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Ms. Pace. Well, we do have transitional workers, working in various occupations where we know the work needs will change in the future. That certainly is part of our plan. We are doing the best we can with managing our labor force.

But with the kind of economics we have, Chairman Clay, we simply cannot hoard labor. It isn't even fair to the workers, because if we come to the conclusion that our volumes don't justify the labor force we have, we have got to act, we have got to act with heart, we have to act in a humane way, but we have got to act or the institution can't survive.

Chairman CLAY. You mentioned earlier something about early retirement and a number of other things that might happen. Have you discussed that possibility?

Ms. PACE. That is under review at the present time, yes. We are looking at the demographics, and of course we have to check all this with the Office of Personnel, and make certain that we are conforming with all of the requirements. But it is under study at the present time.

Chairman Clay. Thank you. Mr. Myers.

Mr. MYERS. Thank you, Mr. Chairman, and members, Madam Chair and the members of the board.

I compliment you too on the selection of Marvin Runyon. In my other committee assignment on appropriations we have had experience dealing with Mr. Runyon, found him to be very competent and well qualified and has a lot of experience, and so I know you certainly have a great need in the capacity he will be entering into.

I have just a few questions here, one dealing with, as I remember last November, before this committee, a feeling was expressed that the Rate Commission procedure was very rigid and did not have enough elasticity. It isn't flexible enough. Under the new recommendations here, are you satisfying that problem?

Ms. Pace. I think the task force addressed that issue very well, and worked very hard with it, and the recommendations that it has made really incorporate more flexibility, or at least anticipate more flexibility than we now have. So yes, I really think they have addressed it, and that is part of the solution.

I don't know, when we get our final regulations, what it will all look like, but basically that was one of the primary goals or objectives in the task force's study.

Mr. MYERS. You mention in your prepared text that the Postal Service finds it almost impossible to be competitive.

Ms. PACE. Pardon?

Mr. MYERS. You expressed that it was difficult for the Postal Service to be competitive under the present structure, rate structures.

Ms. PACE. Yes, that is right, because if volume—in many of what we call competitive services, volume is very sensitive to prices. So if we keep raising our prices, we are simply going to keep losing our volume. And the more we raise prices, the more we lose volume, and then after a while, it just becomes uneconomic for us to remain in that business. So that is why we were seeking flexibility.

We were also seeking the ability to try innovative marketing, or innovative products and pricing them in an innovative way. And that is what the study turned its attention to. Obviously we don't have a one way street of just raising prices without having an effect on volumes.

Mr. MYERS. Well, in the past, it has been expressed that some of the competition to the Postal Service took the cream of the crop, the easy ones to deliver. You got the more difficult, the rural areas and some of the less populated areas where it was more costly to make deliveries.

How is any Rate Commission going to be able to overcome this?

Ms. PACE. Well, it is true that the universal service imposes a cost on us, but it is one that we are going to have to accept. It is part of what we promised the American people and part of what we must do. So we must have the latitude and the flexibility to manage our costs better if we understand we have that requirement. So we accept that responsibility.

We know we have to start with that and then get on with doing whatever we have to do to increase our volumes and to price our products so that we can get maximum volume responses. We are a volume-driven organization and we have got to find the right way, the cost-effective way, to get the volume. And I think we can do that.

We are doing that with our automation program; that is helping. We have a quality program in place so that we can relate more to the customer, satisfy the customer's needs. We are doing more in marketing, making people aware of a wide variety of services that we offer.

Now, if we can get the flexibility in offering and pricing those services, I think we would have a tremendous formula to provide that universal service and still do it effectively.

Mr. MYERS. Well, I am sure all of us, and especially those of us up here, hear the discussion from our constituents that first class is paying for junk mail. Is that true, and what can be done about this problem?

Ms. Pace. In my opinion, it isn't true. I really think that if we didn't—this is my opinion, I have indicated that I wish we could do a study on this—that if we were to simply take the delivery mechanism we need to provide this universal mail service, and just apply it to first-class mail, we might have a 50- or 60-cent stamp because, you see, we wouldn't have all that extra volume to absorb the basic cost of getting all those delivery points around the country to meet the service and distribution requirements of delivering the mail.

So I can't say precisely what it is, 50 or 60 cents, but it is my opinion that, if you look at it that way, that, in a sense, the extra volumes that we get from third class and the so-called—we don't like to use the J word—but so-called junk mail, does help us absorb the cost and helps to keep the first-class rate down.

Mrs. MORELLA. If the gentleman will yield, I have been telling my constituents all along that there have been studies that thirdclass mail helps to offset even the cost of the first-class mail, so I thought we did have some definitive data on that. If we don't, I am rather surprised.

Mr. MYERS. That is what I thought. I haven't been on this committee that long, but it seems like all the years I have been on this committee, it seems like we have had one or two studies—and I don't have the record before me, but it seems like we have had studies along that line.

Mr. GRIESEMER. I think what the chairman was talking about is where would first class be without third class? Yes, the studies do show

Mr. MYERS. Yes, that is what I want to hear.

Mr. GRIESEMER. Each class does cover the attributable costs or I call them, in business, direct costs and each does contribute to the overhead of the organization. So third-class mail does carry its own share and make a distribution to the overall profit of the organization.

Mr. MYERS. Well, newspapers, as an example, go-they don't pay first-class rate, but they move in first class, do they not?

Mr. GRIESEMER. Not exactly. Second class.
Mr. MYERS. Second class?
Chairman ClAY. Will the gentleman yield?
Mr. MYERS. Yes.

Chairman Clay. But the newspapers are the problem. No matter how many studies we make, and no matter what those studies say, newspapers want to abolish third-class mail, because that will then become their advertisements, and whether the advertisement is targeted and not to certain neighborhoods, they don't care.

So it is the newspaper that is the problem. We deliver in county newspapers at a reduced rate, you know. They don't talk about that.

Mr. MYERS. That is exactly what I am saying to you right now. They are quite critical of the perks that we receive, whatever they might be. That is a “P” word we don't like to use, like you don't want to use the “J” word. I have still been looking for them. I have been around for a few years, and I have found doggone few.

But the newspaper reporters seem to think that we get free haircuts and those kinds of things. Everything they have mentioned, I have found not to be true. At least I haven't found that. I do know that my junk mail coming as a former newspaper, sometimes gets here quicker than my first-class mail gets here from Indiana.

It may be the same for Indianapolis. I don't deliver mail, I just receive it. One more question I have about

Chairman CLAY. Let's get off of these newspapers. I need them right now.

Mr. MYERS. There used to be an old timer around here who said, "never buy anything from anybody that buys ink by the barrel." I don't argue with them. You mentioned about the employee lay-off, and I believe in your discussion with the Chairman, that is one of the considerations, and there is a possibility if the volume doesn't pick up, you will have to make some adjustments beyond attrition. Is that correct?

Ms. PACE. No, we don't. What we have established is a target of a desirable labor complement, at least we had established that over a year ago, by the year 1995, based upon the assumptions we made at that time about volume. But as we come out of this recession, more slowly than anybody anticipated, and as the advertising outlays even lag behind that sluggish recovery, we have to take another look and determine just what it is we need.

But we have not come up with any conclusions about target rates. We are just saying that it is a possibility and we have to accept that as part of the reality.

Mr. MYERS. Well, thank you for your testimony.
Thank you very much.
Chairman CLAY. Mr. Hayes.

Mr. HAYES. Madam Chairwoman, you mentioned that roughly 50,000 people would lend themselves to layoffs. This is out of roughly 750,000 people employed in the Postal Service, right?

Ms. PACE. Right.

Mr. HAYES. Based on your answer to Chairman Clay on layoffs, have you also reexamined the automation plan at all? Has that been reexamined?

Ms. PACE. Reexamined the automation plan? You mean to determine whether it is on course, whether it is the right plan?

Mr. HAYES. Based on the volume projection which may not materialize?

Ms. Pace. I don't think that is the major or critical factor in the automation program. The automation program is really made to handle what we now have to handle much more efficiently. That is really what the basis for the automation program is. The automation program, for example, helps us read addresses that we couldn't read before, so we get improvements over and above what you are just talking about in terms of volume. So there are many dimensions to the automation program beyond just the volume.

But we fully expect our volume to grow, Congressman Hayes, but I am just saying it may not grow at the historical rate that we have had in the past.

Mr. Hayes. I don't believe that cutting personnel-if it is a machine which is not working up to standard is a problem. I don't want to cut some of our personnel less than automated procedures.

Ms. Pace. Well, nobody likes to see people laid off. I think it is just a tragedy when that has to happen. But the market forces are pretty clear when they give you a message, and I don't think there is any way we can circumvent it, but I do assure you that we will be at ,

When I gave you the figure of 150,000, I didn't mean to say that is our layoff target; I meant to say that there are only 150,000 who are eligible who would fit in that classification, that is all.

Mr. HAYES. I know that you made reference in your statement to Mr. Runyon's statement about full employee participation and employee empowerment. What changes have been instituted to make the Postal Service less militaristic and more responsive to the needs of employees since the Royal Oak tragedy last November? How are you routing out the old style top down management?

Ms. Pace. Well, in the first place, we conducted and are still conducting some very in-depth studies on the situations that could lead to that kind of violent behavior. That is being conducted by our inspector general. The first step was to find out what happened at Royal Oak.

The second and third steps is to determine what sets of conditions will lead to that kind of behavior and what we can do about it. So those are really underway. But more importantly, there is a practical program, and even as we speak here at this minute, our

management is meeting with representatives of the union as they do every month to discuss the situation and to talk about employee involvement.

All unions are invited to attend. Not all attend, but they are all invited to attend and that goes on regularly. So we are trying to get more employee involvement in these decisions.

Mr. HAYES. I notice that none of the six concerns you mention in your statement mentions employees. I have always looked at other's backgrounds and I noticed that out of all of the experience the board members have in various professions, no one is an employee representative. Maybe it would be important to have someone on the board from an employee's point of view who could complement your knowledge. Would you care to comment on that?

Ms. Pace. Well, I would say that implicit in everything we are doing is the welfare of the employee, because, you know, if we don't grow and grow properly, no one benefits, least of all the employees, because 80 percent of what we do involves labor. So if we do it right, labor will benefit from it. And the employee interests are always discussed at the board. We are very conscious of that.

As you know, up until very recently, our commitment to all of you is that we would use attrition as the means to meet our goals on employment. We are only raising this possibility because it could be that our volume growth won't be what we had anticipated it to be. We are not saying we are going to do it. We are just saying we are raising that possibility. We simply have to get our costs down. But when we talk like this, we don't just say let everybody go, that is it. That is not the way you do it.

First of all, the Postal Service is too complex an organization to make blanket rules like that and we have to look at each department, each region, each locality very differently. Each one faces a unique challenge. Some are still growing. Some are falling behind. Some have high costs built into them that have to be corrected just by themselves, others do not, so it is a highly variable problem. But I must assure you, Congressman Hayes, that we do have the interest of the employees at heart. They do our job for us and we need to be grateful to them for what they contribute.

Mr. HAYES. I hope we have the same views on the trend that seems to be developing within the Service. I am opposed very bitterly to privatization of the Postal Service. Am I to conclude that you agree with that position?

Ms. PACE. I am sorry. I didn't quite hear your question.

Mr. HAYES. Do you agree that privatization is not to the best interest of the consumers of the Postal Service?

Ms. Pace. For the Postal Service, yes, I do agree at this stage.
Mr. HAYES. We are on the same wave on that?
Ms. Pace. We sure are.
Mr. HAYES. Thank you very much.
Chairman CLAY. Mrs. Morella.

Mrs. MORELLA. Thank you, Mr. Chairman. May I ask unanimous consent that an opening statement be included in the record?

Chairman CLAY. Without objection, so ordered. [The prepared statement of Hon. Constance A. Morella follows:)

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