[Senate Hearing 107-206]
[From the U.S. Government Publishing Office]
S. Hrg. 107-206
THE ANNUAL REPORT OF THE POSTMASTER
GENERAL AND THE IMPACT OF TERRORIST
ATTACKS ON POSTAL OPERATIONS
=======================================================================
HEARING
before the
INTERNATIONAL SECURITY, PROLIFERATION AND FEDERAL SERVICES SUBCOMMITTEE
of the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 20, 2001
__________
Printed for the use of the Committee on Governmental Affairs
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76-800 WASHINGTON : 2002
____________________________________________________________________________
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COMMITTEE ON GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan FRED THOMPSON, Tennessee
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
RICHARD J. DURBIN, Illinois SUSAN M. COLLINS, Maine
ROBERT G. TORRICELLI, New Jersey GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia PETE V. DOMENICI, New Mexico
THOMAS R. CARPER, Delaware THAD COCHRAN, Mississippi
JEAN CARNAHAN, Missouri ROBERT F. BENNETT, Utah
MARK DAYTON, Minnesota JIM BUNNING, Kentucky
Joyce A. Rechtschaffen, Staff Director and Counsel
Hannah S. Sistare, Minority Staff Director and Counsel
Darla D. Cassell, Chief Clerk
------
INTERNATIONAL SECURITY, PROLIFERATION AND FEDERAL SERVICES SUBCOMMITTEE
DANIEL K. AKAKA, Hawaii, Chairman
CARL LEVIN, Michigan THAD COCHRAN, Mississippi
ROBERT G. TORRICELLI, New Jersey TED STEVENS, Alaska
MAX CLELAND, Georgia SUSAN M. COLLINS, Maine
THOMAS R. CARPER, Delaware GEORGE V. VOINOVICH, Ohio
JEAN CARNAHAN, Missouri PETE V. DOMENICI, New Mexico
MARK DAYTON, Minnesota ROBERT F. BENNETT, Utah
Nanci E. Langley, Deputy Staff Director
Mitchel B. Kugler, Minority Staff Director
Brian D. Rubens, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Akaka................................................ 1
Senator Stevens.............................................. 8
Senator Cochran.............................................. 10
Prepared statements:
Senator Cleland.............................................. 23
Senator Bunning.............................................. 24
WITNESSES
Thursday, September 20, 2001
John E. Potter, Postmaster General and Chief Executive Officer,
U.S. Postal Service............................................ 2
Kenneth C. Weaver, Chief Postal Inspector, U.S. Postal Service... 3
Alphabetical List of Witnesses
Potter, John E.:
Testimony.................................................... 2
Prepared statement........................................... 25
Weaver, Kenneth C.:
Testimony.................................................... 3
Prepared statement........................................... 44
Appendix
Karla W. Corcoran, Inspector General, U.S. Postal Service,
prepared statement............................................. 49
U.S. Postal Inspection Service, prepared statement............... 63
News Release from the U.S. Postal Inspection Service entitled
``Chief Postal Inspector Warns of Charity Scams,'' dated
September 20, 2001............................................. 76
Questions and responses for Mr. Potter from:
Senator Levin................................................ 79
Senator Collins.............................................. 81
Senator Cochran.............................................. 82
Senator Cleland.............................................. 95
Senator Carper............................................... 96
Senator Bunning.............................................. 98
Senator Bennett.............................................. 99
Questions and responses for Mr. Weaver with attachments from:
Senator Collins.............................................. 100
THE ANNUAL REPORT OF THE POSTMASTER GENERAL AND THE IMPACT OF TERRORIST
ATTACKS ON POSTAL OPERATIONS
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THURSDAY, SEPTEMBER 20, 2001
U.S. Senate,
Subcommittee on International Security,
Proliferation, and Federal Services,
of the Committee on Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:02 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Daniel K.
Akaka, Chairman of the Subcommittee, presiding.
Present: Senators Akaka, Stevens, and Cochran.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. The Subcommittee will please come to order.
Good morning. Today, we have the Postmaster General, who will
report to Congress on the state of the U.S. Postal Service. He
is accompanied by the Postal Service's Chief Postal Inspector,
Kenneth Weaver. We are also pleased to have a written statement
by the Inspector General of the Postal Service, which updates
her testimony from our May hearing, and I ask at this time that
the statement be inserted in the record.\1\
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\1\ The prepared statement of Ms. Corcoran appears in the Appendix
on page 49.
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The great tragedy of September 11 has forever altered
America and everything we take for granted. In the midst of
unimaginable horrors, our Federal employees pulled together to
deliver essential government services. Despite the terrible
losses, the Federal Government was back to work the next day.
It is in that spirit that we have asked the Postmaster General
and the Chief Postal Inspector to address how the Postal
Service was impacted by last week's events, where it is today,
and what Americans may expect in the future.
The operation of the U.S. Postal Service and the delivery
of the mail are critical to our Nation's economy. One of the
keys to America's recovery will be a strong and viable Postal
Service. Delivery of the U.S. mail is a basic and fundamental
public service that must be protected from disruption. However,
there will be new costs associated with continuing this
reliable and efficient service, which must also be reviewed.
The delivery and security of the mail and the safety of
postal employees are not the only challenges facing the Postal
Service. There are many in our audience who are concerned with
the Board of Governors' announcement that it will file a new
rate case this month.
As so many have said, the continued use of rate increases
to raise revenue may end up having the opposite effect,
depressing demand which will drive down revenues. It is
essential that an organization the size of the Postal Service
be governed by short- and long-term financial goals that
support its core mission of providing universal mail service to
all Americans at affordable prices. Because the Postal Service
appropriately sounded the alarm over declining volume and
decreasing revenues, Senators Cochran, Lieberman, Thompson and
I called on the Postal Service in May to develop a
transformation plan. This plan will be completed at the end of
this year.
Two months earlier, again at our request, the GAO began
conducting an in-depth investigation of the Postal Service, and
expects to finish its report by early next year. I will review
all options recommended by the GAO, the Postal Service, and
postal stakeholders. Moreover, despite the horrible burden
placed on our President, it is critical to the Postal Service
and the Nation that nominees for the vacancies at the Postal
Rate Commission and the Board of Governors be sent to the
Senate as soon as possible.
Again, I welcome the Postmaster General and the Chief
Postal Inspector to the Subcommittee. I would yield my time to
Senator Cochran if he were here. However, I was informed that
he is delayed by traffic, but will be here soon. Before
Postmaster General Potter begins, I would like to note that Mr.
Weaver must leave directly after his statement. Although we
will not have an opportunity to ask questions of him now, he
will respond to any written questions in an expeditious manner.
Mr. Postmaster General, we look forward to hearing from
you.
TESTIMONY OF JOHN E. POTTER,\1\ POSTMASTER GENERAL AND CHIEF
EXECUTIVE OFFICER, U.S. POSTAL SERVICE
Mr. Potter. Thank you. Good morning, Mr. Chairman. I
appreciate the opportunity to talk with you today about the
U.S. Postal Service. I have submitted detailed testimony in
advance. However, recognizing the pressing business of the
Senate, I will abbreviate my comments. Last week's attack had a
personal impact on us. The Governors of the Postal Service were
in public session when the terrorists attacked the Pentagon.
With our offices overlooking the Potomac, within seconds we saw
the absolute horror of the moment. None of us will forget the
black plume of smoke coming from the building.
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\1\ The prepared statement of Mr. Potter appears in the Appendix on
page 25.
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In New York, our Church Street Station was in the shadows
of the World Trade Center. Our employees were getting the daily
mail ready for thousands of businesses in the area. Their
station was showered with glass and debris in the opening
attack. They were in the process of evacuating when the first
tower fell. Incredibly, none of our employees were hurt even as
they ran to assist the wounded. I visited New York City last
Friday and met with employees and managers who ran to help. I
could still see the shock and disbelief on their faces several
days later. As a native of New York City, the sight of the
skyline without the towers remains inconceivable.
Almost from the instant of the attack, we began to discuss
ways to keep the mail moving. Over the years, we have learned
that in times of natural disasters, the appearance of letter
carriers making their rounds is an important signal to
neighborhoods and the Nation that the fabric of everyday life,
although damaged, remains intact. In times of disaster, our
Postal Inspection Service, Mr. Chairman, plays a constructive
role in helping management. Chief Postal Inspector Ken Weaver
is with me today and I would like him to speak for a few
moments about the role of his inspectors and the postal police
officers, and what they did last week.
Chief Weaver.
TESTIMONY OF KENNETH C. WEAVER,\1\ CHIEF POSTAL INSPECTOR,
UNITED STATES POSTAL SERVICE
Mr. Weaver. Thank you, Postmaster General Potter, Mr.
Chairman and Members of the Subcommittee for the opportunity
today. I have a separate written report of the activities of
the U.S. Postal Inspection Service and would like to have it
entered into the record.\2\
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\1\ The prepared statement of Mr. Weaver appears in the Appendix on
page 44.
\2\ The report of the U.S. Postal Inspection Service appears in the
Appendix on page 63.
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Senator Akaka. It will be entered into the record.
Mr. Weaver. Mr. Chairman, today I am wearing an American
flag on my lapel in place of the Postal Inspector pin that I
normally wear. I have served in the Army, as you have, under
this flag. I have also served under this flag for 30 years in
the United States Postal Service, 27 of those years as a postal
inspector. As the Chief Inspector, I have always been proud of
the outstanding work performed by the men and women of our
Postal Service, but I have never been more proud of how
Inspection Service employees handled themselves and answered
the call to duty than I have during this crisis. As the tragic
terrorist events of last week unfolded, the Inspection Service
immediately took action in support of the Postal Service and
all Americans.
Across the country, inspectors, postal police officers and
support personnel performed acts of heroism and provided
security and investigative assistance to protect employees and
customers, the mail, our post offices and to help others in
their effort to address our Nation's tragedy. The Inspection
Service has the responsibility to ensure the safety and
security of postal employees, facilities and assets, as well as
the U.S. Mail. We have done just that, and we have done more.
I visited New York yesterday to express my heartfelt
appreciation to all our people for the outstanding effort they
have put forth during this crisis. Although shaken from the
attacks, there is that steely New York resolve to put things
back together. I saw it in the eyes of our employees. They will
not be defeated. On the tragic day of September 11, our New
York division suffered the most serious effects from the
attack. The postal facility across the street from the World
Trade Center, Church Street Station, was the home for numerous
Inspection Service staff employees. Inspectors at Church Street
offered immediate assistance to victims on the street;
civilians, local police officers and firemen injured in the
attack, and helped to evacuate the area as smoke and debris
filled the air.
Since the attack, inspectors in New York and outlying
offices have been following up on the numerous bomb threats and
scares which have forced evacuation of postal facilities. We
are also working with the FBI on investigative leads in the New
York area. When the attack on the Pentagon occurred, postal
inspectors from the Washington, DC area responded to assist FBI
agents with evidence collection at the crash site. In
Pennsylvania, inspectors from the Pittsburgh area reported to
the plane crash site at Somerset County to assist in securing
the site and the mail. Three teams of postal inspectors
continue on a rotating shift at the FBI command center.
We are also providing significant investigative assistance
and support to the FBI, the Federal Aviation Administration and
emergency management agencies across the Nation, while
assisting postal operations managers at command centers. As
Postal Service operation managers have dealt with moving the
mail during the last week, the Inspection Service has worked to
ensure mail security nationwide. For example, the Amtrak
network has been expanded and postal inspectors are present at
key locations nationwide that serve as transfer points for the
mail.
Tragedies so often bring out the best in people.
Unfortunately, tragedies also bring out those who would prey on
the misfortune of others, and on that very desire to help
victims. These are the con artists who will solicit donations
through the mail for the families of victims, yet not a dime
will ever make it to those in need. Mr. Chairman, I want to
assure you that postal inspectors will aggressively pursue
those con artists. We are offering some advice to the American
public on how to make sure their donations go where they are
intended. In conjunction with this hearing, we have issued a
press release with this useful information, and I would like to
make it part of the record.\1\
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\1\ The press release of the U.S. Postal Inspection Service appears
in the Appendix on page 76.
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Senator Akaka. Without objection, it will be made part of
the record.
Mr. Weaver. Thank you, Mr. Chairman.
Safety and security of Postal Service employees is my top
priority. Security must be part of all postal employees'
activities. We have advised management of the security
precautions they should take to contribute to this overall
effort. I am also proud that postal employees have provided
eyes and ears in our Nation's neighborhoods and business
communities. In recent days, employees have provided
information which has assisted law-enforcement investigative
efforts during this crisis.
Before closing, Mr. Chairman, I want to, again, salute the
outstanding commitment to duty and resolve of postal
inspectors, postal police officers and our support staff. And I
assure you that the U.S. Postal Inspection Service will
continue to work to keep our employees and customers safe, to
keep the mail moving, and to preserve America's confidence in
the postal system. We will also continue to join with other
Federal law-enforcement agencies in the investigation of last
week's tragic events.
Mr. Chairman, I appreciate your interest in the Inspection
Service and the opportunity to address you. This concludes my
remarks.
Senator Akaka. Thank you very much, Mr. Weaver for your
excellent report. I certainly want to add my pride and
gratitude of the people in the Postal Service and what they
have done since Tuesday to make our Nation feel secure that the
mail will continue to be processed and delivered throughout the
country. We are proud of the folks in the Postal Service and I
want to extend our thank you to them for what they have done.
As you have pointed out, events like this bring out the best
and the worst among people. We would like to encourage those
who have come forward to sacrifice themselves, their time,
their resources, to help our country to continue to be great.
That is what we are all trying to do, and I want to thank you
again for your report, which I feel will renew the spirit of
America.
Mr. Weaver. Thank you, Mr. Chairman.
Senator Akaka. Mr. Potter.
Mr. Potter. Mr. Chairman, like Chief Weaver, I am extremely
proud of our 800,000 men and women and how they pulled together
to reroute mail from aircraft to ground transportation. We had
men and women volunteering to go to New York City and help get
the mail home. It became clear to me in Washington when I was
in New York that our team was committed to keeping the Nation's
fundamental communications network delivering. I cannot say
enough about the thousands of postal employees in New York City
and the Washington, DC and the greater Pittsburgh metropolitan
areas, whose personal lives were disrupted, yet found ways to
get to work and ask, ``How can I help?''
I also want to salute the hundreds of contract truck
drivers who move the mail every day, and my compliments to
George Warrington, President of Amtrak, who added hundreds of
cars to their network to move the mail. They reacted with
flexibility and speed. I also want to thank Fred Smith, the CEO
of Federal Express, and his team. As you know, it was only 3
weeks ago that FedEx began moving Express, Priority, and First-
Class Mail under a new contract. Almost from the time of the
terror attack, our teams worked cooperatively and closely to
serve America and our customers. I am pleased to report that
amid the national focus on Tuesday, September 11, mail handlers
and clerks reported to plants across the Nation that afternoon,
and worked into the evening to process and distribute the mail
for customers and businesses.
On Wednesday, September 12, across America, postmasters and
station managers opened their offices. By midmorning, while
clerks manned their retail windows, letter carriers began
fanning out throughout the neighborhoods, delivering and
picking up Wednesday's mail. In New York City, we concentrated
on how to get the mail to residents and businesses in Lower
Manhattan. With the determination that marks New Yorkers, they
got it done. Today, we are well along to restoring full service
in New York.
While America's airlines sat idle, our operations managers
kept mail moving over land by trucks and trains. When the
Federal Aviation Administration gave the go-ahead for
commercial airlines to fly, we were ready to put the mail back
aboard. In cooperation with the FAA, our aviation security
group had redoubled efforts to ensure the safety of mail
traveling by air. Our people remain in close contact with the
FAA, cargo carriers, commercial airlines and the Postal
Inspection Service to ensure the integrity of mail flying on
airliners. Therefore, in places such as Hawaii, Alaska and
Puerto Rico, our customers are getting mail and parcels from
the mainland again.
In the broader context, the events of last week tell a
great deal about our role as a basic and fundamental service,
provided for the people by the Government of the United States.
But in providing that service, the Postal Service is mandated
to operate like a business, yet we face the same economic
factors as every other business. This means that we must
balance our public service responsibility within the framework
of businesslike operations, since we do not receive and have
not received tax dollars for postal operations in almost 20
years. Like other businesses, rising costs and the soft economy
of the past year have affected us.
Revenue and mail volume lag behind projections, and as soon
as we saw those trends developing early in 2000, we responded
aggressively to lower costs. Through it all, we have had record
customer satisfaction levels, reflected by strong performance
in independent service measurements. Over the past 2 years, we
have reduced career staffing by more than 21,000 positions.
This year alone, we used 23 million fewer work hours, the
equivalent of 11,500 employees. When all the initiatives were
totaled, we removed more than $1.3 billion in costs from our
system just this year. These efforts have contributed to nine
straight quarters of positive productivity, an unprecedented
increase of 4.5 percent over the last 2 years.
Next year, we have the most challenging budget we have ever
had. We are looking to reduce work hours by another 26 million.
That is the equivalent of 13,000 jobs. We will do that in an
environment that will see another 1.7 million daily delivery
stops added to our network, and hopefully, an additional 2
billion pieces of new mail in our system. Yet, as fast as we
have reacted to reduce cost, rising energy and health-care
costs and an uncertain economy have continued to challenge us.
Even before last week's terror attack, we expected that mail
volume will not keep pace with the annual growth in new
households. Fiscal year 2001 will show a deficit in the range
of $1.65 billion, the second straight year of losses. For
fiscal year 2002, we project that we are going to have a
deficit of $1.35 billion.
Against this backdrop, 2 weeks ago I announced the most
sweeping changes, organizational changes, to affect the Postal
Service in 10 years. The changes will improve our focus, will
improve our accountability. We will prioritize program
expenditures and drive performance. We have reduced the number
of officers in the Postal Service by 20 percent, and we will
eliminate over 800 headquarters and headquarters-related
positions. We have eliminated two of our ten field area
management organizations. The eight remaining areas will
accelerate efforts to achieve a 30 percent staffing reduction
by the end of this year.
Our plants and district offices will reduce administrative
staffing by 10 percent, without affecting the collection, the
processing and delivery of the Nation's mail. Success with
automated equipment will also permit us to consolidate a number
of processing facilities and operations around the country.
This will be announced in mid-October, with implementation
scheduled for January. Despite these cutbacks, the Board of
Governors of the Postal Service voted to file a new rate case
with the Postal Rate Commission later this month.
Unfortunately, a 30-year-old statutory rate procedure has us
initiating the process a year before new rates can be
implemented. Strong cost management enables us to limit this
filing to an average of just under 9 percent, lower than the 10
to 15 percent that many anticipated. While the cost of a First-
Class stamp would increase by 3 cents, if our proposal were
initiated, it is important to note that the 8-cent stamp of
1971, when adjusted for inflation, would cost more than the 34-
cent price of today's stamp.
By the way, Mr. Chairman, we estimate that a typical family
will pay less than one dollar extra per month for this service.
Recognizing the difficult position of the Postal Service,
financially and otherwise, both Congress and the Comptroller
General of the United States have asked us to develop a
comprehensive transformation plan to serve as a long-term
blueprint for this organization's future. In the last week,
perhaps more than ever, we have seen how the Nation depends on
the Postal Service to keep people in touch and to help drive
the economy. This transformation plan will help us to identify
short- and long-term actions that protect our ability to do
this.
We are working with a wide range of postal stakeholders and
pursuing a three-phased approach to developing the plan. Each
of these phases is being developed on parallel tracks. In phase
one, we will continue to identify and implement actions that
are available to us right now to manage more effectively and
serve the American people better. In phase two, we will
identify the moderate legislative changes that provide us with
better tools to meet the business and consumer needs of our
customers in today's world. In the third phase, we are working
to identify options for long-term comprehensive changes that
will define and support the role of the Postal Service well
into the 21st Century.
Development of this transformation plan is one of my
highest priorities. You will receive our discussion document at
the end of this month and our plan at the end of this year.
There is a general agreement that the 31-year-old law that
created the Postal Service does not provide us with the tools
necessary to protect affordable, universal service. I look
forward to the Subcommittee's input in our continuing efforts
to build a strong and healthy future for America's Postal
Service. With your help, I believe our post offices can
continue to play a vital role in keeping America connected.
I cannot say often enough how proud I am of our employees.
When I was in New York with those employees most affected last
week, I thanked clerks, mail handlers, supervisors and letter
carriers for coming to work. One letter carrier, whom I cannot
forget, looked at me and said, ``I have to be here because my
customers need me to be here.'' That, Mr. Chairman, says a
great deal about our men and women. Thank you for this
opportunity. I look forward to working with you and the
Subcommittee in the future. I would be pleased to respond to
any questions you may have.
Senator Akaka. Thank you very much, Postmaster General
Potter for your testimony. Without objection, we will put your
full statement in the record.
Mr. Potter. Thank you.
Senator Akaka. I also want to convey to you our pride and
our gratitude to the Postal Service for the way in which they
responded to the disaster that occurred on September 11. As you
pointed out, they went back to work the next day to deliver
mail and to continue service to our country. I am also glad to
hear from your statement about helping the economy. It gives us
an idea of where we are, and I am glad to hear about where the
Postal Service is now and what you are planning for the future.
In speaking about the disaster and our economy, I felt
terrible to learn that there were 60 nations that were affected
by the possible deaths of people in the World Trade Center. As
you pointed out, the tragedy of September 11 has united us in
our spirit and our resolve, and we certainly want to continue
that.
Senator Cochran. Good morning.
Senator Akaka. I'm pleased to have my good friend, Senator
Cochran with us now. I just want to ask--I do not know the time
constraints for my other friend, Senator Stevens, and would
like to ask Senator Cochran to make the decision as to whether
Senator Stevens will go before him.
Senator Stevens. Let me make that. I will be glad to----
Senator Cochran. No, I am going to make the decision.
Senator Stevens ought to be recognized.
Senator Akaka. Thank you very much. Senator Stevens.
OPENING STATEMENT OF SENATOR STEVENS
Senator Stevens. Mr. Postmaster General, I welcome you in
your first appearance here, that I have been able to attend. I
do think we are very fortunate with your background, in terms
of the operations that you have been involved in in the Postal
Service, that you have come up to this level of the postal
system. So I congratulate you for your appointment, and I also
want to tell you that we are going to need all of your
experience in dealing with the times that are ahead of us.
In Alaska, we have had some really difficult times, I am
sure you know. In our State, 75 percent of all intercity travel
is by air, almost 90 percent of the mail is delivered by air
into the smallest of communities. After September 11, as you
know, everything was grounded for a day or two. We had a hard
time reminding some people downtown that the taxis were still
running in New York, the buses were running, and the trains
were running there, but guess what? There were none of those in
90 percent of Alaska. So we do appreciate your understanding
and help in that situation. I am informed that we are almost
back to normal, not quite, but almost.
In an area where hay for horses and diapers for babies are
delivered by the Postal Service under what we call bypass mail,
it is a real challenge to keep up with our system. I wanted to
chat with you just a little bit about the future of that. There
is currently a limit on the use of the passenger-carrying
aircraft for rural Alaska. I had to look into that. It was an
odd and terrible day for Alaska, September 11 and 12 was,
because that was a time when our school teachers were leaving
to go from the major hubs out to the rural schools, 270 of them
and probably 260 of them going by air.
We had enormous difficulty getting our people around, and
one of the things we have tried to do with bypass mail is to
ensure that a sufficient amount of mail went on the passenger-
carrying local airplanes, so that stability of those airlines
to survive would be assured. Have you been able to look into
that yet, Mr. Postmaster General, in terms of what we will be
able to do to sustain the type of local passenger service that
has been in the past sustained through the use of bypass mail
and the support of the Postal Service?
Mr. Potter. Senator Stevens, let me begin by thanking you
for your help to the Postal Service and working with the FAA.
It is most appreciated. As you mentioned, there are
restrictions on our tendering of mail, certain types of mail,
to larger aircraft within Alaska. We are using cargo planes to
move the mail. We have recertified our processes for airline
security, working very closely with the FAA. In fact, just this
past summer, we had redone our airline security procedures with
the FAA's approval, and we had retrained many of the people in
the country who handle the mail.
With last week's events, we went out and did a
certification, 100-percent certification of all people, to make
sure we were in compliance with those new regulations or those
new procedures that we had. We are going to work closely with
the FAA to ensure that we are able to move mail within Alaska,
and we will take whatever security measures are necessary. We
do want to keep mail--as you said, for the viability of those
passenger airlines, we would prefer to keep mail flying on
those planes, but again, we will take all the necessary steps
in order to assure that the mail that is tendered to those
airlines is----
Senator Stevens. Well, I thank you very much for that. Many
people forget that these little carriers that we are talking
about that carry 9 to 12 passengers, there is not much of a
fuel load. They are not really capable of doing much damage as
far as being used as those two monster airplanes were used in
New York, as bombs--and the one against the Pentagon. These
are, again, taxis, and they are literally air taxis, but they
have an economic viability if they can carry the mail; and if
they are assured that they will carry the mail, they get out to
those villages and oftentimes people, when they see the mail
plane come in, they make up their mind that this is the time to
go to town. So it is the mail that really generates passenger
traffic and not the other way around. I do look forward to
working with you, and again, I really am delighted.
You have got the background, in terms of logistical
activities of the Postal Service that we need now, and I am
sure this Subcommittee is going to be working very hard with
you. I have got to apologize. My friend from Hawaii, he has a
similar circumstance, but when the planes do not fly over
there, they just take boats. We do not have quite the same
circumstance, except when I first came to the Senate, once a
year there was a vessel known as the North Star, that took
supplies to all the villages along the Alaska Coast. It went
out once a year. All of their supplies had to go to their local
stores--they had to purchase them a year in advance--and
logistically that meant, in terms of their economy there, they
did not get much.
Things have changed now. The day before Christmas I flew
over with a friend of mine over to Bethel, which is in the
center of the West Coast of Alaska. I walked through a mall and
a native store there, where the things that were available to
those people for Christmas was just overwhelming, compared to
what I knew was there 30 years ago. Extending the mail system
and making it reliable in Alaska has been brought about by the
modernization of rural Alaska, and has brought them into the
21st Century with everyone else. I cannot think of another
entity of government that means more to rural Alaska than the
Postal Service.
I want you to know, as I have in the past, Mr. Chairman, I
have served on this Subcommittee longer than anyone on our side
of the aisle in history. The old Postal Committee was my first
Committee when I came to the Senate, and I want to continue as
long as I am here to work with you, because I think you are the
lifeline for rural Alaska. I am sorry. I have got to go back to
the other committee, Mr. Chairman and Senator Cochran, because
we have--guess who? Secretary Mineta and FAA is over there, and
I want to make sure they understand what I just told you. Thank
you very much.
Mr. Potter. Thank you.
Senator Akaka. Thank you very much, Senator Stevens for
your statement. I must also add that we certainly share the
concerns that noncontiguous States have, especially with the
mail service. So I want to thank Senator Stevens for his
comments.
And now, Senator Cochran.
OPENING STATEMENT OF SENATOR COCHRAN
Senator Cochran. Thank you. Mr. Chairman, I want to join
you in thanking Senator Stevens for being here this morning and
putting in perspective the importance of the Postal Service,
not only in his State, but I think it is true throughout rural
America. So the challenges are quite immense. I noticed that
one of the biggest challenges for the Postal Service is to try
to modernize and bring your activities up into the modern
world, and one of the steps that was taken some time ago was to
move into the area of e-Commerce, so-called electronic
activities. I am told that in spite of the fact that it was
expected to help make up for lost revenues from loss of mail
moving into that area, the Postal Service has not really been
able to make any money in e-Commerce.
My question is can you confirm that, and, if so, what are
your plans to deal with the challenges of e-Commerce? Are you
going to abandon that or continue to work on it?
Mr. Potter. Recently, I made organizational changes at the
headquarters level. Part of that organizational change was to
take the vice president of e-Commerce, the vice president of
Package Services, the vice president of Core Products and the
senior vice president of Corporate Business Development, and
move them into one organization called the Vice President of
Products for the Postal Service. Over the course of time, there
has been internal competition for resources along the areas--
and, obviously, e-Commerce was one of the areas that was in
competition for resources. The reason I did that was because I
wanted the organization to focus on one thing. I wanted to
focus on core products.
We have some $68 billion in revenue, and my challenge to
the organization is not to become the premier provider in the
e-Commerce world. My challenge to the organization is to see
what we can do to grow that core business, because it is a
simple analysis. If you wanted to make $680 million and you
were the Postal Service, it is a lot easier to grow the core by
1 percent than it is to take a new product and have it come to
grow to $680 million in revenue. Now, with that said, I want to
assure everybody, and our customers in particular, that we want
to move into the Internet. We want to do business, because
businesses are moving to the Internet to deal with one another,
and that is a channel for payments. I am talking about our
major customers--that is a channel that we use to share
information. So the Postal Service has to be on the Internet.
We do have a number of e-Commerce initiatives that have not
produced revenue, that are not meeting the expectations of
their business plan. We have also eliminated some of those
initiatives, but I would be happy to share those for the record
with you. The initiatives that we have, we have put under a
microscope. We are tracking, monitoring on an accounting-period
basis, the revenues that we take in, what our costs are, and
over the next 6 months, our plan is to take those initiatives
that have not been meeting their business plan, and to put them
on a critical watch. If, in 3 months we cannot turn things
around, we are going to eliminate those initiatives. We are not
going to perpetuate programs that do not have a bright future
and will not generate the revenues that were expected when
those programs were initiated.
Senator Cochran. I noticed that one of the requests that
has come from the Postal Service just recently is for a
supplemental appropriation. Could you tell us what this
supplemental appropriation is needed for, and the exact amount
you are requesting?
Mr. Potter. We have asked for $957 million. That is money
that is owed to us for services that were provided in the
1990's, and the Congress made a decision that they would pay
that amount to us in $29 million over a 42-year period of time.
What we are asking for is to accelerate those payments. Given
our financial condition right now, we could certainly, as could
other businesses around America, use $957 million. But our goal
is to take that money and begin to invest it in the
infrastructure. Last year, we stopped the building of post
offices around America. We put a freeze on our capital budget
for construction of postal facilities. We have had to make a
decision that we are going to continue that freeze into 2002.
We would like those funds so that we could, first of all, help
our bottom line, as well as to accelerate our ability to move
ahead and continue to build the infrastructure that we need.
Senator Cochran. There had been some discussion that,
rather than ask for a substantial postal rate increase, as we
now know has been done, there was consideration given to asking
for a phased-in increase in postal rates. Why was the decision
made to ask for a larger increase and not phase-in the postal
rate increases?
Mr. Potter. We took a very hard look at the phasing-in of
postal rates. Unfortunately, the fact that we are so close to
our borrowing cap gave us very little flexibility, in terms of
being able to ask for a smaller rate increase in 2003--our
fiscal year 2003--and then smaller increases beyond that. So we
really were hard pressed in terms of bumping up against our
borrowing limits. Now, that said, a lot of people have
suggested why not just expand the borrowing limit?
Unfortunately, given the fact that the only way we can pay down
the debts that we have is through net income, expanding the
borrowing limit really does begin to mortgage our future.
So we felt that, given the circumstances, we had to ask for
a rate increase and we could not establish a rate increase
phasing it in. There are just too many inherent risks to what
we have to deal with in the next year. Those risks include the
soft economy and the types of volumes that we had projected for
this year. Certainly, that is at risk. We have three cases--
three contracts that expired that are currently being
arbitrated by a third-party arbitrator who will make a decision
about the amount of money that we pay our employees. We have a
fourth agreement that is currently being negotiated with our
National Association of Letter Carriers. In total, there are
some 700,000 employees whose salaries will be determined in the
coming months. We do not know what the outcomes, particularly
on the arbitration, will be. So, there is an inherent risk
there. So, given the risks in our economic situation as we look
into the future, we felt it only prudent to file rates, and we
did not feel that we could file rates in a phased manner.
Senator Cochran. There was a letter that some of us signed,
asking for a report on the transformation plan of the Postal
Service. I understand that you are making good progress in
compiling this information for the Congress and before the end
of the year, we can expect to have a complete report that we
requested. Is that information that I have true, and do you
have any comments about the transformation plan?
Mr. Potter. Senator, that is true. We plan to produce and
publish a discussion document by the end of this month. We are
well underway to completing that document. I have reviewed
several drafts. We are working closely with the GAO, and we are
planning a parallel phased approach. Our first phase--and,
again, we are going to run these parallel to one another--is to
do everything that we can as a Postal Service to improve our
posture. That includes taking costs out, looking at our
networks. In our second phase, we are working and looking for
moderate legislation that will help us and give us some tools
so that we can improve the way we do business and act in a more
businesslike manner. And the third phase will be a discussion
of a long-term perspective; a comprehensive discussion about
where the Postal Service should be, what should universal
service look like 15 or 20 years from now, so that we can begin
managing our way to an ultimate picture, an ultimate vision, of
what the Postal Service is.
It is very important as we do that that we recognize them
now more than ever--given the events of last week, that we
recognize the importance of the Postal Service to our economy.
Some nine million people throughout America are employed, not
by the Postal Service, but in the mail business. Some $900
million is transacted in the mail business. We are a vital part
of the economy, and we take this opportunity to build a
transformation plan very seriously. It is a high priority and
we are going to fulfill the direction that we were given by the
Senate to build a comprehensive plan with stakeholder input, so
that we have a good working document that we can then fulfill.
Senator Cochran. Well, Mr. Chairman, I congratulate the
Postmaster General on the good start you are off to. I think
you are making good progress. You have got a sense of where you
need to be, an obligation to reduce deficits and to get better
control over the operation of the Postal Service, generally. So
I wish you well and commend you for the excellent start that
you have made as Postmaster General.
[The prepared statement of Senator Cochran follows:]
OPENING PREPARED STATEMENT OF SENATOR COCHRAN
I welcome you, Postmaster General Potter and Chief Postal Inspector
Weaver, in your first appearances before the Senate. I would also like
to thank you both for the significant efforts the Postal Service and
the Postal Inspection Service have made during the past several days to
keep the mail moving in as safe and expeditious a manner as possible.
Postmaster General Potter, you stepped into your new role at a very
interesting, and also very difficult, time for the Postal Service. In
fact, you were appointed Postmaster General just 2 weeks after this
Subcommittee held a hearing in May to discuss the seemingly rapidly
deteriorating financial situation of the Postal Service. Fortunately,
the numbers relating to the Postal Service's expected deficit for this
fiscal year have improved slightly since then. However, significant
challenges remain in the effort to return to a ``break-even'' state--as
made evident by the Postal Board of Governors' plan to file for another
rate increase, an ongoing facilities funding freeze, and new plans for
substantial workforce cuts. Hopefully, today's hearing will provide us
the opportunity to discuss further cost cutting and revenue generating
plans you may be considering.
I appreciate the efforts the Postal Service has made thus far in
preparing a comprehensive transformation plan, as requested by Senators
Akaka, Thompson, Lieberman, and me. I understand that we can expect to
receive this at the end of the year, along with a detailed plan for
deficit reduction. These plans should prove highly useful in helping
the Senate understand the long-term operational, financial and human
capital needs of the Postal Service.
Despite the Postal Service's current difficulties, the agency's
tremendous workforce of over 800,000 employees has maintained record
service performance and high levels of customer satisfaction--with over
one million new addresses being added each year. The agency's
reputation as a highly dependable deliverer of mail to American
citizens throughout the country is well deserved.
I am pleased to have this opportunity to review with the Postmaster
General the activities and problems of the Postal Service and any
issues that, in his judgment, should be brought to the attention of
this Subcommittee.
I do hope the Postal Service will continue to pursue its
fundamental responsibilities, providing universal mail service at
affordable rates.
I thank you, Chairman Akaka, for holding this hearing. I look
forward to hearing the Postmaster General's and Chief Inspector
Weaver's reports.
Mr. Potter. Thank you, Senator.
Senator Akaka. Thank you very much, Senator Cochran.
Postmaster General, you and Mr. Weaver have described some
of the extraordinary steps the Postal Service has taken during
the past 10 days to ensure that the mail is delivered in a
timely manner, despite the devastating circumstances that we
all faced. I, too, want to join Senator Cochran in applauding
your leadership during this time, and also your leadership in
what is ahead for the Postal Service.
I again commend the hundreds of thousands of dedicated
postal workers who work so hard every day to deliver the mail.
Many times during disasters, the Postal Service is the first
sign of the Federal Government on the scene. As you noted, mail
was delivered to many homes and businesses last Tuesday. My
question is what types of disaster plans does the Postal
Service have, and would you further explain the steps the
Service took last week to secure the U.S. mail, ensure
delivery, protect its employees and communicate information to
the field? You partly answered this, but perhaps you can expand
on that.
Mr. Potter. Let me just tell a little story. You mentioned
that mail was delivered on Tuesday. We had people who work in
our headquarters building, and, as you know, the city was
evacuated. We shuttered postal headquarters and people were
asked to go home, and there was a horrendous traffic jam as
people moved to their homes, and I had two employees come to me
and say, ``You know, I got home at two o'clock and right behind
me was the letter carrier, delivering that mail.'' So even here
in Washington, people were delivering the mail.
As soon as we saw--as we were up on the 11th floor of our
building and we saw what happened at the Pentagon, we began an
evacuation of our building, and we immediately went into our
continuation-of-operation plan. We had people that were
dispatched to a location outside the Beltway to activate that
center, while we kept half the folks downtown to communicate to
the areas and to issue instructions on what to do. Immediately,
we moved and developed a plan to move mail on the ground.
About 20 percent of our mail flies, so we wanted to make
sure that the economy kept going and that we kept the payments
that were in the mail--we kept them moving. So, immediately we
went to ground transportation. As I said, Amtrak offered to
give us additional cars on trains, build trains for us, and
within a couple of hours we had that conversation. Federal
Express called us and said, ``We will move the mail by truck.''
We went to our trucking folks and we asked them to run extras
and make sure that the mail kept moving. Throughout that
process, we stayed in communication with the field. As you
know, domestic air carriers were told to ground their planes.
Some of those planes landed in places where we do not have air
mail centers. So we dispatched our folks out to the airports,
and as quickly as we were allowed to get access, we took the
mail that was flying off the plane, put it on ground
transportation and got it moving.
We expanded our current surface networks. We have a network
to carry our advertising mail and our parcel post throughout
the country. We immediately used that network to move First-
Class Mail, Priority Mail, and although it would be a little
late, Express Mail, on trucks. We worked closely and contacted
in very short order the FAA to determine what their plans were.
We made contact with our cargo air carriers, FedEx. We made
contact with other cargo air carriers who had worked for us in
the past or worked to handle our Christmas mail, and we
prepared them so that once we had the go-ahead to fly, we could
move mail on cargo planes and begin to tender mail to domestic
carriers.
And, as I said earlier, we reacted in terms of any
restrictions that might be placed on us in terms of flying mail
on domestic carriers. I am happy to say that the mail moved. It
is moving. We have contacted a lot of our larger customers,
particularly remittance centers around the country, to garner
from them what their perception was, and they understood that
mail would be delayed a day or two. But they were satisfied
that we kept the mail moving, they are receiving their
payments, and we made our contribution in that way to the
economy.
Our goal was to get back to normal as quickly as possible.
In New York, as we speak, there are only the two stations in
New York that we have not moved our carriers back into. That is
the Church Street Station that was right under the Trade
Center, and I do not think that we are going to get access to
that anytime soon. We have made provisions for the people who
are serviced by Church Street Station to receive their mail at
our General Post Office in New York, and, as they come to pick
up the mail, we are offering them forwarding service, and we
are suggesting to them that they not make the trip to 33rd
Street and Eighth Avenue in Manhattan, but that they put
together--if they have a residence or if they have moved their
business, that we began to forward the mail for them. We do not
want to inconvenience those customers.
The other station in Manhattan that has not opened is Wall
Street Station. Our carriers are preparing mail. We have sent
trucks down there to find out what buildings we could get
access to. Whatever buildings we can get access to, we have our
carriers going into that area to deliver the mail. We just got
power back in the building late last night, so today we are
doing a cleanup. Tomorrow, we will have access to that building
and we will be delivering the mail out of our Wall Street
Station. Once we move the mail, there are customers who are in
buildings that they cannot access--who will be able to pick up
their mail at the Wall Street Station. So we are doing
everything we can possible to make sure the mail is moving
Our office in the Pentagon is open again. We are delivering
mail to the Pentagon. So, for the most part, I can say the mail
is moving. I think people have to be somewhat patient with us.
We are trying to stay within the standards, the expectations
that people have for mail moving across the country, and where
possible, we are doing that and we are moving mail on all
available transportation, cargo, and airlines. In fact, in your
State, Senator, the State of Hawaii, we have had to put some
cargo carriers in place because right now the mail to Hawaii
has increased dramatically, people requesting goods and
packages.
There has been a tremendous increase, and so we are flying
charter planes with packages into Hawaii. We are using charters
to move mail to Guam and American Samoa, and we are moving
letter mail on all commercial carriers, and where we cannot, we
are using cargo planes. The one problem we have in your State
continues to be the Compact Islands, although we believe we
have a flight leaving Saturday to get the packages down there.
The smaller products have moved.
So, again, I cannot say enough about the people who work in
the Postal Service. This is not what I did. This is what the
people in New York, the people throughout the country, are
doing to move the mail. Our logistics people, our Vice
President of Network Operations, Paul Vogel, has done an
outstanding job in coordinating the efforts of the country.
This truly has brought out the best in postal managers. There
is a level of cooperation like we see every time that we are
challenged, and there is something where the Nation needs us to
help them, and so I could not be more proud of what we have
done. We are going to continue to work hard. We are going to
make sure that the mail is secure, that our employees are
secure.
We have issued instructions to create a greater awareness
on the part of our employees of the need for safety. This is
not just mail that flies. This is all of our vehicles, all of
our post offices. So we are getting the word out to make sure--
and I personally am going to do that--to make sure that when
they leave their vehicles that they are locked; to make sure
that if there is a stranger who shows up at a postal building,
that they are immediately challenged and that we take the
proper precautions to make sure our doors are locked,
precautions that are just common sense. But we need to
reinforce that common sense which is more important today than
ever, because we cannot have the American public lose
confidence in the mail.
Senator Akaka. I want to thank you very much for responding
to the needs of the Pacific, to Hawaii, Guam, and American
Samoa. As we all know, the mail stopped because it could not be
delivered by commercial airlines to those places. But I am glad
to know that the Postal Service has responded and moved it as
quickly as you could to those areas. I want to know what steps
the Postal Service took in helping to protect the employees and
also communicating with them in the field?
Mr. Potter. We put out ``Direct Line,'' which is a
communication that goes to all post offices. We have done it
that way. We have a Postal Service television network where we
have kept people abreast of all the events that have gone on,
let them know changes that were being made, and basically made
them aware of the need to secure the mail, secure themselves,
stay safe, and, again, deliver mail to America on a daily
basis. Now, more than ever, I think people are looking at the
Postal Service. They understand how vital it is to not only the
economies in Hawaii and in Alaska, but to the economy of the
United States. Over $1 trillion transits the mail over the
course of the year.
So we understand what is in the mail. We understand the
need for people to receive payments to get their bills so that
they can pay them, so we can keep the engine, the economy,
moving and we, again, want to do our part. Our first concern is
the safety of our employees, and I was very happy, as I said in
my earlier statement, that no postal employee got hurt. Our
managers did the best they could to get those folks out of
harm's way, and we took the necessary precautions to ensure
that our employees were safe and at the same time make sure
that the mail got through.
Senator Akaka. Again, I want to thank you for thinking of
the Pacific and working with the Honolulu District to resolve
the backup of mail in Los Angeles bound for Hawaii, and for
establishing a regular delivery schedule. Can you tell me when
the backlog for Hawaii will be clear?
Mr. Potter. Senator, it is my understanding that we are now
flying a full 747 daily. We had anticipated that, based on the
volume that we normally have, we would be flying the 747 every
other day; however, we are now flying that plane daily.
Domestic carriers are again accepting letter mail and
lightweight flat mail. So we are moving all the mail that we
possibly can, and it is a matter of getting it to Honolulu and
then moving it out on inter-island transportation, and we are
able to do that. So we believe that it is not perfect yet, but
the flow is just about back to normal. Again, the thing that
was most surprising was the fact that, once this disaster hit,
apparently the amount of orders for goods and the amount of
communication going between the mainland and Hawaii jumped
tremendously. We appreciate the revenue, but we have had to
make adjustments to react to it.
Senator Akaka. I want to tell you that the people out in
the Pacific are grateful. I know because I was receiving calls
about prescription drugs and other necessities that come
through the mail. As soon as there is a disruption, you hear
from these folks, and I am glad you took care of that.
I will ask one more question before I end this round. With
the special challenges facing the Postal Service, there will be
additional costs incurred in getting the mail delivered. My
question is how long do you expect these additional costs to
continue and will the supplemental funding request submitted to
the White House just last week be used for these costs?
Mr. Potter. We submitted a supplemental funding request to
the White House. They actually asked us to identify additional
costs that we had incurred and we submitted a number in the
range of $50 million. Let me explain what that number is.
Approximately half of the $50 million is for the renovation of
the facility that was damaged at Church Street. In addition to
that, as Chief Weaver mentioned earlier, we have provided
assistance to the FBI in the form of equipment so that they
could handle evidence at some of the sites.
We have also spent funds aiding the rescue efforts and the
recovery efforts. We have provided trucks. Amtrak donated a
service where they filled up seven carloads with medical
supplies to assist in the Manhattan rescue effort. Those
supplies were brought into our facility. We off-loaded those
supplies into trailers and moved them to the site, and we are
incurring some costs for some of the cargo transportation that
we are talking about. So we anticipate that number could
potentially grow, but I guess if you think about it, this kind
of points back to the rate process that we have and the fact
that, to prepare a rate case, to get an outcome and to
implement, you are talking on the order of 16 months.
Preparation--4 months, 10 months at the Rate Commission, 2
months to allow for people to get ready for a new rate.
We are not really ready to handle that type of thing from a
rate standpoint. When we saw fuel costs rise in the past year,
our competitors, FedEx, UPS--they put a surcharge on fuel in
terms of what their customers would pay. We did not have that
ability or the flexibility to make that change. We submitted
the supplemental because the White House asked us to identify
our additional costs. We think they are going to grow and those
are the types of things we have identified as costs.
Senator Akaka. Thank you. Let me ask my partner, Senator
Cochran, for any additional questions.
Senator Cochran. Mr. Chairman, one other question, if I
might. Despite recent gains in productivity overall, over time,
there has barely been an increase in productivity, and this is
in the face of substantial investments that had been made in
information technology, modernization and automation and the
like; why has the Postal Service had such difficulty improving
productivity over the long-term?
Mr. Potter. As you have heard already, we have made a lot
of progress in the last 2 years. We are focused on our costs
and taking costs out. We have had since the beginning of the
Postal Service, about a 13.3 percent increase in productivity,
4.5 percent of that has occurred in the last 2 years. We are,
again, focused on making sure that every penny we spend is
necessary, because we know it is going to have to come from the
ratepayer.
In terms of why you haven't seen a greater productivity
improvement over time--I believe it is because of the fact that
delivery, in and of itself, is a very labor-intensive activity.
We have over 300,000 people who deliver the mail, and we are
working to evaluate the processes used in delivery to try to
improve productivity in that area. I mentioned earlier today
that we have eliminated some 21,000 career positions. The bulk
of those positions are clerk positions, where the automation
investment that you have referenced is focused, and we have
gone back to make sure that as we have improved machines'
ability to read addresses, so that we reduced the work hours of
clerical employees.
We have to take that same resolve, in terms of reducing our
cost in areas of material handling, that is the movement of
mail into buildings and out of buildings and onto machines and
off machines. We want to work with our customers, so that it is
kind of transparent, the movement of mail from a printer right
to delivery. We have some processes that were created before
the advent of automation, and we have to change the packaging
to reduce those costs. We also have to invest in material
handling systems. In the area of delivery, again, we are
focused on those processes to see whether or not there is an
opportunity to reduce costs.
But, in a nutshell, moving mail is a labor-intensive
business. We move over 208 billion pieces of mail a year with
some 800,000 employees. I would not call ourselves
unproductive. I would say, though, we have opportunities to
improve.
Senator Cochran. Thank you. Mr. Chairman, this concludes my
questioning.
Senator Akaka. Thank you very much.
Mr. Postmaster General, let me ask you the question that is
on everyone's mind. We know that the Postal Board of Governors
will request that the Postal Rate Commission give expedited
consideration to its rate case. In fact, you repeated the need
for expedited review today. If the rate case is completed in
less than 10 months, does that mean that rate increases will be
implemented as soon as the case is decided?
Mr. Potter. Well, as a matter of fact, Mr. Chairman, one of
the reasons that we would like to have an expedited rate case
is so that we would understand what the recommendation of the
Rate Commission is. Many people have talked to me, to other
governors, about delaying the implementation of the case. The
only way you can make a decision about that is to understand
what revenues we might get from that additional rate. So, what
we are doing is we are going to look at all of the different
variables that go into a decision about when we might implement
the rates. Those variables, as I described earlier, are what
happens to the economy and what happens to our volume and
revenues between now and next summer, what happens in front of
the three arbitrators who are going to decide the wages and
working conditions for three of our major unions, what happens
with the negotiations for the National Association of Letter
Carriers, and what happens in front of the Rate Commission and
what recommendations they will come back with.
So the idea of asking for an expeditious decision was not
with a mindset of ``we are going to accelerate these rates as
quickly as we can,'' it is ``let's get all the information that
we possibly can garner to make a sound judgment about an
implementation date.''
Senator Akaka. Obviously, the various classes of mail will
be impacted differently under the new rate case. I know that
postage rates for periodicals have increased 12.5 percent under
this year's two increases, and are expected to increase another
10 percent under the new proposal. Priority mail is targeted
for a rate increase of 13.5 percent, even though its rates have
already increased by more than 16 percent this year. My
question is how does the Postal Service calculate the point at
which raising rates will have a negative impact on the
different types of mail service, and do you believe the Postal
Service will eventually price itself out of some classes of
mail?
Mr. Potter. Postal Service rates are determined by Postal
Service costs. We operate under a 30-year-old law that
basically has us charging mailers or our customers prices based
on what our costs are. We have worked with periodical mailers.
We are attempting to work with those mailers to try and drive
costs out of our processes. As I said earlier, we are trying to
figure how to mail from printers to our letter carriers with as
few handlings as possible along the way. So we are looking at
the entire chain, from printing to delivery, and we have an
ongoing dialogue with that group of mailers. In the area of
Priority Mail, yes, our costs have risen, and that is the
driver behind the increases that people see. We believe with
the FedEx contract that we are going to increase the
reliability of the mail, Priority Mail and Express Mail, and
that we are going to have competitive products in both of those
arenas.
As far as the long-term, I think your question about long-
term, will we price ourselves out of one or two product areas?
I would prefer not to. I am going to work very hard to make
sure that does not happen. The key in my mind is building a
solid transformation plan, putting in the efficiencies that
need to be put in in order to make sure that those costs do not
rise, because they trigger rates. It is also an opportunity to
discuss the 31-year-old law that we have governing us and the
potential to have some pricing flexibility, so that if we know
we are going to put efficiencies into different classes of
mail--that we take advantage of that and have prices that would
be more moderate and would allow for an evolution to a more
efficient operation.
If you step back and think about the Postal Service, the
bulk of our mail is letter mail. So it was very wise that, 15
or 20 years ago, our number one priority for investments was
letter mail. Now, by doing that, other classes of mail were not
concentrated on. There were not similar efforts to improve
efficiency. Now is the time to do that because we know how
important magazines are to the American public, we know how
important packages are to certain communities around America,
because we are, in some communities, the main provider of
packages to customers.
We need to keep all Americans linked. We understand our
obligation to keep our costs down so those products are
competitive. We cannot just service a few markets around the
country. In order for us to have reasonable rates, we have to
have products that are competitive in all 50 States, and there
is sufficient volume there to allow us to be efficient. We are
very much concerned about that and we are going to do
everything we can do to ensure that. We do not have to walk
away from--or our customers don't have to walk away from a
product offering because we have priced ourselves out of the
market.
Senator Akaka. I am glad to hear that from you, and of your
concern. As you know, these periodicals, as you pointed out,
depend so much on the Postal Service. Without the Postal
Service, they cannot do business. So you are important and, I
am glad you are giving them that kind of attention. Some
observers believe that prior to seeking postal reform
legislation, the Postal Service should demonstrate that it has
explored the boundaries of the existing rate-making structure.
In fact, the vice chair of the PRC urged the Postal Service to,
and I quote, ``to take advantage of the wide latitude permitted
by current law,'' during our May hearing. However, you and the
Board of Governors say that your options are very limited. Why
do you believe that there are these two opposing views, and
does the Postal Service have any plans to go beyond existing
rate-making structures?
Mr. Potter. I believe that we have opposing views--I know
the Postal Service's view is built around experience at the
Rate Commission. When someone is preparing you to testify at
the Rate Commission, basically they tell you to provide an
answer that says anything is possible, when given a
hypothetical. Well, we could hypothesize all day, and anything
is possible, and we do have to test that and we are testing
that. An example of a test under current law is that we are
going to propose, and the Board of Governors voted to propose,
a waiving of delivery confirmation fees in the beginning of
December, to see whether or not we can shift the deposit of
packages with us from later in the month, when they are costly,
to earlier in the month of December.
So we are beginning an effort to try to explore and test
the boundaries of what can be done at the Rate Commission. I
would have preferred to have done that with this current rate
case; however, as I have described earlier, there were
compelling factors that just did not enable us to--given the
fact that we are about to bump up against our borrowing limit,
that is a compelling reason not to go with a smaller rate case.
If you are in a hole, you have to dig yourself out. I know we
want to continue to look at those options in the future, and we
are going to work closely with the Rate Commission.
I recently had lunch with George Omas to discuss what the
alternatives are. So there is an open line of communication,
and we want to keep that there. As I said, the first phase of
our transformation plan is to explore all the options that we
have under current legislation, and certainly one of those
options is to look at alternatives to a traditional rate case
at the Rate Commission.
Senator Akaka. Thank you very much for your responses. It
appears that coordination and cooperation certainly are the
keys here at this time.
Senator Cochran, do you have any additional questions?
Senator Cochran. I have no other questions, Mr. Chairman.
Senator Akaka. Senator Cochran, I thank you very much for
sitting here with me. I have other questions, but I will submit
them in writing.
Mr. Potter. Thank you.
Senator Akaka. Mr. Postmaster General, I want to thank you
so much for your responses and for being with us today. You
have done an excellent job in your first appearance before
Congress, and I sincerely appreciate your leadership during
these trying times. I wish to commend you on your efforts in
developing that transformation plan. The Subcommittee and I
look forward to working with you further and for keeping the
mail delivered to our country. Again, I wish to extend my
gratitude and my feeling of pride to you and the employees of
the Postal Service.
Mr. Potter. Thank you, Mr. Chairman. Thank you, Senator
Cochran.
Senator Akaka. Thank you very much. The Subcommittee stands
adjourned.
[Whereupon, at 11:23 a.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
PREPARED STATEMENT OF SENATOR CLELAND
Thank you Mr. Chairman for giving me the opportunity to speak at
today's hearing and address the Postmaster General, Mr. John Potter and
the Chief Postal Inspector Mr. Kenneth Weaver. First, let me thank the
employees of the United States Postal Service (USPS) for their efforts
in keeping the mail moving during the last week and the Postal
Inspectors for their cooperation with other law enforcement authorities
to bring to justice those responsible for the terrible attacks of
September 11, 2001.
The USPS was established by the Postal Reorganization Act of 1970.
This act chartered the USPS to perform as a business enterprise, with
the freedom to provide ``non-postal services,'' ensuring that USPS
could provide universal service reliably, efficiently and as
inexpensively as possible for years to come. Furthermore, the USPS was
mandated to operate on a self-supporting, break-even basis, with
particular emphasis on restraining postal rate increases and providing
``honest, efficient, and economical management.''
The Postal Service is an amazing organization. Its Universal
Service program binds the country together by providing inexpensive and
reliable First Class mail delivery for every American and every
business. The USPS stops at approximately 134 million addresses 6 days
a week and delivers approximately 670 million pieces of mail every day.
The Postal Service generates approximately $64 billion in revenue,
ranking it eighth in the United States in the Fortune 500 Global
listing. In addition, the Postal Service employs approximately 800,000
individuals giving it the Nation's second largest payroll, and USPS
operates approximately 38,000 postal facilities. Managing any
organization this size can be a very difficult challenge, but it was
done profitably for much of the latter half of the 1990's.
In 1997 the Postal Service turned a $1.2 billion profit, and had
been profitable for the years 1995-1999. But in 2000, the Service
showed a net loss of $199 million. The Service originally predicted a
deficit for 2001 of approximately $500 million. Early in 2001 that
projected loss was revised to between $2 and $3 billion. With a new
rise in rates effective July 1, 2001, and cost cutting measures the FY
2001 loss is now expected to be approximately $1.6 billion. The Service
has gone from profitability to billion dollar losses in less than 2
years. In order to cut costs and pay its bills the Postal Service has
frozen all existing capital construction projects, the Board of
Governors voted to modify the most recent rate decision by raising
certain rates, and the Service expects to save $3 to $4 billion by 2005
through its ``breakthrough productivity'' plan. I applaud several of
the efforts of the Postal Service in attempting to meet this challenge,
however, I am concerned about how freezing capital construction
projects will affect future service and if delaying these improvements
will result in greater costs down the road.
I have heard from many communities across Georgia that they are
experiencing service problems at their existing Post Offices. The lines
are too long, there is not enough parking or the Post Office is not big
enough to handle the volume of mail going through its facility. Georgia
has experienced one of the largest growth rates in the country and many
existing facilities are being squeezed in their effort to provide
prompt, efficient and reliable service. I have been informed by USPS
that projects in Buena Vista, Butler, Columbus-Beallwood, Cotton,
Darien, Gray, Guyton, Hawkinsville, Kathleen, Lyons, Macon-Downtown,
Madison, Marble Hill, Marshallville, McCaysville, Monroe, Monticello,
Pine Mountain, Pooler, Pulaski, Roberta, Rupert, Sharpsburg and
Townsend will be affected by the freeze. I am very concerned about what
the freeze in capital construction projects will mean to these growing
communities in Georgia and how long it will last. I would like
assurances from the Postal Service that efforts will be made to ensure
that communities across the Nation affected by this freeze will not see
a decrease in the service that they and all of us have come to expect
from the Postal Service.
In addition, I am concerned about the long term viability of the
Service. The Service has increased postage twice in the last year and
is in the process of filing an expedited rate case for another increase
in postage rates expected to become effective in late 2002 or early
2003. With the advent of electronic alternatives First Class mail
volume is expected to decline and postage increases may accelerate this
change. USPS's new product lines and attempts to delve into the e-
Commerce arena have not yet yielded the expected results. Furthermore,
costs for the Service increase every day as new addresses are
continually added. I applaud the efforts of the Postmaster General and
others to cut cots by reducing management staff levels. However, I am
concerned about the effect these reductions may have on the current
backlog of equal employment opportunity and grievance cases. I feel
that we need to work together to find a long term solution to the
potential future problems of the Service, and I will look forward to an
opportunity to review the Service's recommendations for reform.
Finally, I would like to mention efforts that I and a number of my
constituents have made to award a commemorative stamp to Lt. Henry O.
Flipper, who was the first African-American graduate of the United
States Military Academy. He served as a member of the all-black Buffalo
Soldier 10th Cavalry, but he was court-martialed and dishonorably
discharged from the Army. Lt. Flipper has since been cleared by the
Army and was pardoned by President Clinton. I feel that Lt. Flipper
made significant contributions to the civil rights movement and paved
the way for future African-American officers in the U.S. military. The
Stamp Advisory Committee has been considering the request for a
commemorative stamp for Lt. Flipper for approximately 15 years and I
would appreciate your consideration of this matter in the very near
future.
Once again, I would like to thank the Chairman and the participants
in this hearing for allowing me to speak to you about my concerns. I
will review the report for this hearing when it is released and I look
forward to working with you in the future on these and other important
issues.
__________
PREPARED STATEMENT OF SENATOR BUNNING
I certainly realize that the United States Postal Service is facing
some tough financial choices in the coming months, including possibly
closing and consolidating mail processing centers.
I have heard reports that the USPS is considering changes to the
Ashland, Kentucky, facility, and I would like to take the opportunity
to register my concerns, especially regarding possibly moving the mail
processing center to Huntington, West Virginia.
The Ashland processing center has a strong record of providing good
service to its customers. In fact, it is my understanding that the
Ashland mail processing center was recently ranked 12th nationally in
terms of efficiency. I am concerned that this move could mean a
decrease in the quality of service my constituents receive, along with
a loss of jobs in Ashland.
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