Item D. "A comparison of employees on rolls broken down between regulars, substitutes, and temporaries by regions as of the latest period compared with the period prior to June 30."

Increase or decrease* in paid employees as of July 16 compared to June 18

Item F. "List the mail volume reports by period for the last 18 periods. will have to use the 933's for this purpose."

Percentage increase over same period in prior year

Period 1.
Period 2.
Period 3.

Period 4.

Period 5.

Period 6.

Period 7.

Period 8.

Period 9

Period 10.

Period 11.

Period 12.

Period 13.

Prior fiscal year total.

We

Does not add down due to prior period adjustments recorded during year. Period totals add to 72,300,000,000 pieces.

E. What basis did we use to determine how we reached the conclusion that we are short of funds in 1966? Was this based on period 1? If so, in what way?

Period 1 obligations for the operations appropriation were analyzed. They indicated a comparative rate of increase of 2.5 percent over the same period last year. Costs in this appropriation have been increasing at a rate of 2.5 percent for the last seven accounting periods. We also looked at our mail volume experience and found that the rate of increase in the third and fourth quarters of 1965 was up 4.5 and 4.9 percent respectively. Volume for the first periood of 1966 was up 5.6 percent. On the basis of these figures, our supplemental request is projected on a continuation of the 2.5 percent rate of increase in costs in this appropriation to handle the mail volume which we estimate will reach a total of 3.5 percent for the year.

For period 1, which ended July 16, we apportioned $322.2 million. Our actual expenditures for that period were $325.8 million-a shortage of $3.6 million for that one peroid. For the period ended August 13, we apportioned $318.6 million. Actual expenditures for that period were $321.2 million-a shortage of $2.6 milion. Thus, for the two periods alone, we are already running in arrears of over $6 million.

Thus for the two periods alone we are running over $6 milion. We estimate that the two remaining periods will run over $2 million each, making a total of over $10 million for the quarter.

Mr. STEED. We have with us Postmaster General Gronouski and his staff. General, I believe you have a general statement which we will be happy to have at this point.

Mr. GRONOUSKI. Thank you, Mr. Chairman.

I might say, at the outset, this may be my last appearance before this Committee on Appropriations with respect to my present assignment, unless you switch over to foreign affairs. I want to say it has been a great pleasure working with you, and while I look forward with great anticipation to my new assignment, nonetheless, my postal experience has been a great one.

Mr. STEED. On behalf of the subcommittee I want to say we have some mixed emotions. We have come to know you well and consider you a partner in what we think is a very important work. We have become very fond of you personally. Yet we know you have been called to another type of public service, and I think you are eminently qualified for it. On the one hand, we congratulate you, and on the other we have some very keen regrets at the fact you are leaving your present position. We will be severing our very close relationship with you in the work we have been doing together, but we do wish you Godspeed and all the success in the world in your new undertaking.

GENERAL STATEMENT

Mr. GRONOUSKI. Thank you.

Mr. Chairman and members of the committee, the request before you consists of two elements-a request for $32 million for the "Operations" appropriation to cover a substantial unanticipated increase in workload and $9.5 million also for the "Operations" appropriation to cover the fiscal 1966 cost of providing a 5-day week for postmasters in second- and third-class post offices, for a total request of $41.5 million.

WORKLOAD INCREASE

Budget provisions: Our 1966 budget was based on an estimated increase of 3 percent in mail volume. The appropriation provided funds for an 0.8 percent increase in paid hours to handle the increased volume. This means that a substantial part of the originally estimated increase in workload was to be absorbed by the present work force and assumes a 2.2 percent improvement in productivity. The planning and the appropriation for 1966 were extremely close, allowing no margins for unanticipated problems in the operations appropri

ation.

Volume trend: Our analysis of actual mail volume in 1966 shows an increase of 5.6 percent in the first accounting period, instead of 3 percent on which the budget is based. Although this is an unusually high increase, it is consistent with the recent trend. Volume in the

fourth quarter of 1965 increased 4.9 percent and in the third quarter of last year increased 4.5 percent. As a matter of fact, the rate of increase in mail volume has been trending upward since 1963.

We do not believe the present high rate of increase in mail volume will necessarily be sustained unchanged throughout 1966. However, we have now come to the conclusion that the 3 percent estimate of increase is faulty and that 3.5 percent is a more realistic estimate.

I shall point out later that even this may be a conservative estimate. Economic setting: Mail volume projections for fiscal 1966 were shaped at a time when most forecasts pointed to a "rolling readjustment" in economic conditions. Business activity continued at a healthy pace in the fall of 1964, approaching a record for the longest peacetime expansion the country had experienced since 1854. The previous record expansion, a 50-month rise between March 1933 and May 1937, was to a considerable extent a recovery from the worst depression we have ever had. Our recent expansion represented much more of an advance over prevous prosperity levels.

Coinciding with swift and sustained economic growth through the fall and winter of 1964, the widely accepted view was that the rate of expansion would be slowed, although the momentum already established would carry the economy in good shape through the next year. But, instead of tapering off as had been expected, the recovery actually seemed to gain renewed strength early in the third quarter of this year (first quarter of fiscal 1966).

The rise in business activity in the summer of 1965 is broadly based and almost every indicator of business and economic activity-production, employment, income, and spending has edged up. Some further advance in the months ahead is widely anticipated: consumer income in September will be increased by a rise in social security payments; consumer attitudes continue favorable; and business capital spending plans remain firm.

Heavy demand bolstered activity into July with less of a letdown than has been customary during the vacation period.

At midsummer, employment conditions continued to improve significantly. According to the household survey of the BLS, an abnormally large rise in employment during July, and a total increase, since the beginning of the year, of 1.5 million, brought the seasonally adjusted total of job holders to 72.8 million. This represented a growth in employment at an annual rate of 2.5 million-much larger than any single-year advance yet recorded.

Effect on mail volume in fiscal year 1966: Mail volume trends are closely correlated with business conditions and personal consumption expenditures. Hence, sustained economic gains and the more optimistic tone that pervades spending plans have pushed mail volumes well ahead of forecasts.

For fiscal year 1966 as a whole, projections developed in the fall of 1964 anticipated a 3 percent volume rise. But now, an increase of 3.5 percent seems more probable.

The target for mail volume in the first accounting period was a 2.6 percent increase. Instead, preliminary reports show a 5.6 percent increase.

We recognize that in the light of the economic outlook and the experience to date a 3.5 percent estimated mail volume increase for 1966

is conservative. However we believe you would prefer to have us plan conservatively and to make an additional request for a supplemental appropriation later should the figures prove conservative and additional appropriations be necessary.

Revised budget provisions: Our request for a $32 million supplemental appropriation for operations is based on this revised estimate of a 3.5 percent increase in mail volume and on a 1.8 percent improvement in productivity. Adding $32 million additional to the "Operations" appropriation and adjusting the mail volume estimate to 3.5 percent results in the anticipated productivity gain of 1.8 percent. This is an improvement of 0.5 percent over our original request, which provided for a 1.3 percent improvement in productivity.

Obligation and position analysis: In terms of dollar increases, the "1966 Operations" appropriation provided for an increase of 1.7 percent over 1965. Actual experience in the first acocunting period showed an increase of 2.5 percent over 1965, which is 1.5 percent more than the amount we had targeted for this period.

This 2.5 percent increase over prior year is consistent with the experience in the immediate past. Operations obligations in both the third and fourth quarters of 1965 exceeded the comparable prior year periods by 2.5 percent. Our supplemental request is based on the assumption that Operations obligations for 1966 as a whole will exceed 1965 by 2.5 percent.

Our 1966 appropriation provided for creating 8,896 additional positions for the purpose of reducing the amount of inefficient and excessive over-time being worked on a regular basis. New positions have been added in accordance with our plan for reducing such overtime with the result that in the first acounting period overtime was reduced by 14.5 percent. This has somewhat reduced our cost of operation and has helped to hold the increase over the prior year to the 2.5 figure that I mentioned.

Alternatives: Prior to making this request for a supplemental appropriation, we carefully considered the only alternatives available

to us.

First, we examined the possibility of making transfers from other appropriations in order to cover the requirement in operations. We are limited in this case both by the 2.5 percent ceiling on transfers currently in effect and by the availability of funds for transfer within this ceiling. After careful investigation we concluded the maximum amount that could be transferred at this time is $5 million from the transportation appropriation. This $5 million was made available for transfer by the very recent action by the Civil Aeronautics Board reducing the rates we pay for domestic air transport. The $32 million we are requesting is the amount needed after the transfer of $5 million from transportation-a transfer that has already taken place. The only other alternative to this request for a supplemental is substantial reduction in service. The kind of service curtailment that would be required to produce a saving of $32 million in fiscal 1966 would be basic and far-reaching-elimination of residential delivery service on Saturday, for example. We concluded that this kind of a drastic reduction in service was in no way justified. The public