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Thursday, March 19, 1998.





Opening Comments by Mr. Kolbe

    Mr. KOLBE [presiding]. The Subcommittee will come to order.

    Before I welcome Mr. Runyon and make a brief opening statement, let me tell the members of the subcommittee that Mr. Hoyer and I have a little business to conduct here. [Laughter.]

    There is a basketball game, this evening, and, as is customary, we thought it would be wise for us to make a little bet on this game. I might add, a very friendly bet. Nothing that would get us into trouble here. So, I am quite confident of Arizona's victory this evening, since we won the championship last year, although we certainly regard Maryland as a worthy sparring partner for us this evening, in this Sweet 16 round. But we've decided it is, of course, it's a formidable opponent. So we're going to have a little bet here.
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    First of all, we're going to have this person sit with us here today. We're going to look right at Mr. Hoyer all day there. This is a U of A wildcat—very ferocious wildcat, here. We're friendly, but very ferocious. Now, he's got to stand up with all of us here. [Laughter.]

    We have trouble standing. We'll lean up against the—there, over there. [Laughter.]

    As I am prepared, in the very unlikely eventuality, that the University of Arizona were to lose this evening, I am prepared to offer to you and your staff an authentic Mexican luncheon or dinner, enchiladas and tamales, tacos, all the good stuff, brought in from, I might add—none of this Tex/Mex stuff that you are used to getting around here and being sold as, pawned off on you as real Mexican food. This will be real stuff here. And this will come all the way from Arizona, where we really savor good Mexican food. That's in the eventuality, very unlikely eventuality, that we would lose. But, I'd be certainly happy to entertain an offer from you in the very likely opportunity, all likelihood, that you were to lose here. [Laughter.]

    Mr. HOYER. We have drafted a letter, and we will send flowers by wire tonight to Lute Olson. He will be the saddest human being in the United States of America. Lute Olson is the coach of the University of Arizona. We have also sent him a telegram today, saying that I have talked to Chairman Kolbe, I have great respect for his judgment, and he indicates that he believes the University of Maryland will not be any problem at all to the University of Arizona, and they really ought not to worry about this upstart team from the East. So that he probably doesn't even need to bring his first string to play tonight. [Laughter.]
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    Mr. KOLBE. We do fine with the second string, anyhow. That's the depth that we have. [Laughter.]

    But, the fact of the matter is, my staff is going to enjoy that Mexican dinner flown in from the state of Arizona. I'm glad to hear it's coming from the state of Arizona, and not Mexico itself, as a real Mexican dinner. But, we are going to have, and we haven't ordered these yet, and don't think we'll have to order them. In fact, if we get them, we'll probably eat them ourselves, a sufficient quantity, whether it's a bushel or more. However hungry the staff might be and the Congressmen, the chairman, Maryland crabs. Now, we don't eat terrapin, of course, because terrapin are sacred food. [Laughter.]

    Mr. HOYER. Pretty tasty.

    Mr. KOLBE. I should have brought a Terrapin. I wish—I'm thinking—I wish I'd brought a terrapin to sort of slowing, amble over there, and push your—what is it?

    Mr. HOYER. Wildcat. [Laughter.]

    Mr. KOLBE. The wildcat. [Laughter.]

    Mr. HOYER. Something that looks ferocious to you. [Laughter.]

    How could I forget that was a wildcat. [Laughter.]
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    It's an obscene animal, obviously. [Laughter.]

    Whatever it is. But, the University of Maryland, I want you to know—I want everybody in this room to know, and I hope there's some press here that's going to cover this—I am currently in the lead of our office pool. Now, we don't bet, of course, in my office. The money is just for show. [Laughter.]

    It's sort of like a monopoly game. But, having said that, I am in the lead of our pool. Actually, I'm not, I'm second. But the person who is leading our pool picked Kansas to win the final, so he is essentially out of the pool. I want to tell you that I have picked Maryland to go to the finals. It will be an all ACC final. It will be Duke and Maryland, and I'm not sure that we can get by Duke. But, I am confident that we can get by the University of Arizona. We play tonight. I will be watching with great expectation today and we may even get a first class priority letter delivered on time or ahead of schedule, I'm sure, Mr. Postmaster General, from Mr. Olson saying, ''Well, I guess you showed the Chairman once again.''

    Mr. Chairman.

    You will have a full crab dinner, for you and your staff—in the unlikely event that Arizona prevails tonight. Well, I think it's a worthy challenge, and, actually, we can say good luck to both of the teams here. [Laughter.]

    He's just a little top heavy today here. Boo.

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    Mr. KOLBE. Thank you very much. And we will proceed now with the hearing, Mr. Runyon. Postmaster General, we welcome you and Mr. Coughlin to our Subcommittee this afternoon. And we particularly welcome you, since this is your last appearance. We congratulate you on your retirement.

    Mr. HOYER. How much staying power, Mr. General?

    Mr. KOLBE. We congratulate you on your decision. We wish you well in your endeavors, wherever they might take you. In preparing for this, I was reading, and staff were reading, your remarks you delivered at the National Postal Forum in Las Vegas at the beginning of the month. I think the accomplishments that you had as Postmaster General over the last 6 years are very commendable.

    Just three-and-half years ago, you appeared before this Subcommittee and explained why service in Washington, D.C. had the worst first class mail performance in the nation. And then you were averaging only 82 percent on time delivery. Today you boast a national on time delivery rate of 92 percent for first class letters. There are still concerns about two and three day delivery rates in some places, but I think you certainly can be congratulated for the progress that you've made.

    I was also struck by the remarks you made at that same forum, about your vision of the future of the Postal Service you had when you took over six years ago. You spoke of freeing the Postal Service from the ''burden of rules and red tape, of outdated systems, and cumbersome procedures.'' You also spoke about being able to ''keep pace with smaller, more agile competitors, lightening fast technologies that were springing to life on the communications landscape.'' Although there are many in Congress, as well as in the private sector, who will criticize you for some of the innovations, as you've looked for ways to make the Postal Service more businesslike, I think that in the long run your business vision and the expertise in management that you've brought to this organization have served your customers very well.
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    I think the evidence of this is in the last three years, the Postal Service has actually earned more than $4.6 billion, instead of losing money, as has been the case for the last 23 years. After nearly four years of steady stamp price increases, the Postal Service is looking at raising the price of the first class stamp by only $.01. This is less than half the rate of inflation, the lowest proposed rate of increase in the 26 years of the Postal Service.

    I don't necessarily agree with all the business operations that you've pursued, particularly some of those that have a real impact on small businesses. But, I think that, in general, you have been smart to look for ways to satisfy your customers by expanding operations and offering new services. This, too, has paid off. The American people have just given the Postal Service the highest favorability rating among all the Federal agencies, a rating of 89 percent. I am certain that Congress does not come close to those levels. We know it doesn't come anywhere close to that. So maybe you can give us just a few tips as you go out the door hear about what we could do to improve our ratings.

    Postmaster General Runyon, I look forward to your testimony this afternoon. Before we call on you, let me see if Mr. Hoyer has some opening remarks.

Opening Comments by Mr. Hoyer

    Mr. HOYER. Thank you very much, Mr. Chairman. I share your remarks, of course. I may not have some of the concerns you have. Let me make some comments, however, about General Runyon.

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    The United States of America is blessed, on a regular basis, by having some extraordinarily capable people who have been very big successes in the private sector, who agree at very, very, very substantial financial cost to them, to come into public service, and to lend to the public service their experience and their talent. Their experience from the private sector on carrying about the bottom line, so that the enterprise which they had, will be a profitable enterprise.

    In the Postal Service, of course, unlike some other agencies in government, we can see a bottom line, which makes the analysis a little easier. But, Mr. Runyon's tasks, Mr. Chairman, you were not on this committee at that point in time, but, nevertheless, the subcommittee, but you were on the full committee and obviously knew of the challenges that confronted the postmaster general when he took over this responsibility. He has done a magnificent job. That is a word that I use advisedly, not just to guild the lily. He came in at a time when the Postal Service performance, even not—the ratings were still pretty good because when the Postal Service is down a point, you tick off millions of people in terms of delivery.

    The volume they do, if you're not hitting 1,000, the 1 percent that you don't do right, there are a whole lot of folks who are affected, just because of the volume. So, there is a lot of criticism. And the Postal Service was not doing nearly as well as it should have been doing when Marvin Runyon took over the helm.

    There were a number of Members of Congress who wanted him to resign before he started. I told them I thought they were being a little premature. I was concerned about the performance, but they were being premature, and that we ought to give somebody who had performed so very, very well in the private sector, and so very well in the quasi-public sector—I suppose TVA would be somewhat like the Postal Service—a chance to exercise his judgment and leadership.
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    And, Mr. Postmaster General, all of us who have seen you operate in the last six years, I think are very, very proud of what you've done. You have done so at times when I think there was unfair criticism, and, as is so prevalent in public life today, a questioning of your integrity where a lesser person could have said, ''I don't need this, I'm gone.'' You did not do that. And, I have great respect for you for that reason alone.

    But, in this country, it is popular, or sort of fun, to poke fun at the Postal Service. But the Chairman is absolutely right. I guess there are about 15 government agencies on this list of favorability ratings. When the Postal Service is number 1, and has almost 90 percent of the American public, 9 out of every 10 Americans, saying that the Postal Service is an agency for which they have a favorable opinion, is a magnificent achievement.

    Mr. Chairman, it's an achievement for Mr. Runyon, of course. But, as any good manager will tell you, you don't do it alone. If you're the quarterback, you need somebody to catch the pass, run the ball, and block, and you need a defense that can do the job. You can not win the game alone. I don't care if you're Michael Jordan in basketball, you've got to have Rodman getting the ball off the boards and getting it down, and you've go to have Scotty Pippin. They've also got to watch so they can't put four people on you. You've got to have a team.

    And the men and women of the United States Postal Service—management, postal workers, people who deliver the mail, people who sort it—every one of those people have responded to Mr. Runyon's leadership and, with teamwork, accomplished a great deal. Not only for the Postal Service, but, in my opinion, for the public's better faith in government.

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    Let me say something about your comment on not agreeing on some of the things he's done, because of small business. Frankly, the United States Postal Service is one of the oldest government services we have. And the United States public, Mr. Chairman, wanted to have a postal service on which they could rely, and they wanted it to be a public service so that it would not be solely driven by profit, but be driven, as well, by service. So that even in small communities in Arizona or Maryland, or in Kentucky, you would get good service. Obviously, you'd get good service in Louisville, or Phoenix, or Bowie, where there are large numbers of people and it's economic to do so. So, that's an additional challenge.

    But, I think what Mr. Runyon has brought to the Postal Service is what I hear on both sides of the aisle—we want every leader to bring to government—and that is business practices that the public will respond to and, therefore, will provide a profit. Again, of either a profit because service is better, or profit in terms of bottom line economics.

    And so, Mr. Runyon, not only do I not disagree with that, I understand there are some folks in the private sector who are also in business of delivering parcels or messages, or whatever, and God bless them. I think it makes you, as a Postal Service, better. Competition makes us all better. Arizona and Maryland are better teams because they've got to gear up for one another. If you always play in the boys' club and you are a college team, you wouldn't do nearly as well.

    And I know this has been a little extended, Mr. Chairman, but I think it is right and proper when we in Congress, who are very fast to criticize those who carry out executive responsibilities, to make sure that when executive responsibilities are carried out with the degree of success that Mr. Runyon's service in the United States Postal Service has reflected. It is absolutely essential that we acknowledge that, congratulate you, and thank you for what you have done for your Country, and for the United States Postal Service. Thank you, Mr. Chairman.
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    Mr. KOLBE. Thank you very much. If there are no other opening statements, let me turn to Mr. Runyon for your testimony, and remind you that, of course, the full statement can be placed in the record, if you wish to summarize it for us today. Mr. Runyon.

Postmaster General Runyon's Statement

    Mr. RUNYON. Well, thank you, and good afternoon, Mr. Chairman and members of the committee. Joining me today is the Deputy Postmaster General, Mike Coughlin. As you say, I have submitted a written statement for the records, and, in the interest of time, I'll briefly summarize it, and then Mike and I would be pleased to answer any questions that you may have.

    As you said, today marks my final appearance before this subcommittee, and I want to thank the members for your strong interest in the nation's mail system. Your counsel and support have been valuable to me and to the Postal Service. You've also been generous with your praise when our employees have delivered better service and financial performance, and we appreciate that.


    We're here today to request an appropriation of $100,195,000 for Fiscal Year 1999. That money represents postage to the Postal Service. The beneficiaries, however, are persons designated by Congress to receive reduced postage rates, which in this case, are largely free mail for the blind, and overseas voting. The Congress has recognized a special need to support communications for the blind, and to ensure that Americans abroad are not disenfranchised from their right to vote. These two services are also representative of a far and larger duty that Congress has entrusted to the Postal Service to bind the nation together through universal mail service. As a consequence, all Americans rely upon the Postal Service to do business, stay in touch, and carry out their civic responsibilities.
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    There is considerable cost involved with this mission, too. The cost of keeping open thousands of small post offices that do not pay their own way. The cost of delivering letters at a uniform price to all areas of the Country, no matter how great the distance or how remote the location. At the same time, the Postal Service is chartered to operate like a business in a very competitive market place, and to pay its own way. Some see these goals as incompatible. The truth is, a self supporting universal service must be run like a business, or it will cease to be either self supporting or universal.

    I believe during the past six years, the Postal Service has shown that it's possible to do both. Recently, as you've said, the American people did cast a strong vote of approval for the job that the postal employees are doing. As you said, 9 out of 10 Americans gave the Postal Service the most favorable rating among agencies in the Federal Government, and this report also said, and I quote, ''The Postal Service stands out from other departments.'' The Postal Service stands out because postal employees stand out. It's over 770,000 career postal employees whose dedicated service makes all of this possible. They've brought dramatic change to the Nation's mail, and I am very proud of them.


    The Postal Service began a significant transformation in 1992. It started with a restructuring to make the Postal Service less bureaucratic, more efficient, and more customer focused. That same focus and intensity has since been brought to virtually every facet of our business, and we have integrated change, quality, and customer focus into the Postal Service through CustomerPerfect, the way we manage our business. Based on Malcolm Baldrige business principles, CustomerPerfect integrates our plans and programs for maximum effectiveness. It brings together everything, market assessments, planning, budgeting, training, resource allocations, and major initiatives of every kind, in an understandable and actionable way. It sets specific performance targets, ties them to employee compensation, and tracks our progress.
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    These targets are included in our five-year strategic plan presented to Congress, and they are updated in our yearly performance plans to you. More importantly, they are a road map and time line to the measurable service improvements. Not just for local first class mail, but for two and three day deliveries, priority mail, and bulk business mail. We are also adopting new ''Ease of Use'' measures, to make it increasingly easy for customers to do business with us. We are confident these efforts will be successful because they are built on a foundation of success.

    The real price of postage is going down. In 1995, after four years of price stability, we implemented one of the lowest rate increases ever—two full points below inflation. Last summer, we requested the lowest increase in our history. It's less than half the rate of inflation, and only a single penny on the first class stamp. Postal employees have also delivered record service. In 1994, 79 percent of local first class mail was being delivered overnight. That figure has steadily risen to a high of 92 percent at the close of Fiscal Year 1997. Service is up across the board. In rural and suburban areas, and in all of America's large cities. We expect a new record in 1998.

    The Postal Service is also well on the road to financial health. And, while on road, to fulfilling the legislative mandate that our finances break even over time. The $4.6 billion net income of the last 3 years has cut our accumulated losses since reorganization by more than half. We have $4.4 billion yet to recover, and a strategy in place to do so. Achieving that goal is vital. Market price challenges are growing. We face competition for every message, package, and payment that we deliver.

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    The rise of the internet and increasing numbers of personal computers in American households threaten half of our first class mail volume; the bills, payments, and statements which provide nearly 30 percent of our revenue. At risk is not only the heart of our business, but the underpinning for the universal mail network that has served this Nation so well for over two centuries.

    The Postal Service must continue to create customer value through cost control, price restraint, and service improvement. It must continue to promote growth through opportunities in parcel services, global markets, and in satisfying customer needs. We've committed $17 billion over the next five years to build the infrastructure and capabilities that are required.

    The Postal Service is on the move. We are committed by word, deed, and dollar to a transformational path that will keep us a vibrant communications force in public service in the 21st century. I appreciate the support of this subcommittee and this Congress as we move forward.

    Thank you, Mr. Chairman. Mike and I'd be glad to respond to any questions you have.

    [The information follows:]

    "The Official Committee record contains additional material here."

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    Mr. KOLBE. Thank you very much, Postmaster General Runyon, and let me begin by just asking a couple of questions on your non-postal commercial operations.

    The report that you submitted to the Committee a month ago says that non-mail, or non-postal type of activities helps to finance the unprofitable public services. And you say that they therefore protect rate payers. In what ways do these non-postal operations protect rate payers?

    Mr. RUNYON. Any revenues that we obtain in any way help to keep our rates low. And we want to keep our rates low and constant. As I said before, in the past, well, 6 years, we've only had one rate increase. After 3 1/2 years, we're only going to raise our rates one penny, and, I think that it's very important that we look at everything we do to see what we can do to increase our revenue so that we can maintain a very low rate on postage.

    Mr. KOLBE. What are the revenues you generate from the non-postal operations, as opposed to the postal operations? Just give me some comparison.

    Mr. COUGHLIN. My recollection is that on merchandise, it's in the neighborhood of 25, $26 million, and on packaging products, it's about $53 million, Mr. Chairman. We can provide the specifics of it to you, but——

    Mr. KOLBE. Million?

    Mr. COUGHLIN. Millions, right.
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    Mr. KOLBE. As opposed to what is your postal revenue?

    Mr. COUGHLIN. About $60 billion. It's very small.

    Mr. KOLBE. So, it's tiny. Some of your non-postal operations do lose some money. I think your, what's called the Dinero-Seguro program, where Mexican customers can transfer money electronically to friends and family in Mexico. Phone cards have been revenue losses. How do you make a determination as to how long you keep those services around before you decide to drop them, since they're obviously not basic to your operation. There can be no justification for keeping a money losing operation.

    Mr. RUNYON. Let me take a shot at that, then you can follow. Actually, both of those operations are something that we are trying out. We pilot those in certain of our locations and then we expand on them. And that's the phase that we're in right now. I will say, though, that we issue a lot of money orders, and Denero-Seguro is an extension of the money order business. I think we had, what, 200 and——

    Mr. COUGHLIN. 206,000,000 money orders issued last year.

    Mr. RUNYON. Yes, for $26.4 billion. So, we have been in the money order business for what, over 100.

    Mr. COUGHLIN. One hundred years.

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    Mr. RUNYON. One hundred-and-some-odd years, and this is just another way of using the money order. And we were asked by the Mexican Government to try to figure out how we can help them. It's very difficult for them to assure delivery of money orders through their mail system. Much more difficult than it is for us. We don't have this as a problem like that. And this Dinero-Seguro, what that does it provide a way for people to receive their money without having to have the chance of it disappearing somewhere. So, I think that's a very important thing. I think you had some other information on that.

    Mr. COUGHLIN. I'd comment on, first of all, on the phone cards. We have just crossed over into a situation of profitability with the phone cards, and we're pretty confident that's going to stay that way. How long we stay in that business depends. We have, right now, an alliance with an external company to provide that. It will go on for the next 3 years. Denero-Seguro is in a test phase. It now covers about 900 post offices in the southwest part of the United States. We're seeing increasing, we're seeing the revenues and the gap between expenses and revenues close over that. And we are reasonably confident that that's going to become a profitable situation fairly soon. We are due to examine it again later this year, and we'll make a determination at that point as to whether or not we should go forward.

    Mr. KOLBE. The figures you gave me earlier on non-postal operations were net revenues, were they not?

    Mr. COUGHLIN. They talked about two categories of revenues here. One was the merchandise.

    Mr. KOLBE. Right.
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    Mr. COUGHLIN. That's associated largely with.

    Mr. KOLBE. And you said you thought that was about.

    Mr. COUGHLIN. That's in the range of $25, $26 million, as I recall. There is also a whole range of packaging products we provide.

    Mr. KOLBE. Right. But those are net, right?

    Mr. COUGHLIN. No. Those are gross.

    Mr. KOLBE. Those are gross?

    Mr. COUGHLIN. Those are gross numbers, okay. These do not include revenues from—these do not include revenues from the phone cards or Denero-Seguro. Those types of——

    Mr. KOLBE. And the other communications kinds of things.

    Mr. COUGHLIN. Right.

    Mr. KOLBE. One other question here: How do you, make a determination about what kinds of services to go into, what kinds of non-postal operations to go into? Like any business, you would do a marketing study. But, I mean, what is the basic thing in which you—the first question you ask—is this something we should even be looking at.
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    Mr. COUGHLIN. I think the first thing is it is driven by the customer. Is the customer asking for it in any way shape or form? Is it an extension. Is it a logical extension of a service that we have traditionally provided. I believe, for example, Denero-Seguro is. Does it leverage a significant institutional asset, such as our stamp program and our stamp images. It's those kinds of questions that we ask. And, in fact, if you look closely at the activities, the merchandise, and the products we're in, you can usually find one, it's customer driven, or two, it's related to one of those other things.


    Mr. KOLBE. I was going to ask how selling Looney Tunes ties ties in, but you're saying it's tied to your stamps?

    Mr. COUGHLIN. Absolutely.

    Mr. KOLBE. The marketing of stamps?

    Mr. COUGHLIN. Yes.

    Mr. KOLBE. Well, these are two marketing things that go together.

    Mr. COUGHLIN. Right.

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    Mr. KOLBE. One stamps, one other product. Mr. Hoyer.


    Mr. HOYER. General, I've been very proud of and have participated in a number of events with you, and Mike and others in the department, and want to say by the way, that Mitch King has been terrific to deal with. I mean, he does a great job for the Postal Service, and I want to thank him for all he does. We talked about getting from 68 to 76 to 83 to now we're staying pretty stable. In southern Maryland, we're up to 94. I guess, last time around, fantastic figures. West Virginia, we had a problem, obviously, because, you know, competition always generates somebody who wants to make themselves look better by cheating. What happened there and where do we stand on that, and how are we making sure that doesn't happen in other places?

    Mr. RUNYON. We had a group of employees that had figured out a way to improve their performance, which was not a way that we thought was very good. We took immediate action to solve that problem, to get rid of that problem, and we have looked at how we can safeguard the entire system from doing that, and have put in place things that will safeguard the system. So, we had something that went wrong, and we fixed it.

    Mr. HOYER. And I want to, in an era where the vice president is saying, ''do more with less, have an entrepreneurial spirit, have an initiative,'' people are going to mess up either inadvertently or venally, if you will. And we've got to take that risk. The good news is, in this instance, and I think it's a perfect example, where you got on top of it right away, solved the problem right away, and we're moving on. I think the system is better for it, and I wanted to bring that out because I think, you know, when you've got, how many employees do you have now, 100 and——
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    Mr. RUNYON. Approximately 825,000.


    Mr. HOYER. Yeah. You know, you're going to have some people trying to get the edge. But, I thought you handled that well. The statistics are fantastic. BEP, as you know, which your stamps are a part of this committee's jurisdiction, and the director came in and said that stamp demand was going to be down. Can you explain that? Why are they projecting stamp demand down?

    Mr. RUNYON. Well, first, some time ago—I don't know how long ago it was—it became apparent that they couldn't handle all of our stamp production. And, so, they told us that and we had to go outside and find other companies that could actually produce stamps. So that now then, we give the stamp production to those people placed on price, quality, and, just like you buy anything else. I'm not familiar with the fact that they may be going down. They may be, but that's not something that I keep in touch of all the time. But I'll be glad to supply for the record what's happening there.

    [The information follows:]

    The Postal Service has a five-year agreement with the Bureau of Engraving and Printing to produce postage stamps from 1998 through the year 2002.

    Under the terms of the agreement, the Bureau will print a minimum of 22 billion stamps in fiscal year 1998; a minimum of 18 billion stamps in fiscal year 1999; and for fiscal years 2000 through 2002, a minimum of 15 billion stamps annually.
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    Mr. HOYER. That would be interesting because, obviously, they do believe it. But it's not, as you are pointing out, because of a lack of business that the Postal Service has.

    Mr. RUNYON. No. Capacity and competitiveness enters into that, and that's another area where we need to be competitive in every area of government. They need to be competitive, too, and I think they are.


    Mr. HOYER. Good. Next question. Worker's compensation. Over the past few years there's been a lot of discussion, obviously surrounding worker's compensation programs. The Department of Labor has been looking at this and various approaches of managing health care costs in worker's compensation programs. What efforts has the Postal Service taken to review private sector approaches as a means of controlling its health care costs?

    Mr. COUGHLIN. Well, we've——

    Mr. HOYER. Under the worker's compensation claimant? I'll ask in that context.

    Mr. COUGHLIN. We've talked to numerous external consulting firms. We've talked to other federal agencies who were involved with the Federal worker's compensation program. We've talked to those familiar with the State systems, as well. The private sector systems. And the upshot of all of that, I think has been, what I would characterize as a world class operation on worker's compensation, in terms of the way we manage an injury if it occurs. And we do that in a variety of ways. We put extensive staffing, well trained staffing, out in our field organization to manage an injury once it has occurred, dealing with the suppliers, the doctors and the hospitals, that type of thing. We work directly with the Office of Worker's Compensation at the Department of Labor.
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    More importantly is managing the safety program, itself, to try to avoid those injuries. And I think we've had significant success in that area.

    For example, if you look at the Postal Service and its industrial type operation, we have this year, so far, a lost work day injury rate of 1.65. That compares to an industry average in the private sector of about 3.4 lost work day injuries. And if you look at similar kinds of companies, trucking, courier services, those types of things, you'll see lost work day injury rates between 5 and 6. I think we've made substantial progress in that area. We're not going to be satisfied, though, until we've got both the injury rate itself, and obviously, the worker's compensation cost that follows those, down to zero.


    Mr. HOYER. Very impressive. Thank you. Now, last question, if I might, Mr. Chairman. This is a day for kudos, I suppose, but it seems like a lot of my good friends are leaving what they're doing.Vic Fazio, one of the finest members of this Congress, is leaving. And he wanted me to say thank you, to you. You know, he is very interested in the breast cancer stamp, and he wanted me to pass along to you his real appreciation for the work that you and your staff have done in facilitating the moving ahead on this. And can you just briefly tell us about your plans to insure the success of the stamp, and what's the time line for determining the rate?

    Mr. RUNYON. The stamp has to be issued before August 13 by legislation, and the Board of Governors will make a decision on that, and we're going to be presenting to the board at this meeting, some information about what it will cost us to make a record of all the stamps we sell. You see we're going to sell those for more than the face value. Congress said that we could charge up to, I believe, 25 percent, which would be $.08 over the $0.32, and the board has to make that decision, as to what they want to charge, and what our cost will be. And those are interdependent, so we need to figure that out. But, we'll be presenting that to our board in April, and we'll have more definitive information at that time.
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    Mr. HOYER. Mr. Chairman, I said that's the last, and I know I'm trespassing on time, but, I'm sorry. You issued a stamp that I think everybody on this committee would want to use, and that's the state flag, it was a $0.15 stamp or $0.16. It's very old. I'll admit to the fact that you can't keep using a stamp you really like by somehow upgrading its value. You don't need to answer that question now, but I know when it was a viable stamp, every state liked to use it, particularly members and politicians, in particular.

    But when we got over the value, you couldn't use it any longer. We ought to think about how a popular stamp could be upgraded in terms of value. Excuse me, Mr. Chairman. He doesn't have to answer that, but, I think everybody on the committee would be for it. We'd like to do that.

    Mr. KOLBE. Thank you very much, Mr. Hoyer. Ms. Meek.

    Ms. MEEK. I want to congratulate Mr. Runyon for the job he's done, and I wish you all the best in whatever you seek to do, and I'm hoping the leadership that follows after you will have the same kind of outlook you had for the growth of the Postal Service.

    Mr. RUNYON. Thank you.

    Mr. KOLBE. Thank you very much, Ms. Meek. Ms. Northup.

    Ms. NORTHUP. Yes, thank you.

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    Mr. KOLBE. Would you turn your microphone on, please?


    Ms. NORTHUP. Thank you. Mr. Runyon, before I ask you some questions that are of concern to me, I do want to tell you that I think that the American people and their polled numbers are reflected by our own experience when we go to the post office; that, in fact, there is a wonderful climate and culture of service. It is different than it used to be. The hours are changed so that those of us that work always have late hours of service. There's always a place you can go for 24-hour service. There is a sense that, instead of doing us as postal customers a favor, that they are pleased to have us there.

    And, I have to tell you that, it is so distinguishable between what maybe Americans knew for years, that it's ruined a lot of good jokes from the past. People used to talk about the post office, but it's there, and my constituents really appreciate it. I really do think that you brought part of the culture that's sweeping American businesses to the post office, and that is the culture that, if you're going to be successful, if you're going to be profitable, that the consumer is No. 1. How do you adjust to that culture? You adjust products, service, and so forth, to meet the consumers' needs.

    But there's also a difference between the post office and business, and that is, that the post office does have a monopoly that's guaranteed to the post office. Something that no businesses have. In fact, we saw from Microsoft last week that, if we suspect any business has contrived to create a monopoly, we intervene and ask the Justice Cabinet to investigate, and so forth. So, that's a reason that there are limitations.
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    The challenge to be profitable is to make the monopoly that you have more service oriented and more cost efficient. And, I recognize that a lot of that has been very tough. The Postal Service has seen, I think, just as Ford Motor Company or any other company has experienced, that people who have been in a job and done the same thing for a long time find that, change is hard. They're not sure what direction it's going in.

    There's certainly some consternation among the employees who actually carry out the work. And that's something that your, the post office has had to work through.

    But, back to the question of a monopoly versus the private sector, based on the fact that you have a monopoly, of course, if you are so efficient that you actually create a profit, or if you do everything you can and you can not create a profit, you're able to raise the price of stamps and cover those losses. So, likewise, as you branch out into other fields, or other endeavors, if your costs don't cover the price of those endeavors, you can actually subsidize them with the first class postage. And it has been very difficult to understand how you can offer the prices and the services that you do when you compete with the private sector.


    For example, to ship a 10-pound package from San Francisco to Great Britain, using UPS, would cost $94. To ship the same package, using DHL, would cost $131. However, the Postal Service can ship the same package using GPL, for only $36. To ship a 10-pound package via express mail from Washington to Baltimore, costs $29, almost the same amount as overseas. So, I wonder first of all, how the costs can be so close to deliver domestic and international mail, when they aren't for the private sector.
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    Mr. RUNYON. Do you want to answer that?

    Mr. COUGHLIN. Well, I can't. I can't respond to it specifically, off the top of my head. I guess we can provide you some information for the record, as we have it available. Part of the, and I can't speak to the price and practices of DHL or UPS or others, I just don't know. But part of the thing you've got to look at is the difference in the handling that goes on.

    For example, in your example from Washington to Baltimore, as opposed to, was it San Francisco to Washington, or something like that, that difference, most of the cost that we incur in those kinds of situations, has to do with the personal handling, and less with the transportation. So you'll find some of the differences in that, as opposed to just simply the distance that it is transported.

    Ms. NORTHUP. Well, I guess what I'm saying is, if I mail something from here to Baltimore, I pay almost as much as I pay, if I send something to England. Can you explain how those rates could be the same?

    Mr. COUGHLIN. Because the handling, there may be little difference in the handling. The actual personnel handling involved in that. Okay. And, it's the personnel handling that generally drives the cost.

    [The information follows:]

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    The specific comparison that the $29 cost of a 10 pound Express mail item from Washington to Baltimore is almost the same as that of a GPL package sent from San Francisco to England is a severe apples to oranges distorted comparison. Express Mail is the Postal Service's premium service product which provides a money-back guaranteed overnight delivery, and up to $500 indemnity against loss, damage, or rifling. Express Mail items are handled manually as a single piece, and a signature is obtained upon delivery. No such service is afforded a GPL shipment.

    Further, the example of GPL rates compared with UPS and DHL published rates is another comparison of apples and oranges. GPL is a bulk package service. A customer must have the capability of mailing 10,000 or more packages per year using GPL. The rates mentioned for UPS and DHL are published prices for a single piece shipment. In fact, GPL rates are not substantially lower than bulk services provided by private carriers. Customers have told us that we were not awarded business because GPL is priced higher than such services.

    All private delivery companies offer volume discounts for international and domestic shipments. For example, recent newspaper and magazine advertisements for FedEx and American Express offer customers 10 percent off domestic shipments and 20 percent off international shipments if the American Express card is used to pay for the shipment. Higher volume customers receive higher discounts. These discounts reach 50 percent or even more off the published prices. The actual discounts are held confidential by the private delivery carriers.

    Both UPS and FedEx provide hundredweight pricing for large volume customers that ship 100 pounds or more on pallets to a single destination. The rates charged for this service are often below GPL rates, ranging from $3.30 to $4.15 per pound.
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    In addition to the private delivery companies, freight forwarders compete in this market. Their confidential pricing is often based upon hundredweight for shipments sent on pallets. We have been told by customers that their pricing is significantly below GPL pricing, particularly to Canada and South America.

    GPL is designed to enable mail order companies to do business overseas. It supports American companies to export merchandise, particularly to households. GPL pricing covers all attributable costs and makes a contribution to institutional costs.

    Ms. NORTHUP. Do you have any comparison of the difference in personnel costs of UPS and the post office?

    Mr. COUGHLIN. I, not that I'm aware of. I mean, we note generally what their pay rates are, but in terms of their costs, no, I don't. I don't think we do.

    Ms. NORTHUP. And how did the pay rates compare?

    Mr. COUGHLIN. It depends on the category of the employed. In some cases, they are above us, in some cases they're below us.

    Ms. NORTHUP. So, it would seem sort of odd that it's almost four and five times more expensive for them, than you.

    Mr. COUGHLIN. Well, that depends on how much margin is built into those prices. I just don't know.
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    Mr. RUNYON. We don't build excess margins into our profits. We just don't do that. And I don't know what kind of margin they have. We have no access to what they do, and how they chart it.

    Ms. NORTHUP. When you say ''margins,'' I mean, Mr. Runyon, have you actually spent any of your time talking about GPL service?

    Mr. RUNYON. Yes, I have.

    Ms. NORTHUP. And is some of your salary and your bonuses part of what you attribute to the GPL costs?

    Mr. RUNYON. No, I don't think it is. First, I don't get a bonus. You should know that.

    Ms. NORTHUP. Okay.

    Mr. RUNYON. Secondly, excuse me. It's a very small amount in GPL, at this present time. I might say to you, though, that the reason we're in the GPL business is because our customers asked us to get in that business. They asked us to that so that we could be a benefit to them.

    Ms. NORTHUP. Well, actually, I can see why, if I'm a customer. I'm sorry, Mr. Chairman, could I continue for a minute. I really would have made some of the first ones in an opening statement. Do you want me to come back? I just had quite a few questions.
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    Mr. KOLBE. We will have another round of questions. Go ahead and finish the question that you're on. I'm just, we have indulged it a little, about three or four minutes longer.

    Ms. NORTHUP. Okay, that'd be great. Thank you.

    I guess my question is that if you and the people who answer questions about GPL and plan what your customers want as part of the functions of management, it seems to me that in any other company, a share of those management costs and other costs, including computer costs and overhead, are attributed to each project. That's what I mean by cross-subsidization—if First Class mail is paying for all of these functions. And, as far as your customers are concerned, I can see why they want it. If I'm a customer, and I want to ship for $36 and right now I'm paying $131, really, if somebody could come in and provide the service for $18, I'd probably like that.

    Mr. RUNYON. Well, what you're talking about is exactly what is happening in this country. We have priority mail that we ship for $3. Our competitors charge $7, $8, $9 for that. We have a good margin of profit in the $3, and, so the same thing holds true. In GPL this holds true, in the local market.

    Ms. NORTHUP. But that express mail is part of what is overseen by the board and the prices, and you're allowed to cross-subsidize your——

    Mr. RUNYON. No, we're not.
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    Ms. NORTHUP. You're not.

    Mr. RUNYON. No. We do not cross-subsidize.

    Ms. NORTHUP. Okay. Thank you, Mr. Chairman.

    Mr. KOLBE. We'll have another round of questioning. Mr. Price.

    Mr. PRICE. Thank you, Mr. Chairman. Mr. Runyon, I want to add to the accolades you've received here today.

    Mr. RUNYON. Thank you.


    Mr. PRICE. I'd like to ask you about the proposed penny rate increase. In recent years, the Postal Service has been running substantial surpluses, I understand. That's one of your major successes, in fact. And yet, you are seeking a postage rate increase. I'd like to get your read on why it makes sense to raise rates now, and I'll tell you why I'm so interested in making certain the Postal Service has adequate resources. It has to do with facilities.

    Over the last year I've been working closely with three one-post communities that have simply outgrown their post offices. The lone post office, for example, in Mebane, North Carolina, dates back to the Roosevelt era—one of those red brick buildings. It's not been expanded or renovated in any significant way since its construction. The postmaster tells me he's adding one new route about every 18 months. It's a high growth area. Space has become so tight that the carriers can barely get the mail in and out of the building.
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    And this is the case throughout much of North Carolina, especially in high growth areas, like the one I represent. In fact, we have facilities that have been on the Service's five-year construction plan since the 1970's, so, of course, it's not exactly a five-year plan. But even if the Postal Service were willing to commit unlimited resources to constructing all the new facilities you need in North Carolina, you would not have the resources or the personnel to make it happen.

    One of your young employees, Mr. Don Mackey, has been very helpful to me. He's done a good job in going to communities, like Mebane, assessing facilities throughout most of North Carolina. But with over 200 facilities under his purview, he would have to visit one every working day to see them all in a year, much less do all the work involved in siting and constructing new facilities. So, although you have excellent people working for the Postal Service, but they're being taxed to the limit. Many of your facilities are being taxed to the limit. And ultimately, that's got to affect your ability to deliver the mail.

    In light of all this, I think it's important that you utilize this rate increase to expand your personnel resources and upgrade your facilities. I hope that's what the increase is all about, but I would appreciate knowing what your thoughts are on moving forward with it and how you plan to utilize it.

    Mr. RUNYON. We expect to get PRC recommendations on this increase about the middle of May, and, at that time, the board will make a decision on when to move forward, and whether to accept the recommendations as they are made, or not. But one of the reasons, my personal opinion is we need to move forward with that increase immediately, when we can, because we do have a $17 billion capital investment program for the next five years. That's up about twice, from what it was.
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    And we need to spend that money for the reasons that you're pointing out. We need more automation in to our system, because with automation, we can improve the system even more and get it more accurate, get deliveries better. So we need to have all of that.

    We have increasing costs in this. We've said before, we went four years without a rate increase, and now we've gone three-and-a-half years without a rate increase. This is while our competitors, one competitor, UPS, raises their prices for the past three years between 3.5 to 4 percent. During that period of time, we've had no increase. And now, then, we're talking about a $0.01 increase in June.

    So, it would be our intention, my intention, to move forward with that as fast as we can and get the things that we need to do in place, so that we can continue to improve our facilities, and improve our service. Our service is the most important thing to us—service—to make sure that we improve it, continually, and we're continuing to do that.

    Mr. PRICE. Well, there are many components that go into improving service, including the kind of cultural changes that you've made at the Postal Service. But, surely, facilities are a critical component of what we're talking about. How common is it around the country for communities to find themselves on the so-called five-year plan for 15, 20 years? Is this unique to North Carolina?

    Mr. RUNYON. I don't think it is. We update the five-year plan every year, and what happens is that things become more critical for some other organization that needs that money worse. I don't know that it's a wholesale problem in the Postal Service. Like I don't think that every area has got that many problems that you're talking about. I intend to look at those problems and see what's actually happening to those, as a result of what you said. But, I don't think it's a serious problem in the Postal Service, other than we do have to continue to upgrade our facilities. There's just no question about that.
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    Mr. PRICE. And it takes a certain basic level of personnel to keep this all up. It appears to me, having gone through this recently, that your personnel who are involved in not just in the siting, but in the oversight of all these facilities are stretched pretty thinly.

    Mr. RUNYON. We have very good people. They're able to do a very good job for us, and I'm very proud of our people and the job they do. And I think that they do go all out to do everything they can.

    Mr. PRICE. Well, we're impressed, as well, and we want to give you the support that you need.

    Mr. RUNYON. Thank you.

    Mr. PRICE. Thank you, Mr. Chairman.

    Mr. KOLBE. Thank you very much. Mr. Aderholt.


    Mr. ADERHOLT. Thank you, Postmaster General Runyon, for being here today. I just had a, two or three quick questions. First, I want to ask about the Postal Service's process for studying and evaluating the need for post offices in a particular community, and what extent do you work with local officials and community leaders in deciding, in deciding this.
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    Mr. RUNYON. We have a regular procedure that we set up and, we've got a copy of that here, that we can have submitted for the record.

    [The information follows:]

    "The Official Committee record contains additional material here."

    Mr. ADERHOLT. Okay.

    Mr. RUNYON. The title of it is the, ''Community Relations Guide for U.S. Postal Service Facilities Projects,'' and we do talk to people in the communities anytime we decide that something needs to be done in the facility. We talk to them. Sometimes they talk to us first, as Representative Price has indicated. But we do deal with them very closely, and make sure that we solve the problems in that community.


    Mr. ADERHOLT. It is my understanding that the Postal Service has made the decision to pursue a centralized purchase process for employee uniforms. Of course, the program would move the Postal Service into the same kind of centralized process, used by a lot of Federal civilian agencies such as the United States Forest Service, the U.S. Custom Service, and others. Some private industries have also adopted the centralized purchasing system. In addition to the cost savings from such a program, the postal unions agreed to the program because of the potential for improved service. I understand the program has now been put on hold. I was wondering if you would discuss the current status of that situation.
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    Mr. RUNYON. The reason that has been put on hold is that, although what you say is the postal unions did agree with that, they have rethought that and we're going to be discussing that at our national negotiations in November, again.

    Mr. COUGHLIN. I might add, one of our principal partners in that process, one of the unions asked us to specifically hold off on that until we talk about it again in the upcoming collective bargaining process. That's really why we've set it aside. That, and the fact that, frankly, about 150 members of Congress expressed some concerns about the direction we were going with the thing.

    Mr. ADERHOLT. What were the particular concerns that they had.

    Mr. COUGHLIN. There were several. I think the primary one was what the potential affect might be on businesses and local communities who now either sold or manufactured uniforms for the Postal Service. I think we'll by and large satisfy those concerns with some of the material and the information we provided at the time. But, given particularly, the request we got from the American Postal Workers Union, we decided to hold off moving forward at this time. They are a partner in this process.

    Mr. RUNYON. What you're saying is exactly right. That that's something we really could be doing, because it's a better way to do it. We can guarantee quality better from 5 or 6 manufacturers of uniforms, with who we'd probably have. We wouldn't have just one. But there would be probably 5 or 6, and those would be rebid over each few years. We could maintain better quality of workmanship than we can now with some 200 people supplying parts of uniforms. It's the better way of doing business, but, again, it's something that we will negotiate again with the APWU at negotiations.
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    Mr. ADERHOLT. And lastly, I know that we've had some discussion this afternoon about advertising, but I understand that the Postal Service spent over $266 million on advertising in 1997, which was up from $236 million in 1996. Also, it is my understanding that the Postal Service has insisted that it will lose $228 million. If that is correct, how do you reconcile a not-for-profit Federal entity like the Postal Service spending more on advertising than projected losses?

    Mr. RUNYON. Well first, the projected loss you're talking about is what we had at the beginning of the year, that was our budget. Through the time from then until we put in our rate case, that was revised, and I think that the number was what, $600 million, in the rate——

    Mr. COUGHLIN. Well, yes. The estimate——

    Mr. RUNYON. There was a difference in the estimate, how we would end Fiscal Year 1997, that got tied up in the rate case. We initially thought we would make about $650 million, as I recall, in that past fiscal year. It turned out to be about $1.2 billion. Our plan, our financial plan, which was made about the same time for 1998, anticipated a $228 million loss at that time. We've since updated that. We don't think it's going to be, we actually think we'll have a surplus this year. But that occurs. When you make a financial plan you pick a point in time, you take a photograph, and you stick with that plan. But you update it as time passes and circumstances.
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    Mr. ADERHOLT. Had that been the case, would you still feel that the advertising is crucial in relation to that?

    Mr. COUGHLIN. Yes.

    Mr. RUNYON. Yes.

    Mr. ADERHOLT. All right. That's all for now.

    Mr. KOLBE. We're pleased to be joined today by a member of the full committee, Mr. Wicker, who will be recognized. Mr. Wicker.


    Mr. WICKER. First of all, Mr. Chairman, I want to thank you for informing me about this hearing and for expressing an invitation to attend. I very much appreciate that. Also, in the brief time that I have, I would be remiss if I did not join the other members of the Committee in complimenting General Runyon. I first knew Mr. Runyon as Chairman Runyon when he came to visit Tupelo, Mississippi, the first TVA city, and, I don't know which job was more difficult, Mr. Chairman, the Tennessee Valley Authority or the Postal Service. But, I, too, want to wish General Runyon the best of luck in the future.

    As I'm sure you're aware, I waged a frustrating campaign during the last session of the Congress concerning an issue that's already been touched on today, and that's the non-postal commercial type services that the Postal Service is getting into. The chairman has already asked questions about revenue from these particular services and observed, I believe, that they were tiny, as compared to the total revenue required of the Postal Service.
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    Mr. Hoyer mentioned that the Postal Service provides competition for some of the small businesses that are engaged in some similar services. And I think, certainly, we all stand for competition. Competition an American principal, but we need to make sure that it is fair, and even handed, and that no one is given an undue advantage.

    Let me ask you, if I might, about two specific services: package supplies, packaging supplies, and then to the pack and send proposal. In the report that you submitted, as a result of the conference report's request last year, I believe that you mentioned that packaging supplies have a gross revenue of around $53 million. Are you able to tell me what the net revenue is there? Is that a figure that you can arrive at, and how long have you been in the business of selling packaging supplies?

    Mr. RUNYON. I personally can't give you that, but we'll supply for the record what that is, if we can figure that out. I'm not sure we can.

    Mr. COUGHLIN. And, Mr. Wicker, I can tell you, with direct personal knowledge, that we began selling packaging supplies in the Spring of 1972, in Portland, Maine, where I was the district manager at the time, and my secretary came in one day and said, ''how come I've got to go all the way down the street to buy a package to mail something,'' that being a jiffy bag, or something we called a jiffy bag at the time. That led to the introduction of those things. So they've been around a long time.

    Mr. WICKER. Okay. And, are they now sold generally in every post office, or most post offices?
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    Mr. RUNYON. I'd say the majority of the post offices. I would like to go back and talk about competition a little bit.

    Mr. WICKER. Well, okay.

    Mr. RUNYON. The Postal Service used to deliver every package that was delivered in the United States. And then a company sprang up, and who now has a, almost a monopoly, on the package business. We have about 6 percent of the package business, and UPS has about 83 percent of the package business. Express mail. We started express mail, that was our product. We've kind of let that wain, Fed Ex came along and picked that up, but now they have a very large part of that business.

    Mr. WICKER. Why do you think those businesses developed, General?

    Mr. RUNYON. Because we didn't do a good job. And that is why, now we're doing a good job, and we're beginning to hear from people who don't like the competition. Now, when they went into that business, we were no competition. We were just people doing that. We used to have all of the mailboxes in this country in the post offices, and somebody figured out a way to compete with us on that. And they are, and you know, more power to them. That's great. The more competition there is, the better we have to be. And, so we're having to be better. The pack and ship thing was something we started in California. We had——

    Mr. WICKER. When did you start that, General?
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    Mr. RUNYON. About three years ago.

    Mr. WICKER. Not long ago.


    Mr. RUNYON. Not long ago. We started that at the request of customers, because they would come in and they would buy the shipping material and say, ''you know, it'd be a lot better if you would just take this and do it for us.'' And so, we started doing that. We did that to find out if we could do it competitively. If we could do it and not lose money on it, because we can't lose money on services in the Postal Service. That's one of our givens. We just do not have lost leaders. We started that; we were questioned about that. The Postal Rate Commission came out with a ruling that that was a postal product and, therefore, they should set the rates. So we said okay, so we stopped doing it. We had to submit a proposal to the Rate Commission. They are now studying that proposal and they will determine what we should be charging for that product. When they make that determination—I don't know where we are in the 10 month cycle—it takes 10 months for them to figure out what a rate should be on anything. Whether we raise rates or reduce rates, it takes 10 months, which is something that I would like to change. I don't know how to do that, exactly. We've tried, but we haven't got it changed. And then, after they come back with that, it goes to our board, and our board will make a decision as whether to implement that, or not. So that's how that happens.

    Mr. WICKER. Okay. You have had to stop the pack and send, which was going to be my next question. I wanted the committee to require a little information about your expectations from pack and send, but we weren't able to get that through in the conference report last year. However, I understand from your filing with the Postal Rate Commission, that you expect about $5 million the first year, and the second year, $11 million in ''profit from pack and send.'' Let me just tell you what my problem is with this, General Runyon. If you raise postal rates a penny, the first class, I'm told you're going to bring in $1.5 billion. With pack and send, you hope to make, the second year, $11 million. As the Chairman said, it is a tiny, tiny, amount, which I can't imagine really is going to affect postal rates very much in the long run. But when you do that, in a business that you've been trying to get into for three years now, you're competing with businesses that have been in this business for decades, some of them, small businesses, the kind of businesses that we like to encourage in the United States, and these are people who pay sales and property taxes. Oftentimes, they have a small business loan that they're having to pay which they took out when they were on one playing field and now, they find themselves faced with a separate playing field. They have mortgages on buildings and all of the problems that entrepreneurs face; small businessmen face in the United States.
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    I just wonder if we are going to make such a ton of revenue off this, that it would save us from having to pay extra in a first class postage stamp, maybe I might be persuaded. But with such a tiny, tiny, expected revenue stream, does it seem fair to you that the Federal Government and this agency, the Postal Service, with all of its powers and size, can come in and compete with the guy that's paying sales tax, and paying that mortgage. Does that seem fair?

    Mr. RUNYON. It goes back to the fact that our customers asked us to provide a service, and we're trying to satisfy our customers. If they want us to provide that service, we'll make every effort to provide it. We may not be able to compete with the people that are in that business now, because, I think you'll find that those people that are in that business pay less for labor than we pay, and we're not going to take a loss. So, that has to be figured out.

    I don't really know if we're going to make money or lose money. If we lose money, we won't be in that business. We will not stay in that business if we are losing money. But, when customers ask us to do something like, ''please stay open till 8:30 at night, because that's when I can get to the post office. I work until 7:30,'' we stay open. And that's something that we just do. We provide that service. That's known as the universal service, and we think we need to provide that. And when customers come to us and say, ''we want this service,'' we feel obligated to provide it.

    Mr. WICKER. What information can you provide me about customers asking for this service? Can you provide me objective information about customers asking for this service?
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    Mr. RUNYON. I will look—I know that we have people that come to us. Whether we have writing, that in writing, I don't know. But, I'll certainly——

    Mr. WICKER. Okay. If you can provide that for the record.

    Mr. RUNYON. I will.

    Mr. WICKER. I'd very much appreciate it. Again, I want to wish you the very best, and I thank the Chairman for indulging a non-member of the subcommittee.


    Mr. KOLBE. You're always welcome as a member of the full committee. We'll go to a second round here, and I think, will be quite short. On the rate increase. What's the status. Is it still expected to go into effect on May 1.    Mr. RUNYON. We expect to hear from the Postal Rate Commission on, I think it's May the 13, somewhere about the middle of May. Once we get that back, we would have to present that to our board, and all those would have to study that. It might not go in effect until the 15th of June, or July the 1st, or whenever the board decides. The board makes that final decision.

    Mr. KOLBE. Okay. And it's still for $0.01.

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    Mr. RUNYON. Yes.

    Mr. KOLBE. You've had record earnings, as you pointed out, for three years in a row, and you are currently at least operating in a surplus for, in this fiscal year. I understand the Postal Rate Commission posed the question, ''should the Commission recognize actual 1997 Postal Service net income in developing rate recommendations,'' in this case? What's your position on that?

    Mr. RUNYON. Well, I'll let Mike answer that because he's worked with the Postal Rate Commission more than I have, but, go ahead, Mike.

    Mr. COUGHLIN. It's been a practice of the Commission to take notice of, and take into account, changes in actual circumstances that occur during the course of the 10 months in litigation. So, my guess is, in fact, I think even today, as we speak, there's some testimony going on about the revenue requirement over there, at the Commission, and, my guess is that the Commission will take some notice of that when they come up with a final recommended decision. What form it will take, though, we just don't know.

    Mr. KOLBE. What's the—if your operating in surplus—what's the justification for a rate increase?

    Mr. COUGHLIN. We need to continue to restore the financial stability of the organization, and its equity. To provide the appropriate cash flow to support the $17 billion capital program that the Postmaster General mentioned earlier, and probably most important, is to continue to build the capability of this organization to meet its 5-year strategic plan, particularly in the area of improving the quality of service. That's the thing that more than anything else, will determine whether or not we will succeed in the future. That's why we need that rate change.
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YEAR 2000

    Mr. KOLBE. One other final, quick question. I've asked virtually every other agency that's appeared before us, about Y2K, year 2000, the millennium. What needs do you have? Is there a major problem here? Are your people on top of this? What are you doing to prepare for this?

    Mr. COUGHLIN. Mr. Chairman, this is—it's a significant challenge. I notice there was an article again in the paper this morning about it, in particularly in the Federal Government. We now have in place a program management office that has close to 100 people in it. We've identified something like 633 systems or applications that have year, Y2K, implications. About 400 of those have been identified as mission critical. We are in the process of remediation of some of them. We are in the process of completing business impact assessments on all of them, so that we know which, so that we can finally order in some sense of real priority, how we ought to address them. Some will fall off the table. We won't remediate because we don't need to, or we'll find we can do without it. From Mr. Runyon on down, in fact, from our board on down, it gets reviewed regularly.

    Mr. KOLBE. How often?

    Mr. COUGHLIN. Every month by our management committee.

    Mr. KOLBE. Is this primarily your management responsibility, Mr. Coughlin?
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    Mr. COUGHLIN. Yes it is.

    Mr. KOLBE. Do you meet personally with this group?

    Mr. COUGHLIN. Absolutely.

    Mr. KOLBE. Are you satisfied you're going to be ready? In other Federal agencies, you don't really come up to this, I guess, but in other Federal agencies, the OMB has imposed a March of 1999 deadline for them to be ready, so they can be tested and fully prepared when the actual date comes. Do you anticipate that you're going to meet that deadline or something similar to that?

    Mr. COUGHLIN. Let me just say, I'm nervous, but I'm confident we have all the resources in place to do the job. And, after all, even when you go out and look for experts, there's nobody who's ever done this.

    Mr. KOLBE. How much capital investment do you anticipate having to make to do this?

    Mr. COUGHLIN. Our current rough order of magnitude estimate of the cost of this change, total cost over several years, is between $600 and $700 million.

    Mr. KOLBE. Thank you very much. Mr. Hoyer.

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    Mr. HOYER. Mr. Chairman, my friend from Mississippi referred to my observation. Let me just say to my friend that in my area, probably more small businesses have been put out of business by Walmart than any other single entity in the Country. That's not to denigrate Walmart, because, frankly, they have some longer prices and my consumers are somewhat happy about that, because they can get everything together. So, while my local drugstore, or clothing store, or hardware store may say to me, ''Gee whiz, that's awful tough on me.'' It is awful tough on them, and that is the free market system. The only point I was making is, I didn't know the General was going to respond to that. I can see where customers are saying, as they have said with respect to the Walmarts of the world, ''Gee, it'd be really convenient if we had everything together.'' But, obviously, if you have everything together, and you have one big corporation making somebody a multi-billionaire, which is fine, and I understand he was a terrific human being. Burl Anthony told me that all the time. It was his buddy, down in Arkansas. But, the fact of the matter is, a whole lot of people in my area don't have businesses because Walmart came to Prince Frederick, or it came to Waldorf, or it came some place else.

    Mr. WICKER. Would the gentlemen yield on that?

    Mr. HOYER. Can we discuss it privately? [Laughter.]

    Because what I want to do, I will yield. Yes, I'll yield.

    Mr. WICKER. Well, just for a second or two. When Walmart comes in to Maryland, or Tupelo, Mississippi, they do charge sales tax on their products. They do comply with OSHA. They do pay property taxes, and all of the things that businesses have to do, though on a larger scale. And they have an advantage because of their size, but they don't have the tremendous advantages that I believe the Postal Service has, in not having to comply with things that businessmen and women, small or large, have to.
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    Mr. HOYER. And I think that's a good point. The issue is whether the majority of taxpayers are better served, or not, I suppose. Ultimately we'll discuss that. Mr. Chairman, because I know she has some, a lot of questions, I want to yield the balance of my time to Ms. Northup.

    Mr. KOLBE. Ms. Meek, do you have any questions.

    Mr. HOYER. Can I yield the balance of my time?

    Mr. KOLBE. You can. I'm sorry, I'm sorry. I thought I would just give the balance of time. Let me just see if Ms. Meek has any questions.

    Ms. MEEK. Mr. Runyon, I understand that the Postal Service leases a lot of buildings, instead of owning them. And, of course, that's the new thing now. We're not building anymore buildings. I'd like to know whether there is a cost differential in terms of your overall bottom line, in your leasing and your owning. Are you paying out more monies. I'd like just to know what the percentages are in some other areas of the country.

    Mr. RUNYON. There are percentages. I don't know the exact percentages, but we do lease a lot of buildings.

    Ms. MEEK. That's right.

    Mr. RUNYON. As opposed to owning them ourselves. Do you know the number?
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    Mr. COUGHLIN. It's about 5 out of 6 of our buildings are leased. As a rule of thumb, a building that's a 5,000 feet, square feet or less, generally turns out to be more favorable to us financially if it's leased.

    Ms. MEEK. I see.

    Mr. COUGHLIN. That's why. So, it's mostly the smaller buildings that are leased.

    Ms. MEEK. Thank you.

    Mr. KOLBE. Ms. Northup.

    Ms. NORTHUP. Thank you, Mr. Hoyer. I really do thank you. I do, also, have people lined up in my office and I know that you probably don't want to be here until dinner time either. And I do have a real interest in this. It so happened, and I'll be very honest. I have concerns because there are a lot of jobs in my district that depend on the delivery service. And, all I want is a fair playing field.

    And, you know, I think we've all seen back years ago when there was the AT&T case, that cross-subsidization was something that was the key to that court case. And while, I think AT&T claimed in the court case that they did not cross-subsidize, and court in this Country would assign costs for management. They would assign costs for sharing facilities. They would assign costs for workers that do work in more than one area, and you wouldn't get away with saying those aren't part of the total costs.
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    And, my concern is what oversight, what sort of enforcement arm do we have just to make sure that because it's one person's opinion of, ''oh, your salary shouldn't go to GPL, you don't spend much time on it,'' that a court would uphold that, or an accountant would uphold it. You know, I'd just like to ask you some specific questions. First of all, I know that you all, the Federal Government and this Congress, have worked very hard to make sure that laws and regulations, and oversight, that apply to private sector also apply to the public sector.


    One area where we have not extended that oversight into the post office is OSHA oversight. I know that there have been some inspections. I raised this last year, and OSHA has voluntarily gone in and conducted a number of site visits. But do you all ever pay an OSHA fine?

    Mr. RUNYON. I'm under the—we are covered under OSHA, and we operate as if we're covered under OSHA.

    Ms. NORTHUP. I'm sorry. I actually asked OSHA that in the hearing across the hall a week ago.

    Mr. RUNYON. Right. And their response?

    Ms. NORTHUP. Their response is that they have voluntarily made some inspections, but you all are not held to any fines, it's a cooperative experience. And maybe, actually, the relationship that's so copacetic between the post office and OSHA, is maybe what we ought to do, rather than trying to make the postal service like private business, have OSHA work with private business like they do with the post office. It's all just in the best interest of the employee, and not so confrontational.
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    Mr. HOYER. Actually, if the general—Actually, Mr. Deer has said exactly what you just said. That's what they were trying to do. And I think you're right.

    Ms. NORTHUP. Now, I know he said he was trying to do that, but unfortunately, their voluntary compliance has moved back to the old format of before, where, you either do this our way or we are going to throw every book at you. And, you know, that's quite a threat to the businesses. I hear from businesses every day with that sort of compliance costs, and what threat of mandates exists.

    Mr. COUGHLIN. Could I?

    Ms. NORTHUP. Sure.

    Mr. COUGHLIN. I don't know. I'm not sure where you're going next. The Postal Service is like every other agency. It has a relationship with OSHA. No, we are not subject to fines by OSHA, but, the fact is, there were almost 300 OSHA conducted inspections of the Postal Service last year.

    Ms. NORTHUP. 237, I think.

    Mr. COUGHLIN. And, we work on a pretty regular basis with them. Do we have disagreements at times, particularly on ergonomic issues? Yes, we do. But we try to, I think both of us try to approach it with an attitude of good will toward the subject. It is, after all, our employees who are at stake.
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    Ms. NORTHUP. Yes. But, Mr. Coughlin, if you were in the private sector, you would know there is a big difference between cooperative relationship and mandatory and enforcement relationships.

    Mr. COUGHLIN. And, I don't contest that, but, perhaps the issue is between the private sector people who are subject to that, and OSHA. Then maybe that's the relationship that needs to be fixed.

    Ms. NORTHUP. Well, we've tried. We're trying. Would you object to the post office being under the exact same compliance and enforcement relationship that the private sector? Would that be something that would, you all would object to, if we included that in a bill?

    Mr. COUGHLIN. I think if you're going to apply it to the Postal Service, you ought to apply it to the Federal Government generally.

    Mr. RUNYON. This building is not covered by OSHA, as a matter of fact.

    Ms. NORTHUP. Actually, I thought it was. I thought we actually changed it in 1995. Let me ask you another question. I know that you've had an increase, 44 percent, of labor grievances. Do those get appealed, like they do in the private sector, up to the NLRB board?

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    Mr. RUNYON. Even further. People in the Postal Service have not only—they've got the National Labor Relations Board to deal with, just like a private sector company does. We negotiate with our unions under the National Labor Relations Act, which is different than other Government agencies. Then after that, employees—if that doesn't satisfy them, they have other appeals. They can go to the Merit System Protection Board.

    Ms. NORTHUP. Right.

    Mr. RUNYON. If that fails, they can go to court. The Postal Service, however, if we lose in the Merit System Protection Board, we cannot go to court. We have to stop right there, and the only people that can go to court for us is the Office of Personnel Management. We have tried long and hard to get that changed so that we could represent ourselves, and not have another branch of government, who really has very little to do with running the Postal Service. Not any at all, as a matter of fact, represent us.


    Ms. NORTHUP. Let me ask you another question. Time magazine recently reported that the Postal Service has access to all kinds of personal information about consumers' tastes and interests. And I think the Time magazine article implied that you all actually sell that, and it's my understanding that you have clarified that you do not sell it. Is that right?

    Mr. COUGHLIN. That's absolutely right. We're prohibited from sharing that information.
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    Ms. NORTHUP. But what I'd like to know, is do you all use that information for your own activities?

    Mr. RUNYON. I would say that if we knew who the philatelists were in this Country, and we may know because we sell to them, that we would use that in mailing information to them, because they're interested in that subject.

    Ms. NORTHUP. Really.

    Mr. RUNYON. Yes.

    Ms. NORTHUP. So you would track what somebody may purchase, and so forth, and their interests, and then you would actually try to——

    Mr. RUNYON. I didn't say we'd track. I said that if we knew those people are interested in philatelic products, we might tell them about other products that we have.

    Ms. NORTHUP. Well, I think what I understood from the Time magazine article, is the fact that you do collect that information. The clarification was you don't sell it to other people.

    Mr. RUNYON. We don't.

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    Ms. NORTHUP. So you have the information, and you use it.

    Mr. RUNYON. I don't know. You're quoting Time magazine. I'd have to understand from our people that that's a true statement. I really don't know whether Time magazine got that from us, or where they got the information. I'd need to know, though. I don't place facts on magazine articles.

    Ms. NORTHUP. Well, okay. This is what I would ask you to clarify. Time said you have the information, and you sell it. The clarification was, you don't sell it. My question was, do you use it for yourself, or for any of your own activities, and your answer was, if you have the information, you'd use it.

    Mr. RUNYON. I'll be glad to supply for the record exactly what we do. It's not something I deal with daily.

    [The information follows:]

    The Time magazine article was not correct in its assertion that we track postal customers' preferences regarding items purchased through the mails. Certainly, one can imagine that major catalog companies may track what their customers purchase through their catalogs. However, the Postal Service does not a have access to that information and we do not seek it.

    In the philatelic area we currently have a list of customer names and addresses who have specifically requested a ''USA Philatelic'' catalog. That catalog is published on a quarterly basis and mailed to those customers. For catalog purposes, we do keep track of customer names and addresses who buy from us, and the revenue we earn per catalog.
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    Ms. NORTHUP. In the latest revision of H.R. 22, which is the Postal Reform Bill, they have suggested and proposed that all of the new GPL arrangements that you have with other countries actually be negotiated with the trade rep. That would be a fair playing field, which, of course, I talked about at great length last year. I just wondered if you object to that.

    Mr. RUNYON. Yes.

    Ms. NORTHUP. Gosh, you may have given me more time than I needed, Mr. Hoyer. I know that comes as a surprise. I'm——

    Mr. KOLBE. We're completed with our questions, so we're—you're the last one.

    Mr. HOYER. I just wanted to have all the correct answers before the General left.

    Mr. RUNYON. Which is a little while, yet, of course.


    Ms. NORTHUP. I do have some questions I want to submit for the record. They have to do with expansion of GPL and what your numbers are, and the number of countries. There's one other question I have. When you provide services overseas, you ship packages, and then, overseas, for example the English post office, actually delivers them. The rate that they charge you, is that the same rate that they would charge, for example, UPS?
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    Mr. RUNYON. I have no way of knowing that. I don't know that they deliver for UPS.

    Ms. NORTHUP. Well, let me reverse it.

    Mr. RUNYON. I really don't know.

    Ms. NORTHUP. Let me reverse it. If somebody in England sends a package to this country and you deliver it to my mother, the charge that you charge England, is that the same charge you would charge anybody else, the English post office?

    Mr. COUGHLIN. We charge it through either a bilaterally negotiated terminal dues rate, or we'd charge the standard international terminal dues rate that's determined at the UPU. It's a standard type of thing. It can be bilateral, it can be multilateral, or it can be just the standard UPU rate.

    Ms. NORTHUP. Well, when I send something overseas, I pay more, of course than I pay if it's domestic. If somebody sends something from overseas to me, they pay more than if they send it domestically. Now, the question is——

    Mr. COUGHLIN. In most cases. That's not always true, but in most cases.

    Ms. NORTHUP. If somebody in England mails something to my mother, there is a cost that they are going to remit to you. If I send something to my mother, is the cost I'm going to pay going to be the same as the person in England is going to pay?
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    Mr. COUGHLIN. You've lost me someplace there.

    Ms. NORTHUP. Okay. The person in England pays $0.75 to mail a letter to my mother. I pay $0.32. I mail a letter to my mother in Louisville, Kentucky from here. I'm going to pay you $0.32. Are you going to remit to England $0.32?

    Mr. COUGHLIN. No, we're going to remit whatever the agreed upon terminal dues rate is, whether it's a bilateral arrangement, or it's the standard universal postal union terminal dues rate.

    Ms. NORTHUP. Any idea about what that would be?

    Mr. COUGHLIN. Not off the top of my head, no.

    Mr. RUNYON. It's different for each country, and we need to supply that to you. We'd be glad to do that.

    Ms. NORTHUP. Well, my question is, if somebody has a GPL agreement with you, would that make you inclined to sign a different rate with them, maybe, for delivering letters? Let's say, you had the benefit of diverse services in England, so, because of that, would you give them a cheaper rate than you would give somebody that was mailing a letter out of France, that would come into this country?

    Mr. RUNYON. I'm not aware that we've changed any terminal dues arrangement based on GPL.
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    Ms. NORTHUP. Could you provide that information to me, whether there are any changes in that?

    Mr. RUNYON. I'd be glad to.

    Ms. NORTHUP. Okay. Thank you.

    Mr. RUNYON. And by the way, Representative Northup, I'd like to mention that you do have a lot of postal employees in your district, also.

    Ms. NORTHUP. I know, and actually, I go and meet with the postal employees, and, postmasters. And I have got to tell you, they have really been great. They are very interested in their jobs. They are very interested in the service. They are very concerned about issues regarding bonuses, which I have communicated with you about. But they are also glad about what UPS does to our economy, and they are glad that we are looking for balanced services. And I'm happy to meet with them and will continue to meet with them.

    Mr. RUNYON. And on the bonuses, I might mention, also, that we have offered their representatives to enter into a bonus program with us, and they haven't chosen to do so.

    Ms. NORTHUP. I'm glad to know that.

    Mr. KOLBE. Thank you very much, Ms. Northup. I have some questions for the record which we'll submit. Anybody else has others, as Ms. Northup does, may also do so. Mr. Coughlin, Mr. Runyon, thank you very, very much for being with us today, and again. [Laughter.]
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    No, no. You see, now he does fall over. Mr. Runyon, again we congratulate you and wish you very well, and we look forward to seeing you during the time remaining before you do leave. Thank you very much. This hearing is adjourned.

    [Questions for the record and selected budget justification material follows:]

    "The Official Committee record contains additional material here."