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Notwithstanding the decrease in career employment and additional automation that was put in place in 1991, operating expenses for

the year grew almost 7 percent and were $295 million higher than

expected.

The total hours of work in the Service increased in

1991 although the volume of mail declined.

While hours worked did decrease in work functions most directly

affected by automation, the reduction was only 1 percent from the

previous year and little more than half of the planned amount.

Because more than half of the work in the Postal Service is not

directly affected by automation, this reduction in the affected areas did not have a perceptible effect on overall postal costs.

Workhour savings that have been achieved by automation are also

being overwhelmed by annual increases in labor hour costs.

For

example, we estimate that workhour savings in 1991 in the

functions most directly affected by automation amounted to about

$138 million.

But the work in those functions cost $627 million

more than the year before because of wage and benefit increases.

Finally, the Postal Inspection Service's ongoing audits of postal operations have identified inefficiencies in the use of people

and equipment in automation and related operations.

Reports from

fiscal years 1990 and 1991 identified over $187 million in lost

savings as a result of ineffective procedures and administration.

Although automation is not likely to reduce costs nor become the

predominant influence on postal costs, it has undoubtedly

restrained their growth and thus has had a beneficial effect.

workhour reductions are continuing into 1992.

Before closing I would like to turn briefly to future areas of

oversight.

Former Postmaster General Frank, in his farewell

address, said that the success of the United States Postal

Service in a competitive environment "may well come down to (these) two factors: how employees treat our customers, and how

employees treat each other."

We would agree that these

considerations are fundamental and believe that Congress should,

in its oversight capacity, carefully monitor the Service's

progress under a new Postmaster General in addressing these two

imperatives.

That concludes my prepared statement, Mr. Chairman.

My

colleagues and I would be pleased to respond to any questions.

ATTACHMENT I

ATTACHMENT I

GAO PRODUCTS ISSUED SINCE 1991 OVERSIGHT HEARINGS

Postal Service: Automation is Restraining But Not Reducing Costs

(GAO/GGD-92-58, May 12, 1992).

U.S. Postal Service: Priority Mail at Risk to Competition if

Double Postage Rule Is Suspended (GAO/GGD-92-68, May 7, 1992).

U.S. Postal Service: Pricing Postal Services in a Competitive

Environment (GAO/GGD-92-49, Mar. 25, 1992).

U.S. Postal Service: Work Hour Allocations to High Growth and

Low Growth Post Offices (GAO/GGD-92-54 BR, Feb. 27, 1992).

Procurement Reform: New Concepts Being Cautiously Applied at the

Postal Service (GAO/GGD-91-103, Aug. 6, 1991).

Postage Ștamp Production and Procurement (GAO/T-GGD-91-39, June

5, 1991).

U.S. Postal Service: Transfer of Mail Processing From

Parkersburg to Clarksburg, WV, Makes Sense (GAO/GGD-91-79, May 8, 1991).

Postal Service: Annual Distribution of 1990 Marketing Costs

(GAO/GGD-91-77BR, May 8, 1991).

Operational Performance of the United States Postal Service

(GAO/T-GGD-91-9, Mar. 5, 1991).

Chairman CLAY. Thank you.
Does anyone else want to include an opening statement?
Mr. Gilman.

Mr. GILMAN. Mr. Chairman, I would like to submit our opening statement for the record, and I want to express my appreciation to you for scheduling this important series of full committee oversight hearings on our Postal Service. I think it is appropriate that we do this as we look to all of the reforms that are taking place and taking a look at the costs of the Service. So, again, I appreciate the opportunity of taking part in this oversight hearing.

Thank you, Mr. Chairman. Chairman CLAY. I thank the gentleman, and, without objection, his statement will be included in the record. [The prepared statement of Hon. Benjamin A. Gilman follows: PREPARED STATEMENT OF HON ENJAMIN A. GILMAN, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF NEW YORK Thank you Mr. Chairman. I just want to take a few minutes to express my appre ciation to you for scheduling this very important series of full committee oversight hearings on the U.S. Postal Service.

The Postal Service is facing a difficult time in its history and it is putting to test a great deal of the theories that postal reorganization was based on. Competition is at its keenest and the need for price stability is played against the need for price flexibility, to compete in today's rapidly changing communications world. Additionally, the Postal Service is in the midst of a major restructuring that will lead, eventually to an almost totally automated work environment, which in turn, should lead to lower overall expenses and the ability to offer more competitive and stable rates.

However, as we will hear today, even with a good portion of this equipment in place, the Postal Service has been unable to achieve the savings that it had anticipated from utilizing this equipment. A large reason for the failure to achieve these savings is because the Service is still largely dependent upon manpower as well as the added equipment. Both of which will add costs without the needed decreases in expenses.

The demands on the Postal Service are extraordinary. It must carry the mantle of providing a basic and fundamental, universal public service while simultaneously attempting to operate as a business with the accompanying cost-related concerns. The Postal Service is, indeed, at a crossroads and hopefully, these hearings will assist those of us who are desirous of a continued viable Postal Service with a strengthened understanding of the present postal situation and what can yet be done to maintain the service to the American people to have a right to expect at a price they can afford to pay. Furthermore, we must certainly keep in mind when, we are using such terms as “work hours” or “man hours” that what we are really talking about is people, people who are trying to do their jobs and who must rely in large part on the committee, their employee organizations and unions and postal executives to make the right decisions.

I want to also take a moment to express my appreciation to our witnesses this morning, Nye Stevens, on behalf of the General Accounting Office, always provides us with much food for thought and a good outside view of the inside of the Postal Service. Furthermore, the Joint Task Force on Postal Ratemaking, should be commended for working so well together and making their recommendations in such swift and concise manner. I look forward to hearing more from both panels. Thank you Mr. Chairman. Chairman CLAY. Mrs. Morella. Mrs. MORELLA. Thank you, Mr. Chairman. I applaud you for this series of very important briefings.

Mr. MYERS. Mr. Chairman, I would like to ask unanimous consent that my opening statement be included in the record.

Chairman CLAY. All statements, without objection, will be included in the record at this point.

(The prepared statements of Representatives Moran, Norton, Myers, and Young follow:] PREPARED STATEMENT OF HON. JAMES P. MORAN, JR., A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF VIRGINIA Mr. Chairman: Thank you for holding this hearing today. I appreciate the continued oversight of this committee into the operations of the U.S. Postal Service.

In 1970, Congress gave the Postal Service its walking papers. We told it to get out of our house, live on its own, and provide quality service for a low cost. After this difficult separation, the Postal Service grew in fits and starts, but finally became the modern operation we see today—one that is able to deliver first-class mail to any household in the United States in 3 days for only 29 cents.

This is not to say that there are not serious problems with the current operation of the Postal Service. In 1990, the Postal Service increased the price of first-class stamps from 25 cents to 29 cents, a move that was almost universally opposed, not because it was a rate increase—people understood the need to increase rates—but rather because it was only 4 cents instead of 5. Americans did not know what to do with the extra 1 cent.

At the time of these increases, I met with then-Postmaster General Anthony Frank who told me that he had sought the 5-cent increase but was rebuked by the Postal Rate Commission. Today, I am sure that the U.S. Postal Service wishes he had got his request and his 30-cent stamp, because the Postal Service is facing an operating deficit of almost $1.8 billion.

There is no question that there are lessons to be learned from this recent experience. The Postal Service, like any other corporation in the United States, must abide by the laws of supply and demand and must be aware of the invisible hand that sometimes controls the marketplace. In the past year, we have seen the personal use of first-class mail decrease markedly. Part of the blame for this decrease is the simple fact that the cost of stamps has risen beyond what most Americans consider an acceptable price. The rate increase put the Postal Service in direct competition with AT&T, MCI and other phone companies. We have made it cheaper to reach out and touch someone with a phone call than to reach out and write someone.

I am glad the the committee is reexamining the ratemaking process of the U.S. Postal Service. I look forward to hearing the testimony of our witnesses today and to the following hearings in this on-going investigation.

PREPARED STATEMENT OF Hon. ELEANOR HOLMES NORTON, A REPRESENTATIVE IN

CONGRESS FROM THE DISTRICT OF COLUMBIA Mr. Chairman, I appreciate your leadership on this important hearing concerning perhaps the two most important challenges of the Postal Service_accommodating greater automation in order to survive in an increasing competitive marketplace and improving the postal ratemaking process. Today's hearing also will be useful in helping the committee to assess how the special ratemaking problems of a vital public service can be adjusted within a market economy, how postal workers and postal customers can be involved in the process, and how automation can be used to assist postal workers in providing better service to postal customers.

Beyond the obvious strategies, the Service must be ready to look at the full array of possibilities that can prepare the Postal Service to thrive in the next century. What also must not be overlooked is the experience, knowledge, and skills of our front line postal workers. I welcome today's witnesses and very much look forward to their testimony.

PREPARED STATEMENT OF HON. JOHN T. MYERS, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF INDIANA Mr. Chairman, I commend you on organizing this hearing on the postal ratemaking process, the first in a series of postal oversight hearings for the second session of the 102d Congress. Postal customers around the country directly and indirectly are interested in the pricing of postal products and our discussion today, including a focus on automation and general pricing, is imperative to keeping postal rates as low as possible and for the general health of our Postal Service.

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