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tv   Key Capitol Hill Hearings  CSPAN  July 15, 2014 9:00pm-11:01pm EDT

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fines paid which are important. >> all right. the hearing will come back to order. i appreciate everybody's courtesy while i got those two votes done. and now dr. vixie we welcome your testimony. we welcome you here. please proceed. >> thank you, mr. chairman. thank you for inviting me to testify on the subject of botnets. i am speaking today in my i am speaking in my personal capacity based on a long history of securing infrastructure, most here at the messaging mall ware and antiabias working group
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who's international mep ship is working to improve the security condition worldwide. we start by reviewing some successful bott net take downs in recent years. they may prove instructive as they are successes. in 2008, the conflict worm was discovered. i had -- competing commercials security companies. members cooperated with each other to mitigate this global threat. then in 2011, the u.s. department of justice led operation ghost click, in which a criminal gang in estonia was
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arrested, charged with wire fraud and conspiracy. while shutting off the criminal infrastructure the victims depended on. my employer was the court-appointed receiver for the criminals internet connectivity and resources. i personally prepared, installed and operated the replacement servers necessary for that takedown. in each of these examples, we seed an ad hoc public/private partnership in which trust was established and sensety information, including strategic planning was shared without any contractual framework. these takedowns were so-called handshake deals. where personal not government heft was the glue that made it work. in each case the trust relationships we had performed were key enablers in which intent, competent and merit were
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the guiding lights. the important cannot be overemphasized. we have found that when a single company or agency or a nation goes it alone in a takedown action, the result has usually been catastrophe. the ad hoc nature of these public/private partnerships may seem like cause for concern, but i hope you'll consider the following. first, this is how the internet
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was built and how the internet works. second, this is how criminals work with other criminals. we would not get far by trying to solve these fast evolving global problems with top-down control or through government directives and rules. as you yourself pointed out, a botnet is literally a network of robots, whereby "robot" we mean a computer that's been captured and made to run software neither provided by the maker or authorized or installed by its owner. it has conflict -- and so forth. the only hard and fast requirement for any of this software is interoperability, meaning it merely has to work. the cost of the internet's spectacular growth d. sorry -- the cost is much of the software we run was not adequately tested. the challenge for the internet is perhaps there's more assurance that an ul listed toaster will not burn our house, whereas some of our devices are insulated from becoming a tool of online criminals.
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these are consumer devices in a competitive and fast-moving market. time to market is often the distance between success and bankruptcy. this is a very brief overview. i'd like to leave you with the following thoughts. number one, the internet is the greatest invention in recorded history, in my opinion, in terms of its positive impact on human health, freedom and on every national economy. the interned is borderless, yet carries more of the world's commerce every year. number four, takedown of criminal infrastructure, including botnets must be approached not just as reactions after the fact, but also as prevention by attacking underlying causes. number five, the u.s. department of justice is the envy of the world in its approach to takeouts and its awareness of the technical and social subtleties involved. when i give a special nod to ncfta, a public/private
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partnership with strong fbi ties located in pittsburgh. number six and finally, no legislative or regulatory relief is sought in these remarks. the manner in which government and industry have coordinated and cooperated on botnet takedown efforts have underscored the effectiveness of public/private partnerships as currently practiced in this field. mr. chairman, this concludes my oral statement. thank you for this opportunity to speak before you, and i would be happy to answer your questions. >> thank you very much. finally. before i my apologies for the mispronunciation earlier. and let me say without objection, the complete statements will be made a part of the record.
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i appreciate the abbreviated version that allows the testimony to proceed expeditiously at the hearing. >> thank you very much. >> i would also thank you for your leadership and focus and attention to this important topic. my name is craig spiezle. i'm with the online trust alliance. ota is a global nonprofit to enhance online trust, and promoting the vitality of the internet. botnets pose a significant risk to governments and businesses. increasingly bots are -- ransom wear, driving identity theft, takeovers and holding users and their data hostage. it's important to recognize that fighting bots is not a domestic
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issue. criminals are leverages the jurisdictional limitation of the law infersment and often operation with impunity. left uninvaded they are a significant threat to our infrastructure and our economy. in my brief testimony, i will touch on five keir areas -- status of industry efforts, a holistic anti-bot strategy, the role and issues of takedowns, the role of data sharing, and the importance of privacy safeguards. efforts to combat botnets have been arranged by a -- an example is the fcc's security and interoperability council which last year developed an antibotnet code of conduct for isps. this is a first is it eman example of the industry's ability to self-regulate. in parallel, the ota has fa silled several efforts bringing
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in leaders around the world. we have published specific remediation and notification best practices and anti-bot guidelines to hosts, the initial adoption of these practices are now paying dividends, helping to protect user data and their privacy. it requires a global strategy, as outlined here in exhibit a, ota advocates a five-prong framework -- prevention, detection, notification, remediation and recovery. and within each one of these, we've outlined a partial list of tactics, which underscores the increased need for collaboration, research and data sharing between both of public and private sectors. in the bottom of this, it also points out the role of consumers and education. we need to help them update their device, and also look to how we can education them on the risks of botnets. as outlined, law enforcement is
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an important part as well. it serves three major functions -- during this period of timing cybercriminals and bringing criminals to justice, but law enforcement cannot act on this alone. a trusted partnership is required, and progress has been made with industry leaders, including microsoft, symantec and others. but they need to be taking into considering -- one, the risk of collateral damage, two the errors in identifying targets for mitigation, and three, the importance of respecting users' privacy. for example, when taking down a web hoster because they have a handful of bad customers there's a risk of class real damage. at the same time, service providers cannot hide behind bad actors and they must take steps to prevent the harboring of such criminals. it's also important to note they all run similar risks. web browser can misidentify
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phishing sites and av solutions can mistakenly block downloads. recognizing these possibilities, risk assessments procedures must be preestablished with processes in place to remediate any unintended impact. data sharing has a promise of being one of the most impactful tools, yet must be reciprocal. collaboration is required in all sectors. in this void the privacy larned scape is also rapidly evolving. prior sill must be the foundation of all data-sharing practices. i believe these can be easily addressed. when data is used and collected for threat detection, conversely, industry needs assurances that law enforcement will not use any data for any other purposes. as this exhibit outlines, every stakeholder has a responsibility. progress has been made, but a
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renewed commitment is required. as the enter net of things, mobile and the smart grid and wearable technologies become prevalent, we need to look beyond the desk stop. in summary it's important to recognize there's not absolute defense, both the public and private sectors need to increase in data sharing and adopting privacy enhanced practices, while finding new approaches to work with law enforcement and expand international cooperation. working together, we can make the internet more trust worthy, secure and resilient. thank you, and i look forward to your questions. >> thank you very much, mr. spiezle, and thank you all. i'll ask a question of each of you for are the record, which means if you could provide a written response, an that is, as you've heard, senator grave and i are working on legislation in this area. as you heard from the first panel, the department of justice and the federal bureau of investigation have a number of suggestions, i'd like to ask you for provide your comments, if
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any to the suggestions, and add any suggestions you may have of your own so kell with build a good legislative report to support other proposal going forward. i'm also interested in your thoughts, as a lay person, it strikes me that botnets are becoming more dangerous, that the capabilities are growing. my first exposure to botnets was when they were spam propagators, and then they became distributed to vectors to swamp individual web sites. but now they seem, so many additional capabilities have been listed in this hearing right up to and including having people spy you on through your web cam on your computer while you're going about your business, and tracking your keystrokes individually so that they can know your passwords and have access to your accounts, is my lay reading that botnets are becoming more dangerous or learning the -- the criminals
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behind them are learning more dangerous capabilities a correct one? what do you think the rate is of that change, if i'm credit? mr. boscovich. >> i think the observation is correct. we're seeing an ever-changing sophistication on the part of cybercriminals. i would like to point out to one particular case that demonstrates how creative cyber-criminals are. in this particular case, if my memory serves me correctly, one of our industry partners was symantec on that case, a case in which the bot-herders had developed code which took a step backwards. one of the reasons they did that is because technical counter measures that had been put in place by being google and other company toss detect click fraud
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relied upon a certain type of algorithm. the criminals understood that, they had to reintroduce a human element into their code. in essence what they did is they've changed their code, and they took one step back to take two steps forward in such a way that the user would be using his or her mouse. while they were clicking or looking for something, the reality was that they were in fact clicking on ads that the user was not even seeing what was appears better hind the screen that they were looking at, introducing a certain variation that was consistent with human behavior. so the observation that criminals are in fact always learning, always changing is an accurate one. i think this example really underscores how sophisticated these cybercriminals are. >> in both dimensions, as you view it as an infrastructure for
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criminal activity, it has to be maintained, groomed and they're getting more sophisticated at that, they are also getting more sophisticated they top of criminal payload, if you will, that they deliver through that botnet as well. is that correct, ms. mcgwire? >> that's correct. i think your summary is quite accurate, that they have begun to progress and being more sophisticated. for example the type of infrastructure they are using now, moving from simple command-and-control servers to peer-to-peer networks. is the type of morphing that we are seeing. all avenues that -- at their availability. >> dr. viksa, you mentioned that in the face of this threat prevention was something that we should be looking at, and you
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used the phrase in your testimony what did you mean by underlying causes. and what would you recommend? >> i think that the reason that botnets have gotten stronger is because our computers have gotten stronger. our network has also gotten stronger, so it's -- it is possible to get a lot more work down with each computer you, as compared to five years before that. if they want to start kicking the dependencies under botnets, we would need to somehow address the lack of testing. i mentioned in my written remarks this last week there was an -- i think it was a we're leg light babb that has a terrible security flaw in it. i understand how that can happen. i've tried to get products out my door myself. it's difficult to say, yeah, let's hold it back a couple weeks while we try to attack it every which way. what you want to do is get it
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out there, put it in customers' hands and so forth. that is not going to work. we have got to find a way to test the software the way the bad guys do. we have to do the so-called red team test, where you try to break in. if you can, you get some sort of internal prize. we have to find a way to encourage that. >> so with the electricity with the new technology, people trying to get stuff out the door that caught fire if you left it on too long, as you pointed out with respect to the toaster underwriters laboratory was established to make sure appliances met the standards, have not been really a prominent concern for americans for quite some time. and how would the see it as bick overseen? >> when you're doing this kind of testing, you're looking for
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combinations and perm stations of how you set the knobs the problem is that my laptop has more complexity of that time than all the computers on the planet had 30 years ago. and so coming up with a direct analog of the way ul tests our electric devices i think is misleading. i think standards in software development, standards in testing, possibly get away from some of the older programming languages that almost encourage the time of dwellings we see. >> how would those proposals be
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best administered? through a rating that gets -- you can advertise you have on your product if you have been through it voluntary. >> in that set, it's perfect. it's voluntary. if you want to sell a device that's not listed, it's up to you. if fewer people want to buy it because it doesn't have that stamp, that's up to them. so i think there is room for someone to step into that role, but it's not a government role. >> gotcha. mr. spiezle, you felt there were steps that consumers, individuals could take to better acquaint themselves with this threat and better protect themselves from this threat.
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what would your recommendations be this seems like a high-tech type of crime. if you're an innocent user of your own computer, doing what you're good at what sensible steps should i be -- to defend themselves? >> let me clarify. my point is we all have a shared responsibility, not unlike driving a car. we have a responsibility for driving safely. we need to make sure our car is updated. we have new tires on it. that was the point there. i think realistically, though, education has a limited effect here. these attacks are social engineering, exploits are very hard to identify, they're drive-by. just by the very nature of going to a trusted website that someone types in a url, there
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can be -- it's a shared responsibility, but i don't put the faith that that's going to be the solution, but it should be one part. i do want to address one point from your original question about the sophisticate, and clearly in the technical aspect, clearly the bot masters are more and more sophisticated, but also they're more sophisticated in leveraging by data. data mining capable, so that adds to the profitability, their ability to use that data, and then in the underground economy makes it very profitable, so they become very nimble.
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they've become good marketers in a sense and they're learning from business. those are some of the challenges we must address. >> two final questions. the first is that many of the perpetrators in this area are foreigners. and we're obviously going to work with the department of justice and the federal bureau of investigation to make shirr that they have the capabilities that they need to be as strong as they can be in terms of pursuing foreign criminals. but none of you are voefd as laws enforcement officials. you are involved as representing private companies and organizations. in that sense when you bring a civil action to close down a botnet, you may have civil remedies against individuals overseas that are different than what a prosecutor would be looking at. are there recommendations that you would have as to how we could strengthen overseas enforcement against the individuals and organizations that are running the botnets that could supplement just the
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technical capability to take down the botnets? sirchlts well, senator, i think that as a private company, as you mentioned, our main sphere of evidence is only flus the civil process. once we get default judgments, there is a procedure in which we could seek to, for example, localize a u.s. judgment overseas, but it's a complex and lengthy process. in all of the action that is we take with our partners, we then go ahead and always refer the cases and evidence that are the basis of the information that we arrive at through the civil process to law enforcement.
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the pros has been around for quite some time. and i believe some representatives were here earlier today. these are procedures that have been around for a very long time. there's always been a question. i could only talk about my experiences when i was at justice, that it does take time to turn this information request around. >> the coordinating country of two minds as to how much they want to that's why the partnership is important. what we try to focus on is the immediate cessation of the arm to the people on the internet. to sever that communication, to
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stop the harm, and to notify the victims, and then try to do something to remediate and clean their computers, working through isps, that's the job that we believe we can do and do very well with industry partners, and with the government as well. in terms of the criminal side, i would have to defer to my former colleagues at the justice department. >> i was thinking more of the civil side and pursuing personal liability and accountabilities foreigners who have done harm to your companies, ms. mcguire, that game over seuss, modifications to that particular malware already being used by a new criminal gang or perhaps the original perpetrator who fled to eastern europe to launch new
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criminal activity. this is the kind of thing where if we had a faster, speedier inlet process we could potential address these kids of issues, as oppose to do what i have been told by law enforcement partners can take anywhere from six months to never. so those are the enhancements that we need in order to go -- >> again you're comfortable relying on the law enforcement process and at this point don't have any interest in pursuing civil liability against private companies against foreign individuals as a deterrent or to
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recover for the damages that they have caused you? >> most of our activity is on the shares of information and notification to our international both law enforcement and cert partners. so they can take the action in their jurisdictions. what have each of you seen in terms of the coordination that has been your experience between the private sector and between law enforcement? it seems to me fourth quarter what i hear, to be in a pretty good place right now. there are a number of mechanisms through which -- the f-guide in particular, but other agencies cooperate with the private sector, exchange information, i would like to hear from each of you how close we are to what you think we should be doing. start from this side. >> i then we've had great success, but i think there's a whole other layer we are not getting today. more data shares, and certain we're seat process with the sfi-sec. we get data from them. the reason this is important is it's connecting the dot. not always just from the isps and other sectors. we need to open the dialogue, but also to remove the burden of whether it's antitrust, the concerns of privacy, or the concerns of regulatory authorities coming after them. how do we open that dialogue even domestically so we can get a higher level of telemetry from other data sources. >> dr. vixie? >> i mentioned in my remarks that the internet is borderless, you mentioned in this question
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that the criminals are borderless. i think that firmly points to the fact that our solutions have to be borderless. i will say ncfta in pittsburgh has a huge international outreach program. i go in there and do training of the international law enforcement community every summer, but they do it year round. it's a huge thing. a lot of the other country where cybercrime is originating right now don't have the capability to train their people logly. so i think i really want to encourage more outreach of that kind, i don't have an answer for civil lawsuits. i know that it can be used if you're trying to get at somebody and you don't know who they are, you can obvious get a court order using a john doe, but it's messy and it hasn't produced consistent results. >> we've seen significant improvements frankly over the last two year and our ability to work with them, their
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responsesives in to the information we are sharing with them, about just the process that they are using. as i think i mentioned earlier, game over zueus is the best camp so far. they reached out to over 30,000
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organizations, brought all of them together so that collectively we could be ready and work the takedown once the junctions and appropriate actions were taken. >> borderless response, to dr. vixie's comments. >> borderless response, exactly. we have a model as a proof point for the future. >> mr. boskovich. >> i think deconflict shun is one of the dee dee tails. in cases such as sit adebt, more recently a perfect example of public priefer all while stopping the harm immediately, working to help the victims, yet
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statement allowing the criminal side to do what they do best. where we deconflict law enforcement to achieve the greatest impact possible in these takedowns. >> thank you very much. a final good worked to microsoft, just lawyer to lawyer, you are among the earl yes companies, probably all three of you were involvement. and just as a law, to real those early complaints and see the statutory grounds based on very modern complicated electronic
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privacy statutes, and at the same time doctrines of english common law that were transmitted to american when we formed or country dating back to the 100s, side by side, it was a -- it must have been a lot of fun, terrific legal work, and it had a wonderful effect, so i compliment you on it. i assume that you would want, you know -- we're legislators, so we think about legislating everybody just like the story about the hammer. every solution that a hammer sees requires a nail. and so we tend to think in terms of new and amended statutes. but i gather you would want to make sure we left room for traditional common-law remedy
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toss maintain themselves as a part of the repertoire here and allow the natural development that the common law permits. is that fair to say? >> absolutely, senator. one of the beauties behind the common law system is its ability to adapt constantly to new facts. what we are looking at here is a threat which is constantly adapting. something that is always moving, always morphing. the beauty behind common law and trespass to chattels, tortious interference, these are theories we can use over and over again and are part of a system that at its core, is able to adapt quickly. so yes, i would love to see the standard common law principles remain intact as we tackle these. now, having said that, it doesn't mean there's not always room for improvement in both present statutes and potential
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even new statutes. we would gladly take a look at any type of amendment and/or proposed legislation that congress and yourself may have, and give our comments so that you could have the best insight possibility from us, at least. >> certainly when they first came up upon trespass on chattels, that certainly has been a lasting doctrine. let me thank all of the witnesses for this hearing. i appreciate very much your input. i look forward to the responses to the question for the record. i think that we have a very strong bipartisan group of senators who are very interested in this sure and are looking forward to coming up with legislation that can pass and help you in your important pursuits to protect our economy, your clients and your companies from the kind of attacks that
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are we are seeing largely from overseas. so god speed to you all in your work. thank you very much for what you have done and for your testimony today, and we will keep the record open for one week for anybody who cares to add anything to the record, and for the response toss come in. with that, we are adjourned. on the next "washington journal," we'll talk with karen bass of california. about a bill aimeded at ensuring child welfare agencies are better able to identify and serve child victims of trafficking. texas republican representative michael burgess will join us to discuss john boehner's lawsuit against president obama. allegeding that he's abused his executive power.
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also, our spotlight on magazine series will focus on u.s. companies and corporate taxes. our guest is alan -- "washington journal," every day at 7:00 a.m. eastern and you can join the conversation on facebook and twitter. coming up at 10:00 a.m. eastern, the house rules committee takes up speaker boehner's resolution over implementation of the affordable care act. you can see the meeting live here on cspan 3. we are at the henry a. wallace country wide center, 50 miles south and west and this is the birthplace home of henry a. wallace. the wallaces of iowa consist of three generations of wallaces. the pate rack was known as uncle
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henry, the founder of wallace's magazine. his son was u.s. secretary of agriculture under woodrow wilson and henry c.'s son was born on this form in 1888. he went on to become -- then asked by roosevelt to serve as u.s. secretary of agriculture, which he did from 1933 to 1941. in 1941 so 1945, he was roosevelt's vice president. as u.s. secretary of agricult e agriculture, he is known for the agricultural adjustment act, which is the first time that farmers were asked not to produce. at first, people couldn't believe the things that he was proposing regarding that.
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but then as price iss went up, people started to listen to him. >> explore the history and literary life of des moines, iowa, saturday at noon eastern and sunday afternoon at 2:00 on american history tv on cspan 3. federal reserve chair janet yellen delivers the monetary policy report to the senate banking committee tuesday. here's a look. >> consistent with our dual mandate from the congress. given the situation i just described, we judge that a high degree of monetary policy accommodation remains appropriate.
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consistent with that assessment, we have maintained the target range for the federal funds rate at 0% to .25% and have continued to rely on large scale asset purchases and forward guidance about the path of the federal funds rate to provide the appropriate level of support for the economy. in light of the cumulative progress toward maximum employment that has occurred since the inception of the federal reserve's asset purchase program in september 2012, and the fomc's assessment that labor market conditions would continue to improve, the committee has made measured reductions in the monthly pace of our asset purchases at each of our regular meetings this year. if incoming data continued to support our expectation of >> earlier this month, the
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post -- process starting in january. next, a confirmation hearing where nominees to the board of governors. this is just under two hours.
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committee come to order. and that includes the former senator from connecticut, who is sitting in the aud come to order, nice to see you. i think all of us would -- eddie showed up. there will be a close call now. see if he can't get it through here, we'll probably get it down. senator marquee, i don't know what kind of time frame you're on, i'm going give a statement for about the next probably 45 minutes. next five or six minutes and introduce our witnesses, our nominees and at some point, if you'd reich, you can introduce miss kennedy. what works for you? >> whatever most convenient for you.
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>> all right, i'm very senatorial. all right. i want to just give my statement and senator coburn is flying in from oklahoma. i think around noon before 3:30 and he'll join us as quickly as he can. we're meeting today to consider four nominations. for considering these nominations, what is a very challenging time. i'd like to quote einstein and while there's adversity for the postal service now, there's great opportunity. the postal service operates at the center of the massive -- millions of people, eight million people and even as first class mail letters, greeting cards and invitations, i think
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the future -- advertising mail is still a popular and effective option for mailers reminded of that every day when we check our mail. e commerce and package delivery booming. making postal service vital partner for businesses large and small. even the postal services traditional competitors rely to carry out the last mile, the last ten miles or even further to rural communities around our country. for many year, many people have questioned whether the postal. making it come to -- in the yores to come. the postal service's future.
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maybe be confirmed, our jobs. in past compliments, carries barely enough cash. has been incapable of years of capital investments. making investments necessary to compete with a ups or fedex. things are so bad that they have letter carriers on the streets today. sometimes unsafe vehicles that guzzle gas. that break down and are older than a lot of members of my staff. package delivery and postal services, well, things are okay.
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we well, they already make a tough decision. happy with the postal service, but just went along. for me, that's not acceptable. for dr. coburn, speak for him if that's not acceptable. postal service -- one recession or one big spike in gas prices away from failure. on top of that with a few tools of their exposure. postal management announced the other week it would be closing an additional 82 mail processing plants across the country and further slowing down mail delivery in every community in the country. this comes after the loss of about half the postal services loss in recent years. at a time when the future holds so much promise for the postal service, this is a potentially devastating blow that will fur scherr sap the confidence the
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public has in the postal service. if we want a postal service that our constituents can rely on that, and one that has a chance of continuing to process, we see we need to pass a bill. like the ones been reported out by a strong margin. i think our committee has done its work on this issue to date. in february, as i said earlier, the committee that we saved the postal service millions in health care costs. including by allowing to take full advantage of its employers. postal service pays more money into medicare than any employer in the country. they don't get full value for that an it's not fair. serious equity problem there. our legislation would also provide the postal service with a refound in its overpayment in
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the retirement system and free to compete in new lines of business. at least for the time being, a propt profitable future for the postal service. i think our legislation is a solid and realistic response. my opinion, it's the only one introduced in recent years that actually won and i think the majority of our committee are interested and committed to fixing this problem. this is one that can be fixed and we're determined to do that. working with stake holders on this issue. the postal service indicated the legislation would give it the cash needed to pay debt. investing.
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and hand after ten years. a huge step for it. especially when you think about a fleet of vehicles. over 20 years, energy efficient. they're not -- carry a lot of packages. it's not well suit ed for packages and sahr sells. we need to help the legislation, capital investment. i look forward to -- today, about what they think needs to be done. we have some challenges facing the postal service and the skills they think can bring to the table. to confirm this, double the size of the current force so there's an opportunity -- that having
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been said, i'll introduce mr. mullen, steven crawford, david bennett, then when i come to miss kennedy we'll ask you to introduce her and i may make a couple of ad libs and audibles on top what was you say. let me start off first of all by saying thanks for your willingness to take on this important responsibility. james miller is currently a senior adviser at the international law firm of -- is it hutch? hush? blackwell. he is a member of the board of americans for prosperity and a senior fellow at the hoover institution at stanford university. earlier in his career he was the director of omb and the first administrator of omb's office of information and regulatory affairs.
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from purgatory straight to heaven. mr. miller has eight years of prior experience in the position he's nominated for today having served on the board of governors of the u.s. poresal service from 2003 to 2011. he's itching to get back into the game. i don't know that. he's willing to get back into the game. steven crawford, nice to see you, how are you? steven crawford is research professor at george washington institute of public policy at gwu and previously served as vice president for policy and research at the corporation for enterprise development and from 2008 to 2009 he served as deputy director of the metropolitan policy program at the brookings institution. mr. crawford is a u.s. army veteran, received a bronze star for his service as an infantry officer in vietnam, somebody who spent a couple of years over there myself as a naval flight officer, welcome home. thanks for that service and your willingness to serve in this capacity. david michael bennet, senior vice president of information
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management and chief information officer of bae systems, position he's held since 2010. previously practiced law in various positions with northrop grumman, u.s. department of commerce. 2012 he received minority business leader award from the washington business journal. great to see you, thanks for your willingness to be here today and assume this responsibility if confirmed. to introduce our fourth nominee, victoria reggie kennedy is my friend, my colleague, senator ed markey. >> thank you, mr. chairman very much and thank you for allowing me to introduce my great friend, the incredibly talented victoria reggie kennedy who has been nominated by president obama to serve on the board of governors of the united states postal service. vicki kennedy is a public service powerhouse for our country. a brilliant, gifted attorney, adviser and public servant. vicki will be an outstanding member of the postal service
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board of governors. she will bring intellectual rigor, innovative and strategic ideas, leadership, and her endless energy to this post. indeed, vicki's career is singularly suited to the postal service board at a time when it needs public servants as dedicated and creative as vicki. it pushes the frontiers of communication, rain or shine, through war time and peace. vicki will bring that same steadfast service to the board. and a wealth of expert teeth. when she was a partner at a major law firm she helped banks reorganize and recapitalize. at a time when efficiency and funding are both issues for the usps, her experience will be invaluable. today, vicki helps organizations
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develop strategies to resolve complex issues and today's postal service has no dearth of similar business matters to resolve. like her husband, senator ted kennedy, vicki believes in helping government work at its best to serve the american people. and that's why she is the president of the board and cofounder of the edward m. kennedy institute for the united states senate created to educate the public about the unique role of the senate in our democracy. under vicki's leadership this innovative hub of history will open next year adjacent to the john f. kennedy library. the institute will provide visitors a state-of-the-art, high-tech, interactive opportunity to learn lessons from america's past and develop new ideas that can help shape a better future. she can do the same thing for the united states postal service. she is also a trustee of the kennedy center for the
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performing arts, a member of the board of overseers of the museum of fine arts in boston, and a member of the board of directors of the national leadership roundtable on church management. she is a summa cum laude graduate of tulane university school of law, a phi beta kappa graduate of tulane university, and she has received honorary degrees from boston university, northeastern, university of massachusetts, suffolk university, on and on, and that is an impressive list of accolade and a testament to her intelligence, her character, and her accomplishments. the postal service needs vicki kennedy. the board needs talented, proven leaders who can assess the problems facing the usps and creatively and capability help the postal service resolve those challenges. that's exactly who vicki kennedy is. we all greatly admire vicki and hatch complete confidence in her. vicki kennedy will shine on the board of governors and our country will be the better for her service.
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i thank you, mr. chairman. >> thank you, senator markey. all i can say, vicki, is after listening to that introduction of our nominees, whenever i'm nominated by some president someday i want ed markey to introduce me too. i figure even i could get confirmed with an introduction like that. senator markey, thank you so much. it was great to see you and see over your left shoulder my old friend chris dodd, chris, thank you very much for joining us. means a lot. i almost feel like i should ask you to come sit with us, senator dodd. i'm told it's against the rules. you know that's where my heart is. i think before we proceed with your -- senator markey, i know you have other things to do. if you need to leave we should be done by 9:00 tonight. if you need to slip out before then, feel free to do that. before we proceed with your statements, we have this thing about committee rules and committee rules require that all
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witnesses at nomination hearings like this one give their testimony under oath. i'm going to ask you all if you'll please stand and raise your right hand. here we go. do you swear the testimony you will give before this subcommittee, this committee, will be the truth, the whole truth, and nothing but the truth, so help you, god? [ all: i do ] >> please be seated. >> is it doctor? it's dr. miller, isn't it? >> yes, it is. >> dr. miller. i keep wanting to call you mr. miller. all that work, we're going to
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call you doctor. but you're welcome to proceed with your statement. if you want to introduce any family or friends here with you today, i'd invite you to do that but please feel free. we're again delighted that you're here that you're willing to serve once more in this capacity. thank you. make sure your mike is on, please. >> i should point out mr. jefferson once said, there's no higher honor you can pay a man but to call him mister and mean it. so mr. chairman, thank you for inviting us here today. i have a prepared statement i ask to be included in the record. >> without objection. one of my other favorite jefferson quotes is, if the people know the truth, they won't make a mistake. isn't that good? that's a good one for these days. people know the truth, they won't make a mistake. please proceed. >> thank you for holding this hearing. thank you for your interest in the postal service. as you point out, the stress of the postal service brings forth opportunities.
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the things you can do with this committee and the senate can do and the house can do can make the difference between restoring the postal service to a solid footing and seeing it become a very expensive ward of the state. and i commend you for the past -- the progress on s-1486. it's a very large step forward toward the goal of restoring the postal service. and if you confirm me, i will work to obtain that end. i hope the house will pass a bill and that a conference bill will become law. i want to thank president obama for nominating me. thank majority leader -- minority leader mcconnell for recommending me. >> you're getting ahead of
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yourself just a little bit here. >> i'd like to acknowledge the three distinguished individuals with whom i share this table whom i've gotten to know the last several months and admire, they will make splendid additions to the board. as budget director for president reagan, i think i knew the hill pretty well and i think almost or most members of congress knew me or knew of me. but that was over a quarter of a century ago. so let me tell you a little bit about myself. i have pursued -- since graduate school i've pursued really four different careers. sometime sometimes at the same time. the first was academic. i was trained as a college professor. i taught at two major universities, taught full-time, then part-time at several other
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universities. i've been associated with major think tanks. as you noted the hoover institution, also brookings and the american enterprise institute. i was on the boards of the air force academy and also the board of george mason university. along the way i have written nine books and over 100 articles in professional journals. the second career was in the federal government. at the department of transportation, i contributed to airline regulatory reform. at the council of economic advisers i wrote the chapter on regulation in the 1974 economic report of the president. at the council on wage and price stability, i made transparent the cost and benefits of regulation. back to your quote, mr. chairman. at the beginning of the reagan administration i coauthored executive order 12.2.91 which
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established the regulatory review program. i went over to the federal trade commission, chaired the federal trade commission for four years, and we put that agency back on the traditional path of law enforcement. i came back to chair -- to be the director of omb, member of the president's cabinet. helped negotiate graham rodman hollings which brought the deficit down significantly. and did other things there as well. as you know action as you've mentioned, i did serve a term at the board of governors of the u.s. postal service where, during the three years of my chairmanship, my colleagues and i -- my colleagues and i produced the forever stamp which i think has been a great success. i had a career in elective politics that was not particularly successful. i ran for the senate, u.s. senate, in virginia, 1994 and 1996. and i helped my wife's campaign
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for the house of representatives from the eighth district of virginia in 1998 and the year 2000. i've had a career in business. i have been on several boards of directors of companies. i've had a consulting practice of my own. i headed a consulting firm for a major law firm, consulting group for a major law firm. i'm on the boards of three major -- three major mutual funds. i'm on the board of clean energy fuels, the largest provider of natural gas for vehicles in america. i am on the audit, chairman of the audit committee, and the designated financial expert for those firms. i'm -- as you mentioned here with hush blackwell, i'm also chairman of the executive committee of the international tax and investment center. today i ask you to confirm me for this post. my wife of more than 50 years, demaris miller, asked me, why are you doing this? you've been there, done that.
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the answer is, it's unfinished business. when i was at the board of governors i worked very hard trying to obtain the kinds of reform that you have outlined that are needed. but without success. and i would like to go back and working with you, working with others members of congress, working with management, working with the stakeholders of this great institution, make those kinds of changes happen and restore the financial integrity and the viability of this important organization. thank you, mr. chairman. >> dr. miller, mr. miller, dr. miller, i sat here listening to you talk about your -- what you've been involved in in your life. what a life. what a life. still going strong. very impressive. thanks again for your willingness to take this on and help us fix this problem. steven crawford. mr. crawford, you're in the army, right if. >> i was. >> go ahead and turn on your
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mike, if you will. and tell us about your service very briefly, please. >> i served for three and a quarter years, the last of which i served in vietnam as an infantry officer, as an adviser to an arvin infantry battalion in the mekong delta. lost a good friend in the tet offensive. i think we have have mixed feelings about difficult years there. but certainly a learning experience. >> i've been back a number of times since then, led a delegation back in '91 to try to find the truth, what happened to a couple thousand of our men, mostly men, some women. and senator mccain, senator kerry, were involved in that effort in the senate. and i feel very good about that and have been back a couple of times since. and i would -- every time i talk to people who served over there, i always ask them, have you been back since the war? most people haven't but i always encourage people to go. >> i applaud that. my wife and i adopted a child
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from vietnam -- >> did you really? >> who's now 14. >> wow. >> she's off at summer camp or she would be here today cheering for us and i could introduce her to you. yes, we went back to get her, then we went back to visit with her family when she was about 9. >> that's great. >> it's been a good experience. >> thank you for that service. is there anyone in the audience you'd like to introduce, feel free, then proceed. >> there's not. >> thanks very much. >> so good afternoon, chairman carper, and thank you for the opportunity to testify today. and to second what jim, a hard act to follow -- >> i wouldn't want to have to follow that statement. say, skip over me. >> yeah, right. thank you for your leadership on postal reform legislation. it's been a long, hard struggle. but we are, i am, excited about s-1486 and commend the committee for advancing it this far. i'm truly honored to be nominated by president obama to
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serve on the board of governors of the united states postal service, and i am he'sed to share with the committee how, if confirmed, i would approach the responsibilities involved. as you know, the postal service faces enormous challenges. it is in these dire straits, i believe, for three main reasons. one, the growth of electronic communications and the resulting diversion of first class mail. two, the recent recession and its lingering impact. and three, and perhaps most importantly, the unique regulatory environment in which it operates. there seems to be broad agreement on these causes of the postal service's problems and deficits. there is considerable disagreement about how to fix them. some emphasize cutting costs by consolidating facilities, reducing delivery frequency, and/or changing service standards. some emphasize increasing revenues by adding new products
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and services. some call for adjusting the price cap. and many call for changing the current requirements for prefunding the health benefits of future retirees. i believe that the challenges are so severe that the postal service should explore all the above, and i applaud the committee for crafting and passing a bill that does so. i believe that my prior experience has prepared me to serve well on the board and to make a distinctive and significant contributions to its work. to be sure i have never managed an organization of more than 50,000 employees. however, i have advised and worked closely with the top leaders of such organizations, especially state governors, but also corporate ceos and university presidents. i have also served on various
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boards and commissions, and at present i'm a member of the board of directors of the american national standards institute whose nearly 1,000 members include trade associations, professional societies, unions, consumer organizations, universities, government agencies, and such companies as apple, ibm, caterpillar, exxonmobil, netflix, verizon, et cetera. firms and organizations that represent more than 3.5 million professionals. finally, as a member of the obama/biden transition team and later as a consultant to the postal service, i had exceptional opportunities to get acquainted with the problems and potential solutions facing the postal service. the mailing industry and such related agencies as the prc and the inspector general's office. in closing i would like to thank the committee for its efforts over many years to provide the policy framework needed to enable the postal service to
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accomplish its vital mission. it is clearly a difficult task in today's rapidly changing environment, but i am optimistic that good solutions are within reach. i look forward, if confirmed, to working with you and all the postal service's stakeholders on crafting and implementing such solutions. i appreciate the opportunity to testify today and welcome your questions. >> thank you very, very much. that's a very strong resume as well. different from certainly that of dr. miller but you all have different backgrounds, i think all of you bring a different strengths to the board. so thank you for all of that. david -- michael? david michael bennet. and mr. bennett, great to see you. we have a guy named michael bennet here. serves in the u.s. senate, he's from colorado. i don't think he spells his name with two t's, his family could
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only afford one. >> i dropped the "t" in my e-mail address. >> that's good to know, good to know. all right. nice to see you, thanks for being here, for your willingness to serve, please proceed. >> thank you. i would like -- i think my son michael bennet's here. >> where? >> i don't know. >> he's right there, all right. he looks like he might be pretty tall, is he? >> he's pretty fast. frat guy. >> where is that, what does he do? >> he's a 400 hurdler. tough race. >> wow. at what level, is he college? >> he's out of college, he's a personal trainer now and coaching track. just back from his certification in coaching. >> all right. >> and my mom johnny evans is here. >> say again? >> my mother johnny evans is here. >> where? >> right here. >> hi, how are you? nice to see you, ma'am. a pleasure. >> and my partner pam jackson is here. >> is it pam?
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>> yes. >> hi, pam, welcome. which one's your mom? >> all right. good joke today. >> i have pretty good vision too. >> i'll have a talk about that when i get home. >> you're both welcome. thank you all for coming in, for your son, thank you for being here to have your dad's back, that's great. >> i'll say good afternoon, chairman carper, and also too one of your staff the other day said at the end of their session with me said, boy, we have four very different nominees. and that's true. and all four of us have had a chance to get to know one another. i'm the corporate guy. i'm the guy spent 95% of his career in corporate america. even in the years i was practicing law i was inside of a corporation. let me say good afternoon to you, chairman carper, and a good afternoon also to dr. coburn when he arrives. so i have a prepared statement i'd like to go throughfy might.
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>> your entire statement will be made part of the record. feel free to summarize as you wish. >> thank you. it is my pleasure to be here before you this afternoon. i want to thank president obama for his decision to nominate me to become a member of the united states postal service board of governors. i believe that the board of governors is a critical role in our postal service and ultimately to the american people. so with integrity, pride, and diligent will i serve on the board. i'm committed to exercising every aspect of my legal, business, and technology experience to help the united states postal service continue to evolve with america. as a long-time resident of our nation's capital and native north carolinian -- >> did you say nate of north carolinian? >> native. >> where were you born? >> charlotte. >> really? >> yeah. >> ever hear of boone? >> yeah, absolutely, absolutely. >> my wife's from there. >> okay. >> used to live in charlotte. >> great connectivity. >> i had her move to delaware. >> okay.
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so i'm a north carolinian, proud grad of duke university and george washington university law school, which my colleague is a professor. and most importantly i'm someone who uses mail services on a very regular basis. i pay all my bills by mail, send cards out, the whole bit, and send letters. i believe in the mission of the postal service. my current experience as chief information officer of a 100,000 multi-national company gives me the skits necessary to drive change in our ever-changing world. i'm honored to have an opportunity to serve my fellow citizens through one of the most important institutions in america. some of the changes in our culture have caused many to question the infor instancic value of the postal service. i believe that our postal service is an essential part of the fabric of our nation, is a vital part of our economy, as well as a gnarl force in our personal lives. it is sometimes the sole option for businesses in remote easier to receive products that are essential to maintain
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manufacturing machinery or a steady flow of product for resale. postal services have personal impact for many who are unage to travel to a pharmacy, for instance. for various reasons. and essential medications are delivered to their doorsteps by united states postal service carrier. it is the only institution in this country tro that can touch every single american every day. that's an incredible national asset. and that turns me on for some reason. i just find that incredible, that you have an institution that can touch 300 million people every single day. there is probably no other country on the planet that has an institution with the capabilities of our united states postal service. unfortunately, some take this 200 plus year old national treasure for granted. i recognize this treasure and want to be a part of creating even more value in it for the american people. i'm honored, yes. but i'm also excited about what is possible for the postal service. i'm eager to explore all of the
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various ways the institution can serve the american people through its vast network of facilities, distribution networks, and most importantly the employees. as i think about how many companies have transformed themselves over the past decade to drive efficiency in and increase corporate values, solving challenging business problems, i get excited considering the possibilities for transformation in the united states post a.m. service. transformation is driven by innovation. i look forward to working with the board, with other board members, and challenging management on various innovative ideas to drive value throughout the enterprise. throughout my career i have led transformational business programs which have led to cost savings, streamlined business processes, and ultimately greater value to customers, employees, and shareholders alike. i look forward to sharing my experience gained as a result of leading large technology-centered innovation initiatives to create greater value for america.
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finally, we should continue to look for ways to leverage the knowledge and skills of our incredible workforce. our people are our largest and most valuable asset. when i was growing up, my stepfather was a postal service mail carrier in charlotte, north carolina. there wasn't anything he didn't know about locations and getting around charlotte. we can leverage these human capabilities to continue transforming postal service to be the business current and future america needs and wants. i want to get started. thank you for this opportunity. i look forward to your questions. >> i like that, i want to get started. it's good. we have a fellow who's a u.s. secretary of department of transportation who's a former mayor of charlotte. foxx, i don't know if you know him. >> i do. in fact, he used to go to the doctor that my mother was the receptionist for. >> wow. >> when he was a little kid. >> no kidding. >> so he knows my mother well. >> so your mom was the director of first impressions at that office.
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>> absolutely. >> okay. that's great. >> absolutely. >> okay. thanks for your testimony, again. miss kennedy, it's great to see you, thank you for your willingness to serve and please proceed. your entire statement will be made for the record. >> thank you, mr. chairman. i'm pleased to join james miller, stephen crawford, and michael bennet to appear before you this afternoon as president obama's nominees to the board of governors of the united states postal service and i'm honored and humbled by the confidence and trust that president obama has placed in me. i look forward to answering your questions and hearing firsthand your thoughts and concerns about the postal service. and if confirmed i look forward to working with the committee and with other members of congress to strengthen the postal service in a long-term and comprehensive way. i'd also like to thank my family for their support. and some of them are here today. my mother doris reggie. my son -- >> your mom is here? >> my mom is here, doris reggie. my son keran racklin. my son congressman patrick
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kennedy and his wife amy and their two little ones are also here but they have stepped out for a few minutes. they're very tiny. >> do they realize they're missing your testimony? >> yes, yes, yes. i think that food has won out. and my daughter caroline racklin is working in the philippines, and ted kennedy jr. has a campaign in connecticut, but they're here in spirit. >> i call those excused absences. >> i think so. i want to thank in a very personal way my senator, ed markey, for such a gracious and warm introduction. and my friend senator chris dodd for being here. it really means the world to me that they are here and i have other dear friends who are in the audience. >> let the record show, i can barely see chris dodd's lips moving when senator markey was speaking. >> the postal service is a vital public asset. as my friend michael bennet said, it has near-daily contact with every american household and business. there are more than 31,000 post offices, stations and branches
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across this country, many of which serve as a focal point of local identity and a center of community interaction. with 500,000 hard-working and dedicated employees earning a solid middle-class income, the postal service is an essential part of the fabric of american life. because of the governing principle of universal service, no matter where you live in the united states, you're entitled to the same postal service as every other american. and without a doubt as our founding fathers understood when they included the postal clause in article i of the constitution, universal service unifies us as a nation. as we meet today, however, and as we've been discussing, the postal service is facing a serious financial crisis. if confirmed, i would work with my fellow board members to look at comprehensive ways to address this crisis. i would likewise work with them to listen to the concerns and ideas of key constituency groups
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to craft long-term solutions to long-term problems, to position the postal service to be nimble and ready to take advantage of opportunities for growth in its core business, letter and package delivery, and not to undermine its essential strengths. i think it also important to look at the possibility of expand into related business lines while always maintaining timely, universal service and protecting and nurturing the core business of the postal service. the mailing industry in this country generates $800 billion in economic activity and the postal service is a key part of the distribution network for that activity. its competitors even rely on its exceptional distribution infrastructure for the key last mile delivery to connect the smallest towns and rural areas to e-commerce. a recent inspector general report has concluded that preserving that infrastructure could allow the postal service to reap as much as $500 million
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of additional revenue in the near future because of private sector manufacturing innovations such as 3d printing that will need the sophisticated full-service delivery infrastructure that the postal service has in place. i believe that the postal service can and should be at the leading edge of innovation in envisioning the new ways that americans communicate with each other and with the rest of the world. i also believe it should have the regulatory flexibility to take advantage of opportunity and innovation when it is in the public interest. if confirmed i believe that my skills and experience can make a positive contribution. i would keep always paramount, if confirmed, a focus on the public interest, the board of governors should set policy to ensure the long-term financial well-being of the postal service, and it should assure that senior management follows and executes that policy. i believe in a full airing of the issues and a robust dialogue
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with all interested parties. as we seek in the public interest the best way to return the postal service to a safe and secure financial footing. i look forward to discussing these and other issues with this committee today, and if confirmed with the committee and congress in the future. in closing i again want to thank you for considering my nomination and i look forward to answering your questions. thank you. >> you know, you used exactly five minutes. that doesn't happen every day. >> thank you. >> it was good. thank you. thank you, thank you all. now, i'm supposed to start -- i usually forget this part. i'm supposed to start my questioning with three standard questions that we ask of all nominees. and i'm going to ask if you would just please answer after each question. is there anything that you are aware of in your background that might present a conflict of interest with the duties of the office to which you've been nominated? we'll start with mr. miller, dr. miller? >> nothing other than what i indicated in response to the
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questions to this committee. >> all right, thank you. mr. crawford? >> no, nothing. >> all right, mr. bennett? >> no, mr. chairman. >> miss kennedy? >> no, mr. chairman, i'm not aware of anything. >> all right. number two, do you know of anything personal or otherwise that would in any way prevent you from fully and honorably discharging responsibilities of the office to which you've been nominated? dr. miller? >> no, sir. >> no, sir, mr. chairman. >> no, mr. chairman. >> no, mr. chairman. >> all right. the last one, do you agree without reservation respond to any reasonable summons to appear and testify before any duly constituted committee if you are confirmed? dr. miller? >> absolutely. >> all right. >> i do. >> yes, i will. >> yes, i will. >> all right, great. thank you. thanks for your testimonies. interesting testimony, well prepared, well presented. i just want to start off by saying, interesting what mr. bennett said about he still pays
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his bills by mail. he still sends out cards and letters. so do i. and you're probably better at technology than i am but i'm not bad. and i have two sons, 24 and 25, who coach me so i could get even better over time. but i was reminded of the service, u.s. postal service, the service on saturday. i was home for a bit. and the letter carrier delivers our mail, delivered our mail just a little bit before 5:00 p.m. sometimes it's later if he has a whole lot to deliver. sometimes not quite that late. but about 95 degrees outside. and he was delivering mail. cheerful. going about his work. and he's there when it's 95 degrees. he's there when it's 5 degrees. he's there when the sun is shining as it was on saturday. he's there when it's raining, sleeting, snowing. and we're grateful for his service and those of hundreds of
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thousands of postal employees across the country who have served us for years, serve us today. if we have anything to do with it, will serve us for a whole lot long area time to come. we had sitting right here i think -- i think miss kennedy where you were sitting a couple of years ago was a fellow from -- was it wisconsin, john? very successful business person from wisconsin whose name is joe codrachi. he runs a company called quad graphics. as he sat before us that day he talked about his business which was -- a paper business? printing business? paper and printing business, if you will. and he talked about how they had figured out in a day and age when a lot of businesses in that industry had closed, had fallen, and eventually been ended. how he talked about his business. sort of just the opposite. and instead of failing,
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faltering, going out of business, they've gotten stronger over time. and what has happened is they've taken a legacy business, paper, printing business, and figured out how to be successful in the digital age. that's what they've done. and what i've been hoping for with respect to the postal service is the ability to do something like that. find that intersect between maybe one of the longest-lived organizations, living organizations, in our country, and that's our postal service. how to make an operation like that not just relevant in the digital age, but successful in the digital age. and it's not that we're going to make them successful. but what we need to do to enable them to be successful. and i think we can do that. we've had testimony here before when folks have come in from different stakeholders. a lot of smart people like you.
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and they've said to us in terms of things we need to, do one of the things we need to do is to focus on the main thing. and there's an old methodist minister in southern delaware, a little town called seeford, passed away a couple years ago. a guy when i was governor, before that congressman, now later in the senate, always giving me great advice when i was in sussex county. once let me be a layspeaker in his church, it was a very special treat. he used to say this. he used to say, the main thing is to keep the main thing the main thing. that's what he said. the main thing is to keep the main thing the main thing. for some of the folks that have testified before us, they have said, in terms of -- i don't know if it's a main thing but a big thing for us to consider is health care costs of retirees. when we worked on legislation
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2006-2007, senator collins and i and others, one of the requirements if you will from the administration of president george w. bush was to not only recognize there's a large liability that's owed by the postal service and the liability is for retiree health care costs. some people think that's not really liability, it's not something we need to be mindful of. when i was elected state treasurer at the age of 29, just a pup, the state of delaware had the worst credit rating in the country. we were the best in the country at overestimating revenues and underestimating spending. think about that. the best in the country at overestimating revenues and underestimating spending. that's how we got the worst credit rating in the country. we had no cash management system, we had no pension fund, and we had all the money in the state in banks about to go under. we were the lowest startup businesses of any state in the
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country. and i -- in fact, we used to sell revenue anticipation notes. in order to have money. taxes and revenue anticipation notes in order to be able to meet payroll and pay pensions. we were not a model of financial respectability. and nobody else wanted to run for state treasurer in our party, i got to run, and we won. did a great job. he was a great governor for eight years. mike castle after him and i succeeded mike castle. we started off with the worst credit rating in the country in 1977, we ended up in my second term as govern with aaas across the board. aaas. when we met with the rating agencies they told us what they'd done and why. they also said, you've got a big liability out there that you've not recognized and you've not addressed at all. we said, what is that? they said,off got a lot of pensioners. we have a strong pension fund, it's admired for their fully invested, how well invested it
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is. they said, no, that's not it. they said, your problem is all those pensioners are out there, they have enormous health care costs attached to it. each of them. and you've not recognized that and you've not started setting money aside for that. still gave us a aaa credit rating but they flagged that for us. we began my last year as governor, we began to address that. not in a huge way. we acknowledged it's a liability and we started to address that. the problem from our 2006-2007 legislation is we agreed with the george w. bush in order to get the president to sign the bill, we had to agree to i think a very aggressive schedule to pay down that liability for retiree health care costs. what we found out in the years since then is that the postal service pays more into medicare than any employer in the country. nobody else. my wife retired from dupont. hard to believe it to look at her but she just turned 65.
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and when she turned 65, the dupont company said to her, martha, we love you, but from now on you have to sign up for medicare, part a, part b, maybe part d, we'll provide wran-around coverage for you, but they expect that for all their employees, retirees, rather. there's thousands of companies in this country who say, that's what we expect. they'll do the wrap-around but they expect the retiree to sign up for a, b, maybe part d under medicare. postal service competes with fed ex, with u.p.s., i presume they have a similar kind of arrangement with their retirees when they reach 65. postal service pays more money into medicare than anybody else, they don't get equal value, and it's not fair. not fair. it's one of the chief provisions in our bill is we call it medicare integration. and it's -- enables us to -- enables the postal service to pay down this obligation in a
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more timely way. let me just ask, i'll start with dr. miller, i don't know if any of this sounds familiar to you, may or may not sound familiar our other nominees. in terms of the main thing, if we don't do this, if we somehow don't do this, i think we're going to be very disappointed in our inability to get anything done. dr. miller. >> mr. chairman, actually, i thought maybe mr. markey might -- senator markey might say a few words on my behalf. i need that kind of help. mr. chairman, i am not surprised at your insightful analysis because i know you have a degree in economics from the ohio state -- >> i tell people i studied economics at ohio state. my professors would say not nearly enough. >> but you're spot-on, in my judgment. >> thank you. . mr. crawford? >> yes, i wholeheartedly endorse the plan, s-1486, to have -- require postal retirees, once
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they reach 65 and are eligible for medicare, to make medicare their primary coverage. as you say, it's almost universal in the corporate world. and my understanding is that 10% of postal retirees who are eligible don't take part a and 24% don't take part b. and i haven't done the numbers to figure out sort of what the cost implications are. but those are -- especially that second number, that's huge. >> all right. thank you. mr. bennett? >> sir, i agree. i think that, one, you're right, the main thing needs to stay the main thing. in my company and in the previous company i was with, northrop grumman, that's exactly the route that we've gone. there's no way that you can continue on this path, the post service can't continue on this path. large companies have decided to do that a long time ago. i agree completely. >> all right, thank you. miss kennedy, please, will you react to this? >> yes, certainly. obviously the issue of health care and health care costs is
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something that's of great concern. it's my understanding that there's widespread support, both with the collective bargaining units and with management at the postal service for the plan that you describe. and it's something that i look forward to learning a lot more about. it seems to make a lot of sense. but i'd like to understand it in more depth as we go forward. >> fair enough. let's talk a little bit about this intersection between the, if you will, analog -- i'll use analog an example of what we do at the postal service today. we deliver packages, parcels, pieces of mail. and we do it door to door, we do it five, six days a week, do it all over the country, we use old vehicles to do it. meanwhile you've got a lot of folks that are ordering stuff today as we speak, that they want delivered tomorrow. they'll look for somebody to deliver it.
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there are good business opportunities there, including on sundays. and the postal service is starting to take advantage of this. i don't know if it's miss kennedy, somebody mentioned innovation. in our legislation, ironically, one of the provisions in the legislation that we have is it was legislation really lifted from senator bernie sanders. and that most people wouldn't think of bernie as the chief innovation officer, the guy to be the most entrepreneurial guy in the senate. i see senator markey smiling. but he's right on -- spot-on when it comes to the postal service. how do you figure out, how do we help enable the postal service to use this legacy organization to find new ways to engenerate revenues and provide a service that's needed without stepping on the toes in an inappropriate way on the private sector? there's a call for in our legislation the creation of what i'll call a chief innovation officer. all kinds of people, including people from the digital world to come in and say to the postal service, have you ever thought
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of doing this, that, or the other? we're going to do a similar kind of approach with the census so the next time we do the census we won't be doing it with pen and paper, we'll be doing in a smarter way, less expensively, hopefully more effectively. talk to us about innovation. start with innovation. things that you'd like to see the post office do you think might be good ways for them to provide service and make some money while they're doing it. and again, i'll ask dr. miller if you'd just lead off with this, please. >> mr. chairman, the movement to the digital -- the digital revolution has cost the postal service as much as first class mail has diminished. on the other hand it's created opportunities as well. that's a major reason you see the growth in the packaging. people ordering through ebay and other ways, that has generated a great deal of increase in mail volume. i think that mr. bennett's becoming a member of the board would be a very positive thing to stimulate a lot of thinking
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at the postal service because he has the -- those kinds of responsibilities at bae. and there are other opportunities i think steve has talked about it and vicki has talked about it as well. so i think there are many opportunities there that need to be explored -- that are being explored, frankly, at the postal service under done hoe's relationship. i think there are many opportunities as you have identified. >> thank you. mr. crawford. >> mr. chairman, i'm -- i enjoy reading the white papers at the inspector general's office produces. and some of them are simply stimulating. i'm not sure that they're politically or otherwise always going to survive and be implemented. but i would like to see the postal service have the flexibility to run pilots and experiments and try out -- let's take nonbank financial services.
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we see a lot of foreign postal services make some money on that. whether it makes sense for the u.s. postal service to get into that is a huge question. the issue though it seems to me is to have the opportunity to experiment. whether it's that, whether it's the implications for 3d printing. there's just so much in the world of technology that's unfolding now. and this can't be all or nothing, we're now going to implement this. now the postal service to be fair already does do some studies and trials. i just -- if i were on the board, that's an area that i would give special attention to. >> what about the -- let me let you finish and then i'll throw out a couple of ideas and let you react to them, thank you. mr. bennett? >> this is really, chairman, my
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sweet spot. i have led a number of innovation initiatives in my company, particularly from a technology perspective. but i really get excited thinking about the different things that you can do with this incredible infrastructure that we have. with all these people, with all this logistics that we deal with as a postal service every single day. that nobody else knows how to do. imagine if you start partnering with a company like cisco and take the kinds of things that they do from a networking perspective and connect those to our postal infrastructure. we've talked about 3d printing. imagine being able to have the companies who produce these 3d printers, at no cost to the postal service, put those printers in various locations in the postal service. and have opportunities where they're able to fax, if you will, the model of a shoe and they want that to get to a
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particular customer in an hour and the postal service says, great, we'll get it there within an hour. there are so many different things, so many opportunities. i've had -- the moment i was nominated, i had the ceo of cisco, senior executives at microsoft, numbers, various people from different technology companies, talk to me about things they would like to consider and talk to the u.s. postal service about. but having had an opportunity to get in. so, i mean, this is just right in the area that i would really love to have an opportunity to help the postal service evolve and do a number of different innovative things over the course of the next decade. >> did you say fax someone a pair of shoes? >> yeah, absolutely. absolutely. the technology exists. it's there. >> let me just say, before you speak vicki, i don't know if the board of governors if they have -- the board has a committee or subcommittee on
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innovation. but if you get it, mr. bennett, i hope they put you on that committee. >> i understand that there are shoe manufacturers, athletic shoe manufacturers, that are going to be taking orders for athletic shoes with your specifications and doing 3d printing of those shoes in your exact size and with your specs. and they're going to want to distribute them. and the distribution network that exists right now for the united states postal service is an incredible asset. and that's something that i believe we have to maintain to be able to take advantage of that kind of innovation. to be able to reach people. when you talk about doing what we do, that's what the postal service does. it knows how to deliver. it has an infrastructure. and that's why one of the wonderful things in the last few months of waiting for this hearing is that we've all gotten to know each other. all of the nominees here -- >> if you don't mind, how have
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you all gotten to know each other? >> we've had lunch. it's a great thing. talking, reg la lunular lunch. talking sxechlt mails and we've gotten to know each other. >> facebook? >> no, not facebook. but it's been a very good thing. collegiality, sharing ideas. it's been a very positive thing. so if we're confirmed i think we'll hit the ground running. and talking about, you know, what's out there in the future, being able to take advantage of that kind of innovation. one of the things that steve crawford just said in his opening statement, though, is will the regulatory structure restrict your being able to take advantage of innovation in other ways? there might be some 18-year-old in a garage right now who's coming up with some great new innovation. will the postal service be able to take advantage of that? or will it not? i believe we need to be nimble and able to take advantage of
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innovations that we don't know about as we're sitting at this table right now. and be regulatorily nimble enough to be able to take advantage of those things for the future. while building on the core strength of the postal service. >> okay. thanks. thank you very much. that's very encouraging testimony. i want to turn now, if i could here for a little bit, to the pricing for postage. and as you know the pestal service current inflation based postal rate structure was set in place about seven years ago. and right before the beginning of the drastic drop in mail volume that continues to this day. you saw that, dr. miller, firsthand. late last year the postal regulatory commission allowed the postal service to temporarily increase its pricing for postage above that normally allowed to make up for the losses in mail volume attributable to the great recession. an increase that our committee's bill would make permanent.
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it's roughly about 4%, we call it an exigent rate increase. prc said put that in place an interim period of time. let's make the new base. and then we'll worry about other increases as we go, or not increases, as we go forward. in light of the postal service's current financial difficulties, let me just ask again, i don't want to pick on you, dr. miller, but let me start with you. your thoughts on the postal rate structure as we have it currently and how it would be under our bill. >> as i said -- as i said in my response to question from the committee, i think that the inflation-adjusted cap needs to be liberalized a great deal, if not eliminated entirely, because it just means that the postal service will start searching for ways to change, alter, the rate
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structure to try to raise additional revenue. and that further perverts the structure of prices. there's ann analogy here with hw the railroads performed under the old interstate commerce act and squeezing additional revenue here and there. give the postal service the discretion to make rate changes. there is a natural limit to how much a postal service would want to increase certain rates because of the fall-off in volume. so it's not -- though it's going to change the stamp price from 59 cents or 55 cents to $1.80 or something like that. it really is an impediment. and there are other things -- ways in which the postal rate commission, despite having some very good people to work there, who are just as publicly spirited as we are, where it
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inevitably slows down the process of introducing innovations. and changes that would -- sperms of the sort that steve was talking about. so we need to have that kind of freedom to have the postal regulatory commission intervene when they see a real danger of the postal service violating the law or about to violate the law. that, and you've addressed that in s-1486. and i hope that revision prevails in a conference bill. >> thank you, sir. mr. crawford? >> thank you, mr. chairman. i agree with dr. miller's analysis. i think the mail volume, especially for the standard mail, is so sensitive to prices that the postal service is not about to try to jack up that price. you know, the notion of a monopoly position, it's not as much, it's not as hard a monopoly as some monopolies are.
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and i applaud s-1486 for the reforms in the price cap. i'm on record in previous writings for lifting the price cap and making adjusts. i think the postal service needs that flexibility. i think the postal regulatory commission has a role to play in reviewing the reasonableness of those. but to do it ahead of time is just, as vicki kennedy was saying, we need to be nimble enough, the postal service does, to be able to make adjustments. fuel costs can go up very quickly if there's a crisis abroad. we saw surcharges put on fed ex and u.p.s. when there was a spike in gasoline prices. the postal service doesn't have that flexibility. i think they need it. i think it's fine to review it after the fact and i think the new legislation has that exactly right. >> thank you, sir. mr. bennett? i want to repeat what my colleagues have said but i do agree with the provision in
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s-1486 relative to rates. one of the things that came up in the session with your staff last thursday was there was a comment that in the private sector, that you can -- you don't have any capps on pricing. well, that's really not true. i mean, if you price yourself out of the market and you don't sell anything, then you're out of business. i think the postal service needs the same level of flexibility that you have in the private sector. the kind of flexibility that will allow us to be market-driven. in fact, when that happens, i think oftentimes prices end up going down. because driving volume up and you end up driving prices down. you increase value in that institution and in this case increasing value for the american public. so i agree with that particular section completely, agree with my colleagues about having more flexibility. >> at the urging of dr. coburn whose airplane i think, what do you think, is on the ground? he's on the ground. dr. coburn's had an incredible career. very successful business person,
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he did that for a number of years. then he decided, i'd like to be a doctor. he became an ob-gyn. very successful there. has given birth -- delivered thousands of babies. not given birth to any of them. obgyn. he has delivered 10s of thousand of babies. he said i think i'd like to become a congressman. he became a congressman from oklahoma. you said maybe i'd like to be a senator. he has signalled he's going to step down two years early before the end of this term next year. god only knows what he will do next. he should be here before too much longer. ms. kennedy, same line of thought. let me just say one of the things that the doctor really insisted on and pushed for when we introduced our initial bill this past august, he base iical said the postal service is not
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foolish or stupid. they are not deaf to the marketplace. let's give them the flexibility to set rates. if they charge too much customers will stop using them. they will eventually find a sweet spot. in the end we didn't do that. there was a huge push back to that original proposal as you can imagine from the mailing industry and printers and so forth. we thought we found a pretty good medium here with the rate increase becoming the baseline and then having the cpi cap going forward and in 2017 the opportunity to revisit this. if you are on the board of governors, you will have an opportunity to participate in that. ms. kennedy. >> mr. chairman, thank you. as a general rule i believe in flexibility. on the specific issue of rates, i believe in being cautious and not answering something that i am not as deeply familiar with as my colleagues here. it's something that i would like
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to understand in a deeper and fuller way. so it sounds great. i think what they've said makes a lot of sense to me but i'd like to understand it more. >> i understand. just a little bit of background. what we've done with the rate what it essentially does for folks that -- say you're a nonprofit and i think under before the rate case i think the cost of mailing an envelope was about .10 cents. with that it goes up i think a penny to .11 cents. folks mailing magazines i think the price is 27 cents and it goes up to 28 cents. i think i might be wrong but correct me if i'm wrong, john but i think for catalogs, the price is around .46, 47 cents.
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>> i'm familiar with what the provisions are. that's not the issue. it's the underlying philosophy and theory behind them being set that i wanted to be -- >> good enough. dr. miller, did you want to say something else. >> >> no. >> i think i mentioned in my opening statement today the board of governors post master general announced a week ago that if we don't do our job in the senate and house to pass thoughtful, effective postal reform legislation this year, put it in place signed by the president, then they will feel compelled to go ahead and take the next step in closing mail processing plants. it wasn't that long ago we had a few more than 600. we're down today in six or seven years as i recall we're down to 325. the postal service is saying unless we do our job that they
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may be compelled with no help from congress and the president to close another 80 or so starting at the beginning of next calendar year. from our point of view, in our legislation, we have a st stipulation that says two years after the enactment, the postal service may move forward to reduce the number of processing plants. 62 senators voted for it a few weeks ago. some republicans. i'd like each of you giving your thoughts to closing additional plants. what we've try to do with our legislation is lay the ground work so they can pay off their obligations and be profitable. have money for pay raises and to have money in the bank when all is said and done ten years from now. i'm not interested in seeing a
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lot of additional plants close or any additional plants close. i just want to make sure that the postal service is profitable and viable. dr. miller, if you'd just lead us off on that, i'd appreciate it, please. >> mr. chairman. first let me say i have not done an analysis of these 82 and these specific sum. some may apply to the points i'm making and some not. my impression based on my work on the board of governors ending two or three years ago is that a number of mail processing facilities are there and under ordinary market circumstances would have been relocated or changes but for the fact that there would be the impediments from congress, displeasure from members of congress, restraints put in appropriation bills have not been changed. that leads interestingly to a
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perverted outcome because when you think there's going to be a change you want to make as many change as you can in one swoop. so it is just an inefficient system unless you give the postal service some freedom to stream line and rationalize it's logistical network, you're going to get these back and forth and i think inefficient decision making about these various installations. >> okay. thank you. mr. carper. >> mr. chairman. i agree with jim's points. i think the devil is in the details here. it's not for the board to dig into them. it's for the board to set criteria and policy. i think in general the postal service has been right. it needed to consolidate some of its facilities. it's already done a great deal. whether it needs to do more or not i'm not capable of sitting here and saying, yes or no. each
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time they do that's painful for somebody somewhere but as jim says, you just are pushing the problems to the future. automation has made it easier to do a lot of this high volume mail processing. so on balance without trying to avoid commitment, i would just say it would be premature for me given my level of understanding of the issue to say anything about the next round of closings and consolidations of processing centers or plants but i do think that it was appropriate to make some moves along those directions over the last few years. >> all right. thank you. mr. bennett, please. >> i am very familiar with the issue. i'm not familiar with the details as to whether or not these specific plants should or should not be closed. however, what i would say though is that i think in this
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environment where we do have this incredible infrastructure that is in place, whether or not that facility is operationally efficient or not, i think you have to be very careful when you start taking away some of your assets to make sure that those assets couldn't drive future revenue. one of the things that i think a lot of major corporations make a big mistake and particularly the very large ones is when you start trying to cut costs, because you're so big, you start lacking at your costs in silos. you don't think about how those costs impact revenue some place else. so you really have to be careful to make sure that you consider the whole, prior to doing these individual silo cuts. so i don't have an answer to your question other then if i
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were looking at this more carefully, that's what i would do is consider how does it impact the whole enterprise versus just a silo that we often time look at budget cuts. >> thank you. ms. kennedy, i echo the concerns that michael bennett just set forth. i worry that i don't think you can cut your way to prosperity. i think you have to look at what the long term implications are of closing these facilities. i don't know what those particular facilities are. i also worry about the impact on the universal service obligation. i don't know what it means for rural communities. i believe that universal service doesn't mean universal service some day. it means timely universal service. so what delays will happen by that many consolidations and closings? i think that matters because the postal service is a lifeline for so many communities. i think that's something that needs to be looked at. i think you also have to be poised to take advantage with this terrific infrastructure that's in existence for
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innovation, poised to make advantage of the next great opportunity. i think all of those issues need to be considered. >> uh-huh. i'll probably ask you to answer this next question for the record. i might ask you to comment very briefly. it relates to the potential closure of additional mail processing centers. the question that i have is think outloud for a minute. is service delivery standards. as some of you will recall it wasn't that long ago that the postal service had delivery standards to deliver mail in one day sort of like the same metropolitan region or geographical region or outside if you couldn't do that, the postal service was expected to deliver in two days. at the very least the mailer and maily are in the same 48 states that it was one,

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