generally speaking, is not part of the way arab street each other.2

>> postal service, an iconic american institution since the 18th century, can survive in the 21st century. it is hard to believe that it does come to this, but it has. so much of our nation's progress is interwoven with the history of the postal service. if you look at some old maps of

america, you see that a lot of the roads that we use today started out as colonial post roads. as our nation pushed west before the railroads were built, the post office created the pony express to keep america connected with its frontiers. and the post office subsidies for air mail in the early days of aviation helped jump-start the fledgling airline industry. through parts of four centuries now the postal system has actually helped make as a nation, connecting the eric and people to one another, moving commerce and culture coast-to-coast and to all points in between. postal service has also bound the individual towns and neighborhoods together with the local post office often serving

as the center of civic life. over the years, the post office has grown very large. today the united states postal service is the second-largest employer in the united states, second only to walmart. and with 32,000 post offices, it has more domestic retail outlets than walmart, starbucks, and mcdonald's to mind. sadly, these impressive statistics belie a troubled business on the verge of bankruptcy. business lost to the internet and more recently, of course, to america's economic troubles have led to a 22% drop in male handled by the postal service and a gross revenue decline of more than $10 billion over the past five years. this year the postal service is

expected to have a deficit of approximately $8 billion, maybe more for the second year in a row. the postal service will also soon bob up against its $50 billion credit line with the u.s. treasury, which could force it to default on a five and a half billion dollar payment into the health care fund for its retirees, which would normally be paid at the end of this month. the bottom line is that if nothing is done the postal service will run out of money and be forced to severely slash service and employees. that is the last thing our struggling economy and country needs right now. despite its shrinking business, the postal service still remains a powerful force in america's economy and american life. it's still delivers 563 million

pieces of mail every day, even with the rise of e-commerce, most businesses don't send out bills, and most families don't pay those bills, except through the u.s. postal service. while magazine deliveries are also down also because of competition with the internet and the recession, 90 percent of all periodicals, about 300 million paid subscriptions per year worth billions of dollars to the publishing and advertising industries and bringing about the employment of millions of people are still delivered by the postal service. only the post office will go that last mile to ensure delivery throughout the country to everyone's address, and even using the grand canyon and

snowshoes in alaska. last year, just to show the diversity, and the american people know this, last year the postal service process to over six and a half million passport applications. right now there is no other federal agency with the national presence that is ready or able to take on that task. now, why are we here today? before the homeland security and governmental affairs committee became the homeland security and governmental affairs committee it was the government affairs or government operations committee, and in that capacity it has long had jurisdiction over the united states postal service. that is why we are convening this hearing today. we are going to hear several proposals this afternoon about what can be done to create greater efficiency, close the

postal service deficit and give it the flexibility and tools that it needs to survive and thrive in america's future. postmasters general donato recently offered a plan that he believes would save $20 billion return the postal service to solvency by 2015, and that plan is the immediate impetus of this hearing, to both give him the opportunity to explain it, describe it, argue for it, and to give others the opportunity to comment on it and, indeed, to oppose it, which some will do. the proposal includes eliminating saturday delivery, closing approximately 3,700 post offices, shrinking the work force by as much as 220,000, pulling out of the federal employee health care plan to create a separate postal service

employee health plan, doing away with the defined retirement plan for new employees and transitioning to a fund contribution plan and asking that almost $7 billion in overpayments to the federal employee retirement system be returned to the postal service. these are self evidently been told, tough, and controversial proposals. as for myself, i don't feel i know enough about them yet to reach a conclusion. that is why i look forward to the testimony of the witnesses today, but i do know enough about the real crisis that the postal service is in to appreciate the postmaster's courage in making these proposals. i am also grateful that my fellow senators have been leaders on behalf of this committee in dealing with the postal service problems and,o

indeed, were the architects of the postal reform bill that passed back a few years ago. each of my colleagues, senator collins and carper, have now introduced legislation to deal with the current postal crisis. i am encouraged to learn that president obama wilson offer an administration plan to respond to the postal service's fiscal crisis. so, i have an open mind on the various proposals that have been made, but to me the bottom line is that we must act quickly to prevent a postal service collapse and enact a bold plan to secure its future. the united states postal service is not an 18th-century relic. it is a great 21st century national asset, but times are changing rapidly, and so, too, must the postal service if it is

to survive. senator collins. >> thank you, mr. chairman. first, mr. chairman, let me thank you for holding what is truly an urgent hearing to examine possible remedies for the postal service's dire and rapidly deteriorated financial condition. the drumbeat of news about the exhilarating lapses at the postal service underscores the need for fundamental changes. the postal service is seeking a far-reaching legislation to allow the service to establish its own health benefits program, administered its own retirement system, and lay off its employees. this is a remarkable turnabout

from its previous proposals. i appreciate that the postal service has now come forth with several big picture ideas, although many of the details remain unclear. as we search for remedies, we must keep in mind a critical fact, the postal service plays an essential role in our national economy. if the postal service were a private corporation, its revenue would rank just behind boeing and just ahead of home depot on the the fortune 500 list, but even that comparison worth the one used by the chairman understates the economic importance of the postal service. the postal service directly

supports a 1.1 trillion dollar mailing industry that employs approximately 8.7 million americans in fields diverse as direct mail, catalog, paper manufacturing, and financial services. many of these businesses can't return to readily available alternatives. they depend on a healthy, efficient postal service. but as vital as a stable postal service is to our economy, at its current financial status is abysmal. the most recent projections are that the postal service will lose some $9 billion this year. that is $700 million more than

the deficit that the postal service was projecting just at the beginning of this year. this hemorrhaging comes on top of eight and a half billion dollars in red ink last year, and 3.8 billion lost in 2009. unfortunately there is little cause to believe that an improvement in the overall economy will stop this slide. the fact is that americans are unlikely to abandon e-mail and text messaging and return to first class mail. the postal service's own projections now resume declining revenue all the way out to the year 2020. the losses in mail volume are even more dramatic. last year the postal service

handled 78 billion pieces of first-class mail. that number is now projected to fall to 39 billion pieces in 2020. this represents the 50% decline in first class mail volume over ten years. i want to give the new postmaster general great credit for coming forth with more creative proposals to stem this crisis. at times, however, the postal service response in the past has been inadequate and even counterproductive. some would cut directly into the revenue that the postal service so desperately needs while leaving customers with diminished and insufficient service. consider, for example, the

debate over post office closing. now, let me make very clear, there are undoubtedly some post offices in maine and elsewhere that can be consolidated or moved into a nearby retail stores. this simply is not an option for many rural or remote areas. in some communities closing the post office would lead customers without feasible alternatives and access to postal services. that would violate the universal service mandate that is that justification for the postal service's monopoly on the delivery of first-class mail. let me give you a couple of examples from my home state, maine. two islands, post offices, good

examples. the tennant this is 20 miles off the coast of maine. it receives mail five, rather than six, days a week and only in good weather. closing this post office or moving it into a large retail facility is simply not realistic for the residence of cliff island, closing their post office would mean more than a 2-hour round trip by ferry in order to send parcels or conduct all but the most simple of postal transactions. the fact is that maintaining all of our nation's rural post offices cost the postal service less than 1% of its total budget that is not where the problems lie. that does not mean that there

should not be consolidation and, indeed, i believe that closing some post offices and moving them into the local treasury store or pharmacy would work very well. similarly the postal service plan to move to a 5-day delivery is not without significant downside. it would harm many businesses and less the postal service can mitigate the impact. it would force industries ranging from home delivery medication companies to weekly newspapers to seriously consider other options. once these private firms leave the postal service behind, they won't be coming back. and the postal service will suffer yet another blow to its finances. the major solution to the

financial crisis should be found in tackling more significant expenses that do not drive customers away and lead to further reductions in volume. to actuarial studies have found that tens of billions of dollars have been made in overpayments by the postal service to the federal retirement plan. regrettably today the administration has blocked the bulk of this prep payment. i proposed last year a new, more gradual amortization for the postal service's annual payments to reduce the unfunded liability for retiree health benefits. to that, too, is no longer adequate. more than 80% of the postal

service's expenses are work force related. the failure to rein in these costs threatens not only the viability of the postal service, but also the livelihood's of the postal service workers themselves. the worst possible outcome for these workers would be for the postal service to be unable to meet its payroll. that is a very real possibility for next year if we cannot act together to achieve reform. in my a judgment the most recent contract agreement with the postal service's largest union by and large represents a missed opportunity to negotiate a contract that reflects the financial realities facing the postal service.

the postal service has to preserve the value and the service it provides to its customers while significantly cutting costs and streamlining its operations. and that is no easy task. senator carper and i have reached introduced our own bills to try to avert this crisis. i am the first to admit that worsening conditions clearly require far more significant reform. so, mr. chairman, thank you for calling this hearing. we do face an urgent task, and that is to save this icon of american society and this absolute pillar of america's

economy. thank you. >> thanks very much, senator collins. senator carper, because you have been doing such an extraordinary work on behalf of this committee i want to invite you to make a opening statement if you like at this time. >> did you very much. to our witnesses, thank you for joining yes. thank you for holding this hearing and allowing me to deliver an opening statement. appreciate it to you and senator collins for the attention that you and your staff has paid to this vitally important economic issue. for some time my subcommittee and i have been sounding the alarm about the dire financial situation facing the postal service. unfortunately while the number of bills have been fourth congress has been unable to up reach consensus on the kind of dramatic and likely painful reform that will be needed to avoid the looming showdown. in addition the proposals put forth by the administration today have been insufficient.

just a few weeks after narrowly avoiding the first ever to fall by the federal the government if we may be a few weeks away from??? the first ever default of the? postal service. that defaults, if permitted to? happen, would be lasting and? dangerous and would pave the way for postal insolvency by this time next year if not sooner. officer of manager and budget declined to testify to discuss the administration's plans for preventing the postal service from failing. it is my hope that the discussion we have will jump-start the process of developing a bipartisan, bicameral consensus around the reforms necessary to restructure the postal service's finances and transform operations to reflect the uncertain future that it faces. postmaster general donahoe will testify today that the postal service's finances continue to deteriorate. he is projecting a year and loss of some $10 billion.

nearly 2 billion more than projected when our subcommittee last held a postal oversight hearing, i think, in may. it will not be able to make the five and a half million dollar payment due on september 30th. come october it will have exhausted its line of credit with the treasury and we will have only enough cash on hand to get by. then under what is likely the best case scenario, cash will be completely exhausted by next summer and the postal service, absent any lifeline, will likely be forced to close its doors. if the postal service were to fail the impact on our economy would be dramatic. as postmaster general donahoe and others have pointed out time and time again the postal service operates at the center of an industry that employs? millions of people.? these people don't just work at? the postal service, magazines,? banks cannot printing companies, and businesses large and small across america.

every state and congressional district. and they generate more than $1 trillion in sales and revenue each year. given the challenging economy facing our country we cannot afford to put jobs, these jobs in that kind of productivity in jeopardy. in fact, it is our job to do what needs to be done to save this industry, even if it involves decisions that might be difficult politically. like it are not come in a number of ways i don't like it very much myself. the postal service needs to right size itself to reflect the decreasing demand for products and services offered. it's needs to shed employees, downsize its network up processing facilities to reflect there is less mail to process and technology has made getting it to it's destination easier to do. the postal service needs to be able to relocate or colocate some of the postal services that are provided in communities

across america. putting forth a plan to eliminate 120,000 positions on top of the 100,000 that were lost through attrition. they have begun studying some 300,000 post offices around the country. looking at 3,000 post offices for closure or card location with other businesses. expected to propose similarly dramatic changes to its processing network in the next week or so. we are rapidly reaching the point, however, at which the postal service no longer has the authority to do what it needs to do to get by which is why i have introduced legislation that aims to clean up the postal service's finances and help implement the ambitious plan it announced last spring. postal operation sustainability act aims to permanently address the various pension and retiree health related issues that have plagued the postal service for

years. the postal service inspector general, postal regulatory commission, and to independent actuaries, one of whom is represented here today, have come to the conclusion that they have overfunded obligation by some 50-$75 billion. in addition, numerous observers and the office of personnel management have pointed out the postal service has paid $7 billion more than it goes into the newer federal employees retirement system. my bill will give the postal service access to the funds that it has overpaid. they would be able to use them to make required retiree health refunding payments picking a parts of $5 billion off its books each year for the next several years. once they're satisfied, the fines this bill would free up could be used to pay workers' compensation obligation and a debt to the treasury. these reforms are in similar can be a vital part of any effort to improve the financial condition

in both the short and long term. stopping these reforms and avoiding further and potentially more difficult changes will simply not be enough. to anyone taking an honest look at the numbers, it should be clear that more will need to be done. that is why my bill takes important steps toward giving the postal service the flexibility that those of us in congress all say we want to give them. the new realities and operate more like a business. no business facing the kind of difficulty the postal service faces today would survive very long if it were told how many retail outlets they should have and where they should be located or if they were prevented from making operational changes are taking full advantage of the resources and expertise at its disposal. if that is what congress does to the postal service. my bill and to address these problems and take congress out of the day-to-day management, assuming the postal service can continue to build on recent

cost-cutting efforts these changes could help set the service on more solid footing in the years to come. i don't just focus on cost-cutting. also aiming to give the postal service new authority to leverage its nationwide retail logistics' transportation and delivery networks to attract new business. it gives the postal service more flexibility to work with existing customers to keep them in the mail and partner with state and local governments to find new potentially profitable resources. i mentioned at the beginning of my statement that there have been a number of bills introduced to address the postal service financial condition -- condition. my hope and prayer is that they will do it this time to good effect. another approach. parts of both i don't agree with, but also parts of support. overlapping the provisions in my own bill. we need to focus on the areas of

agreement. from there, with input from the administration, a key stakeholders, prevent a default and insolvency and said the postal service on the road toward stability and profitability. in conclusion, mr. chairman and senator collins, let me say this, the postal service is an enterprise, a business enterprise. it is an enterprise that has more people than it needs if it is to reduce its head count we need to let them. we have more post offices and we need. the key is not closing post offices but to provide better service to customers and communities across america by co locating services to drugstores and supermarkets and department stores and the like. finally, twice the number of processing centers and they need. they need to reduce the number of processing centers, and as they do those things we need to get out of the way. there is not a huge bailout that

is needed, but to let the postal service act more like a business and come up with even more great ideas like flat rate boxes and last mile delivery. if you do that and we do our job, i think the postal service will be here for a lot longer. thank you so much. >> thank you, senator carper. postmaster general donahoe, we will go to you first. i thank you for being here. it probably does not need to be said, but the fact is that you÷ have had some tough proposals. i think everybody listening÷t should know that you are not÷ some sort of executive that was brought in from outside to go through the post office. you spent your whole career in the postal service, beginning as a clerk 35 years ago in pittsburg. having had that experience, from my perspective, you remained

remarkably youthful. whether i can say that at the end of the next year or so remains to be seen. thank you for being here. >> mr. chairman and members of the committee, good afternoon and thank you for scheduling this hearing. i appreciate the opportunity to testify about the financial state of the postal service and about the proposals to improve its business model. america depends on a financially strong postal service. the postal service provides a vital national delivery platform that is part of the bedrock infrastructure of the american economy. it supports a $1 trillion mailing industry that employs over 8 million people. every american residents and business depends on regular, secure, and available delivery of mail and packages. this will always be so, even in an increasingly digital age. nevertheless, the postal service is at the brink of default.

without the enactment of comprehensive legislation by september 30th the postal service will default on a mandated five and a half billion dollar payment to the treasury to pre fund retiree health benefits. our situation is urgent. the congressional action is needed immediately. mr. chairman, the postal service requires radical changes to its business model if it is to remain viable into the future. the postal service is in a crisis because it operates with a restricted business model. a self financing entity that depends on the sale of postage for revenue. requiring the ability to operate more as a business does. this applies to the way it provides products and services, allocating resources, configuring retail, delivery, and mail processing networks and the way it manages its workforce. unfortunately the postal service today has a limited flexibility to respond to the changing

marketplace. since 2008 the combination of weak economic conditions and divergence to electronic forms of communication have resulted in unprecedented declines in the use of first-class mail and the weakness in the use of standard mail. in response we reduced our annual cost by more than $12 billion our work force by 110,000 fewer employees in just the last four years. as impressive as these have been, we must accelerate the pace of cost reduction over the next few years. based on current revenue estimates the postal service must reduced its annual costs by 12 -- $20 billion by the year 2015 to become profitable and to return to financial stability. mr. chairman, we do not have the flexibility in our business model to achieve these cost reductions. to do so requires the enactment

of a comprehensive long-term legislation to provide us with needed flexibility. short-term stopgap measures will not help. our long-term revenue picture dictates developing a long-term comprehensive approach to help the postal service and mailing industry that we served. the postal service has made a number of policy proposals that merit consideration including giving the postal service the authority to determine its delivery frequency and transition to a national five day a week delivery schedule. the postal service needs to restructure its health care system and make it independent of federal programs and eliminate the mandatory annual five and a half billion dollar retiree health benefit payment with this action. we need to accelerate work force reduction by as many as 220,000 employees and are asking congress to consider the reductions -- be governed under

the reduction provisions applicable to the federal employees. be are also seeking the authority to provide a defined contribution plan for new hires, rather than today's defined benefit plan. we are seeking the return of $69 billion in federal overpayments. we are also seeking to streamline postal governance models. we have advanced these and other proposals to provide the congress with a range of legislative options and are also aggressively doing things that we can do within our own business model. by 2015 we intend to capture more than $11 billion in additional cost reductions by optimizing our delivery network, retail network, reducing mail processing footprint by more than 300 facilities, and by taking advantage of negotiated

workforce flexibility. these are aggressive and necessary steps. america deserves a financially strong and independent postal service that can meet the evolving needs for generations to come. we require the flexibility to operate more as a private sector business would. this would enable the postal service to return to profitability and sound financial footing. this would also enable the postal service to properly fulfill its mission since the 70's, which is to operate on a profit test launch basis independent of taxpayer support. let me conclude by announcing the commitment and dedication of our employees during difficult times, even as we consolidate facilities and made substantial work force reductions. they have delivered at record high service performance levels. mr. chairman, thank you for giving us the opportunity to testify today and i look forward to answering any questions you might have.

>> thank you for your testimony. we will go to the hon. john berry, director of the u.s. office of personnel management directly to testify as to the subject matter as it relates to opm. he is able to speak on behalf of the administration as well. >> thank you, mr. chairman, for the opportunity to testify regarding the financial challenges facing the united states postal service. i have met with the postmaster general several times recently, and the administration is committed to exploring ways that can be helpful to the postal service. both the president and i know of the critical importance to our nation's economy that the postal service provides, and we are grateful to the men and women of the postal service for the important work they do for our country. the president's fiscal year 2012 budget proposed ways to provide postal service financial relief, but since those proposals were

offered the financial situation of the postal service has deteriorated further. in response to this situation the administration plans to release a proposal in the few coming weeks that will ensure a sustainable future for the postal service. this proposal will be included as part of the broader one in a half trillion dollar deficit reduction package that the president has promised to submit to the congress. in the interim the administration supports delaying for 90 days the postal service's five and a half billion dollar refunding retirement health payment that is due on september september 30th. this would allow the congress, postal service, and administration the time to carefully worked through the details of a proposal. we believe that the postal service and its employees and retirees are well served by the existing health benefits program and the retirement system.

the postal service proposes reducing costs by discontinuing participation in federal health and retirement benefits this is a complex proposal that will require further study and analysis . as such the administration does not have of formal position on this proposal at this time. opm expects that a withdrawal of the postal population would not have a significant impact on the federal employee health benefit program as a whole. in addition, the overall cost of the program would be minimal and would not impact the integrity. however, it would have a significant impact on health plans with a large postal population or such as rural letter carriers with the

american postal workers union plans. if these plans chose not to participate in the fehbp in the longer it could have a significant impact on the number of choices that are available to our enrollees and overall competition in the program. the postal service's proposal to withdraw its employees from c.s. irs would pose very significant challenges because postal and not postal service are integrated in the same retirement system. as such many employees have a credible and door fers service both in postal and not postal employment, and the federal government will have a legal obligation to pay those benefits. any proposal to remove the post a population from federal employment health and retirement systems would be complex and more analysis is required. as i mentioned earlier, the

president's budget proposes improving the postal service's financial condition by approximately 5 billion in both 11 and 12. first we do propose returning to the u.s. postal service its surplus in the retirement fund estimated by opm at 6.9 billion dollars. also proposes a restructuring retirement benefits at an estimated cost savings of $4 billion in temporary relief. additionally, the president's budget proposes streamlining fehbp pharmacy purchasing benefits, and we believe this could save the postal service an additional $300 million over the next five years. lastly, i would like to address a number of reports questioning whether the postal service has overpaid its obligations. moreover, i would like to

clarify the term overpayment has been used by those who implied that there should be a change to the current allocation that is mandated and the law. opm applies the method established in tech current law for apportioning responsibility for ses are as cost between the postal service and the treasury. after careful review by the office of personnel management general counsel, our inspector general, and our board of actuaries, they have all concluded opm does not have the administrative authority to make a reallocation of the cms rs cost based on the 2006 postal accountability and employment act. however, if congress determines that another methodology is more appropriate and explicitly establishes another allocation method, i pledge that opium will

quickly and fully implement those changes. we look forward to working with the committee and the postal service to develop a solution to this problem and in addressing these fiscal challenges. thank you for your time, and i'll be glad to answer any questions?? >> the thank you very much. it will be submitted. if we give you the authority to return the money that the postal service believes is an overpayment to the fund that opium will implement that rapidly to. i appreciate that.?? next we will hear from phillip? herr, the director of physical infrastructure issues at the

government accountability office really here because under that general title he is the expert on the postal service. thank you for your testimony. >> thank you. thank you for the opportunity to discuss the serious financial crisis facing the postal service. as volume has declined that service has not generated sufficient revenue to cover obligations. critical decisions by congress, the administration, and the postal service are needed to help put it on a path to financial solvency. first, by most measures the financial situation is grim. net loss of 20 billion over the last five years. a projected net loss of 9 billion this fiscal year, and reaching its $15 to have $15 billion borrowing limit on not making its retiree health benefits payment this year.

the postal service has released several proposals to address these problems. one is to withdraw from the federal employee health benefits program and create its own using the 42 and and a half million dollars fund set aside for future retiree health benefits. this proposal should be carefully reviewed as it is not clear whether the postal service can achieve its planned cost savings or what the implications are for employees, future retirees, and the federal budget. currently over 1 million employees participate in the federal health benefits program and 300,000 employees are eligible to retire over the next decade. this is a significant obligation. several proposals would defer as a way of providing financial relief. however, deferring payments increases the consequences should the postal service not be able to make future payments if its core business continues to decline, as expected.

this increases risk to the federal government and taxpayers and possibly future retirees. important that the postal service continue to pre find its obligations to the maximum me key qstrosaancess wi beess