr. Taub. Senator Carper, I have a few observations.
Senator Carper. Chairman Taub.
Mr. Taub. First and foremost, as you have heard, I think,
throughout all of the witness testimonies this morning and
certainly the Commission's testimonies, there is a financial
balance sheet mess and that has real world implications in
terms of very low liquidity, very little working capital to
invest, and critically deferred capital investments, whether it
is vehicles or package sortation equipment. So, we can think of
great ideas, but unless you have that capital to invest, there
are some costs there and I think that the Postmaster General
outlined some of these. While we think about broadening the
aperture, I do not think that we should lose sight of the core
of the Postal Service and innovating the products that they
have today.
The other aspect that I observe also goes to this issue
that I mentioned--and the Commission's testimony outlines this
aspect of universal service. We had some discussion here
earlier today. I would point out, though, that in the United
States, unlike most other countries around the planet, we have
not specifically defined the various features--except for the
33 years of the annual appropriation bill mandating 6-day
delivery--in law. That has served the Postal Service and our
Nation well for 240 years, the flexibility to balance those
needs. But now, when you are in the financial situation that we
are, a better understanding of the costs of what we expect of
the Postal Service helps us to determine--if we are looking to
broaden that aperture--the costs of getting in an area, the
potential benefits of getting in an area, and if getting in
that area will still allow the Postal Service to be self-
sustaining.
Senator Carper. All right. Thank you for those thoughts.
I am going to ask the rest of our panel just to keep in
mind a response to my question, responding to what the General
has said. I am going to pass the gavel to Senator Heitkamp and
run to vote. I will be back shortly. Thank you, Heidi. Thank
you all.
OPENING STATEMENT OF SENATOR HEITKAMP
Senator Heitkamp [Presiding.] It will be a fleeting moment
of fame, I am quite certain. [Laughter.]
I want to follow up on what Senator Tester was talking
about. No big surprise there, Megan, but I obviously continue
to be very concerned about rural Postal delivery. I just want
to give you some statistics, and I want to thank you all for
once again appearing. I ran into several of my colleagues as I
was rushing back here, telling them that we are working on
Postal reform. This has been an issue that so many people have
spent so many hours on, and I thank both Jim and Dave.
You basically nailed it. There is not any idea out there
that we have not vetted, that we have not figured out, or that
we have left behind. There is no magic bullet. We just have to
do the work that a board of directors should do for an entity
that runs very much like a business.
And, certainly, I think that there has been a lot of effort
on this Committee--it has not been successful, I mean, let us
be honest. I watched, in my location here in D.C., the mail
being delivered at Christmastime with U-Hauls. We even saw it
in North Dakota, so we know that we have some issues that we
have to confront in terms of mail delivery.
And, I certainly share the sentiment that once we start
telling someone, ``We are not going to deliver the mail at the
end of the mile,'' then we are not the United States Postal
Service. We are not meeting our constitutional obligation.
And, so, my focus has been mostly on what this means for
rural America. And, so, I want to kind of give you some
statistics, just so that you understand what Senator Tester is
talking about, in terms of the prominence and importance of
mail delivery in rural America.
The Inspector General of the United States Postal Service
released a report in April 2015 about the variance in
originating First-Class Mail single piece volume declines
throughout the United States. From 1995 to 2013, the
originating First-Class Mail volume in North Dakota only
decreased by 37 percent. That is the lowest rate of volume
decline of any State in the country. It is significantly lower
than the 61 percent national average First-Class Mail volume
decline for this same period. And I want to point out that
other rural States, such as South Dakota, Montana, and Vermont
followed a similar pattern. If you want to know where you have
not seen this same rapid rate of decline, it is in rural
States. It is in rural communities. So, that just impresses
upon people how important rural delivery is.
And, we recently, and I do not know--Megan, I am sure your
staff has briefed you about the situation that we have in
Fargo----
Ms. Brennan. Yes----
Senator Heitkamp. It is a subdivision in Fargo, basically,
but it is rural delivery. And we have talked several times
about this, about the contracting for rural Postal carriers and
the difficulty that we have when old deliverers, basically, are
edged out monetarily by somebody who wants the contract.
I am going to talk a little bit about what is happening in
this neighborhood in South Fargo. The residents recently formed
a Facebook group, and everybody in the subdivision is on this
Facebook group. Do you know why? So that they can swap mail,
because the mail is not getting delivered to the right Post
Office (P.O.) box.
Now, think about the time of year that we are in and what
is being delivered. Senator Tester has explained that the
safest way to protect your personal data and your personal
information is the U.S. Postal Service, right? So, what is
being delivered to your neighbors right now? Your W-2s, right?
Confidential information--1099s, tax data, and information that
contains some of the most private information, other than your
medical information: your financial information.
And when we followed up on this, and the Postmaster in
Fargo is busy working on this, but when we followed up on this,
we asked, ``What is the training for somebody who gets a new
contract? '' They said, ``24 hours.'' 24 hours to try and
figure out how to deliver the mail.
And, I do not mean to say that this one incident proves the
point of what is happening in rural delivery, but you know and
I know, from the portal we opened up called #fixmymail, that
this is not an isolated circumstance. It is unique, because it
is occuring in rural Fargo, as opposed to Dunn County or one of
the more rural counties.
So, how are we going to reestablish that trust and faith,
Postmaster General, in rural delivery, when in rural America
they just think that they have lost a whole lot of quality in
the delivery of Postal services?
Ms. Brennan. Senator Heitkamp, we are committed to rural
America and I, personally, am as well. And in terms of
training, that is an investment in our employees and that is
something that we have addressed this year and----
Senator Heitkamp. Well, they are not really your employees,
though. They are your contractors, right?
Ms. Brennan. But they represent the Postal Service, so----
Senator Heitkamp. They sure do.
Ms. Brennan. We need to train them. Whether it is a
contract employee or a career Postal employee, they need to be
trained.
In terms of improvements in rural America, we have been
working to establish hubs, entry points specifically for our
county newspapers, by working with the National Newspaper
Association. In many rural areas, we have adjusted
transportation and also added additional capacity where it is
needed. But, please know, we are committed to rural America.
And, as you know, we are also looking to enhance service
measurement, working with the regulator, so that we can have
more granular data and that we can identify pinch points or any
systemic issues, if we have them, and so that we can address it
quicker and ensure that we are providing consistent and
reliable service. That is our commitment.
Senator Heitkamp. And I have no doubt that your words are
heartfelt. I mean, we have had these conversations and I have
been grateful for all of the meetings and the work that we did
on our rural Postal bill, many provisions of which have been
included in this bill. But, service standards are not what they
were. They just are not, and they are not acceptable. Even in
the old days, when I was a kid--and I think that I have told
you this story, where I challenged my law school classmates in
Portland, Oregon to send me a letter that said ``Heidi'' and
the zip code--and I got that letter. I got their letters. I
mean, they took up the challenge. And I got them in 2 days.
That does not happen anymore.
And, so, we recognize the challenges and the financial
challenges facing the Postal Service, but I do not want this
just to be about spreadsheets. I want this to be about service
and about once again reestablishing, especially in rural
communities--we desperately need to have a fair balance between
cost cutting and economy measures and continuing the mandate
that we believe the writers of the Constitution gave us, which
is to have a Postal system that works for the entire country.
And, so, I just want to make sure of that, and we will have
follow-up questions, Megan. I know that you are heartfelt, but
we just do not see it in rural America. We do not see that
concern being translated into improvements.
Ms. Brennan. And I would say, Senator Heitkamp, that
financial stability does support those service efforts. We are
committed and we look forward to continuing to work with you on
these issues.
Senator Heitkamp. I have used up all of my time, and I see
that Senator Baldwin is back. I am going to yield and give her
time, and if they do not show up, then we will have it all to
ourselves, Tammy.
Senator Baldwin. Great. [Laughter.]
Thank you, Chairman Heitkamp.
Senator Heitkamp. The inmates are in charge of the asylum.
[Laughter.]
OPENING STATEMENT OF SENATOR BALDWIN
Senator Baldwin. I appreciate it, and in their absence, I
want to recognize the Chairman and Ranking Member Carper for
this hearing. Everybody has commented on the fact that the
Postal Service touches each one of our constituents, each one
of our communities, and I am appreciative of the work of all of
the stakeholders in getting us to have this conversation. And,
I will talk to him directly when he returns, but I appreciate
Senator Carper's work and look forward to continuing to work
with him on the rate provisions, in particular, in the
legislation.
So, everyone has acknowledged the significant changes to
dealing with printed mail in the era of e-commerce and in the
wake of our recession. The Postal Service affects our
communities in different ways, and I think that last session,
many of my colleagues heard me talk about some of the unique
ways in which it impacts Wisconsin, because we have this
incredible workforce of loyal Postal Service workers, but we
are also a State that is forested in the north of the State and
is the number one producer of paper in the country. Because of
that, we have a vibrant graphics and printing industry and we
have many mailhouses in the State. Fully a third of the
communication papers printed in the State of Wisconsin are
delivered through the Postal Service. So, the health, vibrancy,
and future of the Post Office, I think, has a disproportionate
impact on the State of Wisconsin.
As a consequence of that, I not only hear from Postal
customers, but also from my constituents who work in the
mailing industry. From them, I hear about the challenges
associated with the changes in mail volume. One of the things
that I have heard about is the importance of having consistent
rates and predictable pricing, so that businesses can plan and
budget accordingly.
Chairman Taub, one of the purposes of the current rate
structure and the upcoming rate review is to ensure pricing
stability, yet it appears that the effect of the exigency
surcharge may have exactly the opposite effect. For example, it
seems like, if we do not take action, rates are likely to go
down in April and will potentially go back up at some point--
either through legislation or after the PRC review.
So, I have a couple of questions, but I want to start with
this one: Can you speak to the importance of pricing
predictability and how the constant changing of rates, or this
yo-yo effect that we see, affects consumers and the mailing
industry?
Mr. Taub. Certainly, Senator. First and foremost, I would
like to point out that in 2017--or actually starting December
20 of this year--by law, the Commission will begin a proceeding
to look at the decade of experience that we have with this
price-cap system and the market-dominant rate system that is in
place. I certainly would not and could not prejudge what the
Commission will do at that time, but as the law mandates, that
will be conducted in a very open and public way, with notice
and an opportunity for public comment. And the key mandate of
that study is for the Commission to look at this decade of
experience, look at the nine objectives in law and the 14
factors we take into effect, and assess how it has been
working.
I would say, certainly, the law has been clear that there
is a CPI cap. The law also included a provision for, in an
extraordinary and exceptional circumstance, an opportunity to
recover losses due to that event. That has occurred here, all
done in an open and public way with advance notice. But, we
certainly will be looking at that.
Of the nine objectives, number two is to create
predictability and stability in rates, and as I said, that is
one of nine. Our most recent annual report observed that some
of these can sometimes seem in conflict with one another, but
the bean will be on our nose, starting December 20 of this
year, to look at that. But, clearly, whatever we look at,
objective number two goes to your point, which is the need to
create predictability and stability in rates--and that will
have to be applied equally with the other eight objectives.
Senator Baldwin. Well, in your testimony, you talked about
the balancing of certain objectives and factors, and you have
repeated that now. Talk a little bit more about the balancing
issue, because, I mean, I think that that is clearly what is
most critically important to constituents who have such
interactions with the U.S. Postal Service in the State of
Wisconsin and elsewhere. How do you make sure that it is both
fair and equitable to consumers, while at the same time
ensuring that it sustains the Postal Service?
Mr. Taub. Indeed, that is the challenge that the 2006 law,
in its wisdom, put on for the Commission. The Commission
promulgated regulations shortly after that law was enacted to
create this new system. In essence, what it did was say that we
are going to take this current CPI limitation, that is very
clearly delineated in statute, and then we will look to make
sure that, whenever the Postal Service makes changes, they are
balancing those nine objectives and factors. It is going to
shift December 20 of this year when we start that review,
because now the bean is back on our nose to look at those nine
objectives and ask, ``In the 10 years of experience, have they
achieved that? ''
And maybe just to highlight a few for the record, not only
are you creating predictability and stability in rates, but
number 5 is to assure adequate revenues, including retained
earnings, to maintain financial stability. Number 4 is to allow
the Postal Service pricing flexibility. Number 8 speaks of just
and reasonable rates.
Sometimes, certainly, I think that even describing that can
be in conflict, and so it is going to be our challenge to make
sure that when we look at this--whatever system is the
outcome--we hit that sweet spot.
If I could just add to that, looking ahead to 2017, there
is a large spectrum, it seems to me, just reading the law and
having been involved in it, of what the Commission may or may
not do. And as I said, I do not know what the Commission will
do. It will have to look at this. But, the outcome could be
everything from looking at it and saying that the status quo is
where we are at, to, as the law says, devise such modifications
or an alternative system to set rates to meet those objectives.
That is a broad spectrum. I do not know where the Commission
will set in, but please know that, first, we are planning right
now for that study so that we can hit the ground running. There
is going to be a lot of focus on that, understandably, and the
stakes are high and we want to do it right. We do not want to
end up with a study that raises more questions than it answers.
Senator Baldwin. Mr. Chairman, I have gone over my time, so
I yield back.
Senator Carper. [Presiding.] Did you ask what you wanted to
ask?
Senator Baldwin. I did.
Senator Carper. OK, good. Heidi?
Senator Heitkamp. I have just a couple more questions, if
that is OK.
Senator Carper. Yes. Go ahead.
Senator Heitkamp. Thank you.
Going back to the statistics that I cited, Megan, can we
just get a commitment that you actually will look at geographic
needs in rural America, that we can get a greater sense of
where meeting those needs fits within the Postal Service's
priorities?
Ms. Brennan. Yes, Senator Heitkamp. Yes. Absolutely.
Senator Heitkamp. OK. Thank you.
And a question for the Inspector General, Mr. Williams.
Thank you for all of your great work. And in your testimony,
you state that the Postal Service's survival is a tribute--and
I am sure that the Postmaster General would agree with this--to
the men and women who work there. I have met with Postal
workers who are incredibly dedicated, walking in this kind of
ice, delivering mail. This is hard work and they do it every
day because they love their customers, they love their route,
and they are so committed and dedicated.
But, we see morale going down and down and down. And, I
commissioned a report that you guys were very generous in
helping with, providing some great data regarding challenges in
the Bakken with overtime and taking a look at how we could
continue to address morale concerns. Are you currently working
on any additional morale or workforce studies that really
highlight some of the needs that we have to continue to
recognize and appreciate the people who work for the Postal
Service?
Mr. Williams. The proposed legislation, the Improving
Postal Operations, Service and Transparency Act of 2015
(iPOST), contains a provision whereby we would conduct a
comprehensive study. So, we have begun the process of trying to
imagine what that would be like and structuring for it. We are
looking at that. Intuitively, you do worry. We are into the
sixth or seventh year where postal workers are being told that
their performance is poor and that we are facing bankruptcy and
insolvency. That has affected morale. I have not counted it
yet, but you can feel it. You can feel it everywhere.
So, I would say that we do have a problem. There are
results coming out of a recent employee survey that the Postal
Service conducted called ``Postal Pulse'' by Gallup. That will
be coming out. That will tell us some.
I do know that the Postal Service is struggling with that.
They have created a program called ``Postal Proud,'' which is
an effort to try to instill in workers a sense of pride, to
express to them a sense of appreciation, and to remind them of
the importance of their mission.
Senator Heitkamp. Yes. Not to belabor this point, but my
husband, who is a family physician, takes care of a number of
postal workers. He came home and told me that we were very bad
employers. And, I take that to heart. I mean, again, one story
does not make the case, but certainly we know that we have an
issue. We included a morale component in the rural bill that I
developed, but we need to find better ways to say thank you--
and I want to make that point.
Thank you, Mr. Chairman, for giving me the extra time.
Mr. Williams. If I may, Senator, I am sorry, but----
Senator Carper. No, go ahead.
Mr. Williams. I think--well, we were asked, when is the
time to pass legislation? In some ways, we are already
beginning to see casualties from that legislation not having
been passed. The vehicles that we are planning for the future
are probably not exactly the vehicles that we would have. The
build-down, which has caused some disruption--we hope
temporarily--partially caused that because it had to be rushed.
There was not enough money to have a coherent, gentle glide
into it. And, I would say, morale is another casualty. The time
to pass legislation has passed and we are beginning now to
unscrew lightbulbs from the tree.
Senator Carper. I am going to yield to Senator McCaskill in
just a second, but would the rest of you just react to what the
Inspector General has just said about a sense of urgency? Mr.
Millstein.
Mr. Millstein. Yes. As I said in my opening remarks, the
first thing you need to do is stabilize the patient--and this
patient is soon to be bleeding cash, not making revenue. And as
it bleeds cash, it has really no choice but to cut back on
service standards and cut back on the network, in order to be a
self-sustaining entity. So, the first order of business here is
to find ways to increase its revenue so that it can cover its
costs.
Senator Carper. All right. Thank you. Ms. Rectanus.
Ms. Rectanus. Thank you----
Senator Carper. Your reaction to what Mr. Williams just
said?
Ms. Rectanus. Yes. Thank you. Well, as you know, the Postal
Service's financial position has been on our ``High-Risk List''
for many years, and we have been saying words like ``urgent''
and ``dire'' also for many years.
While we definitely support providing the Postal Service
the resources it needs to do its job--because we know right now
that expecting it to provide universal service while being
self-sustaining is not working--we would caution that there is
a downside to only looking at rates and revenue generation
without an equal expectation of and the flexibility for the
Postal Service to also do what it can to reduce its excess
capacity and better align costs with revenues. This is
something that we had talked about for comprehensive reform.
So, we would also say that that is urgent.
Senator Carper. Good. Thank you. Mr. Taub, Mr.
Commissioner?
Mr. Taub. Senator, I think that I simply concur with what
you have heard already. Frankly, the time to pass, as the
Inspector General indicated, has passed. We are late on this
and the Postal Service needs that financial breathing room, and
I would suggest that that should be the real primary focus. If
they can get some of that breathing room, frankly, I think that
there is a lot in the 2006 law that is working well. The tools
are there for the Postal Service, if they just have that
financial breathing room to move forward.
Senator Carper. All right. Thank you.
General, sense of urgency?
Ms. Brennan. Mr. Chairman, as mentioned earlier, the time
is now.
If you would indulge me, please, may I respond to Senator
Heitkamp's comments about employee morale?
Senator Carper. Go ahead.
Ms. Brennan. Morale is critically important, because we are
a human organization--and I take that responsibility very
seriously. In fact, one of my core objectives is employee
engagement at all levels of the organization. And Inspector
Williams mentioned a new initiative called ``Postal Proud.''
That is intended to leverage the pride and the commitment that
Postal employees have to serve their customers.
And if I may, also, Mr. Chairman--just to respond to Ms.
Rectanus' comment about cost reductions--I think that the
Postal Service has demonstrated--by taking out nearly $15
billion from our annual cost base and also by projecting out
another $5 billion reduction through 2020--that we recognize
that there are two sides of a financial ledger. We have to grow
the business and we also need to continue to drive operating
efficiency. Thank you.
Senator Heitkamp. Mr. Chairman.
Senator Carper. Yes?
Senator Heitkamp. Can I just follow up and say that I want
to applaud you personally, because I do not think that when I
came to the Senate that was true--that there was an attempt to
reach out to and to work with the employees. I think that that
is a great improvement that we have seen since you have taken
over the helm. And, so, I want to personally acknowledge the
hard work that you have engaged in and the outreach that you
have done.
Ms. Brennan. Thank you, Senator Heitkamp.
Senator Carper. General, are you going to sit there and
take that? [Laughter.]
Ms. Brennan. I welcome that. Thank you.
Senator Carper. Senator McCaskill.
OPENING STATEMENT OF SENATOR MCCASKILL
Senator McCaskill. Thank you.
Last year at a hearing, I expressed concern about the
blurring of the line between customer and competitor for last
mile agreements. We all know that the last mile is one of the
most important drivers of costs in our Postal infrastructure.
It is that last mile that is very expensive. And, so, the
notion that we are doing business with our competitors for the
last mile, to me, deserves a great deal of scrutiny.
And after that hearing, I was really concerned that that
scrutiny was not occurring, and so we asked GAO to take a look
at it, as Ms. Rectanus knows, and it is not good, folks. Our
competitors do an analysis on every single load as to weight
and whether they can make more money by using the Postal
Service or delivering it themselves.
Meanwhile, we do not even know what our costs are based on
weight. We do not even collect information on the size of the
packages that we are delivering under those agreements. The
Postal Service does not know the impact of package size and
weight on its delivery costs in those agreements.
Now, I do not get that. These are the competitors, who we
have to beat to be successful as a Postal Service--and they are
fleecing us. They are analyzing every instance to see whether
they are going to push these off on us because they can make
more money, or whether they are going to keep them, themselves,
because they can make more money.
Meanwhile, we have in these contracts an agreement that
there must be a minimum volume--and we are not collecting those
payments when they do not meet their minimum volume. Sales
officials told GAO that they decided not to require payment for
business reasons, including maintaining this mailer as a source
of package volume. We look like suckers. We need the volume. We
do not care if you are making money off of us. We will do the
expensive part because we do not even realize that we should
turn you down for this unless you pay us more. There should
never be an instance when our competitors are making money off
of us for the last mile, ever.
So, who is responsible for enforcing these contracts and
who is making this decision to give our competitors a free ride
when they do not even meet the minimums on the contract?
Ms. Brennan. May I address that, Senator McCaskill?
Senator McCaskill. Yes, please. I think that you are in
charge.
Ms. Brennan. The negotiated service agreements are
profitable, and given the commercial sensitivity----
Senator McCaskill. How do you know that?
Ms. Brennan. Given the commercial sensitivity, I would be
happy to talk with you in more detail in a closed session. But,
suffice it to say that negotiated service agreements are
reviewed by the regulator. The negotiated service agreements
that you are commenting on have grown revenue and contribution
year after year. It is a high contribution product, Parcel
Select, because it is entered at the destination facility, at
the local Post Office, and it eliminates all of that upstream
cost of transportation and distribution.
Senator McCaskill. If you are not analyzing these packages
on the same basis as your competitor, how do you know that they
are profitable?
Ms. Brennan. Senator McCaskill, in response to your inquiry
and the GAO study, we did go back and look at cube and weight,
and I have that information and I would be happy to share that
with you.
Senator McCaskill. That is terrific. So, why are we not
enforcing the provisions of the contract on minimum volume?
Ms. Brennan. I am not sure which contract you are referring
to, but I would--I would welcome the opportunity to discuss
that with you----
Senator McCaskill. Well, it is in the GAO report----
Ms. Brennan. Right.
Senator McCaskill [continuing]. Which I am sure you know by
now, right?
Ms. Brennan. I am familiar with it.
Senator McCaskill. So, in the GAO report, it says that you
do not collect the payments on the volume targets that they are
required to be, and GAO--am I correct that GAO was told that
this was due to business reasons and wanting to maintain the
customer--and therefore, it was decided not to enforce the
provisions of the contract?
Ms. Rectanus. Yes. What we were told was that there were
circumstances where there were broader business reasons for
them to want to maintain the contract, including anticipating
additional volume in the future. So, they did it with a
reasonable basis, but it had not been documented, which is what
we were talking about, in terms of improving the procedure, so
that when you make decisions like that, it is clear as to why
those decisions are being made.
Senator McCaskill. I just think that this needs a lot more
attention, Postmaster. First of all, I think that you have done
a much better job of marketing since we began examining the
challenges that the Postal Service faces. I think that you are
doing some positive things and that a lot of the blame for the
problems needs to be pointed in our direction--not in your
direction. This Congress has been incapable, despite this guy
who works on this, I think, 24/7, and we all get to the point
where we see him coming down the hall and we go, ``Oh, Post
Office.'' [Laughter.]
We know he is going to be on us about this.
You are in a death struggle with your competitors, and I
just do not want them to have any advantage over us, because we
have no choice about that last mile. They do. And I want to
make sure that choice is profitable for us, because they are
making a choice sometimes to say, no, we will carry it
ourselves. So, that is what I am really worried about.
Ms. Brennan. Yes. And if I may, Senator McCaskill, there is
such competition in that space--not just with our traditional
competitors, but also with what I will describe as the
``Uberization'' of package delivery, the crowdsourcing of
package delivery, the leisure carriers, or the regional
carriers. So, we have to be pretty deliberate, in terms of how
we price, because it is a very competitive landscape. But, do
know that we are very conscious of the need to increase yield
per package.
Senator McCaskill. That is great.
Mr. Taub, how close is the Postal Service to being able to
break down delivery times for rural and urban areas?
Mr. Taub. We have been working closely as a result of the
request that we received from the Senate. As you know, we
started out, at that point, with no rural-delivery information
being able to be reported. The Postmaster General may be able
to echo some more, but between working with the Senate staff
and the Postal Service, my understanding is that the Postal
Service may be able to start reporting to us something this
spring, which would be a big step forward.
Senator McCaskill. I look forward to that. I think that it
is really important that we get a handle on this. For those of
us who are really pushing to protect rural delivery, I think
that it is important that we know what we are working with from
a data-driven perspective.
Thank you all very much. Thank you, Mr. Chairman.
Senator Carper. Thank you, Senator McCaskill.
Just before I ran off to vote, I asked for good ideas--
innovative ideas--and the General and the Chairman were kind
enough to respond. Lori, David, and Jim, I would love to hear
from you all as well.
Before I do, I just will say to the Inspector General, we
have been the beneficiaries, in this Committee, of a couple of
folks who have served as detailees. One is still with us. He is
over my left shoulder. It is Alex Fiske--and earlier it was
Bruce Marsh--and they have just done terrific work, not just
for the Senate, but, I think, for our country as well. So, we
thank you very much for sharing them with us.
Mr. Williams. Thank you, Senator, for recognizing that.
Senator Carper. You bet.
OK. Lori.
Ms. Rectanus. I would like to echo something Mr. Taub said
about the flexibility to engage in additional activities. Given
what has brought us to this point--about costing the Postal
Service more to deliver the services than they are paying for
the services--they do not have a lot of places where they can
take a risk. And, also, given their current structure, where
they have monopolies in some areas and in other areas they may
be disadvantaged, I think that it would be very difficult to
find the appropriate venue.
So, I do not have any ideas on my own, but I guess that
what I would say is that we would want to be very cautious
about making sure that, in any area that they would go into,
they would not be unfairly disadvantaged or unfairly advantaged
because of their unique situation.
Senator Carper. Thank you. Mr. Williams.
Mr. Williams. The 21st Century is going to see the
proliferation of mega-cities of over 10 million each. Today, we
have mega-cities. Almost exactly half of those are heaven and
half of those are hell. What is coming at us is an enormously
heavy lift.
The Postal Service is in every neighborhood of America, and
the difference between a bad mega-city and a good mega-city is
a smart city. And we can play a very important role in, as
Megan mentioned, collecting essential data, Wi-Fi strength, gas
leaks, and all sorts of things as we pass through every single
neighborhood.
Post Offices can become the front offices for a number of
industries that are partially going virtual. I do not think
that we want to live in an all-virtual world. We are atomic
structures and cannot do that. So, that will require that, at
the end of the day, there be contact points for humans with all
of these industries--and we could be that contact point.
In the neighborhoods, the delivery people can do more with
regards to logistics management. So, there is enormous
challenge and promise ahead of us. It is going to, eventually,
become a question of not what can the Postal Service do, but
what must the Postal Service do, in a number of these topical
areas.
Senator Carper. Well, those are very thoughtful ideas.
Thank you.
Under our legislation, we call for a real focus on
innovation and the establishment of positions--essentially a
Chief Innovation Officer (CIO)--and you may be one of our first
nominees for that because that was pretty good. [Laughter.] Mr.
Millstein.
Mr. Millstein. Well, I actually join in those remarks. But,
I come at it from a financial perspective. So, maintaining a
network such as the Postal Service's is an expensive
proposition, and the key to keeping costs--rather, prices--down
is having more unit volume running through that network. So,
the best way to moderate the increases that would otherwise be
visited upon existing users is to add more users, so as to
spread the fixed costs of that network across a greater number
of units.
As everyone has said here, that last mile is critical, and
driving more unit volume through that last mile is critical to
maintaining the integrity of the network and to keeping prices
down. So, I think that you have to open them up to allow not
just beer, wine, and other product deliveries, but to also let
them innovate around partnerships with other businesses in
these local environments that deliver goods to their customers.
That is one way.
Second, the Post Offices themselves are part of that
network, which in the small community I came from, before I
came to Washington, was a social center. But, with declining
volumes of real mail, this is less and less so. So, the second
way is to turn those Post Offices into, as Mr. Williams was
saying, the front end of a variety of businesses. You may
resist banking and insurance done by the Postal Service,
itself, but it should be able to joint venture in that space
with banks and insurance companies in the sale of products
without--there are issues about putting the United States
Postal Service imprimatur around any private business and
avoiding any implication that it is government-backed, but
nonetheless, I think that you have to drive traffic into the
Post Offices, themselves. Otherwise, it is an underutilized
asset. It is a key part of the network, and so this solution,
to me, is all about driving incremental revenues through that
network in order to moderate the price increase that would
otherwise occur to offset declining volumes.
Senator Carper. Those are all very helpful comments.
I have one more quick one and then I am going to yield to
Senator Heitkamp and to Senator Baldwin for any last questions
that we have for this panel.
General, I understand that this plummet, this deep drop
that we have seen in First-Class Mail volume, really since--in
part since the advent of the Internet, but really since the
Great Recession--that it may be leveling off and the--in a
sense, Senator Tester talked about the security aspects and we
spend a whole lot of time in this Committee focusing on how to
enhance cybersecurity. But, what are the prospects for First-
Class Mail going forward? As you look down the road to a couple
of years from now, what does it look like?
Ms. Brennan. Yes. Senator Carper, in fiscal year 2015, the
single piece First-Class Mail, the ``Aunt Minnie'' stamped
mail, declined roughly 5.5 percent. The commercial mail, or the
presort volume, was fairly stable.
When we look out, though, to 2020, we are expecting to see,
roughly, a 17 percent decline in First-Class Mail. So, that
will put tremendous pressure on the organization.
Senator Carper. All right. Thank you very much.
Senator Heitkamp, I want to thank you for joining us in
crafting this legislation that I have been talking about. And I
want to thank you and your staff for all of the input that you
have provided to us. It is much appreciated and I think that it
is going to bear great fruit.
Senator Heitkamp. Thank you, Mr. Chairman, and I want to
thank you for being so doggedly determined that we, as the
board of directors for the United States Postal Service, do our
duty and do our responsibility. Thank you for this hearing.
I have no further comments, other than to say that I really
appreciate the inclusion of a number of provisions that really
focus on rural delivery and service performance standards. And,
so, we will continue to work with the Chairman and continue to
be committed to doing our responsible duty here on this
Committee and in the U.S. Congress.
Senator Carper. Thank you so much.
Senator Baldwin, please.
Senator Baldwin. Thank you. While you were casting your
vote on the Senate floor, I had an opportunity to discuss rate
predictability and stability, but I also had the opportunity to
commend you, in your absence, on your work and look forward to
continuing to work with you, especially on those rate
provisions in the bill.
And, we have had them before us for quite a while. This
panel has been well grilled, and I am looking forward also to
hearing from our second panel.
Senator Carper. Thank you. Thank you so much. And, we just
look forward to working with you as we go forward, and I hope
with a sense of urgency.
Maybe one last question. This will actually be for you,
General. The Postal Service admittedly struggled to provide
high quality, on-time delivery service in 2015, and your annual
compliance reports show that no First-Class Mail products met
their expected service targets for the year. I would just ask,
what steps have you all taken, thus far, to improve delivery
performance nationwide?
Ms. Brennan. Yes, Senator. There have been a number of
activities. One, looking particularly for volume that moves via
air, we made some adjustments to our air transportation
network, as well as to our surface network. Also, in select
markets, we adjusted staffing and scheduling, as well as made
adjustments to the operating window--primarily process
improvements to ensure that we eliminate the variability of
that service performance that you cited.
Also, in terms of stabilizing the network, last spring we
made a decision to defer any additional consolidations,
recognizing that service is the Governor and that that is the
commitment that we made.
Senator Carper. All right. Thank you.
One of the things that I love to do with panels, and
especially with this panel--and I will do it probably with the
next panel as well--is just to ask each of you--you gave your
opening statements, five or so minutes, and did a great job of
staying in the time limit. Just take a minute each--no more
than a minute--and just give us a closing thought. It could be
something that you have heard, thought about, something other
people have said, questions, or whatever may pop up, just
something else that you think is important to leave with us. It
could be repetitious. I do not care. Just an important,
valuable thought that you would like to leave with us before
you leave. Thank you. General.
Ms. Brennan. Senator Carper, first, thank you for your
tireless advocacy on behalf of, not just the Postal Service,
but the mailing industry--because it is a supply chain. And, I
would like to thank you, on behalf of our employees, because
the long-term viability of this organization is vital, and it
is vital to the American economy. Our commitment is that we
will continue to change and improve to better serve the
American public. While we are challenged, these challenges are
not insurmountable. With your help, we will preserve the United
States Postal Service well into the future and maintain that
universal service obligation. But, thank you very much for the
opportunity to be here.
Senator Carper. Thank you for those kind words. You can do
it, we can help.
Ms. Brennan. Thank you, sir.
Senator Carper. Mr. Chairman.
Mr. Taub. Senator, thank you, as well. I echo the
Postmaster General's comments, as well as Senator Baldwin's and
Senator Heitkamp's. All of you have legislation pending to deal
with these fundamental issues and that is critical.
I think the point that I would hit upon is one that we have
talked a lot about, which is universal service. I think that it
is important to underscore that, unlike in other countries, it
is not defined. So, when each of us talk about what is expected
of the United States Postal Service, each of us may have a
different idea of what they are supposed to do and each of us
will have a different price tag.
Your legislation does require us at the Commission to
repeat what we did in 2008, which was to undertake a study on
universal service. I think that your proposal is crafted in a
way to try to drive that definition a little further. But,
frankly, until we go to first principles in the United States
and really understand what it is that this 100 percent
government agency rooted in the Constitution, going back before
the Republic to Ben Franklin in 1775, what it is that we expect
of them in 2016, we all may not be happy with the results of
what they may or may not do going forward.
Senator Carper. Thank you. Thank you, sir. Ms. Rectanus.
Ms. Rectanus. Thank you again. I was pleased to be here
today.
As GAO has said in its High-Risk Series, for us, we do
still believe that comprehensive reform is needed, but we would
also encourage you to think about comprehensive reform along
three tracks. We have talked a lot today about ratepayer
potential effects. We have talked a little bit about taxpayer
potential effects. I think that what we would also want to see
is support for the Postal Service's continued efforts to align
costs with revenue, which does get at some of the level of
services that we think are worthy of providing and that we are
willing to pay for.
We also would reiterate the importance of restructuring
benefits, which we have talked a lot about.
And the final thing to consider is putting in statute an
allowance to take into account the Postal Service's financial
position in binding arbitration.
Senator Carper. All right. Good. Thank you, ma'am. Mr.
Williams.
Mr. Williams. Thank you, Senator. Two quick points.
Senator Johnson's very useful balance sheet statement has a
line for other Postal assets. It is our property. It is at
$16.1 billion. That is exactly how you would put it on a
financial statement and it is exactly wrong with regard to how
we ought to be viewing these assets. That is the depreciated
value, which is what you use on a balance sheet, not the fair
market value if we sell that property. I am not sure what the
fair market value is. Down and dirty estimates can go up to $80
billion.
The second point--so, I think that we need to--that would
be a consideration that this great worksheet has lit up.
Senator Carper. OK. Thank you.
Mr. Williams. The second thing is it--I think that a case
could be made that it is time to declare victory on prefunding.
I think that we are--the risk of overfunding is as great or
greater than not having been fully funded at this point and we
would love to do a report on that.
Senator Carper. Great. Thank you. Thank you so much.
Mr. Millstein, I also want to thank you for your earlier
work at Treasury----
Mr. Millstein. Thank you, sir.
Senator Carper [continuing]. And at a very tough time for
our country----
Mr. Millstein. Thank you, sir.
Senator Carper [continuing]. And to you and some others who
did great work.
Mr. Millstein. This is a considerably friendlier hearing
than the ones that I was subjected to. [Laughter.]
Senator Carper. I was in some of those and I know what you
mean.
Mr. Millstein. I appreciate how difficult it is to assemble
legislative coalitions, but I do think that--and I do not want
to be Donny Downer--but I do think that the Service is facing
trends that are really working against it in the long term.
And, so, I think that there is an immediate need to improve its
cash-flow position and its balance sheet by restructuring the
health care liability, in particular.
But, for the long term, I think that if this Committee
wants to avoid having a repeat of this hearing every year and a
repeat of the need for an exigent rate increase, I think that
we really have to, as a country, look at the network and what
we are willing to let the Service do with it in order to
preserve it. And, I do not think that that can be done
overnight. I think that that really does require the Service to
do some long-term projecting of what the impact of electronic
communications is going to be on its business mail and the
allegedly market dominant products and the impact of
competition, as the Postmaster General said, a variety of
competition in the last mile now. The Service needs to take a
sober and realistic view, in terms of what the impact of those
trends on its revenues will be, and try to come up with a plan
that allows the Service to continue to fulfill its important
mission all over America.
Senator Carper. All right. Thank you.
Before you all leave, you said some very kind words about
the work that I and my colleagues have done, and I would just
say that we appreciate that, but our staffs have worked so much
harder than we have. We especially want to say thank you to
those sitting behind me: John Kane, John Kilvington before
that, and Jennifer, my Ohio State University (OSU) buddy. I
also want to thank the other folks on Senator Johnson's team
and certainly on Senator McCaskill's staff as well. We are just
very grateful to them. We have a couple of other cosponsors. I
think that Senator Moran may be stopping by. He is a Senator
from Kansas. He and his staff have been terrific to work with
and Senator Blunt and his staff have been as well.
So, for everybody that has been a part of this, we are
looking forward to keeping it going with a greater sense of
urgency and we are going to be calling on each of you for some
more help as we move forward. So, thank you all and we will
look forward to seeing you again soon and talking with you.
Thank you.
Ms. Brennan. Thank you.
Mr. Taub. Thank you.
Ms. Rectanus. Thank you, sir.
[Pause.]
Senator Carper. I am going to ask our next panel of
witnesses to go ahead and find your seats, please.
[Pause.]
As we welcome our second panel of witnesses and as you take
your seats, I am just going to ask, my first question of our
witnesses is are any of you from Wisconsin? Are any of you from
Wisconsin? OK. We happen to have a Senator here from Wisconsin
and we would be delighted if she chose to introduce you, Kathy.
Senator Baldwin. I would be delighted to, and thank you to
all of our panelists.
I want to take a moment to introduce Kathy Collins from my
home State of Wisconsin. Kathy grew up on a dairy farm and
attended the University of Wisconsin-Madison (UW-Madison). At
UW-Madison, she earned a degree in chemical engineering. Ms.
Collins joined Domtar in 2013 in the role of Environmental
Health and Safety Manager and then was promoted to General
Manager of the Rothschild Mill, which I had the pleasure of
touring back in October 2014 and once before then.
I do want to note that the mills in Rothschild and Nekoosa
have approximately 800 employees and are incredibly important
to their communities and to our State's economy.
Ms. Collins has more than 25 years of experience in the
pulp and paper industry and we are just very lucky to have you
here as a witness, especially to speak on the importance of the
health and vibrancy of the U.S. Postal Service to the postal
and forestry industry.
Kathy, welcome.
Senator Carper. Senator Baldwin, thank you very much for
introducing Kathy. It is very nice to see you. We look forward
to hearing from you here.
I am going to be very brief in our introductions, but Fred
Rolando has been the President--I want to say since 2009, is
that right, Fred?--of the National Association of Letter
Carriers (NALC), the union that represents, I think, over a
quarter of a million active and retired letter carrier
employees.
I just want to say, for the record, what a joy it has been
to have the chance to work with you and the members of your
team as we try to fashion a path forward, not just for the
Postal Service to survive or to get along, but actually to
thrive and to better provide services going forward and to
provide additional services--to enable additional services that
maybe we have not even thought about. And, I am encouraged that
those ideas are out there. We had some good ideas here earlier
and I look forward to hearing from you at this time.
So, go ahead, and then I will introduce Chip when it is his
turn in the batter's box. Thank you.
TESTIMONY OF FREDRIC V. ROLANDO,\1\ PRESIDENT, NATIONAL
ASSOCIATION OF LETTER CARRIERS
Mr. Rolando. Thank you, Senator. Likewise. I want to thank
you----
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\1\ The prepared statement of Mr. Rolando appears in the Appendix
on page 152.
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Senator Carper. I like it when witnesses say, ``Likewise.''
Mr. Rolando. Likewise, yes.
Senator Carper. You do not hear that every day.
Mr. Rolando. You do not. We say it quite a bit, so that was
easier. I want to thank you, Ranking Member Carper, and please
thank Chairman Johnson for inviting me to testify, and I want
to thank the rest of the Committee members, also, for also
serving as our board of directors. As you know, you are about
the only board that we have now, so we appreciate that.
You have asked me to focus today on the impact of
legislative and regulatory burdens that are placed on the
Postal Service, including the mandate to prefund retiree health
benefits. But before I do so, I would like to comment on the
broader theme of the hearing, the reality facing the Postal
Service.
In recent years, that reality has changed dramatically for
the better. We are not in 2009 any more, when the Great
Recession sent mail volume plummeting, and along with the
prefunding mandate, crushed the Postal Service's finances and
raised doubts about the viability of the Postal Service.
In fact, in more recent years, we have returned to
operational profitability, earning $2.6 billion over the past 2
years. Our pension funds are healthy and better funded--at 92
percent--than most private sector pensions. And, we have set
aside some $50 billion, more than two decades of future retiree
health care premiums, when most large private companies have
not set aside a dime.
Postal employees never doubted the viability of the Postal
Service, despite seeing the loss of 200,000 Postal jobs since
2006. Postal productivity has increased dramatically, and we
have consistently advocated for sensible reforms. Thanks to
solid direct mail growth and booming e-commerce, total volume
has stabilized in 2015 and total revenue has increased to $69
billion.
As we continue to balance the challenges and the
opportunities posed by technological change in the decades
ahead, the Postal Service is going to remain a vital part of
the Nation's infrastructure. With an approval rating of 83
percent from the American people, we believe that it can thrive
in the 21st Century with the right public policies.
That said, there are three significant legislative
regulatory burdens placed on the Postal Service under current
law that should be addressed by this Congress.
First, there is the legal requirement to massively fund
future retiree health premiums decades in advance, regardless
of the financial conditions facing the agency or facing the
country. All told, 86 percent of the Service's $57 billion in
reported losses since 2007 stemmed from this inflexible
mandate.
Over the years, NALC has suggested a variety of legislative
measures to address the prefunding mandate. Fortunately, this
Committee has reached bipartisan consensus on an approach to
address the burden during the last Congress. Reforms to the
Federal Employees Health Benefit Program (FEHBP) to maximize
participation in Medicare among eligible Postal retirees would
all but eliminate the remaining $50 billion unfunded liability
for future retiree health, while raising Medicare spending by
less than two-tenths of 1 percent annually. Given that the
Postal Service and its employees have contributed billions to
Medicare, we urge you to adopt this approach again.
Second, Congress should reconsider the policy that requires
100 percent of Postal retirement funds be invested in low-
yielding Treasury bonds. Together, the Civil Service Retirement
System (CSRS) and the Federal Employees Retirement System
(FERS) System, those pension accounts, and the Postal Retiree
Health Fund hold nearly $340 billion in Treasury securities.
That makes the Postal Service and its employees the third
largest creditor of the United States Federal Government, just
behind China and Japan.
No private company in America would invest its retirement
assets in such an unsophisticated way, especially during a
period when Treasuries are yielding 2 to 4 percent returns and,
of course, health care costs are growing between 5 and 7
percent annually. At least with the Retiree Health Fund,
Congress should adopt private sector best practice, which is to
invest long-term retirement funds in well diversified
portfolios of private stocks, bonds, and real estate, as well
as government bonds. The current policy forces the mailing
industry to basically give Uncle Sam a low-cost loan instead of
sensibly investing to cover future health care liabilities.
My submitted testimony makes the case for prudent
investment change and also addresses common objections to it
and explains how several independent agencies invest
successfully in private securities.
By changing the Retiree Health Fund's investment policy,
Congress could raise the long-term rate of return on the fund's
assets, achieve our prefunding goals, offset the cost of Postal
Medicare integration, relieve upward pressure on postage rates,
and reduce the misguided impulse to cut services.
Third, in my full testimony, I address the postage rate
making process, which the Postal Regulatory Commission will
formally review in 2017. In the meantime, Congress should
reverse the scheduled expiration of the 4.3 percent exigent
rate enacted during the recession and suspend any CPI-based
rate increases until the PRC review is complete. This will
preserve the financial stability of the Postal Service as the
PRC does its work.
Let me conclude by noting that there is a remarkable degree
of consensus among Postal stakeholders about the principles of
successful reform. All four unions, the Postal Service, and a
wide range of companies providing financial services,
prescription drugs, newspapers, direct mail products, and e-
commerce sales have agreed on a set of principles for your
consideration. I have attached a copy to my written testimony.
In brief, our industry coalition urges you to first
stabilize the Postal finances by making the exigent increase
permanent and freezing capped postage rates until the PRC
review is complete.
And, second, we urge you to resolve the prefunding burden
by maximizing Medicare integration among Postal participants in
the Federal Employees Benefit Association (FEBA) and by
sensibly changing the way that we invest the Retiree Health
Fund.
Our coalition's recommendations are grounded in best
private sector practice and are drawn from the consensus
provisions of your bill, Senator Carper. They represent the
measures on which the coalition could agree while remaining
confident that they would stabilize the Postal Service for
years to come, which will allow the Service to adapt to meet
the evolving needs of the Nation.
Senator Carper, you and former Senator Tom Coburn, along
with Senator Johnson's support, deserve a lot of credit for
your determined and patient work in helping to build this
consensus during the last Congress. So, now, let us finish the
job, and in doing so, the NALC is ready and willing to engage
Committee members and all stakeholders on any other issues of
interest, such as changes to the Federal Insurance
Contributions Act (FICA), service standard issues, etc.
Thank you, Senator Carper and Members of the Committee for
inviting me to testify today.
Senator Carper. Mr. President, thank you so much for
joining us and thank you for your testimony and for your kind
words. We very much look forward to working on this and getting
this job done.
I failed to administer the oath to our witnesses, something
that I did not do as Chairman. Senator Johnson does it and I
think that it is a fine policy to have. But you have
testified--and not under oath--so I am going to administer the
oath, and I will not ask you to give your testimony again----
Mr. Rolando. Is this retroactive? [Laughter.]
Senator Carper. But, I am going to ask you to each stand
and to go ahead and swear for us that--do you swear that the
testimony you will give before this Committee will be the
truth, the whole truth, and nothing but the truth, so help you,
God?
Mr. Rolando. I do.
Mr. Hutcheson. I do.
Ms. Collins. I do.
Senator Carper. Very well. Thank you.
And, President Rolando, now that you are under oath, is
there anything that you want to change, or are you going to
stick to that story?
Mr. Rolando. Good morning. [Laughter.]
Senator Carper. All right. John, also known as Chip,
Hutcheson the third, right?
Mr. Hutcheson. That is correct.
Senator Carper. All right. Mr. Hutcheson is the President
of the National Newspaper Association (NNA), a 130-year-old
organization of community newspapers. He has been a community
newspaper publisher since 1976, and could I just ask, where do
you live?
Mr. Hutcheson. I live in Princeton, Kentucky.
Senator Carper. Princeton, Kentucky. My sister is in
Winchester, just east of Lexington. My mom used to live in
Ashland.
Mr. Hutcheson. I am 210 miles west of Lexington.
Senator Carper. OK. Well, you are out there.
Mr. Hutcheson. I am.
Senator Carper. You are out there. OK. Good. Alright well,
thank you for joining us today and we look forward to your
testimony very much. Thank you. Please proceed.
TESTIMONY OF JOHN ``CHIP'' HUTCHESON III,\1\ PRESIDENT,
NATIONAL NEWSPAPER ASSOCIATION
Mr. Hutcheson. Thank you, Senator Carper and Members of the
Committee. I would like to express my thanks to you and to
Chairman Johnson for inviting me to appear today. I do
represent the National Newspaper Association. We have been in
existence for 130 years, lobbying and working for community
newspapers--especially related to Postal issues. I do publish a
twice-weekly newspaper in Princeton, Kentucky.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Hutcheson appears in the Appendix
on page 177.
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I am here to impress upon this Committee the need for
urgency. We have heard that mentioned in the previous panel.
Without immediate action, the Postal Service will deteriorate
further. On behalf of the American people, and particularly
those in rural America, I believe that we cannot allow services
to be cut further.
Senator Carper, NNA appreciates the work that you have done
on S. 2051, the iPOST Act, and we believe that that can provide
a vehicle for consensus in this Congress. NNA joins a number of
other mailers, the Postmaster General, the employee groups, and
others to support urgent action, hopefully by using your bill
as a vehicle to reach agreement with all stakeholders.
A package of reforms, including integration of Medicare
benefits for Postal retirees, can form the basis for
legislation. We want to emphasize, however, that our members
need to be assured that the provisions in a final bill will
guard against further service deterioration and that USPS will
continue to work toward sustainability and efficiency.
NNA's member newspapers are primarily weeklies. We aim to
reach rural audiences in rural and small-town America in time
for weekend shopping and activities. We must have the mail in
order to reach those readers.
Surveys by NNA, the Pew Research Center, and others show
how crucial the printed newspaper is today, even with the
growth of digital technology. The heaviest dependence on
printed newspapers occurs in rural areas and among minorities,
senior citizens, low-income earners, and those who have not
attended college. The younger, more urban, or better educated
demographics may not realize that their digital avenues are
paved with newspaper revenues. Without a printed and delivered
newspaper, there would be no digital newspapers.
In communities like Princeton, Kentucky, the newspaper
holds together community life, democracy, and civic engagement.
In a year of a landmark national election, getting the
newspaper delivered is important to everyone.
We have had extreme problems in many markets, like mine,
since the Postal Service began closing mail processing centers.
In a survey of publishers, I learned this: 92 percent have
experienced problems reaching readers on time with their
periodical newspapers. 40 percent report delivery problems,
even with First Class or priority mail. Nearly 50 percent
attribute the problem to a closed or a downsized plant. Many
others report problems, but they are not sure where the snag
occurs.
People simply give up when the newspaper arrives late time
and time again. Lost subscribers and late newspapers damage our
newspapers. They damage the businesses in our towns, which, in
turn, damages the commerce in our towns. It damages our
residents' incomes.
I do want to give credit where credit is due to the Postal
Service. At our request, the Postal Service has begun to
implement a measurement system to determine the on-time
delivery of rural mail. This measurement has not yet included
newspapers, but it is a great start.
Postmaster General Megan Brennan, her management team, and
the dedicated people who deliver the mail have helped us to
find patches for service cuts. For example, we now have
transfer hubs in some locations where plant operations were
closed. These help us to move a portion of our mail more
directly to its destination. While these patches help, they
cannot take the place of an efficient mail processing
operation.
We do not want to see more plants closed. For that reason,
NNA members are prepared to swallow a bitter pill. We opposed
the Postal Service's exigency rate increase 2 years ago because
it delivered a postage increase three times inflation or more
to our members. But today, we are willing to allow that
increase to remain in the Postal Service rate base, provided
that the money is used to sustain and improve service.
We asked our members their views on giving up a rollback of
postage rates that is scheduled to occur this April unless
Congress intervenes. We asked, ``Which is the priority for your
newspaper, lower the rates or maintain improved service? '' The
response from 77 percent was to let the Postal Service keep the
money, but to not do such a big increase again and definitely,
definitely to improve the service.
There are few issues more important to community newspapers
than this one. We are urging our members to emphasize the need
for action to sustain universal service. Newspapers will be
asking candidates on the campaign trail what they intend to do
about this critical issue. We stand ready to assist, to help
this Committee and the Senate leadership, to enact legislation
now.
I would be happy to answer any questions that you may have.
Senator Carper. Mr. Hutcheson, thank you for what you have
just said, and I would just add to that, God bless you and
those 77 percent of the respondents.
Mr. Hutcheson. Thank you.
Senator Carper. That is very much welcomed.
Kathy, I am just about to get a quick phone call. Senator
Heitkamp is here and I think we will be rejoined by Senator
Baldwin, but I will be right back to hear most of your
comments, so please proceed and thank you.
TESTIMONY OF KATHY COLLINS,\1\ GENERAL MANAGER, ROTHSCHILD
MILL, DOMTAR PAPER COMPANY
Ms. Collins. Thank you, Ranking Member Carper and Members
of the Committee. My name is Kathy Collins and I am the Mill
Operations Manager at Domtar's Rothschild Paper Mill in central
Wisconsin. My written statement is submitted for the record and
thank you for allowing me the opportunity to bring highlights
of my testimony to the Committee's attention.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Collins appears in the Appendix
on page 188.
---------------------------------------------------------------------------
I manage 400 hardworking Wisconsin men and women who
manufacture approximately 136,000 tons of printing paper each
year, most of which is delivered to our end users through the
U.S. Postal Service. I speak on behalf of the American Forest
and Paper Association (AF&PA) on the business realities and
future viability of the U.S. Postal Service.
The paper industry has a large stake in the success of the
Postal Service, which delivers over one third, or $6 billion,
of the communication papers manufactured by this industry. The
packaging sector of our industry is also an increasingly
important part of the Postal Service--and it drives their
growth strategy, which has been driven by the surge in e-
commerce.
The Postal Service is an essential component of our
Nation's economic engine. The Postal Service has the
infrastructure to enable our customers, from multinational to
small mom-and-pop companies, to connect with every household in
this country through paper.
A few points about the U.S. forest products industry. It
makes up 4.5 percent of the U.S. manufacturing gross domestic
product (GDP). We produce $200 billion in products annually. We
employ nearly 900,000 men and women. We deliver a payroll of
$50 billion annually and we are a top 10 manufacturing sector
employer in 47 States. We are an integral part of the fabric
and the economy in our host regions, many of which are rural
areas where similar job and economic opportunities do not
exist.
The Postal Service is facing unprecedented challenges to
adapt to new market realities that are also faced by Domtar and
the entire paper industry and are caused by shifts in the way
people communicate with one another and conduct business.
Our industry has focused productivity efforts on the most
efficient manufacturing processes. In the past 10 years, the
average output per worker in U.S. pulp and paper mills has
increased by nearly 13 percent. We must do more with less.
Domtar and industry survivors have repurposed facilities,
enabling us to take advantage of opportunities to produce new
and value-added products that serve adjacent markets. Adapting
to changing markets and continuing to meet the needs of our
customers remains crucial. Developing new revenue streams is
important, but so is keeping loyal customers in our mature
business, a lesson that the Postal Service must follow.
As we have heard today, the Postal Service has had nine
consecutive years in the red. The losses stem, primarily, from
the requirement to prefund its Retiree Health Benefits Fund and
its workers' compensation expenses, both of which are beyond
the Postal Service's control. We commend the Postal Service for
its aggressive cost cutting measures by consolidating
facilities, changing window hours, changing delivery routes,
and reducing its workforce size. However, there is a limit to
how much they can cut without degrading service. A look at
current performance may suggest that they have cut too deeply.
Domtar and the paper industry support legislative reform
measures that will align labor costs, benefits, and future
obligations with market competition. Congress must remove the
handcuffs and unreasonable burdens that are the largest
contributor to Postal Service financial losses. Postal
facilities must adapt to the times. Rate stability and
predictability are needed for mailers to stay with mail.
Congress and the Postal Service must recognize that raising
prices while reducing service is not a successful strategy to
address declining demand. Mail must be cost-competitive, but we
need price predictability for mailers and cost control
incentives for the Postal Service. Reliable service is
absolutely essential to compete with other communication
options. And the Postal Service should have the flexibility to
innovate and develop new revenue sources.
Congress can help by passing legislation addressing the
basic issues that stand in the way of the Postal Service
adapting to the changing world and doing so profitably. We
specifically cite prefunding of retiree health care benefits
and reform of the Federal Employees Compensation Act (FECA)
relative to workers' compensation claims as areas that need
prompt attention.
We greatly appreciate the Chairman, Senator Carper, and the
rest of the Committee for making reform of the Postal Service a
priority. We need to work together to enact comprehensive plans
that will put the Postal Service on a path to long-term
sustainability.
Thank you.
Senator Carper. Thank you.
Senator Heitkamp, why do you not lead us off? Thank you.
Thank you very much, Ms. Collins.
Senator Heitkamp. Thank you so much, Ranking Member Carper.
It is absolutely essential to the rural economy that we get
this right. I share your concern, Mr. Hutcheson, about what
happens when my mother-in-law or grandmother cannot get your
newspaper, which connects her to her community. And I think
that if you are from a rural State, there is no other way that
you can look at this other than as the lifeline of a community.
And so, thank you for your efforts. Thank you for your
political push on this. We have to make this issue a higher
priority in the halls of Congress, and so I really applaud you.
Ms. Collins, I think that what we are going to see is a
resurgence of mailers, actually. I think that there is this
idea that you can simply run an algorithm and know who your
audience is. The surest way to know your audience is to mail
directly to that audience, where you know who is on the other
end of that. So, good luck as we approach the political season.
It should be good for you as we see more and more targeting.
Fred, I want to talk a little bit about morale and about
how grateful we are for the employees of the U.S. Postal
Service. And, I know and you know that I so much appreciate the
Postal unions' hard work in trying to bring about the needed
Postal reforms. I do not think that there is anyone who is a
stakeholder who does not look at this and know that we cannot
ignore this. We need to get something done. But, as
stakeholders, we all need to have a voice in the challenges
ahead.
And so, I would say that the Postal Service has been
working to come up with reforms, and certainly Senator Carper
has been leading that effort--herding the cats, so to speak--
making sure that everybody is on the same page. But, I want to
again emphasize that we cannot ignore the fourth stakeholder,
the American customer. Improving service must be part of any
Postal reform package.
And, I want to ask you, can the rural Senators have your
continued commitment to work to incorporate those customers
that you see every day, that your people have the connection
with, and make sure that they are represented at the table?
Mr. Rolando. Oh, absolutely, Senator. We are on the front
lines with the customers. We hear about it every day. We know
that our customers depend on us. We know that we depend on our
customers. The Postal Service is the one secure delivery method
for our customers' communications. This is the strength of the
Postal Service. I guess that it is the basis of our 83 percent
approval communication rating and, of course, that trust and
that service level is essential to the growth of the Postal
Service as we continue to grow our current products and any
future products. So, absolutely, you have our commitment.
Senator Heitkamp. I think that maybe we forget how hard the
work is, and anyone who--I think that it would be really smart
for every one of us to just walk along with the delivery
folks--or drive along with the delivery folks--and certainly a
day like this reminds us of the commitment that your people--
and all of the employees of the Postal Service--have made to
continue to keep the American economy working.
Mr. Rolando. Well, and I will tell you, it is an honor for
letter carriers to walk around and provide that service,
because as you know, at the same time, they have the distinct
opportunity on a daily basis--because of where they are day in
and day out--to serve the American people in so many other
ways, in terms of watching out for the elderly, stopping
crimes, putting out fires, and just all of the other things
that go along with knowing your community and knowing the
families.
And speaking to the morale, I just want to mention, that is
a big piece of what we need to accomplish with the legislation.
You have a workforce that knows that they are the most trusted
agency in the Federal Government. They know that we lost
200,000 jobs and still the productivity is at an all-time high.
Yet, all that they hear about in the media is how the Postal
Service is going broke and is irrelevant and how we had to, in
the past, fight the legislation of certain legislators and
leaders of the Postal Service, who have bought into this
strategy of attacking the networks and the services that we
need to grow, rather than addressing the elephant in the room.
It is really nice to see now that we have some discussion and
consensus going on to address the real problem, the
manufactured crisis, rather than attacking the networks, and
that that particular leadership of the Postal Service is no
longer----
Senator Heitkamp. I think that it was particularly
rewarding when we look at what we would traditionally see as a
bean counter, the Inspector General, recognizing the importance
of that morale, recognizing the importance of maintaining the
workforce, and really expressing to us his concern that we are
almost too late, given where we are.
Finally, it is an issue for me. As you know, I am a strong
advocate for 6-day delivery and an even stronger advocate for
service performance. Fred, why is it so important that we have
reliable delivery and service?
Mr. Rolando. Well, again, it is the one secure method for
delivering communications. Our customers depend on it. They
know that it is secure. They know that it is timely. They trust
the person who is bringing the mail.
You mentioned the 6-day delivery, which is such an
important part of the network. We can barely do it in 6 days. I
cannot imagine doing it in less. We need to expand to 7 or 8
days.
Senator Heitkamp. I want to make this point, because I
think that way too often the attitude is that 6-day delivery is
just a jobs program.
Mr. Rolando. Right.
Senator Heitkamp. And, I want to applaud you for your
response, which really immediately looked at what the
customers' needs are. I think that that is an easy dodge for
some people when they are talking about 6-day delivery, to say,
``Oh, that is just kind of people trying to protect their
jobs.'' No, it is people trying to do their jobs and do what is
best for American consumers.
And so, I appreciate that perspective and really look
forward to working with the customer groups and the Postal
unions as we move forward.
Mr. Rolando. As do we. Thank you, Senator.
Senator Carper. Senator Heitkamp, my wife seems, lately, to
be interested in me working with her to update our will. I say,
``Martha, I am fine. I feel perfectly healthy. I ran this
morning. I work out every day.'' She says, ``No, we should do
that.''
We were coming home from church a couple of weeks ago and
stopped at a stoplight at an intersection. Off to the right was
a graveyard, a cemetery, and my wife said--she was already
talking about updating our will and other things, and she said,
``By the way, what do you want your tombstone to say?'' I said,
``Martha, I am fine. I feel great. What is this? '' And, she
said, ``No, really, what do you want to have put on your
tombstone?'' And I said, ``Well, OK. All right. Here. `Return
to Sender'.'' [Laughter.]
When I heard you and Fred going back and forth on days of
the week--six, seven, and he actually mentioned 8 days a week--
I was thinking, well, maybe for your tombstone, knowing how
strongly you have pushed on this, your tombstone epitaph could
be, like, ``Eight Days a Week.'' That would be pretty good.
Apologies to Lennon and McCartney.
Senator Heitkamp. Ranking Member, I will take it.
Senator Carper. All right.
Senator Heitkamp. ``Eight Days a Week.''
Senator Carper. Good. All right. I will ask a couple of
questions and then I may have to slip out. I need to be
someplace at 12:30, so I would like to ask a couple of
questions and then yield to Senator Baldwin to close it out.
All right.
First of all, I want to go back to the morale thing for
just a second. Some of my staff heard me mention this before,
but I can go home at night to Delaware and come back and forth
on the train. I usually listen to National Public Radio (NPR)
on my way to the train station in the morning from my house. It
is not too far away.
And, about a year or two ago, they were reporting on an
international study that had been done. They had asked
thousands of people all over the world, ``What is it that makes
you like your job? What enhances your morale in the work that
you do? '' Some people like getting paid. Some people said that
they like the folks who they work with and the environment in
which they work. Some people said that they liked having a
pension, they liked having health benefits, or they liked
vacation time. But, do you know what most people said that they
liked? They said that the thing that they liked the most about
their job was that they knew that the work that they were doing
was important and that they felt that they were making
progress. They knew that the work that they were doing was
important and they felt that they were making progress.
So, the work that the Postal Service does, with all of
their partners and for all of us, is important--in some places,
incredibly important. And what we have to do is do the enabling
work, in this Committee and in this body in which we serve, to
enable the Postal Service, your members or your customers, to
do the important work of our country.
The question that I would have, if I could--a question for
President Rolando. Let us go back to Medicare integration. My
own feeling is--I have always said that this is a liability.
The question is, why do we have to address it in 10 years, when
a lot of businesses never address it, do not even think much
about it? And, I think that it is a liability that needs to be
addressed. But, what we have proposed in our legislation is to
do it over 40--to amortize over 40 and up to 80 percent of the
liability. Does that seem like a reasonable approach to you?
Mr. Rolando. Yes. I think that we are pretty much on the
same page when it comes to Medicare integration. The issue,
just from listening to the first panel, is the whole idea that
we are shifting a liability to Medicare off of a balance sheet
when, in fact, all we are looking to do is reduce the liability
by allowing Postal employees to participate in a program. And
it seems the question is how much have Postal employees put in
versus how much came out. And I do not think that Postal
employees should be treated differently in that way. This is
not an Employee Retirement Income Security Act of 1974 (ERISA)
plan. It is a social insurance program. If there is something
wrong with the Medicare program, that is a discussion for a
different day and a different hearing. But, we just want to
participate--like everybody else does--in Medicare because we
pay in like everybody else does. So, I do not see it as a shift
in that liability in any way, shape, or form, as was
characterized earlier today.
Senator Carper. Yes. I fully concur.
Dr. Coburn and I, when we first discussed this issue 3
years ago, came to the conclusion that there is an equity
question--equity fairness question--because how can you say
that the retirees of the number 2 employer in the country,
which pays more into Medicare maybe than almost anybody else,
cannot derive the full benefit of those payments. It is just
not fair. It is not right.
Mr. Hutcheson, if I could ask a question? In October, I
guess that it was last year, a GAO report found that because
Postal Service delivery performance is tied to a national
standard, their reported on-time mail delivery performance
results were not entirely complete and may not give an accurate
assessment of service for many communities across the country.
Are there measures that can be taken to ensure better delivery
performance in all areas as well as on a national level? I
think that you spoke to this a little bit in your testimony,
but we would love to hear more.
Mr. Hutcheson. Yes, sir. Thank you. I am certainly not an
expert on service measurements and I know that the Postal
Service has begun the process of attempting to measure the
mail. I think that our concern is that the urban mail is
commingled, and those figures are commingled, and I would
question--and I do not believe that we have an accurate figure
for rural mail. I think that it is difficult to determine. For
newspapers, it is impossible, because we do not go through the
machines where they can measure that. We cannot be seen in
their mail flow. But, I think that rural mail figures are
probably obscured when you mix the urban mail in with it.
I do think that the Postmaster General has tools to deal
with this situation. We know that the plants that have gone
away are not going to come back. We do know that those are
gone. But, I do hope that the Postal Service is--in the
previous panel they talked about innovation. How can they
follow the example of the steel industry of some 20 years ago,
and look at smaller and--for lack of a better word--more
boutique type of operations, where you can get more mail access
points that can deliver the mail and can keep it flowing,
rather than keeping rural mail, as we have discussed, flowing
to these huge processing centers and there being delayed, like
the example that the Senator gave earlier in Fargo.
I think that that is what happens. Mail gets stuck in these
large centers and it is--we always wish that it could go back
to the way that it used to be, when you could mail a First-
Class letter in your community. It had your community's
postmark and they would get it no later than the next day. But
with all of these plant closings, I think that, for rural mail
specifically, if we could get some of these smaller operations
that do not impose large expenditures to get started, I think
that it could be a real help for the Postal Service. The
greater the distance is, the greater the problems that we have.
Senator Carper. OK.
Mr. Hutcheson. And if we could do that, I think that it
would help.
Senator Carper. All right. Thank you.
A quick question for you, Ms. Collins, and then I will
yield to Senator Baldwin. In your written testimony--I did not
hear all of your oral testimony, I apologize--you compared the
Postal Service's efforts to cut costs to right-size the
enterprise and become more efficient with the actions that your
company has taken--had to take--in recent years to remain
viable in the paper industry.
When it comes to the Postal Service, and from your
perspective as a Postal customer, can you talk with us a little
bit about how far cuts can go before they begin to erode the
quality of service and reliability?
Ms. Collins. The infrastructure of the Postal Service
really is the foundation of the Postal Service. As we put
products out and provide those to our customers, who then turn
around and get those products working through the Postal system
to deliver that communication to the end user, you cannot back
away from service. If you back away from service, the
foundation of the Postal Service, what more is there? That is
what the Postal Service is about.
If people start questioning the predictability and if
people start questioning the reliability of the Postal Service,
you start losing those customers. And what I can tell you is
that, from a manufacturing perspective, when you lose a
customer, it is extremely difficult to get a customer back. So,
predictability, stability, service, quality--whether you are
making paper or you are delivering mail--it is about the level
of service and the level of quality. Whatever you put out
there--again, it is tough to get it back.
Senator Carper. Thank you so much.
Senator Baldwin, we will ask you at the end of the hearing
to adjourn us, and also there is a short script, as you know,
to read. Do you have it?
Senator Baldwin. I have just been handed that script. I am
all ready. Thank you so much----
Senator Carper. Thank you so much for doing this. And
again, our thanks to each of you for not just----
Senator Baldwin. Do I get the gavel while----
Senator Carper. You do. You get it all. [Laughter.]
I will even pour your water.
But, again, to all of you, thank you so much for working
with us and for providing, I think, very helpful and valuable
testimony today. Thank you. God bless.
Senator Baldwin. [Presiding.] And, I am going to be brief,
too, because I, likewise, have to get to a 12:30 meeting, but
thank you for all of the time that you have spent with us this
morning.
I want to actually start where Senator Carper left off with
you, Ms. Collins. You were just asked about predictability and
stability, in terms of level of service and quality of service.
You were just addressing that. Can you just add in the impact
of price fluctuations on the industry, if you have anything
further that you would want to add about that stability?
Ms. Collins. Again, as we consider which are the important
parts of keeping the Postal Service viable and continuing to
keep the mail volume up, one of the things that we have to be
careful of--and Mr. Hutcheson referred to that--is the yo-yo
effect--as you indicated, as well, Senator Baldwin--the yo-yo
effect of rates.
So, if the exigent rate increase is taken away in April and
the rates drop, and then we look at a bill that potentially
raises the rates again, and then we look at the PRC in 2017
evaluating the rates one more time, I just have a lot of
concern about the rates bouncing around. And, again, what does
that do to the predictability of the Postal Service? If you are
a mailer trying to decide what method of communication to use,
predictability is one of the factors that you would look at to
decide which method to use. So, I worry about dropping rates,
then putting rates back in play again, and then having the PRC
review the rates one more time.
Senator Baldwin. Mr. Rolando, I would like to have you talk
a little bit more about the proposal that you have worked on
with the Postal Service that would require actuarially based
payments and allow the Postal Service to conservatively invest
a reasonable portion of the Retiree Health Benefit Fund. And,
could you agree that Congress--would you agree that Congress
should move on areas that we have reached some level of
significant agreement on, such as requiring actuarially based
payments?
Mr. Rolando. Yes. The points that the coalition put
together--yes, I think that we should move forward on those. As
you know, there have been a lot of issues discussed over the
years in different sessions and none of those pieces of
legislation went anywhere because of the objections by many
different parties at many different levels. So, the idea of
putting the coalition together was to find out what we could
agree on and if the body of what we could agree on would be
enough to stabilize the Postal Service and posture it for what
it needs to do in the future. Those were the basic points of
that, the Medicare integration and certainly the investment
piece.
You cannot continue to provide, again, a low-interest loan
to the government, earning 2 to 3 percent, when just the cost
of health care is going up 5 to 7 percent. No matter what you
have in there, you are going to deplete it by doing that. It
just does not make good business sense.
Senator Baldwin. President Rolando, I also wanted to hear
some of your thoughts on service standard changes and
consolidations. I am concerned about service. Our Nation's
letter carriers work extremely hard to deliver mail to every
community, every delivery point, and so thank you for your
service and for that service.
As I mentioned during the first panel before the Committee,
I heard a great deal of concern from my constituents when the
Network Rationalization Plan was implemented. Can you discuss
what letter carriers and other unions have experienced with
respect to the recent consolidations and changes to service
standards?
Mr. Rolando. Yes. I think that I can speak for probably the
other unions in saying that we are all extremely concerned
about the changes that came at the beginning of 2015. As you
know, they were put in place with a plan to close more plants,
because under the current standards, they could not do that.
Fortunately, Postmaster General Brennan has stopped the
closings, but the changes did go into effect.
We certainly favor restoring the old service standards. The
reason that you do not see that, of course, in the consensus
bill is because we could not come to an agreement for the core
pieces of this bill. But, we are going to--we will continue to
pursue, in other venues, restoration of the service standards.
And of course, if the Committee wants to address that, I know
that all of the stakeholders will get together and discuss with
the Committee what could be done, if that becomes an issue.
We are willing, like I said before, to discuss any other
issues. These are the ones that we did have the common ground
on to move forward.
Senator Baldwin. Great. Well, I want to thank the panel of
witnesses for your time, your expertise, and your input. It is
extremely valuable.
And with that, I have a text to read. The hearing record
will remain open for 15 days, until February 5 at 5 p.m., for
the submission of statements and questions for the record.
This hearing is adjourned. Thank you again.
Mr. Hutcheson. Thank you.
Mr. Rolando. Thank you.
[Whereupon, at 12:27 p.m., the Committee was adjourned.]
A P P E N D I X
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