GENERAL OVERSIGHT OF THE U.S. POSTAL SERVICE HEARINGS BEFORE THE SUBCOMMITTEE ON THE POSTAL SERVICE OF THE COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS FIRST SESSION FEBRUARY 23; MARCH 2 AND 8; MAY 23; AND JUNE 7, 14, AND 28, 1995 Printed for the use of the Committee on Government Reform and Oversight a U.S. GOVERNMENT PRINTING OFFICE 88-695 CC WASHINGTON : 1997 For sale by the U.S. Govemment Printing Office ‘Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 PZCOMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT WILLIAM F. CLINGER, JR, Pennsylvania, Chairman BENJAMIN A. GILMAN, New York CARDISS COLLINS, Illinois DAN BURTON, Indiana HENRY A. WAXMAN, California J, DENNIS HASTERT, illinois TOM LANTOS, California CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jk, West Virginia CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York STEVEN SCHIFF, New Mexico EDOLPHUS TOWNS, New York ILEANA ROS-LEHTINEN, Florida JOHN M. SPRATT, Jk., South Carolina WILLIAM H. ZELIFF, Jx., New Hampshire LOUISE McINTOSH SLAUGHTER, New JOHN M. McHUGH, New York York STEPHEN HORN, California PAUL E. KANJORSKT, Pennsylvania JOHN L. MICA, Florida GARY A. CONDIT, California PETER BLUTE, Massachusetts COLLIN C. PETERSON, Minnesota THOMAS M. DAVIS, Virginia KAREN L. THURMAN, Florida DAVID M. McINTOSH, Indiana CAROLYN B. MALONEY, New York JON D. FOX, Pennsylvania THOMAS M. BARRETT, Wisconsin RANDY TATE, Washington GENE TAYLOR, Mississippi DICK CHRYSLER, Michigan BARBARA-ROSE COLLINS, Michigan GIL GUTKNECHT, Minnesota ELEANOR HOLMES NORTON, District of MARK E. SOUDER, Indiana Columbia WILLIAM J. MARTINI, New Jersey JAMES P. MORAN, Virginia JOE SCARBOROUGH, Florida GENE GREEN, Texas JOHN B. SHADEGG, Arizona CARRIE P. MEEK, Florida MICHAEL PATRICK FLANAGAN, Illinois FRANK MASCARA, Pennsylvania CHARLES F. BASS, New Hampshire CHAKA FATTAH, Pennsylvania STEVEN C, LATOURETTE, Ohio BILL BREWSTER, Oklahoma MARSHALL “MARK” SANFORD, South TIM HOLDEN, Pennsylvania Carolina ROBERT L. EHRLICH, Jr, Maryland BERNARD SANDERS, Vermont (Independent) James L, CLARKE, Staff Director Kevin Sapo, General Counsel duprtt McCoy, Chief Clerk Bup MYERS, Minority Staff Director SUBCOMMITTEE ON THE PosTAL SERVICE JOHN M. McHUGH, New York, Chairman ‘MARSHALL “MARK" SANFORD, South BARBARA-ROSE COLLINS, Michigan Carolina MAJOR R. OWENS, New York BENJAMIN A. GILMAN, New York GENE GREEN, Texas CHRISTOPHER SHAYS, Connecticut CARRIE P. MEEK, Florida DAVID M. McINTOSH, Indiana ROBERT L. EHRLICH, Je, Maryland EX OFFicio WILLIAM F. CLINGER, Jr, Pennsylvania CARDISS COLLINS, Illinois Dan Biatn, Staff Director Roserr Taus, Professional Staff Member HEEA Fates, Professional Staff Member JANE HatcHERsON, Professional Staff Member MERYL CooPER, Clerk Denise WiLsON, Minority Professional Staff apCONTENTS Heating held on: ruary 23, 1995 ... March? 1988 Mareh 8, 1995 May 23,'1995 June 7, 1995 June 14, 1995 June 28, 1995 Statement of: Campbell, James 1, Jr. counsel to Federal Express Corp Harry L. Galler, president, Global Mallon behalf of the Air Couner Conference of America; Peter N. Hiebert, Aiinston & Strawn, counsel to DHL Airways, Inc and James A Rogers, vice president, United Parcel Service, accompanied by Kurt Pfotenhauer and Don Spulber .. DeSio, Anthony W,, president and CEO, Mail Boxes, Btc.; Robei chairman, Postai ‘Committee, Envelope Manufacturers Assoc tion of America; Donald L. Harle, vice chairman, Mail Advertising Service Association; Randall Holleschau, director, National Association of Presort Mailers, accompanied by Dennis Macharg; and John V. Maraney, executive director, National Star Route Mail Contractors As- sociation, accompanied by R'B. Matheson and M. Sodrel Games, W. David, president, National Association of Postinasters of the United States; Vincent Palladino, president, National Association of Postal Supervisors; and Bill Brennan, president, National League of Postmasters .. Gelfer, George G., president and general manager, Francotyp-Postalia, Inc; Michael A. Allocca, president and chief executive officer, ASCOM Hasler Mailing Systems, Inc. Neal Mahlstedt, president, Friden Neopost; and n E. Synnott, vice president, Worldwide Market- ing, Pitney Bowes, Inc Gleiman, Edward J., chairman, Postal Rate Commission, accompanied by W.H. “Trey” LeBlanc, vice chairman, Postal Rate Commission; George W. Haley, commissioner, Postal ‘Rate Commission; Edward Quick, Jr., commissioner, Postal Rate Commission; Wayne A. Schley, commissioner, Postal Rate Commission line, Alan, vice president, Alliance of Nonprofit Mailers, ‘accompanied ‘Neal Denton, executive director; and Lee Cassidy, executive director, National Rederation of ‘Nonprofits Motley, Michael E., Associate Director, Government Business Operations Issues, General Government Division, U.S. General Accounting Office, accompanied by James T. Campbell, ‘Assistant Director, General Gov- ernment Division .. Runyon, Marvin, Postmaster General and Chief Executive Officer, U.S. Postal Service, accompanied hy Mike Coughlin, Deputy Postmaster General; and Bill Henderson, operating officer and executive vice Black, president and CEO, Newspaper Association of ‘America; George Gross, executive vice president, Magazine Publishers of America; Steve Bair, senior vice president, Law and Business Affairs, Time Life, Inc. on behalf of the Association of American Publishers am . 5, 215 259 367 457 547 415 516 4 344 52 634 316Vv Statement of—Continued Sackler, Arthur B. managing director, the, Mailers Counel; tan, D. Volner, Bsa. general counsel, Advertising Mail Marketing Association, accompanied by Gene Del Polito, executive director; Richard Barton, Senior vice president, congressional relations, Direct Marketing Asso: ciation; David C. Todd, Esq., Patton, Boggs & Blow, and counsel, Mail Order ‘Association of America; and Timothy May, Patton, Boggs & Blow, and general counsel, Parcel Shippers Association ....... Sombrotio, Vincent, president, National Association of Letter Carriers, AFL-CIO; Moe Biller, president, American Postal Workers Union, AFL-CIO; William Quinn, president, National Postal Mail Handlers Union, LIUNA, AFL-CIO; ‘and Scottie Hicks, president, National Rural Letter Carriers Association ....... Winters, Sam, chairman, Board of Governors, U.S. Postal Service .. Letters, statements, etc., submitted for the record by: Allocea, Michael A., president and chief executive officer, ASCOM Hasler Mailing Systems, Inc., response to written questions Alvarado, Susan, information concerning the Chicago Performance Cius- ter Service Improvement Plan .. Bair, Steve, senior vice president, Law and Business Affairs, Time Life, Inc, on behalf of the Association of American Publishers, prepared statement of .. Barton, Richard, senior vice p Marketing Association: Prepared statement of Response to written questions .... Biller, Moe, president, American Postal Workers inion, AFL-CIO: Prepared statement of .. Response to written questions. Black, Cathleen P., president and CEO, Newspaper Association of Amer- ica: Prepared statement of Response to written qu Brennan, Bill, president, National Prepared statement of ...... Response to written questions . Burns, James A., president, Postal Managers of America (PMA), Prepared statement of ........ ae Campbell, James i., Jr, counsel to Federal Express Corp. Prepared statement of z Response to written questions Cassidy, Lee, executive director, National Federation of Nonprofits Prepared statement of Response to written questions Collins, Hion Barbara Rose, a Representative in Congress from the State 209, 260, of Michigan, prepared statements of... Se i ee eae ge ee eer 2 Illinois, prepared statements of. vw» 51, 214, 248, 449, DeSio, Anthony W., president and CEO, ‘Mail Boxes, Bte Prepared statement of Response to written questions Engebretson, Gary D., president, Contract Services Association of Amer- ica, prepared statement of .. Games, W. David. president, National Association of Postmasters of the United States: Prepared statement of eevee oe to written questions Getfer, George G., president and general manager, Francotyp-Dostalia, Inc. Prepared statement of... Response to written questions Geller, Harry L., president, Global Mi Conierence of America: Prepared statement of... Response to written questions Gilman, Hon. Benjamin A., a Representative in Congress from the State of New York, prepared statements Of ose 316, 449, on behalf Page 261 370 218 527 254 4l7 421 519 523 566 574 695v Page Letters, statements, ete., submitted for the record by—Continued Gleiman, Edward J., chairman, Postal Rate Commission: Prepared statement of .. 8 Response to written questions 89 Green, fon. Gene, a Representative in Congress from the State of Texas, prepared statements o - 52, 210, 217, 633 Gross, George, executive vice president, Magazine Publishers of Ameri Prepared statement of 333 nse to written questions . 335 Harle, Donald L., vice chairman, Mail Advertising Service Association: Prepared statement of 415 Response to written questions . 478 Hicks, Scottie, president, National Rurai Letter Carriers Associati Prepared statement of 398 Response to written questioi +400 Hiebert, Peter i Prepared statement of 877 Response to written qu : 581 Holleschau, Randall, director, Nai response to written questions 485 Kaine, Alan, vice president, Alliance o Prepared statement of. 347 Response to written qu : 349 LeBlanc, W.H. “Trey”, vice chairman, Postal Rate Commission, joint study entitled, “Postal Ratemaking in a Time of Change” .. 126 Mahletedt, Neal, president, Friden Neopost, response to wrtien ques: tions . Maraney, John V., executive director, National Star Route Mail Contrac- tors Association: Prepared statement of 491 Response to written questions May, Timothy, Patton, Boggs & Blow, and general counsel, Parcel Ship- ers Association: Prepared statements o 507 Response to written questions .. 303 Motley, Michael E., Associate Director, Government Business Operations Issues, General Government Division, U.S. General Accounting Offic Prepared statement of 55 Response to written questions - 62 McHugh, Hon. John M., a Representative in Congress from the State of New York: Letter from Tirso Del Junco 215 Prepared statement of. : 3 ‘Muma, Robert, chairman, Postal Affairs Committec, Envelope Manui turers Association of America: Prepared statement of 466 Response to written qu : 477 Owens, Hon. Major R., a Represei of New York, prepared statement of . 634 Palladino, Vincent, president, National Prepared statement of 423 Response to written questions . 431 Quinn, William, president, National Post AFL-CIO: Prepared statement of 391 Response to written questions . . Rogers, James A., vice president, United Parcel Servic Prepared statement of ... : 584 Response to written questions .. 613, Runyon, Marvin, Postmaster General and Chief Executive Officer, U.S. Postal Service, responses to written questions. .». 8, 30, 31, 637 Rush, Tonda, president, National Newspaper Association: Prepared statement of 319 Response to written questions . 321 Sackler, Arthur B., managing director, the Mailers Council Prepared statement of 264 Response to written questions .. 267VI Letters, statements, etc., submitted for the record by—Continued Sombrotto, Vincent, president, National Association of Letter Carriers, AFL-CIO: Prepared statement of : Response to written questions Synnott, Kathleen E., vice president, Worldwide Marketing, Pitney Bowes, Inc.: Prepared statement of ..... Response to written questions . Todd, David C., Esq., Patton, Boggs & Blow, and counsel, Mail Order Association of America: Prepared statement of... eng to written questions .. Volnee: lan D. eq, general counsel, ciation: Prepared statement of .. Response to written questions... Williamson, Robert C., executive director, National Association of Presort Mailers, prepared statement of ... Winters, Sam, chairman, Board of Governors, U.S. Postal Servic Information concerning the corporate logo Information concerning Express Mail . Information concerning negative equity Information concerning salient financials Prepared statement o Response to written questions Young, Hon. Don, a Representative in Congress from the State of Alaska, prepared statement of .. ertising Mail Page aa 3 535 538 291 294 270 277 481 245 241 249 232 221 224 368GENERAL OVERSIGHT OF THE U.S. POSTAL SERVICE THURSDAY, FEBRUARY 23, 1995 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON THE PosTAL SERVICE, COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT, Washington, DC. The subcommittee met, pursuant to notice, at 10:26 a.m., in room 2247, Rayburn House Office Building, Hon. John M. McHugh (chairman of the subcommittee) presiding. Present: Representatives McHugh, Sanford, Gilman, Shays, Ehr- lich, and Barbara-Rose Collins. Staff present: Dan Blair, staff director; Robert Taub, Heea Fales, and Jane Hatcherson, professional staff members; Meryl Cooper, clerk; and Denise Wilson, minority professional staff. Mr. McHucu. I will call this subcommittee meeting to order. We will certainly welcome the addition of Miss Collins when she ar- rives, but I know that time is a significant factor, and we don’t want to impose upon the individuals who are here today any more than we have to. Today the Subcommittee on Postal Service begins a series of gen- eral oversight hearings regarding the operation of the U.S. Postal Service. These sessions are intended to provide the members of the subcommittee with an overview of the present administrative and operational status of the Nation’s largest civilian employer, the USS. Postal Service. This morning we are honored to have before us the Postmaster General of the United States, Mr. Marvin Runyon. In addition, Mr. Mike Motley, who is the Associate Director of the General Account- ing Office, will also present testimony, and it is my honor and privilege to welcome both of these gentlemen here this morning— al you for being here—and also to welcome each and every one of you. Certainly the Postal Service has not lacked for media attention these past few months. Allegations of poor delivery, unacceptable levels of service, and rate increases have led to calls for privatiza- tion and, unfortunately, a general lack of respect among much of the pee for an institution that is literally as old as the Republic itself. At the same time, reports of more positive developments such as improvements in service standards and the fact that our Postal Service, for all of its perceived shortcomings and for all of the chal- lenges it faces each and every day, is still among the least expen- a2 sive in the world. These kinds of things seldom make the morning headlines. What many people too often forget is the breadth and the mag- nitude of the mandate for the Postal Service in our country. While we will not attempt to gloss over past challenges and mistakes, we hope this series of hearings will provide the members of the sub- committee with the information to allow them to determine the strengths and the weaknesses of the Postal Service and to aid the Congress in facilitating a higher standard of delivery and service to all postal customers. I look forward to Mr. Runyon updating the subcommittee mem- bers on a wide range of postal issues. Particularly, I hope progress can be reported to us today on the collective bargaining front. I know the Postmaster General has expressed his concerns regarding the inability of labor and management to reach collective bargain- ing agreements in the past, and we would welcome his perspective on what might be done to ameliorate this situation through future negotiations. Another issue that certainly is of concern involves finances. With the recent rate increase, the state of postal fiscal affairs should look good for the forthcoming year. However, the budget process and a host of other unforeseen circumstances could adversely affect the Postal Service's breakeven point, and we are most interested as well in the Postmaster General’s views on what the future might hold in this regard. I want to extend the subcommittee’s appreciation for the appear- ance of our second witness, General Accounting Office Associate Di- rector Mike Motley. The GAO has performed admirably in works with the Postal Service and in the postal arena over the past few years, and I along with members of the subcommittee look forward to GAO's continuing cooperation with the Congress in its review and its analysis of postal operations. For the record, today’s meeting represents the first in a series of general oversight hearings to be conducted by the subcommittee. We have asked the Postal Rate Commission to appear before us next week, and we have scheduled a March 8 appearance before the subcommittee of the Postal Board of Governors. As a legislative body devoted exclusively to the oversight of the Postal Service, this subcommittee plans to scrutinize in depth vir- tually all phases of postal operations and services. This will un- doubtedly lead us into areas of inquiry that have often been totally ignored and even rejected in the past. While our dedication to prob- ing all areas of postal operations might be unsettling to some, I be- lieve that it is our solemn duty to the people of this Nation to en- sure that no legitimate question goes unasked and no valid argu- ment goes unheard and unheeded. This has been the unofficial motto of this 104th Congress, and it will be the guiding principle of this subcommittee. With that, I thank the witnesses again for their appearance here today, and we look forward to their testimony. [The prepared statement of Hon. John M. McHugh follows:]3 PREPARED STATEMENT OF HON. JOHN M. MCHUGH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK Good morning, the subcommittee will come to order. Today, the Subcommittee on the Postal Service will begin its series of general oversight hearings of the United States Postal Service. This series of hearings is intended to provide the members of the subcommittee with an overview of the present state of operations of the na- tion's largest civilian employer. This morning, we are honored to have before us the Postmaster General of the United States, Mr’ Marvin Runyon. In addition, we have Mr. Mike Motley, Associate Director of the General Accounting Office. It is a pleas- ure to welcome all of you to the hearing this morning. The Postal Service has not lacked for media attention these past few months. Calls for privatization, allegations of poor delivery and service, and recent rate in- creases have led to a’ lack of respect among the general public for an institution which is as old as the republic itself: However, good news such as improvements in service standards and the fact that our Postal Service is still among the least expensive in the world seldom makes the morning headlines. What many people seem to forget is the breadth and magnitude of the mandate for Postal Service in our country. While not attempting to gloss over past mistakes, I hope this series of hearings will help the subcommittee determine the strengths and weaknesses of the Postal Service in order to aid the Congress in facilitating delivery and service to all postal customers. I look forward to Mr. Runyon updating the subcommittee members on a wide range of postal issues. I hope progress can be reported on the collective bargaining front. I know the Postmaster General has expressed his concerns regarding the in- ability of labor and management to reach collective bargaining agreements. Reach: ing out to a third party arbitrator can be beneficial; however, binding determina- tions reached by a party who is unfamiliar with the Fostal Service and its structure can adversely affect operating abilities. Another issue of concern involves finances. With the recent rate increase, postal finances should look good for the forthcoming year. However, the budget process and other unforeseen circumstances could ad- Versely affect the Postal Service's break even point. I want to extend the subcommittee’s appreciation for the appearance of our second witness, General Accounting Office Associate Mike Motley. The GAO has performed admirable work in the postal arena over the past few years and I look forward to GAO's continuing cooperation with the Congress and this subcommittee in its re- view and analysis of postal operations. For the record, today’s meeting represents the first hearing in a series of general oversight hearings to be conducted by the subcommittee. We have asked the Postal Rate Commission to appear before the subcommittee next week and we have sched- uled for March 8 an appearance of the Postal Board of Governors before the sub- committee. As a subcommittee devoted exclusively to oversight of the Postal Service, we plan to scrutinize in depth all postal operations and services. I thank the wit: nesses for their appearance and look forward to their testimony. Mr. McHusu. At this time, I would like to yield to the Honorable Barbara-Rose Collins, the gentlelady from Michigan, who serves as the ranking minority member of the committee, for any opening re- marks she might have. Miss Collins. Miss COLLINS OF MICHIGAN. Thank you, Mr. Chairman. I join you in welcoming our two panelists for the first of a series of oversight hearings on the Postal Service. As the former chairwoman of the Committee on Post Office and Civil Service Subcommittee on Postal Operations and Services, I am pleased that we are embarking on a sensible and comprehen- sive examination of postal services and operations. I note that the GAO report on automation was in response to my subcommittee re- quest. Mr. Runyon and Mr. Motley are familiar with my concerns, and my concerns have not changed. I remain interested in the state of labor-management relations at the Postal Service, the status of technological innovations, the im- pact automation is having on the efficient delivery and handling of mail or the inefficient delivery and handling of mail, and, finally,4 the overall state of mail delivery in our cities and communities across the Nation. In short, I, too, am concerned about the future of the Postal Service. To that end, I look forward to hearing from the Postmaster General and the GAO on matters affecting the de- livery of mail. I thank you, Mr. Chairman, for your foresight, your approach, and dedication to a thorough airing of postal matters. Mr. McHucu. Thank you, Miss Collins Next I yield to the vice chairman of the subcommittee, the Hon- orable Mark Sanford, the gentleman from South Carolina. Mr. SanForp. I'll keep it very brief and say that I look forward to the testimony, and I really have no opening comment. I think you have said everything that needs to be said from my end. Mr. McHucu. Thank you very much. To his left, and to your right, is the honorable gentleman from New York. Not all of us honorable gentlemen are from New York, but he is, and he is Mr. Ben Gilman. Mr. GILMAN. Thank you, Mr. Chairman, and, Chairman McHugh, I want to thank you for ‘calling this first meeting in a series of hearings to address the issues that the Postal Service is going to have to be confronting in the coming months and years, and it is my hope that in our subcommittee we will be able to engage in a constructive dialog to help improve the efficiency and customer service of what I consider an indispensable agency. While I under- stand that every department of our Federal Government must be considered in our efforts to try to control the Federal budget deficit, we hope that as we embark on those efforts we will be keeping service, good service, intact and that we will be honoring the com- mitments we have made to our postal employees. I join in welcoming our Postmaster General, Mr. Runyon, and Mr. Michael Motley of the General Government Division of the General Accounting Office to our subcommittee. I welcome also Deputy Postmaster General Mike Coughlin, who is here with us, and Bill Henderson, the Chief Operating Officer and Executive Vice President. T also want to welcome a number of our postmasters who are able to attend. They have been here for several days of meetings in Washington. We look forward to hearing the testimony of the Postmaster General. Thank you, Mr. Chairman. Mr. McHucu. Thank you, Mr. Gilman. ae T will yield to the gentleman from Connecticut, Mr. Chris ays. Mr. Suays. Thank you, Mr. Chairman. I just would add my Voice to the appreciation for our holding these hearings and to thank you, Mr. Runyon, and your people for being here. I think you have an extraordinarily difficult task, and I would like to feel that Congress can help you in that effort rather than being a hindrance. My ultimate hope is that you can do the job with less people and provide better service, and I know that you won't be reluctant in letting us know how we can help in that effort. Mr. McHucu. Thank you.5 Just for some general ground rules, we had hoped to have a 5- minute light, but we were told that, with all the other lights, those lights don’t work in here. Therefore, we would just ask that, as we go through the rounds of questioning, members could try to contain their questions so that we might go through several rounds. We will try to ensure that everybody has an opportunity to pose ques- tions to the Postmaster General. Also, we have been informed by letter that it is the custom of the oversight committee to swear in all witnesses to appear before ei- ther the full committee or the subcommittee. So with that, if you gentlemen would rise and stand with me, and we will administer the oath. [Witnesses sworn.] Mr. McHucu. With the preliminaries out of the way, we would now again welcome the Postmaster General, Mr. Marvin Runyon, and allow him to make the formal introductions of the two gentle- men who have accompanied him. Mr. Runyon, welcome, and we look forward to your testimony, sir. STATEMENT OF MARVIN RUNYON, POSTMASTER GENERAL AND CHIEF EXECUTIVE OFFICER, U.S. POSTAL SERVICE, AC- COMPANIED BY MIKE COUGHLIN, DEPUTY POSTMASTER GENERAL; AND BILL HENDERSON, CHIEF OPERATING OFFI- CER AND EXECUTIVE VICE PRESIDENT Mr. Runyon. Good morning, Mr. Chairman and members of the subcommittee. With me today are Mike Coughlin, Deputy Postmaster General, on my left, and Bill Henderson, Chief Operating Officer and Execu tive Vice President, on my right. We are glad to be here this morn- ing. We have got good news to share with you and the American peo- ple. I am encouraged by the effort of our employees and the progress they have made in raising our performance. It is no secret that we had problems last year, particularly in a few of our larger cities. Service was off, our customers were concerned. We re- sponded by adjusting our management structure, focusing on the basics, and working more closely with major mailers. We have a lot more work to do, but our folks have come a long way in the past year. I am also encouraged by the support that we are getting from mailers across the country. Companies, large and eal are bring- ing us their business in record levels and working closely with us to make sure it gets delivered quickly and consistently, and I am encouraged by this breath of change that is in the air. The 104th Congress and the administration have the opportunity to change the Federal Government on a historic change. We stand ready to help in any way we can to make government more businesslike and responsive to the American people. This morning I had the pleasure of welcoming most of you to the Postal Service. We are what government service is all about. No other organization touches more lives and provides more livelihoods than does the Postal Service. That is because no other company does what we do—serving everyone—everywhere—every day.6 The American people count on the mail to communicate and ex- change information. American businesses count on the mail to bring customers in the door and dollars to the bottom line. We are talking big business too. Companies marketing their products and services invested $29.3 billion in the mail in 1994, putting us in a virtual three-way tie with television and newspapers for the Amer- ican advertising dollar. They made their sale by mail too. Consum- ers spent more than $200 billion in mail order purchases last year. America depends on the mail. To meet that responsibility, I think we have to accomplish three things. We have to serve the Nation, run like a business, and keep an eye on the future. We are doing a pretty good job meeting the first mandate, serving the Nation. We visit 125 million addresses every work day—providing fair, economical access to 261 million Americans. And our people are doing it better than ever; 84 percent of all local first-class mail is being delivered overnight, tying our best performance ever. Tests by the media—from the Washington Post to the Los Angeles Times—show even better results. The 1994 Christmas season was the best on record with customers ranging from ADVO to Wal-Mart praising the efforts of our employees. Financially we are on solid ground. Through the first 5 months of our fiscal year, we have a preliminary net income of $531 mil- lion, well ahead of forecast. Revenue is up, driven by a 5.3 percent increase in mail volume, yet at the same time expenses are run- ning $176 million under operating projections. Postal employees nationwide are doing a fine job in terms of both bottom-line performance and top line concern for customers. They care about their communities. They care about their neighbors. It shows in their performance. They are reminding us that serving the Nation one address at a time every day, consistently, promptly, carefully, is important worthwhile work. They are doing a good job. That brings me to the second mandate, running the Postal Serv- ice like a business. In the last 2¥2 years we have made improve- ments in this area, too. We restructured our organization, saving $1 billion a year without resorting to layoffs; we held rates steady for 4 years, saving the American people $14 billion; and we kept the eventual increase 2 percentage points below inflation. The Postal Reorganization Act of 1970 has served us well, creat- ing a new breed of government organization—a businesslike public service. But the law never envisioned today’s highly competitive communications industry. To a large degree it puts our destiny out- side of our control. Regulatory oversight is appropriate, but it should not impair our ability to serve customers and provide them with products they want at market prices. It is time for us to reexamine the 25-year- old law that created this organization. It is time for us to take the next step—to make the Postal Service more business-like and com- petitive for the American people. There are three areas we need to focus on. First, we need to free our employees from burdensome rules and bureaucratic red tape and focus their efforts on serving our customers’ mailing needs; sec- ond, we need to free the price setting process so we can respond to the market, stay competitive, and keep costs down; and, third,7 we need to free our products of bureaucratic restrictions and make them more modern and customer oriented. Let’s take them one at a time, starting with our people. We have the largest civilian work force in the Nation. We set wages and work rules through collective bargaining—but it is clear after 20 years that the process is broken. For the fourth time in the last six labor contracts we are headed toward a settlement dictated by arbi- trators—outsiders—people who aren’t accountable to postal cus- tomers. The methods for settling employee disputes also aren’t working. They lead to multiple appeals on the same issue. They produce dif- ferent outcomes in timiler situations. It simply doesn’t pay to make a Federal case out of every workplace dispute, not for employees, managers, and especially our customers who get stuck with the tab. We must have a system that promotes cooperation and agree- ment. The second area we need to change is prices. The price-setting process is out of sync with the speed and direction of modern busi- ness. It takes too long, it costs too much, and it is too inflexible. We are required to prepare a court case and present it to the Postal Rate Commission. The paperwork for the last one filled more than 50 boxes. The Commission studies the filing; they hear testimony from customers. Competitors lobby to raise our prices so they can raise theirs, then the Commission deliberates and eventu- ally recommends new rates. All told, it takes more than a year, and that’s no way to run a business. While we have to spend months revealing proprietary business information to justify new rates, other companies can act overnight. They skim the cream from new business opportunities. We have to wait for the chance to compete. Outside charges have also impacted the prices postal customers must pay. Through 1998, the Postal Service will have paid $14 bil- lion to reduce the Federal deficit since 1987. Some are now propos- ing that the Postal Service prefund its health care costs. However, this would cost the Postal ice at least $11.6 billion and have a devastating impact on our finances. It would force us to file a new rate case seeking at least a 2-cent hike in the first-class stamp and similar increases in other types of mail. It would hurt our com- petitiveness and undercut the progress we have made. It is the wrong way to go. Together we can correct the situation. We can avoid future as- sessments on postal ratepayers. We can simplify the rate-setting process while maintaining appropriate oversight, and make it fast- er and much less expensive. We can make our prices more market- based and competitive. The rewards could be great. With enough business latitude, I believe 1 day we could become a profit center for the Federal Government. The third area of change is our products. Frankly, much of our product line is out of touch with the market. In many cases you pay for what you are sending, not when you want it to get there. Also, regulations are still too complicated and weighty. With changes in the law, we can get the pricing flexibility we need and the freedom to bring new products to market faster.8 Our last mandate may be the most important—keep an eye on the future. America needs the mail—today, tomorrow, and for dec- ades to come. We have a responsibility to provide for the Nation's present and future communication needs. We must continue to im- prove our delivery timeliness and keep our costs low and competi- tive. Mr. Chairman, our employees are working to do just that. In addition, customers are asking us to support their use of electronic communications. People want their electronic mail to be as private and secure as the letter we deliver today. With the help of some leading edge technology firms, we have developed an electronic postmark. It will validate and safeguard America’s e-mail mes- sages, backed by some of the toughest tampering laws in the land. And starting this spring we will begin testing a combination of electronic and hard copy mail. Working with some major cus- tomers, we will use our mail scanning equipment to notify business customers today that this month’s order or last month’s payment is on the way. This new product will help companies manage their cash-flow and operations Better and lower their costs. We need to keep our positive momentum going. Hundreds of thousands of postal employees are doing a great job delivering for the American people. With the help of this subcommittee, they can do so much more. With the right changes in the laws and regulations, we can con- tinue to provide the communications safety net—mail service to ev- eryone, everywhere, every day, and we can do a much better job of operating like a business, making ourselves more competitively fit for the future. Done right, these changes can benefit the entire Nation, bringing better service quality and lower prices. "The Postal Service can deliver excellence to the American people and continue to be one part of Government that pays its own way. Mr. Chairman, we look forward to working with you and the mem- bers of this subcommittee to deliver a new Postal Service, one that can deliver excellence in the next century. Thank you. ; ie response to written questions submitted to Mr. Runyon fol- lows: RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN M. McHUGH TO MARVIN RUNYON? Question 1A. To its credit, the Postal Service is measuring and attempting to im- prove mail delivety performance and customer satisfaction, Vet various news media frequently paint a negative picture of mail delivery, and this has been the case re- cently in the Washington, DC, area, Overall, mail delivery problems and customer dissatisfaction are more prevalent in larger cities than mid-size or smaller ones. What do you see as the most significant barriers to improving the Service's on-time delivery performance and achieving significantly higher levels of customer satisfac- tion? ‘Answer. Growing volumes, a constantly expanding delivery base and the highly complex nature of the postal system itself all present significant challenges to our efforts to improve service performance. We are focusing our efforts in several key areas which we believe hold considerable promise for service improvements. One of those is the area of address quality. In many of our urban areas, a substantial num- ber of deliveries are apartment houses, and for a variety of reasons (e.g., security) apartment residents choose not to use their apartment numbers. The result is that we can't take full advantage of our less error prone automated processing, and we ' Nore: Due to the high cost of printing, Attachments I-VI have been retained in the sub- committee files9 must rely on the personal knowledge of the carrier to effect delivery. Another area of concern is our continuing reliance on commercial air transportation for a signifi- cant portion of our First-Class Mail movement. We have no direct control to ensure that our mail is transported in accordance with our service commitments. For exam- ple, mail may be bumped to accommodate passenger traffic. Similarly, since the ma- jority of routings are not on direct air transportation, we rely upon the air carriers to effect prompt transfers which unfortunately are not always accomplished accord- ing to our service needs. In many of our large urban areas we face unique service challenges. While a significant facility modernization program is in place, a number of postal facilities are aging and not necessarily designed for optimal efficiencies. ‘Transportation on heavily congested streets is also a problem, as is the coordination mail movement among numerous facilities in close geographic proximity. Question 1B. Given that the news media often cites data gathered and reported by the Postal Service to criticize its performance, what plans, if any, do you have to change your public reporting of such data? Answer, We work very hard to provide news media with the necessary perspective on data that management releases, be it service performance data or financial data. Invariably, when we have the opportunity to provide background, the media reports the story accurately. The obstacle we face—like other government organizations in Washington, D.C.—is the reporting of misinformation or data. Often, we find that in these instances, the information is either incomplete or its analysis is slanted to a particular point of view. Question 2A. A report prepared by GAO in 1992 states that the Postal Service was developing a customer satisfaction index intended to monitor the satisfaction levels of business customers, which account for 88 percent of the Service’s mail vol- ume. I understand that the Gallup organization was awarded the contract to collect this data. What is the current status of this effort? Has the Service received any survey results on business customer satisfaction? If not, when does the Service ex- pect to receive results from the survey? If'so, what do the results show is the overall level of satisfaction? Are your managers and employees using information from these surveys to improve business customer satisfaction? Answer. The Business Customer Satisfaction Index (BCSI) is an ongoing process of measuring the satisfaction level of our business customers. The BCS! system has gathered data since Quarter IV, FY 1994. At this point three quarters of data are available (Quarter IV, FY 1994; Quarter I, FY 1995; Quarter II, FY 1995). The BCSI looks at customers in a very a'specific way. The marketplace is segmented into na- tional accounts (very large mailers); premier accounts (mailers spending over $250,000 or more in postage but not national accounts); business accounts (mailers spending less than $250,000 in postage); and small businesses (mailers spending less than $100,000 on postage). Therefore, there is not an overall rating for business customers, nor are the results of the individual categories rolled up into a national rating. A review of our BCSI performance indicators is currently being conducted by an action planning team focused on the Malcolm Baldrige criteria, section 7.4 ‘ustomer Satisfaction Determination. Upon completion of this review, a determina- tion will be made regarding the release of BCSI data. Question 2B. How much have you spent on this contract to date? Please supply a copy of the contract for the record. Answer, The Postal Service signed a four year fixed price contract with the Gallup Organization on April 8, 1993, for $8.3 million to develop and implement the BC: process. Since the contract signing, several modifications have been made including additional sampling of large business accounts and an improved process for identify- ing the appropriate customer contacts to be surveyed. These improvements in- creased the net fixed price of the BCSI contract to $11.9 million, which will be ex- pended over the life of the contract. The Postal Service has expended $4.2 million to date, for research and development, pilot testing, and quarterly data collection. A copy of the contract is provided as Attachment I. Question 3. In a recent speech to the National Press Club, you mentioned a Peter Hart survey that showed 85 percent of Americans consider mail service reliable, al- though 39 percent see a wide gap between the “good” service they receive and the “excellent” service they expect. Was this survey requested by Postal Service? If so, why was it needed if you already have the Customer Satisfaction Index? Answer. The findings cited were incidental to the purpose of the Peter Hart re- search. They were developed from a survey commissioned by our Corporate Rela- Hons department to measure the effectiveness of information being provided to the general public about the proposed rate increases. ‘The purpose of the survey was to letermine if messaging elements such as “four years since the last rate increase,” “we don’t use your taxes,” etc. were having an impact on the receiving audiences. We also wanted to gauge the impact of the negative news coverage about service10 problems in Chicago and Washington, D.C., and determine if it had seriously dam- aged the reputation and image of the Postal Service. These are not elements that can be determined from the data in the Customer Satisfaction Index. Question 4. My office was recently contacted by a third class mailer who claims $5,000 in third class merchandise was lost by the Postal Service. What are your pro- cedures in addressing such a claim? ‘Answer. We provide several services that may be purchased at the time of mailing that will provide indemnity for third-class merchandise, Insurance can be purchased for articles sent by third-class mail to provide coverage up to $600 for loss or dam- age which occurs in the mail. In the event of loss, the mailer may file an indemnity claim at any post office by presenting the original mailing receipt showing that in- surance coverage was purchased and a written statement from either the addressee or the addressee’s post office stating that the article was not delivered Customers may also choose to send requested third-class merchandise as Collect- on-Delivery (COD) and have the amount of the merchandise and/or the amount of the postage and fees collected from the addressee. COD service also includes insur- ance coverage for the value of the merchandise. Question 5. You state in your testimony that 84 percent of all local First Class Mail is being delivered overnight. What is the Service's goal for overnight First Class on-time service performance Answer. Our goal is for each performance cluster to provide consistent service per- formance and continuously improve. Question 6A. The Postal Service used to advertise its Priority Mail as “2 pounds in 2 days for 2 dollars”. Because of the Service’s inability to consistently deliver Pri- ority Mail in 2 days, the ad was dropped. In 1993 testimony before the Senate, you stated that the Service was committed to delivering 90 percent of Priority Mail within 2 days by the end of September 1993. However, according to your 1994 An- nual Report, 80 percent of Priority Mail was delivered within 2 days, which is down from the 1993 figure of 84 percent, How do you explain these declining statistics? What are you doing about it! Answer. While we have not yet achieved our short-term goal of delivering 90 per- cent of all Priority Mail within two days nationally, there are many ongins and des- tinations within our network that regularly meet or exceed that goal In 1994, we went through a Business Process Reengineering of Priority Mail This process en- abled us to closely examine each step in the Priority Mail system. We are currently in the process of fine tuning the reengineering effort. Question 6B. How do you respond to complaints from customers that they paid for a service—two day delivery--that they did not receive? What steps do you have in place to begin to respond to customers who are not satisfied with the service they are receiving? Answer. We have removed any reference to “2-day” delivery from our advertise- ments. However, we still recognize our obligation to meet service commitments. In those instances where we fail to do so, we have managers across the country work- ing with local Priority Mail customers to analyze specific problems. In some cases, the fix can be as simple as rerouting a truck or changing a dispatch time. In other cases, it becomes more complicated trying to determine where in the process the breakdown occurred. We are preparing to put in place a “system” that will help us to determine the root causes of failures so that we can be more responsive, Question 6C. Are you still committed to delivering 90 percent of Priority mail within 2 days? If so, when will you achieve this goal and how? ‘Answer. Based on our current operating plans and available transportation, 95 percent of Priority Mail is committed for delivery within two days. We are currently in the process of fine tuning the reengineering effort as well as preparing the cost analysis for implementation. We are planning that a number of test sites will be up and running before the end of the year. ‘Question GD. As of 1993, the Postal Service's national performance goal for Prior- ity Mail was 2 day delivery 95 Percent of the time, is this still a goal? When and how will it be achieved? Answer. Our ultimate goal for on-time service performance is to provide the same level of service as our competitors which generally falls within the range of 95-97 percent. Once our plan is fully implemented, we feel we will be in a position to pro- vide this level of service. Question 7. A few years ago, the Postal Service lowered service standards for a significant portion of First-Class Mail, Some First-Class Mail that was supposed to be delivered overnight was put into the two-day delivery category and some two- day mail was put in the three-day delivery category. This change was supposed to improve on-time delivery performance for all mail: However the Postal Service's per-1 formance does not appear to have improved. Do you have any plans to further revise service standards? Answer. We do not have any plans to systematically review and revise the current, First-Class Mail service commitments. Question 8. The Washington Post recently reported that the Board of Governors had taken greater control of decisions on selection and compensation of Postal Serv- ice executives. What involvement did the Board have in this area in the past? Spe- cifically, what was the process followed in selecting your current Vice Presidents and setting their total compensation? How has this processed now changed? Answer. Regarding the selection of Postal Service executives (PCES-II level offi- cers), the Board of Governors has no involvement in their selection and appoint- ment. The Postal Reorganization Act states specifically that officers are “appointed by, and serve at the pleasure of, the Postmaster General” (39 U.S.C. 204). There are, however, two exceptions: 1) The Bylaws of the Board require the concurrence of the governors with the Postmaster General in the removal or transfer of the Chief Postal inspector [39 C.F.R. 3.4(0]. 2) The charter of the Audit Committee provides that the official responsible for the internal audit function (Assistant Chief Inspec- tor—Audit) may be removed only by action of the Board. (BOG Resolution No. 82— 1 There has not been a real change in the process for setting officers’ compensation. For years a bylaw of the Board has reserved for Board approval the compensation of officers in level PCES-II. (39 C.F-R.3.3(m), In August 1992, to better utilize the Board’s time, the Board delegated authority to the Postmaster General to fix the ‘compensation of officers within a salary range and to report to the Board periodi- cally on officers’ compensation levels. In February 1995 the Board established a Compensation Committee, consisting of four governors, to review officers’ compensa- tion and any performance based incentive plan for PCES-I managers and PCES— Il officers and to make its recommendations to the full Board on management's pro- posals. (BOG Resolution No. 95-3.) Question 9A. During your approximately two and a half years as Postmaster Gen- eral, there have been man} ges at the corporate officer level. Sixteen of the 21 Vice Presidents in postal headquarters have served less time than you in current sitions. Some key leadership positions are vacant such as Consumer Advocate. at has been the reason for this turnover at the corporate officer level? Answer. There are several reasons for the changes we made at the corporate offi- cer level: these included personal reasons, performance reasons, and organizational redesign reasons when we saw our original structure needed some adjustments. Question 9B. Will the vacant officer positions be filled? If so, when? Answer. We currently have four officer vacancies: Vice President, Marketing Sys- tems; Vice President and Consumer Advocate; Vice President, Product Management; and the Vice President, Retail. We are currently considering finalists for the Vice President, Marketing Systems. We are identifying candidates for the Vice President and Consumer Advocate and the Vice President, Retail. We will be filling the Vice President, Product Management, sometime in the future. Question 9C. You recently announced the appointment of your former Vice Presi- dent for Marketing Systems as your new Vice President for Human Resources. It would appear at first glance that there is quite a bit of difference between the areas of marketing and human resources; what led you to believe that the experience gained in marketing was transferable to human resources? Answer, ‘Ms. Sonnenbery’s marketing experiences are certainly transferable to Human Resources. Just as the Marketing function is customer focused, so, t00, is the Human Resources function. Ms. Sonnenberg brings her knowledge and’ experi- ence in developing and implementing systems, procedures and programs affecting field operations, She also brings a sense of reality to Human Hesourees based on her leadership in postal rate cases. Finally, as an officer of the Postal Service she brings her global vision and strategic planning capabilities. Question 9D. I understand that several former City Bank employees have been hired as consultants to the Postal Service after Mr. Loren Smith became Senior Vice President for Marketing. Mr. Smith is a former City Bank official. How many such consultants have been hired? Answer. There have not been any former Citibank employees hired as consultants to the Postal Service. Five individuals/firms with whom Mr. Smith has had profes- sional relationships in the past are presently under consulting contract with the Postal Service for varying business needs. Question 9, Please explain the situation surrounding the recent retirement of the Postal Service’s Consumer Advocate, Ann Robinson, and elaborate on any subse- quent changes to the external measurement systems you have in place. What office12 is responsible for receiving, monitoring, analyzing, and reporting these measure- ments? ‘Answer. Vice President and Consumer Advocate Ann McK. Robinson chose to re- tire on January 20, 1995, after a successful 29 year postal career. The Consumer Advocate’s Office is still responsible for receiving, monitoring, analyzing and report- ing on all the external measurements for the Postal Service. juestion 10A. One of the complaints of mailers and union officials is that the posi- tion of the Postmaster General has had significant turnover. This turnover has re- Sulted in constant changes in management of the organization resulting from the style that is brought to the organization by new leadership. As noted in the previous question, changes in your senior level leadership has been significant. Please ex- in how you are attempting to control constant management changes due to dif- ferent management styles at the levels directly below you. ‘Answer. Change is an integral part of today’s business environment. Identifying and placing suoessful managers in critical vacancies is an ongoing provess, The management changes executed over the last two years have resulted in the Postal Service attaining its financial goals and improving service to its highest levels, as independently reported by Price Waterhouse, Rather than attempting to, control these successful changes, we will continue to look for opportunities to appoint execu- tives and managers capable achieving our corporate goals. Question 10B. What are your visions for the long-term of the current management team that you have in place? That is, are there additional management changes that you foresee at the senior levels over the next two years or do you think you have the correct management team in place now? ‘Answer. Currently we have four officer vacancies, We are in the process of ident fying and appointing qualified individuals to fill these important positions. The cur- rent officer corps consists of executives who are helping the Postal Service achieve its strategic goals and are a successful management team. We anticipate that as fu- ture vacancies occur, as they do in any dynamic workforce, we will fill those posi- tions with similarly experienced individuals. uestion 11A. In the 1992 reorganization, you eliminated 30,000 jobs, but over 48,000 workers left the Service. As a result, many facilities lacked qualified job ap- plicants and overtime was running higher than anticipated. Although the restruc- turing cost the Service slightly over a billion dollars, you expected to save about $1.4 billion annually beginning in 1994. However, GAO's report on automation released on February 23, 1605, shows that career employment has grown to pre-downsizin fevels. To what extent have you hired new employees to replace those who retired as part of the 1992 downsizing? Also, please provide for the record a chart showing for each year since 1990, the number of full-time, part-time, and transitional em- ployees working for the Postal Service at the beginning of each fiscal year. Please Include a brief explanation of how or when a transitional employee becomes a full- time employee. Answer. It is not possible from national statistics to determine whether individual employees were hired due to mail volume and Population growth, or as replacement ring. Attachment II is a report which shows the NALC and APWU employment figures for full-time, part-time and transitional employees for each union as of accounting Period 1 each fseal year. It does not include BAS, rural carriers, mail handlers, ete. Jn our counts since there is no transitional category of employment for those groups. The second report shows the mumber of transitional employees currently on the ros in each of our Performance Clusters in order of highest to lowest. With zard to how a transitional employee becomes career, the Postal Service signed a Memorandum of Understanding (MOU) for enhanced career opportunities with the National Association of Letter Carriers (NALC) in July 30, 1993, that gave ‘NALC transitional employees an opportunity to take the examination for career ap- pointment. A minimum of 180 days employment in a transitional assignment is re- fuired for a transitional employee to take the examination. On September 24, 1993, we signed a similar MOU with the American Postal Workers Union which gave their transitional employees two opportunities to take an examination. Concerning transitional employees understanding of our employment procedures, we recently introduced a new battery examination which replaced four of our older examinations. Because of this change, Districts posted instructions in work places with transitional employees for them’ to sign up to take the new examination. In the case of both NALC and APWU transitional employees, they are represented bj their unions, which polices the appropriate application of the respective MOUs wit regard to career opportunities. Ince transitional employees qualify on the examination, their names are placed on the competitive hiring register in regular rank and score order along with other