er we will be able to decrease the Service's projected 1993 deficit, and the outlook for postal services and postal employees.

I am also eager to learn about what changes and challenges the Ratemaking Commission and Mr. Coughlin anticipate for the rest of this year and for 1993.

I join my colleagues in welcoming the witnesses and I thank them for appearing here today.

PREPARED STATEMENT OF HON. WILLIAM L. CLAY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSOURI

I welcome the Postal Rate Commission and the Deputy Postmaster General to our continuing Postal Service oversight hearings.

This is the first appearance of Commissioner Quick who has had a distinguished career working for the U.S. Senate. We are pleased to have him and his colleagues with us today.

Today marks a first for Deputy Postmaster General Coughlin also. He has the authority of the Postmaster General during this time of transition. This is a difficult time to lead the Postal Service, and we commend him for his fine efforts.

I commend Chairman_Haley of the Postal Rate Commission for establishing with Chairman Pace of the Board of Governors the Joint Governors/Commission Task Force on Ratemaking Reform. We look forward to hearing the reactions of the Commission to the task forces's recommendations. I am interested to learn when some of these recommendations will become a reality.

The future of the Postal Service is not as bright as it should be. Postal finances are worse than projected. The possibility of layoffs is under consideration. Volume has been declining. Service is less than expected by the American people. Morale is low, and the potential for violence is ever present. We hope to hear how postal management is working to correct these problems.

[Whereupon, at 12:18 p.m., the committee was adjourned.] [Additional material received for the record follows:]

Prepared Statement of Hon. Frank McCloskey, a Representative in ConGRESS FROM THE STATE OF INDIANA

The Postal Service is at a crossroads as it attempts to continue to provide efficient, economical, service to every household and business in the country and compete with technology and other businesses for certain types of mail service. The Postal Service is currently experiencing many problems due to the economy, automation, increased costs, and employee morale. Its financial situation is precarious. At the end of April, the Postal Service advised the committee that instead of a planned $600 million surplus, the Postal Service would probably break even at the end of fiscal year 1992; 1993 looks even bleaker with a projected deficit of $2 billion instead of $1 billion. However, the committee has been assured that the Service will do everything it can to reduce these projected figures.

Everyone knows changes are imminent at the Postal Service. With Marvin Runyon as the new Postmaster General, the Postal Service has an opportunity to implement significant improvements to provide better, on time service and to make the system more user friendly. The new PMG brings with him a strong operational background, who has a reputation as an effective manager and cost cutter. I look forward to working with Mr. Runyon.

In addition to Mr. Runyon's arrival, change should come about by giving the Postal Service new ratemaking criteria. Unlike in the past, postal pricing has now become a significant factor in the Postal Service's attempt to remain a Government corporation envisioned by the Postal Reorganization Act. As I have stated before, the declining mailstream, increased competition of the Postal Service from electronics and computers, alternate forms of delivery, and the recession have proven to be difficult for the Postal Service to address.

The General Accounting Office recently issued an insightful report on pricing the Postal Service in a competitive environment. GAO urges Congress to change the ratemaking criteria so it shall be based more on value-of-service or demand pricing. The current ratemaking criteria seems obsolete for the new challenges faced by the Postal Service. Twenty years ago when the Postal Service Reorganization Act become law, the Postal Service did not face the direct and indirect competition that exists today. Now, as GAO states, the time has come to bring the ratesetting process up to date. Different classes of mail face different demands. The GAO believes the demand fir first-class mail is not as strongly based on rates as third-class mail.

First-class mail does face some forms of competition, particularly form electronic mail and fax machines, but this competition is not as strong as what exists for third-class mail. Third-class mail faces competition with telemarketing, newspapers, alternate delivery and other forms of electronic media.

The Postal Rate Commission opposes demand pricing and raises some valid concerns about some of the statements in the GAO report. Regardless, the GAO report cannot be ignored and whether through the legislative process or administrative rule changes, the issue of competition to the Postal Service needs to be addressed. As we discuss pricing restraints and ratemaking, the Postal Service must not lose sight of its mission, to provide reliable service. It appears that it is starting to decline again throughout the Nation. In Indiana I have received numerous complaints from constituents that it is taking 6-10 days for some first-class mail to be delivered 10 miles. The full committee has also received an increased amount of complaints. No matter how much ratesetting flexibility is provided to the Postal Service, it will continue to lose out to competitors unless in can provide fast, dependable service. I want to thank our witnesses for appearing today to discuss the Postal Service and postal ratemaking reform.

QUESTIONS FOR DPMG MICHAEL S. COUGHLIN
SUBMITTED BY CONGRESSMAN FRANK MCCLOSKEY

1.

Mr. McCloskey: I have been receiving an increasing number
of complaints about first class mail delivery taking six
to ten days for mail sent within Indiana. It is also my
understanding that the full Committee has recently started
receiving increased complaints about service.
What do you

think is happening with service? Are these problems due
to budget diminution, deploying automation or a combination
of these factors?

Mr. Coughlin: Using External First-Class (EXFC) scores, we
have also noticed the negative trend at Indianapolis. During
Postal Quarter 3 of Fiscal Year 92, Indianapolis received an
overnight score of 81% on time, compared to 89% one year ago.
This is not indicative of the entire nation, which is trending
positively. Nationally, for the same period, we received our
highest score ever, 84% of overnight mail delivered on time.
There are occurrences when changes to normal operations such
as deployment of equipment or activation of a new facility
cause slight dips in performance. On the whole, after the
initial problems are worked out, performance rebounds to a
point higher than it was before the change. It is our feeling
that this will happen in Indianapolis as well.

The service problems in Indiana are principally related to
an overly aggressive automation implementation plan. The
overall problem is extremely complex with other factors also
involved. Many of these were discussed at your field hearing
with Roger Nienaber on July 27, 1992. For instance, there
was a problem regarding the hiring of transitional employees
that contributed to staffing shortfalls at the Indianapolis
General Mail Facility.

As you are aware, the implementation of Indianapolis' Remote Bar Coding System (RBCS) is very close at hand. This will offer workload relief by placing barcodes on mail with handwritten addresses to allow for subsequent automated handling. As RBCS is assimilated into the operations, we expect to see improvement in the service problems presently being experienced.

2. Mr. McCloskey: About a year and a half ago, the Postal Service implemented new service standards for First Class mail. Yet today the national average for one day delivery of First Class mail is only 83 percent. That is for the major city pairs used in the Price Waterhouse external measurement system. I suspect that your on time performance from larger cities such as Indianapolis to Linton, Indiana are not in that range. What actions are your taking to ensure reliable delivery to the smaller places?

Mr. Coughlin: Since the realignment of First-Class Mail service standards, our EXFC scores have steadily improved. However, with our current overnight performance at 84%, as discussed in the previous question, we realize that we still have room for considerable improvement.

Under the terms of the contract with Price Waterhouse, we are not aware specifically which origins and destinations are used as test sites. We are assured that the sample size is sufficient to measure overnight, 2-day and 3-day service for each of the major cities involved, such as Indianapolis. Since ZIP Code area 474 is part of Indianapolis' overnight area, some of the test mailings used to determine performance may, in fact, occur in Linton 47441. We must presume that the EXFC scores for overnight service for Indianapolis are reflective of the performance for the overall overnight area, including Linton, IN. This would be similar for each of the cities stated in the EXFC test their overnight areas also include many small cities. To that extent, our system-wide focus on improvement of EXFC scores helps ensure reliable delivery to places like Linton.

More specific to Indianapolis, though, we have assembled review teams from the Central Region and from Headquarters to analyze the service problems and provide assistance to local management. Additionally, teams from the Inspection Service have been on-site for the last several months reviewing the mail on hand and providing updates on general operating conditions.

From a national standpoint, we have recently implemented a program that scrutinizes daily mail conditions and volumes on-hand at all major postal facilities. By interfacing daily with these facilities, through their regions, we are better able to ensure that any backlogs are quickly reacted to.

3. Mr. McCloskey: Do you think it is prudent to send directives to the field about decreasing budget allocations without some type of guidance from Headquarters or the Regions?

Mr. Coughlin: No. I do not feel it is prudent to send directives to the field about decreasing budget allocations without guidance from Headquarters or the Regions. All cost reduction initiatives and programs which impact field budgets are accompanied by guidance from Headquarters and the Regions when budget allocations are made. However, the fact that the national and regional policies are established when budget authorizations are issued does not mean that Postal Managers at lower organizational levels (Divisions, MSCs, Associate Offices) have no latitude to make budgetary decisions based on local conditions.

4.

Mr. McCloskey: You mention that to reduce costs in the short term, the Service will forgo some things which would be "nice to do" to concentrate on things which "must be done." Please elaborate on the "nice to do" items on which the Postal Service has been spending.

Mr. Coughlin: Forgoing "nice to do" items means that we have chosen to focus on our core competencies and key constituencies and scale-back or defer less critical items. Sine these budget categories are zero-based each year, the reductions were to amounts requested for FY 1993 as opposed to amounts expended during FY 1992.

5.

Mr. McCloskey: Do you know how much money is spent annually by the Postal Service to send managers to Dale Carnegie or similar courses? Has there ever been an analysis by postal management as to whether or not these courses are costeffective in terms of improving a manager's ability to manage workers and deal with customers?

Mr. Coughlin: According to the non-postal training expense
reports, the Postal Service spent the following annual
amounts for Dale Carnegie training: in FY 1990, $42,579;
in FY 1991, $115,206; in FY 1992, an estimated $92,000.

There have been no formal evaluations of the Dale Carnegie training programs at the national level of the Postal Service, although there may have been local evaluations. It is doubtful that local managers would authorize such amounts for non-postal training without positive feedback from program participants.