tv Postmaster General Megan Brennan Testifies on Postal Service Reform CSPAN May 14, 2016 10:00am-12:36pm EDT
korea. ,lso joining us robert costa discussing donald trump and congressional republicans. brent glassclass -- will join us on his new book. we will see tomorrow. ♪ [captions copyright national cable satellite corp. 2015] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] >> next, a house oversight hearing on the future of the u.s. postal service. then, james baker and former national security advisor testifying at a hearing on u.s.
>> the committee on oversight and government reform comes to order. thank you for being here. this is important and it affects every american. it is a vital part of the commerce in united states -- in the united states. we are here to talk about the postal service and to ensure options for long-term viability. 40% of the mill volume is carried through the united states postal service. workers are spread throughout the country and it is the backbone of a $1 trillion mailing industry that employs 7.5 billion people. -- 7.5 million people. there is an unprecedented financial crisis. mail volume has declined by 25%. as a result, the postal service has lost money for nine straight years, with nearly a decade of long-term financial challenges. the agency has unfunded liabilities, including retiree
health care and it has exhausted the statutory debt limit. further, it lacks what it needs for critical investments, chief among those is a delivery fleet, projected to cost $6 billion. think about the postal boxes that need somebody to deliver the mail. it is a miraculous thing that, for less than $.50, you can put a stamp on an envelope and it will show up at another address in the country. it is really amazing. if you are going to prepare for the next decades, you need money. it is something the postal service does not have. in the meantime, the must manage a delivery fleet of vehicles, which costs $1 billion a year in maintenance. the postal service has made
efforts to cut costs and streamline the operations. it is not enough. many unions have been helpful in actually working with the postal service and making cuts. but, they do not want to keep cutting personnel. neither do i. we want a vibrant postal service. we would hear -- we will hear from the postmaster general, the regulatory commission, the government accountability office, and a postal union. there are a number of postal unions. we have one here today. we will discuss the number of reforms needed and how proposals would work. one of the things that is most critical is medicare. i look forward to hearing from
the postmaster general and the nalc union president about a joint proposal to require retirees to enroll in medicare to receive federal benefits. since 1983, postal workers have payed $29 billion into medicare. currently, they have a choice in enrolling. as federal retirees, they could enroll in both. while three quarters enroll in both. the postal service and the retirees could see significant savings if they were all dual enrolled.
this proposal is one of the biggest elements in our drafting in coming forward with a reform package that is vibrant and sustainable. let me say that i think it is important to note the approach we are taking. are their costs to be cut? yes. are there things to be more efficient? yes. i also believe that the postal service is a 12 of commerce and -- is a tool of commerce and essential to the economy. we cannot ignore this. think about how we send bills and communicate as a nation. you have to have a vibrant and thriving postal service to
achieve all of that and that is where i think so many are here today and it is the most important thing our committee can address and take care of. that is the goal and what we are trying to achieve. and, i thank you all for being here. we should have a good hearing today. i recognize the ranking member. mr. cummings of maryland. rep. cummings: i thank you for your hard work on both sides, working so hard for a long time to resolve many complex issues
that the postal service faces. i want to thank the postal service community and all of those affected by this. there is a genuine effort to come to a resolution that is a win for everybody. i express my appreciation. it helps us, as we move along. i also want to thank our witnesses for being here to discuss the ideas for addressing the significant challenges facing this very critical institution. since the establishment, the postal service has served as a critical link, which touches each life and connects us all together, families, businesses, and communities, through 32,000 offices. the postal service delivers 150 billion pieces of mail to 150 million addresses a year. since the last reform legislation was enacted tenures ago, the postal service -- 10 years ago, the postal service has challenges.
as a result of online transactions, the volume has fallen 25% since 2006 and the trend is expected to continue. the cost of operations has risen. the postal service is required to have universal delivery service to every address in the united states. every year, 900,000 new addresses are created in the country and the postal service is a network of facilities, letter carriers, and must expand to every single new address.
congress has imposed burdens on the postal service that have nothing to do with providing universal service. the act in 2006 required fully funded liabilities for health care costs, something no other private sector company faces. these amount to $125 billion, which is almost double the annual revenue. the postal service has instituted many cost-saving measures, cutting positions through attrition, cutting work hours, consolidating facilities and delivery routes, and changing retail operations to match customer demand and reduce the number of administrative areas in districts. let me say this -- i have said
it to their faces and behind their backs -- i think the unions have bent over backwards working with the postal service. in all of the committees i have you sat on, i think we have a genuine effort by the unions to understand what is going on, to make sure that they do right by their members, and make sure that we have a viable and strong postal system. i want to thank them. these initiatives have saved $15 billion a year. however, there are legal restrictions that limit the
postal service's ability to cut costs and introduced new products to counteract the deteriorating financial condition. as a result, the postal service has reported a net loss of $5.1 billion for 2015. it is the ninth consecutive year of losses. the postal service projects net losses for 2016. only congress can modify the nature of the funding obligations, imposed by statute, on the health care and pension programs. these problems are not new. we have gone down the road of developing reform legislation in previous congresses. this congress has been unable to reach a final bill. the time is to act -- the time is now to act. thank you for working on a truly
bipartisan basis to develop a realistic reform. i'm encouraged by our discussions and hope that we can put the postal service on a viable and sustainable path. i believe that anything considered should alleviate burdensome requirements for benefits to allow the postal service to have separate health plans that integrate fully with medicare. allow the postal service to offer non-financial services, such as money orders and gift cards. and, create a chief innovation officer to create new innovative products, like other businesses.
we need to address the problems facing the postal service and treat the employees fair and compassionately. waiting until the postal service runs out of cash is not an option. it is an institution on which all rely. i want to thank mr. conley and mr. lynch for the work on this effort. we have met many times and we will get through this. we cannot fail. we simply cannot push the can down the road. the time to act is now and i believe that we are on the road to accomplishing that.
>> i thank the gentleman and i think it is important to recognize the work put into this. i concur with my colleague. if we are going to do this and get it to the president, it nees to be bipartisan and that is the goal and the intention. i hold the record open for five legislative days. we would like to recognize our witnesses today. megan brennan. robert, the acting chairman. lorrie, of the director at the government accountability office. just sick lawrence, and esther frederick-- mr.
orlando. we welcome all of you. thank you for being here. all witnesses are to be sworn before testifying. please raise your hands. do use only swear that the testimony that you are giving will be the whole truth and nothing but? thank you. your entire written statement will be made part of the record. we thank you for your participation and we recognize the postmaster general for five minutes. >> thank you. good morning. thank you for calling the hearing. i am proud to be here on behalf of the dedicated men and women who work hard to serve the american public. the postal service operates with a business model which is not sustainable.
will be made part of the record. mail volume declined by 28% and first class mail has declined by 35%. to put this in perspective, the annual value of the revenue lost is $21 billion annually. the postal service is required to maintain an extensive network six days a week. the cost of the network is fixed or growing, regardless of volume. there is less revenue to pay for that work and fund other costs that are imposed on us by law. we have streamlined our operations for six consecutive years. as a result of the efforts, we achieve cost savings of $15 billion and we have been successful in stabilizing
revenues and growing the package delivery business. it enables commerce. all of these actions can not offset the continued decline of first-class mail. his 2012, the postal service has been forced to default on mandated payments to treasury for benefits. without the defaults, deferral of capital investments, and aggressive actions, we could not have aid employees, suppliers, or deliver the mail. without regulatory reform, the losses will grow, regardless of our efforts. if allowed to continue, this will have a devastating impact on the future of the organization and the customers we serve.
we need legislation now. we have been working with people to achieve wrought support to return the postal service to stability. the legislation we seek includes the following provisions, full medicare integration for retirees, restoring exigent price increases, calculating benefit liability for abilities -- liability vulnerabilities and provide flexibility. we can achieve $32 billion in combined cost reductions and new revenues. enactment of these provisions and aggressive efficiency will return the postal service to financial stability.
medicare integration is important. as the second largest contributor to medicare, it allows employees to use the benefits that we have already paid. by requiring this, we will eliminate the unfunded liabilities for retiree benefits and we are looking to restore the exigent rate increase. we were required to reduce the surcharge and prices. this will reduce revenue by $2 billion, annually, worsening the financial condition. the proposals we are admitting today our fiscal responsible. they continue to provide reportable and a libel -- reliable service.
i look forward to working with this committee to restore the financial health of the united states postal service. this concludes my remarks. i welcome any questions you and the committee may have. mr. taub: good morning. i will hit a few key points of the committees very detailed written testimony.
in 2015, the postal service had a total net loss of $5.1 billion, which is an improvement from 2014. however, this is the ninth consecutive net loss since 2007 and the cumulative losses -- los s is $56.8 billion. it has caused us to use all of our capacity and causing total liabilities to far exceed total assets by $50.4 billion. the past five years the postal service has not made any of the required money payments to the retiree health benefit fund. this accruing nonpayment into the fund has skewed the postal service's current liabilities in relation to its assets. to reduce it that ratio to historic averages, the postal service would have to significantly increased its cash position or assets and reduce its allegations to the retiree health benefit fund. low equity levels have impeded the postal service is an ability to make capital investments in infrastructure. it now operates an aging vehicle fleet, increasing the need and costs for maintenance and repair.
also is the need to invest in sorting and handling equipment to fully capitalize on business opportunities in the growing package delivery markets. total mail volume in 2015 dropped to levels not seen in more than 27 years. the postal service anticipate further reductions in volumes for 2016. the continuous decline in first class mail seriously jeopardizes the postal service's ability to cover its fixed overhead cost. recent increases in revenues and subsequent higher liquidity are largely due to the temporary market product surcharge. the additional revenue from competitive products is not sufficient to offset the future revenue lost resulting from determination of the surcharge which was removed april 10. in order to maintain operating income, the postal service would
have to make up the loss of that revenue, which is approximately $2.1 billion annually. with the growing liability of health benefits, the ability to borrow for needed capital investments, and the continued loss of high-margin first-class revenues come of the important task of improving the financial condition of the post service is daunting. despite the financial news there is still strength in the system. the postal service is the one government agency that touches every american on a daily basis. it is a notarization that literally serves 155 million american households and businesses on a typical day. it facilitates trillions of dollars in commerce. the fundamental problem is the postal service and not currently generate sufficient funds to cover its mandated expenses and
also invest in critically deferred capital needs. where can we look for answers? i would argue the starting point is to look at ourselves. what do we as a nation need from postal and delivery system, and what is the cost? what exactly is universal mail service in the united states? the commission has determined that unlike others -- other countries, the uso in the united states is largely undefined and is comprised of a broad set a policy statements with only a few legislative prescriptions. we estimate the cost of providing service to be more than $4 billion annually. policymakers should look at this fundamental issue and decide what we as a nation need from the postal service and a, most importantly, how those expectations are to be funded. mr. chairman, thank you for holding this hearing today and shining a spotlight on this critical part of our nation's infrastructure. i know you deeply appreciate the importance of these issues. there are no easy answers but answer we must.
the commission stands ready to help you and answers for solutions. on behalf of all for commissioners, thank you for the opportunity to testify today. ms. rectanus: good morning. members of the committee, am pleased to be here today to discuss the postal service's financial challenges. the postal service is a critical part of the nation's communication system, but it's financial system is dire. in 2009, it remains today. today i will discuss the factors affecting the postal service is deteriorating financial condition, the status of funded liabilities, and choices congress faces to address these financial challenges. the postal service's financial struggles are well-documented. beginning in 2007, expenses began consistently outgoing revenue and has lost over $56 billion since then.
this is primarily caused by declining mail volume, particularly in profitable first-class mail, along with increased expenses. increases in compensation and benefits alone will add over $1 billion in additional costs in 2016. the gap between revenue and cost continues despite the significant -- regarding unfunded liabilities, they are a large burden on the postal service. at the end of fiscal year 2015, the postal service had about $125 billion in doubt -- in debt, which accounted -- due in part because the postal service stopped making required payments in 2011 and it is not expected make the required 2016 payment. given his history and future events, it is not likely that
the postal service will be able to make its required retiree health and pension payments in the near future. beginning in fiscal year 2017, the postal service will be required to start making annual payments for health benefits on top of annual pension payments. using available data, we determined the payments could total about $11 billion. although this was less than what was required in fiscal year 2015, it is about $4.6 billion more than what the postal service paid that year. and the lack of major cost-saving initiatives will further stressed the postal service's ability to make these payments. having large unfunded liabilities for postal retiree and pension benefits puts actors, retirees, and the postal service itself at risk.
if the postal service is not adequately fund these benefits and congress wants these benefits to continue, the treasury and the taxpayer may need to step in. alternatively, unfunded benefits could lead to pressure for reductions in benefits or paint. for the postal service, unfunded benefits endanger its future viability by saddling it with bills later after employees have retired. postal service actions alone are insufficient to achieve financial solvency. comprehensive legislation is needed. in doing this, congress faces several difficult decisions. first, what is the level of postal service needed in the 21st century, in what we going to pay for those services? given how communication is changing, congress could consider what postal services should be provided on a universal basis and the best way to provide those services.
second, was the appropriate level of compensation and benefits that should be paid in an environment of revenue pressures? congress could consider revising the statutory framework for collective bargaining to ensure that the postal service's financial position -- condition is considered in binding arbitration. third, what is the continued viability of the postal service's dual role of providing affordable universal service while remaining self-sufficient? in assessing alternatives to the current structure, congress to consider costs that might be transferred from the postal service, which is financed by ratepayers, to the federal government, is funded by taxpayers. in conclusion, we must take a hard look at what level of postal service is we need in the future and what we can afford it the status quo is not to say no concludes my prepared statement. members of the committee, only pleased to answer any questions you have.
ms. lowrance: mr. chairman, and the members of the committee, thank you for the opportunity to speak with you today about postal related issues facing the mailing industry. the mailing industry provides over 7.5 million jobs and accounts for 1.4 trillion dollars in economic activity. it is a vital part of the nation's economy and surpasses inside the airline industry and oil and natural gas industry, it is one that's faces significant judges. not only other policy issues that must be considered but also economic issues that balance the ever structural needs of the american economy and public affair. mail is and will remain a vital part of the american economy and the manner in which the nation communicates and does business. market dominant male still consists of over 154 billion pieces or 94 -- 97% of the business. it is a center paid service. as all you continue to decline, the postal service is pressed to find new way to lessen its financial burden.
from our perspective there are several matters that need immediate attention and clean the need for predictable, portable mail services, complete accurate and -- and reliable consistent mail service. at the end of this calendar year, they will be reviewing the current system of rate regulation. although the postal service has expressed displeasure with the price cap, it has operated substantially as it did it to the benefit of all postal customers, postal service and the general of it. the cap provides customers with an assurance of postal rate stability which is key to the decision as to whether to continue. for the years it has been in effect, it has served as an effective restraint against abuse. and the postal service's monopoly power. the postal service has been required to focus more costly on the limitations of postal waste
and inefficiency in a manner that would not have happened in the absence of the cap. unfortunately there are obligations that have made operating under such a cap a challenge. the need for costing transparency has never been so apparent. the mailing industry has consumed the state -- this is only called for transparent. this lack of transparency has resulted in other postal service decisions which have imposed additional cost on mailers without creating corresponding efficiencies in the postal network. the postal service is customers and the postal regulatory commission would benefit greatly by upgrading. the postal service should move to an informed was a bodhi-based system. this would enable costs to be
trapped in an automated fashion. for business customers, the quality of mail delivery is a key component. timeliness, consistency and reliability are extremely important to these users and recipients of e-mail. the postal service's inability to provide this is causing many enterprises to look for other means. legislative reform is just one of the main tools that would need to be leveraged in order for the postal service to be calm and remain fiscally viable. we urge congress to address those issues that are solely within its power to do so. one, fix the manning -- allow for full participation and medicare. mailers need inaccurate accounting and understanding of the cost of the products and services they receive from the postal service. the commission should not be required to judge the performance of the existing system on the basis of data that
are inadequate for decision-making. it is imperative the postal service be directed to use the data-driven tools to supply the data to commissions solely needed -- sorely needed. and how to move forward in its review. at the end of the day, the mailers need reliable, consistent mail service and affordable protectable prices in order to continue to invest in mail. ranking member cummings and the committee, this concludes my statement. mr. ronaldo: thank you for inviting me to testify today. you have asked me to focus on the urgent need for postal reform legislation and the provisions we believe are necessary. i am pleased to do that today, but before i do, it is important that we take a moment to recognize the current reality of
the postal service. it is no longer 2009 when the great recession sent mail volume plummeting and a pre-funding minute crush the postal service is financing, raising doubt in some quarters about the viability of the agency. postal employees never doubted the viability of the postal service. but we worked hard to help the service to adapt and survive as its shed more than 200,000 jobs and we boosted productivity dramatically. the postal service is returned to operational profitability are now earning $4.4 billion over the past 2.5 years, our pension funds are healthy and better funded at 92% than most private sector pensions, and we have satisfied some $50 billion for retiree health when most large private companies have not set aside a dime.
thanks to the growth of direct mail and booming e-commerce, total mail volume recovered and stabilized in 2015, increasing the postal service's revenue to $69 billion. there is no question of the postal service remains a vital part of the nation's economic infrastructure. in 2015, we delivered more than 150 billion letters, magazines and packages. six and even seven days a week. the postal service's revenue is just a small part of the $1.4 trillion of gdp accounted for by the u.s. mailing industry which now employees 7.5 million americans. with an 87% approval rating from the american people, we believe the postal service can thrive in the 21st century. now is not the time to begin
this treasured agency through reductions, especially those which have failed to attract support the past. instead, this committee should offer sensible and targeted reforms that will provide financial stability and allow the postal service to innovate. specifically, it should address three specific legislative and regulatory burdens that severely limit the postal service. first got the postal service is required to massively fund future retirees health premiums decades in advance regardless of financial conditions facing the agency or the country. no other public or private enterprise in america faces such a mandate and most firms do not refund at all it is mandate by itself accounts for nearly 90% of all losses since 2007. they have suggested numerous ways to address the mandate over the years. it does not weaken our networks were --we support reforms to the program to maximize participation in medicare among eligible postal retirees.
this would almost eliminate the $50 billion unfunded liability while raising medicare spending by less than 0.20 of 1% annually. this approach is fair and appropriate. second, congress should consider the house he that requires 100% of postal retirement funds the -- low yield bonds. along with the postal retiree health fund, they hold nearly $350 billion. that makes them the third-largest creditors of the
u.s. government. no other company in america would invest its retirement assets in such an unsophisticated way, especially when they are yielding annually. we should invested well diversified portfolios of private stocks, bonds and real estate, as well as government bonds. current policy forces the mailing industry to give uncle sam a low-cost loan, instead of sensibly investing to cover future health-care liabilities. it makes no financial sense to invest in assets that yield less than the rising cost of care. my submitted testimony make the case for prudent investment change, addresses common objection to it, and tell several independent agencies invest successfully in private securities. by changing the investment policy, congress could raise the long-range rate of return, reduce the burden of pre-funding, upset the cost of medicare integration, relieved
upward pressure on false risk, and reduce the misguided impulse to slash service. there is a remarkable degree of stakeholder consensus about the principles of successful postal reform. all four postal unions, the postal service in a wide range of companies have agreed on reform principles for your consideration. these principles were outlined in a letter sent to the chairman yesterday. they urge legislation that would mandate postal specific assumption, satisfy, not a nice, satisfy the pre-funding burden by maximizing medicare participation, invest the retiree health fund sensibly, permit the --and adjust the
market dominant rate to ensure adequate revenue throu ght egh the prc review. these are --we remain confident they would stabilize the postal service while allowing it to innovate to meet the evolving needs of our country. nelc and our sister postal units remain committed to help this committee friday fare in a fair inequitable path forward that does not damage our network of affordable service, or the employees that make that network special. thank you very much for this opportunity to testify and i am happy to answer any questions. >> thank you all. we will recognize the gentleman from tennessee >> thank you, mr. chairman. i have an article here from the "los angeles times" that says total mail has declined 27%. is that accurate?
is mail volume still slowly declining? and have you that the feel like you have taken every step you can so far to adjust to that decline? ms. brennan: you are correct in terms of the decline in total mail volume. the challenge for us is the continued decline in first class mail. it pays the bills, hence our actions to right-side the infrastructure. there are still opportunities but i think as noted, we have reduced our annual cost base by $15 billion. >> about four years ago they had an article about me and my dad. and i got the nicest handwritten
letter from peyton manning about that article. he said he could tell i had the same kind of relationship with my dad that he had with his dad. months later, my chief of staff saw peyton manning and told him how much i appreciate that. and he said peyton manning told him that his mother told him once that if you want to make an impression on people, send them a handwritten note or letter. maybe you should try to get more people to follow the peyton manning method of impressing people. because it made a big impression on me, i can tell you. ms. brennan: i would agree with that. >> maybe get him to do an ad for you or something. [laughter] >> wouldn't make any difference, or how much of a difference would it make if you went to five day week service? ms. brennan: we have spent the better part of the past year in trying to build consensus with key stakeholders. a narrower group of provisions high value that would generate more than $32 billion in cost
reductions and savings over the next five years. the reality is, in my discussions with public officials, members of this committee, there is no congressional consensus to moving to five day delivery. the postal service is looking at how do we leverage our infrastructure? how do we grow profitable revenue? how do we look to failed dish still the mill box and fill the truck? --how do we still the mailbox and fill the truck? >> they stopped giving those pensions to their new hires. have you considered doing something like that? reducing the pension benefits for new hires? would that make any difference?
ms. brennan: i would say we have a plan forward, there is a way to result these legacy costs and liabilities. that is by allowing the postal service to integrate with medicare. our employees, as noted by the chairman, have paid more than $29 million -- billion and we should benefit from that opportunity. there is a way forward without looking at diminishing benefits to either current or future employees. >> when you look at these figures, they are so staggering. i saw some figures, $56 billion in total losses over the last several years. what you consider to be the most troubling aspect of the entire financial position of the postal service?
what is the worst problem, or the biggest problem? ms. rectanus: the postal service's business model that relies on revenue to cover its costs is no longer working. certainly, the unfunded liabilities have contributed to that, but there is a broader problem and that is the fundamental business model of mail volume that the postal service has been using is not working anymore. to their credit they have been trying to right-sided network and make changes, but what we would argue is it is beyond the unfunded liabilities. even if you take those outcome, the ability of the postal service to raise -- reduce its costs to align with revenue come of age and -- revenue, they do not have the ability to do that. the income before --in fiscal 2015, -- that is just an example of when there is an influx of money, the operating costs are still growing such that it is
harder and harder for them to get ahead of their cost. >> that is a problem for the entire government. it is more than just the postal service, is staggering. thank you. >> thank you very much. the postal service has come up with the methods to save some $50 billion, is that right? ms. brennan: that is correct. >> i have always been concerned about making sure that we save as much money as possible when at the same time, i was hoping that we could find ways to bring in more money. so, do you agree that in order to be financially viable, long-term is important for the postal service to develop innovative products and services?
ms. rectanus: we do support the postal service is continued ability to be innovative and develop products that people need. the challenge that you run is trying to find that sweet spot between areas where the prophet -- where they will be profitable, but you do not want them to the able to compete unfairly because of their unique status or conversely lose money because of their unique status. >> you end up in a no spot? you want them to make more money but then we tied her hands and shackle their feet and say we got a way to do this and that. what you recommend they do? you look like you are interested join in on this and i would like to hear what you have to say. it becomes very frustrating for the postal service and for us. i'm just wondering what you see there.
mr. taub: again, this is a cost and revenue issue. >> i'm talking about things that will be profitable. the delay to make sense. let's take that off the table. let's go from there. mr. taub: the 2016 after six law to the hardline insanely postal service could only offer what are defined as postal products, what you could think of as hard copy letters and packages. the law would need to open the aperture. the postal regulatory commission in 2011 in a report to the president laid out a variety of recommendations. one of them was to suggest that if that aperture were to be opened, the commission now has this experience as the regulator to call balls and strikes and ensure fair competition issues, in short cost coverages. i would mention that is also is part of that larger question of what should the postal service
do as a government institution? that is an important understanding. what are the boundaries, as opposed to simply looking for -- if the financial issue is fire on the house can be put out, we can start rebuilding it and look in that holistic way. >> postmaster general, you have been in this position for a little while now. i'm wondering, talk about what you have been trying to do, and how that has worked out. in a perfect situation, what would like to be able to do. in that regard. ms. brennan: we are innovating at the core by getting mail a digital reflection to stabilize it and look to grow advertising.
in the package arena, we have partnered with large e-commerce retailers to customize delivery solutions. same day, next day, sunday, delivery of other products, groceries. i think as commissioner todd mentioned, our core competency is delivery. we have partnered with other government agencies to do in person proofing. we did a pilot tested arizona, onboard census workers. we think there is opportunity for us in the future, but other for us in the future, but other government agencies to do id verification, whether it is local retail or on the doorstep with the enhanced the enhanced technology we have embedded in our devices. >> as a matter of fact the chairman and i went in maryland, and it was amazing to hear them talk about how much they could not do their job policy postal service was a part of it. how much is that helping you?
ms. brennan: very much. the growth in package volume over the past year, past five years, 49% growth in package volume. more than 1.5 billion packages in the system. we now deliver 30% of all packages in the country. credit to the president to work with us to enable us to have greater flux ability with the workforce to be responsive to the -- >> what do you reject in the future? it seems like this online shopping --i literally go to the mall, myself. apparently that is old-fashioned now. so do you see that expanding more?
ms. brennan: yes. hypergrowth. the challenge is it is a competitive delivery it is a value proposition. competitive pricing, transit time performance and the visibility. the postal service has made investments in all of those components to ensure that we improve our competitive standing. we need to recognize that while our strength is delivery, we are challenged there. the uberization a package delivery, it is competitive. we recognize we have to compete for that business. the package growth alone will not offset the losses in first-class volume, hence the need to address the legacy cost. specifically looking at medicare integration is the cornerstone. >> thank you.
>> we now recognize the gentleman from texas. >> i want to follow up on it couple of things that the ranking member talked about. you used the phrase "give mail a digital reflection." what does that mean? ms. brennan: it embeds in the catalog new technologies well beyond qr codes to include augmented reality, near field communication. making it more creative and making it more relevant to the end consumer. >> ok, super. i think you touched on the amount of work that you do for amazon. i think that is a great revenue opportunity but i'm afraid it is a short-term problem. i imagine there are a lot of people who spend their day at amazon looking for ways to deliver packages faster in more efficiently. here in washington dc, i have got about an hour and five minutes to order something that
we waiting for me when i get home tonight, and that is not you all that is doing the last mile delivery on that. amazon is talking about developing drones to deliver packages. one day in the not too distant future, they are going to say a -- bye-bye to you guys. they are 41% of your package volume. ms. brennan: as i noted, it is a very competitive delivery space. we have got to compete for that business. whether it is with amazon as well -- who is a customer as wel as a business partner. ups and fedex, competitors and business partners for us. it comes down to the best value and that includes service and price. >> let's talk service and price. i live in corpus christi, texas. we were the unfortunate victims of consolidation of a mail
processing center. now instead of doing something to my neighbor across the street and having it processed in corpus christi him it is trucked into sin, processed, and maybe delivered in three days. i think price. at some point, companies like amazon will want it there quicker. if you cut the quality of your service, especially on your lead product, first-class mail, etc. to become less valuable. it makes e-mail look like a better alternative. brennan: consolidation was in response to that. we did the responsible thing which was right side the infrastructure, addressed blatant capacity and look at how to better utilize our asset.
that service is financial -- it is key to growth, we recognize that. >> we spent some time -- i think everyone on the panel had a wish list of postal reforms that would make things better. obviously, shifting people to medicare where it is a taxpayer response ability instead of a postal possibility. it makes sense and is probably fair, you know i hate to see the increase in medicare cost. we are talking a lot of dollars. postal reform has been talked about in past congresses, included other things, things like cluster boxes, curbside mail instead of delivery to the door, no junk mail on saturday, maybe high revenue packages and the like -- why are we still talking about those? why are we not still talking about those? why did it make sense a year ago but no one is bringing them up today?
ms. brennan: my approach was to build consensus around provisions, high-value, likely to generate broad support. >> also, there's something about -- it would be difficult -- if we do not have the money to anything, it is hard to generate consensus about not taking a dictation, but we are not taking a vacation because we do not have the money. that is just an example. at some point you are going to have to make some hard choices. you're not going to walk away with everyone happy. i think that is what we were elected to do here in congress, not just in the postal service but a governmentwide basis. say, ok, we cannot afford that. let's pick the stuff that is important and will work and make those are decisions.
ms. brennan: we have made the hard decisions. you just noted one, the consolidation. the accelerated pace with which we ran was because of our dire situations. >> they're looking at other things. the report says there will be no more consolidations. ms. brennan: we deferred the consolidations until we stabilize the network because services -- serive is our mission and service was not where it needed to be. we are showing positive trends in that regard. i would offer your comment about mode conversion, cluster boxes, for all new delivery. based on the delivery characteristics of that environment, we either effectively read to box on postwar centralized delivery. more than 900,000 new bosses -- possible deliveries last year, over 70% were centralized or boxing post. we are making the right business decisions. >> i am out of time.
thank you. >> i will now recognize the gentleman from massachusetts. >> there we go. thank you, mr. chairman. i'm very pleased to see the same thing is happening down there. we have the postmaster general along with the national association of letter carriers, male gamblers, clerks, supervisors. the prc as well as the mailing community, everybody on the same page. it troubles me that we cannot move this ball forward. i do want to focus on one key aspect of this and that is the coordination of benefits between
--i hate these acronyms -- and medicare. postmaster general brennan, the situation we have right now as amendment -- as has been noted by the chairman -- and he brought us all together and it has been completely bipartisan and really --we do a lot of work appear and this effort has been really bipartisan. but the way this works right now, the postal service is the second-largest contributor to medicare. and the largest -- as the chairman noted, postal employees paid $29 million so far to medicare, and the largest group is dodm, and they have a wraparound with medicare, they are the largest, but they require when folks, the military
and going benefits, they are required to use medicare as their primary insurer. so, that is a good way to reduce their costs and we do not do that at the postal service. we have about 25% of our employees that are relying solely on --and -- they are not using medicare as their primary insurer. this would basically eliminate all of that. ms. brennan: that is correct. >> i have been listening closely because you have different groups of air. the only criticism i have heard so far is that postal employees who pay into medicare might actually use it. that is the only criticism i have heard.
that people who pay into medicare will use it. some people see that as a negative. but i think it is entirely fair and reasonable to expect that people might actually uses some of those benefits so i do not see that as a realistic criticism. the second opportunity -- and you have done a great job with this proposal and i think it ought to be adopted and we ought to move this as quickly as possible the form of legislation, move this forward. and i realize we cannot fix everything, but just because you cannot fix everything doesn't mean you should not fix something. we can help, we can help appear with a major -- we can help up here with a major piece of legislation.
we have problems to deal with but that will be another day. i might be done quickly, but you mentioned the corpus of health benefit trust fund. right now we are required i believe to hold that in treasuries, which for the past few years has been dismal in terms of what it returns to the fund. and i know part of the proposal suggests that maybe 50% of that fund might be managed by a commission. could you talk about that a bit? mr. ronaldo: what we were talking about doing is having a board that would govern this that would invest 50% up to 75%. we look at the period going back to 2007. keep in mind, this would have
been through the worst recession 8-00 years. recession in 8-10 years. would have earned something like 7%, just as an example. >> we have to be careful with that but that is a reasonable cover my spirit i think my time --is a reasonable compromise. i think my time is up. >> we now recognize the gentleman from north carolina for five minutes. >> thank you mr. chairman. i want to start out by saying thank you for your work. it was good to visit with the prc and other dedicated employees that work there. mr. rolando, i know i was not on
your christmas card list, i do appreciate the fact the fact that you have been willing to work with me in an open-minded way, that was your commitment to me and i want to thank you. ms. brennan, thank you so much for being here. this is an interesting time and for all the postal workers can i just want to say thank you. i have been a secret shopper -- as you know, i'm not shy about my criticism either. in spruce pine just the other day, i went into a place -- actually i sent my wife and because i start to get recognized. the service they gave my wife was nothing less than spectacular. they did not know who she was so i went back into thank her for her service. that is what we need to do in terms of service standards.
as a fiscal conservative, one of the things you are asking me to do is get rid of a pre-funding requirement that was part of the previous deal. why should i do that? make a very short, compelling case on why i should do that. ms. brennan: it is the right thing to do to ensure that our pensions and retiree health benefits are funded. it was the accelerated pace of that funding that created a large part of the challenge, but now we are beyond that come this fall. the issue now is the system which is unaffordable for us. again, going back to, we have paid more than $29 million into the fund -- billion into the fund. >> i'm willing to take the leap. we have heard all caps of different testimony, that does not get us where we need to go, does it? ms. brennan: in an of itself, it is not enough.
>> so, we need some other areas. we cannot make it up in volume because part of what is concerning me is that indicates that we are just going to raise rates, that this is a revenue problem. $69 billion is not just a revenue problem, it is a management problem. how do we take this without raising rates, as being the ultimate answer, and fundamentally reforming and make it work? are you in support of safe and secure delivery through cluster box? is that something you would support wholeheartedly? ms. brennan: depending on the characteristics, yes. we currently do delivery by cluster box. >> would you support expanding
that in a meaningful way, grandfathering -- understanding you might have to grandfather it a lot here but looking at safe and secure delivery. you make us a pushback by some of those on that side, but we have to come together to figure that out. are you supportive of that, yes or no? ms. brennan: yes. if i may come of that comment i made earlier about new delivery, what we would not recommend is mandatory conversion of existing door delivery, of which we have over 37.5 million. >> i have been working with mr. lynch in an area which is different from mine. if we work through that -- you are asking me to go ahead with the pre-funding and jump off a cliff. i'm asking you, are you willing to work with us to make sure we implement safe and secure delivery? ms. brennan: yes, and if i may comment, management has demonstrated a willingness to address operational efficiencies
and will continue to do that. if i may. she mentioned we do not have any major cost reduction plan, we do. we have more than $5 billion embedded into our five-year plan. we continue to look at opportunities to drive efficiency. that is our responsibility. >> but mostly was we talked about were in increasing service or trying to increase a portfolio. let me -- i'll have a few seconds. here's my concern. we are talking about this and missing out on service standards. it is the number-one one thing i get called up. why is my mail not being delivered? even me, you said that first-class mail that is your bread and butter, and this first-class mail is all postmarked in december. i got in april. that is not a funding problem, that is a management problem. it is not just in my district,
because in peachtree city and we have the same city where we mail wedding invitations for my son which take -- took eight weeks to get to another member of congress. what we have to do is put this together and make sure we have a service standard that does not just increased cost. i'm going to work in a bipartisan way to do that, but we have to make sure that we do it in a way that serves the best interest of the public. are you committed to do that? ms. brennan: i am committed. if you would give me those envelopes would take a look. >> i don't want to get someone fired. ms. brennan: no you won't. >> i had about 40 pieces of mail that came to me with the same problem. i yield back. >> i just want to know, now i know where my wedding invitation was. [laughter]
>> you are always invited there, mr. conroy. >> thank you, mr. chair. i just want to say every time we have a postal hearing, i text of my brother because he works for the post office. i asked him if he has any questions he wanted to ask you. one thing i want to say as far as the zone nations, i'm glad you thought enough, even know they might be necessary to slow it down, because service does come first, and that has some of the things he has spoken out because of all the posts stations, long lines and not enough clerks in the window. i'm glad that you are still putting service first and taking that under consideration. because people will go other places in they do not feel like they are getting good service. we definitely want the post office to thrive.
ms. brennan, one of the elements of the proposal put forward by the postal service, certain moments of the mailing industry is the use of postal specific demographic assumptions. the proposal would also require any surplus resulting from those calculations to be used to pay down the postal service's debt to the u.s. treasury. intuitively it makes sense to you best use the demographic statistic of the postal workforce and calculate the pension liability. what is it about the democratic -- demographic that you believe will result in lower cost? ms. brennan: specifically, the salary wage growth. we estimate over a five-year. that would be valued at roughly $3.2 billion. >> has the postal service cuckolded how much of savings -- calculated how much savings? in 2014, they supported the use of the most accurate actuarial assumptions for postal pension cut relations.
do you that the postal service should use postal specific demographics when calculating pension liability? do you have any views on the potential savings? >> we have not done the calculation, we have not look at the postal service data so i cannot comment on that. >> ok, thank you. i yield my time. >> i want to thank you all for being here. i have to say, postmaster general brennan, you represent a
breath of enormous fresh air. i mean come i want to say publicly how much i appreciate working with you. we have been able to report a bipartisan. thank you for bringing us together. i share my sentiments and i'm very hopeful that we are going to get postal reform. not everything but a big chunk of what we need to be addressing. thank you. ms. brennan, what does it mean for the postal service to lose the accident rate which expired -- exigent raped which expired in april? ms. brennan: this year we estimate the impact to be up to $1 million this fiscal year and
roughly $2.1 billion going forward. >> in your testimony, you say the postal service's financial position continues to deteriorate and you contribute that to growing expenses. is that correct? ms. rectanus: yes. >> to you believe that some of the elements of the reform we have been talking about bring up the postal service to engage in some other lines of business that may be profitable, like other postal services around the world? lifting some of those restrictions, lifting the burden of a unique prepayment requirement. unique to the postal service. no other federal agency is held to that standard. plus thebillion, medicare reform. that is not a tax care that -- that is not a taxpayer
giveaway. could they turn around that description you have offered? ms. rectanus: we have supported appropriate restructuring. >> if i i'm not asking for your may, position. i'm asking for your analysis. if those things were adopted, would those numbers and your prognosis change? ms. rectanus: certainly they would benefit the postal service. what we would not want to see is an equal focus on trying to get the house in order so that whatever revenue is generated is appropriate and people understand the solutions are trying to be gotten in both areas. ms. brennan: we need the
legislative reform, a favorable result of the rate setting process, and management actions need to continue to drive operational efficiencies and grw profitable revenue. all of the above would press on firmer footing, miserable debt, and the ability to invest. >> thank you. >> thank you, mr. chairman. i think i heard this, i just want to clarify. how many employees at the postal service? ms. brennan: we have about 498,000 career and 130,000 flexible noncareer employees. >> what was the 7.5 million referred to twice? ms. lowrance: that is the entire mailing industry. it includes private sector.
>> so, i did not tally that. 634,000, ok. and yet we all understand we have a declining industry as a ofle, because of a variety factors. digital, and so forth. does the postal service have too many employees? ms. brennan: we have a universal service obligation to deliver to all 155 million delivery points, 135 million of which are physical, the other 20 our posts office boxes. that requires an excessive network that includes employees, facilities, vehicles. >> i understand that, but is it top-heavy? do we have too many employees? ms. brennan: no. when you look at the reduction, we have reduced more over the last decade.
>> we have 634 thousand employees, i declining business, but not too many employees? ms. brennan: the challenge is the workload with package delivery. >> i understand. that is why we have a declining business. the result of the declining business -- what would a private company do? if a private company is losing money month after month, quarter after quarter, what would they do? ms. brennan: what we did in terms of rationalizing the network, consolidating facilities, adjusting retail hours at post offices to match customer demand. some of the same management actions i have been recently criticized for. >> but, we are still losing money. i will go on.
you said the goal, that your goal is to fill mailboxes and trucks. is that your strategy? ms. brennan: the strategy is far more complex than that. i was trying to simplify. >> but that's what you said. ms. brennan: you can't cost cut your way to prosperity. there are opportunities to drive efficiency. there are opportunities to look at overall operating expense. we do that every day. we also need to look at opportunities to grow. there are opportunities to grow. the mail still works. we delivered 154 pieces of the mail last week. >> but you continue to lose money. it seems rather unrealistic when you have a declining industry, to think that somehow the goal of simply filling mailboxes and trucks is going to be successful in the long run. you mentioned earlier that the postal service has been on high
risk since 2009. you summarized the reason, or two basic reasons -- less mail and higher salaries. do you see an opportunity without cutting the workforce or whatever for the postal service to turn this around? >> we have proposed it has to be a balancing act between generating revenue and aligning costs. we believe there is more rightsizing the postal service can do, addressing what that capacity, and exploring some of the workforce issues they have. ms. brennan's right, they have done a great job over the past several years to manage the workforce but they are starting
to look at both of them. looking at the delivery mechanisms. again, you need to do that i also looking at the revenue. you have to look at both of them. part of it is, what does the mail picture look like today and in the future? what type of services are going to be required and how do we want to provide those? which is what we would like to see through comprehensive reform. >> let me springboard off of that and come back to you for my final question. what is the personal service long-term plan for addressing the declining industry? ms. brennan: if i may, let me first address your comment earlier about the losses. the majority of the losses are tied to the people and the mandate. in terms of our long-term plan, it is addressing infrastructure, how to leverage that, repurposed that to support growth, address the latent capacity -- >> what growth? ms. brennan: package growth. we have grown -- we will right size the infrastructure as we have been doing, with what we need to decline in letter volume. we will continue to look at every opportunity to improve operating efficiencies. we have $5 billion of cost
reductions identified in the plan. >> thank you. i think it is time for the postal service to act as though private business has to act, in similar situations of constantly losing money, without relying upon the taxpayer. at some point, we have got to change. mr. chairman, i thank you for your indulgence. >> the gentleman from california, mr. lew. >> thank you, mr. chair. last october, the postal inspection service issued a release about mail theft. it said these crimes are increasing, that mail theft in collections boxes and customers mailboxes are a big problem. it says most cases in mail theft involved master keys. i have two questions. when you talk about rightsizing, are you reducing u.s. postal inspection service numbers at
all, and does that have an effect on mail theft? and as you move into more and more cluster boxes, doesn't that also increase mail theft, because you only need one master key and then you have access to a lot of mailbox? ms. brennan: to your first question, we are not reducing.we have two classes currently in training to increase the postal inspection staffing. in terms of the theft, as you are aware, we have a postal inspection task force working with local authorities and the community taking proactive measures to address that. i would be more than happy to brief you in detail given the sensitivity of the corrected measures. congressman lieu: thank you. in terms of revenue, what is your opinion postal banking and serving communities that may not be served as well by banks are may not have a trust of private ranks, but me trust the post office? ms. brennan: fundamentally, we are open to any new service i
would generate revenue. that said, we do provide banking services now. money orders, electronic money transfers, and cash treasury checks. we would need to look at that through a business prism. can we execute effectively? can we grow profitable revenue, and is this a service that is not offered in the public sector? >> ok. we have had a number of difficulties with service in my district. first, when we contact your office, they had been enormously responses and they are able to help. about 97% of the cases get resolved. the problem is, we continue to get more and more cases. now, it looks like a systemic issue in western l.a.
county. a councilmember in west l.a., his office had not gotten any mail for an entire week. we checked again, even when they get mail, it is spotty. we get complaints from santa monica and redondo beach. in beverly hills, a got so bad that the local newspaper did an entire series on it. last august for example, they , printed a story that the post office fails to deliver. last september, the post-offer acknowledges crisis and meeting at the congressman's office. last december, post office issues continue. this january, beverly hills post office and year with more customer woes. with indulgence of the chair, i could submit these for the record. i would like your commitment that you will work with our office to look into these issues. i am elevating it because you happen to be here, but also, we have tried with local folks on numerous occasions. even though we solve individual cases, systemically, they keep
coming. ms. brennan: congressman, absolutely. if i may address beverly hills, which i am familiar with. we did make adjustments in staffing to improve performance. i would be glad to follow up with other issues. >> thank you. my last point, one of my colleagues said the service should be run more like a business. you don't actually set the rates for your products, correct? ms. brennan: products that generate roughly 76% of revenue are capped at household intonation. -- inflation. >> and if you set your products at market rate, you would be getting a lot more revenue? potentially. ms. brennan: we have an opportunity in 2017, with the review by the prc, to look at the present price cap, is it meeting its objective as outlined in pa ea, to make sure
revenue covers expenses. we think a rigid price cap is fundamentally unsuited in an environment where you declining work load and fixed or growing infrastructure costs. view is that people want the postal service to run like a business, they need to give the tools to run like a business, otherwise they should stop saying that. i yield back. gentlemannize the from north carolina. mr. walker, five minutes. >> thank you, mr. chairman. thank you, panel, for being here today. a lot of this to me is about the trust in the post office as a whole. going back and looking at the numbers over the last few years, 2012,5 $.1 billion last,
2010, 8 $.5n, billion. at some point, the people are saying what is going on? this isn't just a perception, this is a reality of a major trust issue. i have five minutes to speak. and those five minutes, the approximate amount the post office loses is $47,564. that is a huge issue. i have heard today the witnesses who are working hard, the members, the colleagues to try to do something thing -- things better. i have a couple specific questions in regard to the rate increase. if you do receive this rate increase, can you tell me where this extra money would be reinvested? >> in terms of if we were granted -- >> if you were granted a rate increase, where that money go?
>> we would like to pay down debt. if we were able to address these long-term liabilities and the net loss that you cite is in large part due to the pre-funding requirement. the past three years, we have had controllable income, revenue less expenses, that which in -- that which is in our control your >> would you agree that the postal service can run out of money in six months to a year at most? >> our responsibility would be to make decisions and prioritize which payments to make to ensure we would be able to continue to deliver the mail and pay our employees and our suppliers. >> my concern with that statement is that wasn't a recent statement. that was from over three years ago. continuing the siege of congress as far as more funding, this isn't working out. i want to hone in today on something specifically about packages versus e-mail. i want to make sure i'm clear on
this as we had done research on this lately. the increases that are requesting, would they be used to subsidize the package area of the post office business or would it be to increase the mail delivery? did you expound on that? crossterms of the subsidization issue, the prc annually reviews to ensure there subsidization. that are competitive products cover the cost and contribute a minimum of 5.5% to institutional cost. the prc has found annually since the inception of the aea that that is in fact happening. servicetated the postal has made consolidations to respond to the decline in the mail. you have also stated you are investing in packages -- i believe he said if humans earlier, that as a result of those investments, package
delivery was not slowed by the consolidations. but, title 39, subsection he states that in determining all policies for postal services, the postal service shall give the highest consideration to the requirement for the most expeditious or -- delivery of mail. do you think the postal service is following the spirit and letter of the law following -- given your actions? >> i do believe your a >> if as the case, the annual compliant reports suggest the postal service is routinely prioritizing competitive products over market dominant products. do you believe that? >> i would have to see that in terms of what you are referring to. >> i believe it is your annual that suggestsort the postal service is routinely prioritizing competitive products over market dominant products. can you expound on that? >> i believe that maybe the prc comment -- i'm not sure what you
are referencing. if i can talk about the annual , weliance determinations are very transparent about performance in terms of transit time performance, in terms of volume growth, and in terms of investments within the organization. >> thank you, mr. chairman. i appreciate the time. we yield back. >> we now recognize the gentleman from pennsylvania, mr. boyle, five minutes. >> thanks you -- thank you, mr. chairman. i was struck by the fact -- i don't know when this was, i knew it was research -- recent, pew research did a poll of favorability rating -- ratings a different government agencies in the post office came out the highest 84%, which i can't remember where congress was, but i think postal service was slightly higher than where congress ended up significantly lower than that. that has made all the more remarkable by the fact that you have a decade where there are
200,000 fewer employees than there were just a decade ago. my question is regarding the rather unique requirement the postal service lives under where a essentially you have to prepay 75 years of obligation within a 10 year window. can you talk about the effect that has had on the balance sheet and you know of any other agency or private sector company that has to live under such a unique requirement? i will leave that to anyone who wants to. in terms of the pre-funding , my understanding is it is unique to the postal service. there is responsibility with a department of defense. my understanding is there payments are over a longer time. plus, they are appropriated and integrated with medicare.
>> if anyone else would like to add something. >> congressman, this was enacted as part of the 2006 law and a bipartisan way with the best of intentions. wentext year, our economy into the deepest recession since the great depression. with that, mail volume accelerated and caused these challenges. the postmaster general is correct. i would point out when the 2006 law was enacted, there were zero dollars pre-funded for future retiree health benefits. today, as we speak, there are more than $50 billion that have been pre-funded. there is still an outstanding allegation, half -- half that amount, but we are not that much. >> would you like to add something? >> i went. this is unique to the postal service. i would like to point out that , the consensus group has put together, we would not only fully fund the retiree
health fund, we would be overfunded if you took all of the components, that is something that nobody else is able to do. >> thank you. >> i would just add that my great concern is particularly, we have this conversation of going from six day to five day mail, that we continue to be in this negative cycle of cutbacks and closures that is a self-fulfilling prophecy. that can be very destructive to communities and neighborhoods. i represent a largely suburban and urban residential district. we went through a rumored closing of our post office in the 19116 citgo. that set off a firestorm. age, but for people my for those of an older age, having that local post office there is an important part of the community. as we look at these decisions
and dollars and cents play a major role, i think we also have to put a value on what the local post office means to the community. if that is the case in a neighborhood and a suburban area , i think it is only more so the case in a rural area which tends to be more remote. thank you, i yield back. >> if the end -- the gentleman would yield for just a second. i want to make sure it is clear. we are not talking about five day delivery. i do want that to be the headline that comes out of this hearing. your point is well taken. is in a suburban area or rural area, i don't want the phone calls to start coming in. read -- reclaim my time, then i will yield briefly to mr. lynch, i would say, while that might not be the point of today, there have been numerous proposals about going to five
days. it has me very concerned and a number of our constituents within -- the reason you described. i will yield to mr. lynch. >> briefly, i think the gentleman for yielding, there were some implications here that the postal workers were not doing their part or that costs are creeping up. i want to read you something. in 2011, the postal service union reached a voluntary agreement that involved a sea change of significant and far-reaching concessions. agreement015 contained wage freezes for year one, wage freezes for your two -- year two, that is my five year, followed by a 1% raise, a 1.5% raise, and a 1% raise cost of living. it was deferred to the third and fourth year. extremely modest increase on the part of the employee including
two years of wage freezes in a five-year contract. people should bear that in mind. i yield back. >> i recognize the gentleman from alabama. >> thank you mr. chairman. for the record, i want to say my wife and i love our postman. he does a great job. earlier, thened things being done in the private sector, i would like to ask you a cost-cutting initiatives the industry has implement in the wake of the evolving post world as we know it. >> we have seen a great consolidation in our industry. we have seen the larger print all of the little ones to get rid of excess capacity. we have seen plant closures, laos, those sorts of things in order to compensate for the decline in mail volume across the industry.
>> if you had to guess what cost-cutting efforts with the postal service have to take or be taking if it were a private company? >> i think the postal service has shown an ability to cut costs in the extreme conditions. .hat they have been functioning i am not at liberty to say that layoffs should have been or anything should happen to the common employee of the postal service. i think there are great lengths, additional price signals, cost efficiencies they could gain their working with the industry. i think the industry has done more and more any form of work sure to take work hours out of the postal facilities and continue to rely on industry to do things they do very well. >> i want to bring up a couple of things that have come to my attention that i think might be helpful. for instance, there is an
economic analysis from a group called key bridge, you might be familiar with them. it says the postal service could save over $2 billion on the delivery vehicle procurement that you are planning. which is expected to cost over $6 billion. how do you respond to that? >> i would have to read that report. , weerms of the actual cost have estimates about the cost. a number of factors will determine the cost of the vehicle fleet replacement. >> you are correct in that. there are number of factors. that is one of the reasons why your costs are so high. you are buying vehicles you plan to keep in place were a number of years and you'll feel that your fuel cost, your maintenance costs are exorbitant compared to what other private companies would be doing. i highly recommend you take a look at that key bridge analysis
. if you have trouble finding it, i think you would let the committee know, we can find a for you, get that for you. there is also an issue, mrs. , thean, that in november inspector general put out their semiannual report and found there was 1.8 billion in funds that could be put to better use in four under 55 million in question will costs from april to september 2015 alone. i would like to know how you responded to the ig report. >> congressman, that is a compilation of literally probably hundreds of audits and/or studies. i would need to look at them in separation or in isolation to address that. currently, the oig does valuable work for us. it identifies opportunities, often times, it is work we are currently undertaking and working through. i would certainly acknowledge
there is opportunity for process improvement and additional efficiencies that will help drive down costs. >> considering the environment you're in right now, these two combined would be somewhere in the range of $2.3 billion. you could save another $2 billion in vehicle procurement. over $4 billion. i think that ought to be a couple of things at the top of your list for consideration. either, but layoffs i'm also concerned about the public perception of the post office and for the record, we think the world of our postman. done, they survey waited 24 government operations into private companies that deliver 75% of the world's mail and found the post office ranked
last is the lowest performing postal agency or commercial operator in the world. is not justs it with the cost-cutting, but the public perception of what the post office does. performance, ir think because of labor contracts you are under the inability to remove for performing workers -- poor performing workers and the post office has to address these issues to improve its image and to make it a viable industry. i yield back. >> i will not -- i will now recognize the gentleman from michigan. five minutes. >> it is an honor to be here today. thank you chairman and the ranking member for calling this hearing.
i want to be clear for the record that i had a 30 year career with the postal service. i have a lot of respect for mr. orlando. i want to say no other america can tell to pre-fund future entitlement -- retirement businesses at the level that is done by the postal service. it is clear that pushing a public agenda that operates with taxpayer funds so there is some allusion earlier that we are using taxpayer dollars. the revenue that we generate from the sale of our product is what we fund and operate our business with. so often, it seems to get confusing and debate when we start talking about the postal service as if we are using taxpayer dollars. it operates with no taxpayer funds to the brink of financial crisis by forcing it to assume the financial burden assumed by
no other agency or company is the height of the financial responsibility of congress. problem should fix this that we created. today, as we are having this debate about the future of the postal service, and yes, there are issues we need to work with, and miss brennan, i have been clear with you in private conversations and i'm entrusting you to continue to keep delivery standards as one of the primary objectives. as i look with our postal customers and mailers who depend on us, one of the things i wanted to talk about is the downsizing commitment that has been made by the postal service. reducing your workforce by 200,000 careers since 2006. reducing your work hours by 330 -- three to 31 million. changing
operation hours. can you, miss brennan, and i would like mr. orlando to weigh on this as well in my mailers if you have time. how has this consolidation and reduction of workforce aligned with the phase one and phase two initiative?rk phase one.eted phase two, we completed 17 of the projected 82 consolidations. we have additional consolidations that we will revisit, we will redo the economic analysis given that is now five years old and would make the appropriate notifications before we resume those consolidations. what's mr. orlando. how is this affecting the day today? >> keep in mind, a lot of this is a reaction to the pre-funding itself.
i keep hearing over and over what would you do if you were a private company? if we were a private company, we wouldn't have $50 billion of resources tied up in a fund for 75 years. it would affect standards, it would affect service, it would affect rates, it would affect vehicles, infrastructure, it would affect all kinds of things. the take away from all of this is we are not allowed in the way to act like a private company. we have pre-fund. there is no appetite and congress to not pre-fund. that is why we have put together this coalition to find a way to satisfy that mandate. we have come up with a way to do it. moving on from then, we can act as a private company or postal service in a rational and efficient manner moving forward. >> i want to add it is about being competitive. we are in a very competitive market, the postal service. if you truly want this company
to be efficient and competitive, then we as congress must recognize how we are tying the hands of the postal service. i say to my colleagues very passionately that we absolutely want the postal service which is covered -- when i was employed, i had to take an oath that i would protect the mail and make sure it is protected from foreign agencies and how important it was to be an agent of the postal service. then we tie their hands and criticize them. one of the things i want to talk about is the future of these type -- practices. we know that drones in other industries are coming. we consistently tie our hands and see the other industries moving forward to embrace the ability to be competitive, reduced cost. we, in the postal service, continuously fight against these
restrictions. we as congress must step up and take ownership of what we have created. we have amazing opportunity to remove some of those barriers as we hold the postal service accountable for fulfilling the role. i am over, thank you. >> the chair recognizes the gentleman from missouri for five minutes. >> thank you, mr. chairman. >> do you know if any other industry has to fully fund retirement costs of employees? >> the postal service was a unique agency defined to be self-sustaining within the industry. that is why they are in a different situation. >> the 2006 postal accountability act and that requirement on the postal service?
>> that is correct. >> how much has the postal service been able to pay? have they been able to make all these payments? >> to date, the postal service has paid $18 billion on top of the original money put in. they have missed $28 billion in payments. >> $28 billion is the value of unfunded liabilities? >> that is the amount the postal service has not put in. the amount of unfunded is $54 billion. >> i see. i understand that 86% of losses in the postal service between 2007-2011 are attributed to this pre-funding. do you agree with mr. rolando? >> i would say it is responsible to pre-fund.
the challenge in the recent past was the accelerated payment schedule. going forward, the challenge for us is to ensure medicare integration. >> is modifying this pre-funded requirement an essential part of the joint reform proposal to which the postal service has agreed? >> given that the pre-funding requirement ends this fall, the challenge now is to address the larger issue of an unaffordable system for the postal service and retirees. >> how much money do you think this would save the postal service?
>> fully integrating with medicare for all of our retirees 65 and older would save us over $17.5 billion over five years. >> is it true the retiree fund is 50% funded? >> that is correct. we are better situated than most. >> do you know what the current balance in the fund is? >> the current assets are over $50 billion in the rhb fund. >> the pre-funding requirement may have made sense back in 2006, but it no longer makes sense for the postal service to comply with a requirement that would force it into insolvency. one question from mr. rolando. give me your overall sense of how the morale is among postal service workers today. mr. rolando: the overall morale?
we really deal in four different avenues, if you will, with the postal service, depending on the level of engagement of employees and organizations. we deal in a collective bargaining arena, whereby we are addressing things that will affect morale in terms of pay and benefits and working conditions. we work together in an arena of growing the business, making sure service is what it needs to be so we can face our customers every day. that can be rewarding and frustrating at the same time. we deal together in a legislative arena to make sure the postal service is here to serve the american people for many years to come. we deal in another arena i call the culture of the postal service.
that is an important thing that has been embedded in a long time in the way it exists. we have a commitment to address that and all those things contribute to the morale of postal workers all over the country different ways. >> thank you. may i yield the rest of my time to the gentleman from massachusetts? >> i just want to push back on a suggestion made earlier by my brothers across the aisle about the comparative performance of the postal service. there is a great report out by oxford university consultants that measured the efficiency of postal services in the top 20 countries in the g20. united states postal service came out the best. remarkably, it is the only system in that top group that does not receive taxpayer
funding. it is doing better than all the rest, contrary to the statements made earlier, and remarkably, the united states postal service scored highest for efficiency, though it delivers the highest number of letters per employee than any other service member in the g20. japan came in second at less than a third of that. also, we have universal service, which these other countries do not have. we deliver to every single location. the only criticisms the british study had was that, unlike siberia, where their post offices serve groceries, ours do not. we came out the best in this very credible study. i would like to enter this as part of the record.
>> without objection. the gentleman's time is expired. >> chairman taub, one of the objectives of the current system is to make sure we have high-quality service standards. right now, there is some indication we are struggling in that regard. as the postal service continues to have problems in that area, what action will the commission take? mr. taub: the commission has an annual compliance determination where we look to make sure that rates and fees in effect last year are in compliance, as well as service standards were met. we entered our most recent one a month and a half ago. first class mail did not meet their targets. standard mail.
we directed the postal service to come back in 120 days with a comprehensive plan on what is called periodicals and standards, flat, 90 day report on letters and cards. when we get that back, we will assess the next steps. it is a study to bring attention to a trend which has not been a trend in the right direction. this year, we took more of an aggressive stance and asked the postal service to come in with a comprehensive focus. what are the pain points? what are the focus points? service is the basic standard that has to be met. >> i have a question for ms. brennan.
we talked a lot about how the volume of mail has dropped from 213 billion to 104 billion. 2006 was the latest year. do you know what it was 10 years before? ms. brennan: off the top of my head, i do not. i will get that information for you. you was growing, yes. >> might have been 184 billion in 1986? ms. brennan: 2006 was the high point in terms of total volume in the system. >> i wonder if you are creating an artificial cause for a problem, saying 254. of course we are going to have a crisis. 154 in 1980, you would not have had a problem. you know what i am saying? ms. brennan: i would tell you that it is not artificial, the challenges we face. >> we had a hearing on this before.
replacing aging vehicles -- what is the current status of the situation? ms. brennan: we are currently in the review phase for prototype vehicles. the plan is we will determine one or more suppliers with multiple vehicle types that will test roughly over an 18 month period. that will help inform our decisions as we move to a production timeline. >> last time, you guys said you would buy 120,000 vehicles. is that still the plan? ms. brennan: given our financial situation and the suppliers' ca pability, we would be looking to purchase roughly 20,000 to 25,000 a year. >> kind of spread it out? ms. brennan: multiple years, yes. >> next question -- what is the pay if i start to go to work for the post office as a delivery guy or gal? what is the starting pay?
ms. brennan: the average work our rate off the top of my head is $41. >> pardon? ms. brennan: $41, if it is a noncareer employee, roughly $15 an hour. >> if i get a job, and i know i have to work part-time in the first place, if i start out as a mailman, what do i expect starting as far as my pay? ms. brennan: it would depend on the craft. if you were a letter carrier, roughly $15 an hour for a supplemental noncareer employee. >> how about career employee? ms. brennan: it would depend on if you are new. roughly $20 or $25 an hour. ms. brennan: yes, absolutely. more than eight hours in a day or 40 hours in a week.
>> is that common? ms. brennan: overtime can be in certain locales. it is seasonal. it depends on employee availability, volume and the like. >> what does your average mailman make right now? ms. brennan: average salary? i will provide that for the record. >> my time is up. i will yield the remainder of my time. >> wow. thank you. impressive. let that be a lesson to all of us still sitting here. we will give six minutes to the gentlewoman from new mexico. >> thank you, mr. chairman. i appreciate that. i am going to change up what i
was going to do a little bit. i really appreciate the comments my colleague, mr. lynch, made. i do not need that report. is you want to see the efficiencies of the post office, go visit. you will have no doubt it is one of the most efficient systems in the world. thank you very much for that. i plan to do more of that, particularly in the area one of my colleagues mentioned. in this effort, because of budgetary issues, that we were consolidating, given that that has hurt world and -- rural and frontier areas, i am happy to hear that is on hold. in addition to that and the numbers already talked about, 360 facilities consolidated, there is a 2011 gao report that says when you reduce the level
of services, you are hurting your revenue stream. it is counterproductive. as you look at these issues, i would love if you give us further information in writing about your efforts in modernizing services and addressing these issues given your unfair mandate, that there is a healthy balance. we want to make sure we are back to building a revenue stream and, at the same time, continue to take appropriate action to protect the populations who need the postal service in a way that is different from the average person receiving mail. if you would do that, i would appreciate it. the second thing i want to talk about that is a bit different from my colleagues have addressed, in my community, unfortunately, we are seeing a high number of vandalism and m ail theft.
i want to thank you for your work particularly in albuquerque. i am concerned with lack of personnel, we have a backlog in those investigations. we do not deal with the perpetrators. we are on a merry-go-round in this situation as well. it continues to occur at higher rates and around the country. given our poverty issues and other public health issues, which i will address later today in terms of substance abuse, it is a significant problem. it also creates safety problems for folks when we are not dealing with this appropriately. we have a backlog of issues. we are not replacing damaged mailboxes. i would love for you to give me a sense about what you can do differently or if you have any thoughts. what do you need from congress to make sure you address what i will call "hotspots," if you will?
>> in terms of albuquerque and the efforts we have with the postal inspection service partnering with law enforcement and community members, we have an anti-theft prevention campaign. i would be happy to brief you in more detail. as we deploy centralized boxes, we need to make sure they are secure and we can minimize potential theft. >> i am happy to do that. i want you to talk about -- i have more time, but i am to give it back to the chairman because he is so good to me. i meant that genuinely. i think it is important to talk about it in a policy mechanism. i love my community. i love my state. i love my district. but we have real challenges. i have a police department with some of the lowest staffing in the country. leveraging there is not
leveraging. the reality is we are not keeping up and we have a real public safety and confidence issue. what else can we be doing? you ought to take into account all those kinds of circumstances. the reality is, those boxes are still damaged and people do not have access to the mail. ms. brennan: the post offices looking at other ways. we do not want disruption in service. >> it is recognizable when you see these damaged boxes in my community. i yield back. >> i think the gentlewoman and appreciate it. i have comments and questions. then we will wrap up. mr. taub, give me your perspective on the prc. we are looking at a reform package. how would you adjust or reform what the prc does or does that
do? -- not do? mr. taub: the most important thing is the financial balance sheet. that is the house on fire that has to be dealt with. attached to my testimony is a study that mandated by law, evey five years, the commission looks at the total postal accountability act and offers recommendations for changes to the president and congress. we did that in 2011 and are in the midst of doing that report now. the 2011 report suggested possible opportunities -- >> when do you anticipate that will be complete? mr. taub: we should have that by the end of the year. >> can we have it by the end of may? >> i wish we could.
we just issued a call for public input and comment on that. we asked the public to input by june 14. when the public gives us the input, we have to put that together. >> any preliminary suggestions? as the chairman of this committee, let me give you an outline of where we are heading with this. we anticipate introducing a discussion bill of a draft soon. i anticipate that will be available for two weeks unless there is a major hiccup. the intention is to introduce a bill, mark it up. we are actively trying to address the pre-funding issue. we are obviously, as we heard from across the spectrum of the board, trying to deal with the medicare portion. it is amazing that $29 billion needs to be adjusted. if there are structural adjustments or suggestions or ideas that any of you have, we need to have those now. we have been hearing and listening.
now we are having a formal hearing. but we need those as soon as possible. from the gao's perspective, i want to go to the board of governors. it is unfair to put you on the spot. how many board of governors are there? >> at this point, there is 1 -- >> out of? >> nine. >> that is the right answer. one out of nine.
frankly, i cannot figure out what the board of governors does. is almost never fully staffed. one of the things we are looking at is fusing the board of governors and the prc into one entity. if someone has a problem or a different suggestion, let us know. but to have two separate groups, one of which is never fully staffed and literally has one person, they cannot operate, and yet, no one seems to mind. i do not get any complaints. that is one thing i am looking at. if you have a suggestion -- >> chairman, may i make a personal observation from having been involved so long? the current structure of the statute sets the committee up as the committee -- regulator of the postal service. the current board was created to
exercise the power of the postal service and represent public interest generally. i would simply observed that, to the extent they are together, taking you through the issues of regulator versus operator -- >> i still see the role of congress and the postmaster. i still see the role of the prc. but the extra layer does not make sense to me. >> if i may, mr. chairman, and i appreciate your offer for insight. chairman taub outlined it well in terms of differentiation of responsibility. it would be problematic for the regulator to become the operator. that would be the caution. we are happy to provide additional insight. >> you want to triangulate the issue. at the same time, it is problematic when there is not a functional group. and there has not been for a while. there does not seem to be any desire to get one. i am just looking at structurally changing that. duly noted.
we do not want the regulator to also be the operator. there needs to be distance. there is also the role of congress. we have to insert some of those functions as well. mr. rolando, i do not know what time frame -- the unions, the enrollment is way down because of, in large part, reductions in staff. someone watching for the first time, give them a perspective of how the unions have stepped up and helped address this problem. there have been a number of staff reductions along the way. mr. rolando: as far as reductions, there has been a loss of 200,000 jobs in 10 years. the majority of collective bargaining agreements now, no new employees come in as career employees.
they come in as noncareer employees with no benefits and lower pay. they have to wait for a position to become available to be eligible. the collective bargaining itself is a process that worked well for a long time in terms of negotiating agreements, whether by settlement or interest arbitration. as i mentioned before, there are other arenas that we deal with with the postal service. for example, the legislative arena. i think that is an important thing we do, along with the mailing industry, to get a consensus together to move something through congress and preserve the postal service in the future. i talked briefly about being involved in the growth of business and the networks and the value, working together to do that. to the point of bringing in business to the postal service. the fourth arena is the whole culture of the postal service.
>> ms. lowrance, let's talk about what you would like to see. we have your testimony and you answered questions. give me the best analysis on what you need people in congress to do. ms. lowrance: we need predicable and reliable mail service. if we say it takes three days, it takes three days to get there. have the most efficient mail possible. we need predictable, stable postal prices. if we need to raise revenues, they will find other means to communicate. lastly, transparent costs. and pricing can be done as a regulator. we are looking at the 10 year review to see if the current pricing mechanism is the right fit. if congress were to do anything, i would say releasing reliability -- liability on the
balance sheet will help mailers alleviate some of the pressures on the cap and concentrate on service. that seems to be the large message that came across today. >> thank you. i appreciate it. the postal service, as i said at the beginning, serves a vital element of congress in the united states. they have high fixed costs. when you have high fixed costs, you do not reduce services and raise rates and expect to solve problems. what you have to do is move volume. you have to make the post office more relevant to people's lives so there is more that can move through. cutting rates and services is not the way to get there. personally, i have migrated a long way. initially, my inclination was, five days service sounds good. let's increase the number of postal holidays. the more he died in, the more you realize that is not the way that -- you dive in, the more you realize that is not the way
the economy is moving. you see the amazons of the world and other consumers starting to expect saturday and sunday delivery. the post office is in a unique position. personally, i feel strongly the post office should not be participating in business also found on main street. selling coffee and t-shirts, with all due respect to other services you can find on the street, i do not think that is the role of someone who has a monopoly. i have deep concerns about that. the one thing i have not heard in the last couple hours of the hearing that i continue to harp on is the government to government business. when i think of where i go to
get my passport, i think of the post office. that type of business arrangement needs to expand at the state level and federal level. it drives me crazy to know -- no end that we spend all this money on fema to remap the united states. and drug distribution facilities. most could walk the streets without street signs. yet, we have spent hundreds of millions of dollars doing that. we have disaster with fema and others that happen, but it is your post office and postmaster that probably understand the community better than anybody. i visited montezuma creek, utah. the dilapidated building, the postmaster had been there for 20 years. she knows the community. she knows who speaks english, who does not speak english. she knows the community.
that is the type of effort the rest of the federal government should be engaged in. i want to continue to look, and this committee has jurisdiction, on the census. we will spend billions of dollars on the census to re-create what the post office already has in place. i can tell the postmaster is itching to speak. ms. brennan: i have two points to your comments. one was working with a midwestern city to provide information on vacant buildings. you mentioned the census. i did a pilot out in arizona on boarding census workers. we think there is an opportunity for us, with the conducting of the senses, on the doorstop with the technology we have.
>> your local letter carrier is going to understand there are not 15 people living in this house. i have been going to their door for seven years. there are seven people in this building. that type of thing, if you're going to spend billions of dollars, let's spend it smartly. i have gone way over my time. i am excited to move forward. i appreciate the work mr. meadows, mr. lynch, mr. connolly, mr. cummings -- i think mr. lynch -- let me yield to mr. lynch. >> very briefly. i think there is a wonderful opportunity with the postal service and the census walking the streets already. there is a way to maximize the expertise the postal service
has. i want to push back a little again. i cited the oxford report saying the united states postal service is the best in the world. one of my colleagues said we were the worst in the world. i think the best judge is the customer, the american citizens. the pew research center polled americans about their government. the people of the united states said the most trusted government employees in the united states today is the united states postal worker. that is a tribute to you, postmaster general, and also to the unions and the people who do the work every single day. i want to say that they rank you at 84%. you were the highest of any government employees. congress was also on that study.
we were around 6%, between swine flu and the taliban. >> this committee competes with zika. >> amen to that. we are a member of a body with 6% approval versus employees who have 84% approval rating in the eyes of our constituents. i will leave it at that. >> mr. cummings. >> i want to thank you all for your testimony. i just think that we have to get this done. i mean, we can go around in circles forever and ever and be in the same place 10 years from now. again, i want to thank you all for coming to the table. i am interested in what the chairman said about government
to government. do you see -- i mean, growing or going, postmaster general? ms. brennan: i do see opportunity. >> how would we get there? ms. brennan: we would need support from you and the chairman on that. i think some of the outreach efforts we have had with other agencies as a starting point, leveraging infrastructure, another example is the tsa pre-verification for frequent flyers. there is an opportunity for us to handle some of that work. >> mr. chairman, if i may, if the postal service is going to go down the road, one of the key pieces is funding associated
with that. that goes to the larger issue of what do we want this constant -- government institution to do? the legislative process does not always lend itself to get to first principles. but if there is some way to think about what that government institution must do and what are the costs associated with that and where does the revenue come in? my only concern is that they take on more responsibility in this area -- there is costs there, and if associated funding does not go to it, we are adding more of a burden. ms. brennan: hence to my comments about needing assistance from the chairman and the ranking member. >> certainly, we would not want you to go into something that is not going to not yield a significant -- sufficient profit. that does not make any sense. we certainly do not want to burden you with more obligations when the yield is simply to cost more. that is ridiculous. i am hoping we will be able to
resolve some of these things. as i have said, thank you very much. >> the final point i would make on government to government is yes, these other agencies are funded with other resources to execute on these things. if they are going to spend money on them, they should look at the option of doing it through the postal service. the unions would appreciate that. weather is passports, census, you will get a request from us
to look at the financials of how the passport business work. in my own district, the department of motor vehicles, you know, there are other state opportunities, not just federal government, where they need a physical location that is safe and secure. we had a healthy hearing. we appreciate your participation. i hope the men and women of the postal service know that we care about them and we are trying to do the best thing. it is best to do it sooner rather than later. the committee stands adjourned. [captions copyright national cable satellite corp. 2015] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org]
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