we can look at at the board level are the specifics city to city, point to point like that.

Mr. MCCLOSKEY. Until very recently, about 40 percent of Bloomington's mail was backed up. It was going to Indianapolis where it was also backed up and sent out to Fort Wayne and then making its way back to Bloomington. I guess that was taking 6 days.

Ms. PACE. Presumably, our external measurements should be helping us locate problem areas like that at an early stage. I say presumably because I don't know how long that has been going on, but when that kind of service deterioration occurs in the measurement, we have people that are constantly working on reading those measurements and then trying to act on them.

Why is this happening? Why is this off? I can't say specifically about the cases that you are giving and whether our system is fine enough to catch it at that level, but I do know that by instituting this external system, we have not only obtained objective measures of our experience, but we have also obtained good information to help us manage better and we are trying to use that.

Mr. MCCLOSKEY. Could I ask if anyone could try a hand at this. Is there any characterization of the mandate that Mr. Runyon has been given? Has he been told to come in and start whacking away with a chain saw and some bombs and terminate? What is the understanding?

MS. PACE. The only mandate we gave Mr. Runyon is that he join us as soon as possible and the soonest we could get was July 6-but I must say he has already met with many, many people, the unions and our managers and he went to the postal forum, so he is really literally working for us even now-and the other mandate was that he give us 4 years and that he run a world-class organization. That is really what

Mr. MCCLOSKEY. So he has committed to 4 years, is that right? Ms. PACE. Yes.

Mr. MCCLOSKEY. Thank you, very much, Madam Chairman.

Mr. Chairman, I thank you.

Chairman CLAY. Ms. Norton.

Ms. NORTON. Thank you, Mr. Chairman. I apologize that I was kept from attending earlier and I ask first permission to enter ny full statement in the record.

Chairman CLAY. Without objection, so ordered.

[The prepared statement of Hon. Eleanor Holmes Norton follows:]

PREPARED STATEMENT OF HON. ELEANOR HOLMES NORTON, A REPRESENTATIVE IN CONGRESS FROM THE DISTRICT OF COLUMBIA

Mr. Chairman, I am pleased to be here today to hear form the Postal Service Board of Governors concerning their priorities for improving the Postal Service both as a service provider and as an employer.

This year the committee has been investigating the impact of automation and the postal ratemaking process, two areas that have profound effects on postal customers and employees. In view of declining volume, finances in the red, and talk of layoffs, it is painfully clear that the Postal Service and this committee have their work cut out for them.

Soon the Postal Service will be under new leadership, and Mr. Marvin T. Runyon, Jr., the new Postmaster General will find a large challenge to make the Postal Service a viable business and a good employer. It will take cooperation participation

from all the parties who play a role in the day-to-day operations that are at the heart of the Postal Service.

I am looking forward to hearing from today's witnesses and I welcome them all. Ms. NORTON. Mrs. Pace, I am pleased to hear and I do understand therefore that for the first time, is it, the-you have a commitment on the part of the Postmaster General to serve an explicit amount of time? My own experience from government where I head an agency that had frequent turnover taught me that an agency suffers when there is frequent turnover at the top.

Therefore, I was particularly interested in how you obtained that commitment; how you intend to enforce it?

Ms. PACE. In all fairness, Tony Frank gave us a 3- to 5-year commitment and he stayed with us 4 years. So we started asking for that commitment because we thought the turnover of postmasters was just too rapid to be healthy for the organization, so we had that commitment from Postmaster General Frank, and we asked for the same commitment from Marvin Runyon.

Ms. NORTON. So you have a commitment of 3-5 years, minimally 3 years.

MS. PACE. That is right.

Ms. NORTON. You mentioned cost containment in your testimony, and I would be interested in hearing some further explanation of how you expect cost containment to work in the Postal Service context, what it means in that context?

Ms. PACE. Well, organizations in my experience, and certainly you read about it in the papers everyday, you find that this is happening, that organizations as they grow, particularly an organization like this, which has a highly regional aspect to it, tend to become overburdened after a while.

There comes a time when you have to look at your organization, you have to look at the way you are doing things. I mean, the most important thing in providing good service and quality is to look at your processes and make them much more efficient.

And we think over the years we may have developed a lot of what we call fat in the system and it is time that we become lean. We are looking at all of our processes in that light to make our resources work as hard to produce the kind of efficient, quality, world-class service that we know this institution is capable of. We think that process will cut our costs considerably.

There are also many actions we take which can be direct. For example, we can look at our capital programs. It is possible we don't have to spend as much money on bricks and mortar in the future as we did in the past. So that is something we have to look at. We have to look at maybe some areas of travel. Are we spending too much on travel. We can look at all of those areas of costs and as I remember, one efficiency expert saying many years ago, even if you get a penny out of one item and you multiply it many times, you will have had an effective cost containment program.

So we are not looking for big slashes and huge changes. What we are saying is it is time to look at our processes. It is time to bring them up to date. Automation is changing our requirements and it is time we just spruced up the organization to be in line with those requirements.

Ms. NORTON. Well, to be frank with you, it sounds like the-what we hear all the time from both elected officials and appointed officials and that is that we have got to get the waste out of the system. The fact is that in your testimony, you say original plans were for reduction of $4.5 billion in costs by 1995 which makes me think, especially in light of the next statement, that you don't think you will, in fact, achieve that unless something more dramatic than looking for pennies at a time that are multiplied many times over.

That is why I am interested in knowing, in light of the fact that you think, quote, "even greater cost savings and productivity enhancement will be required to achieve this goal", what you had in mind, and further, I would like to know how much of this $4.5 billion goal you have thus far achieved?

Ms. PACE. I can't give you a specific answer on the $4.5-how far we have gone into the $4.5 million but I can certainly

Ms. NORTON. Billion. Billion.

MS. PACE. Billion. I can certainly get an answer for you that is precise. What we were saying is that given the way the volumes are growing much more slowly now than we had originally anticipated, it may be necessary for us to take much more forceful action in order to get the kind of productivity that would make us achieve our cost savings goal.

So it is related very much to the way you project the volume growth for the organization, and as I have been trying to point out, we are concerned that our growth path may not be the same as we thought it was maybe 2 or 3 years ago.

We are not sure, but it is so slow in recovering, coming out of this recession, that we have to take a good hard look at it, and that is one of the reasons we are not achieving the productivity that we anticipated. We are simply not generating the volume to give us that productivity.

Ms. NORTON. Well, I would very much appreciate your providing that to the Chairman, since you use a very explicit figure here of $4.5 billion, how much of that has been achieved, and I believe that it would be useful to also have greater detail provided the committee on how you expect to achieve the rest of the $4.5 billion you anticipate must be saved by 1995.

Ms. PACE. Some of it has been achieved because our labor complement is down by 35,000 people over a period of a year or so. So we have achieved savings.

Ms. NORTON. Through reduction in the labor force.

Ms. PACE. Pardon?

Ms. NORTON. Through a reduction in the labor force?
Ms. PACE. Yes, mostly through attrition.

MS. NORTON. Are there other ways of achieving savings besides reduction in the-in person power that would increase-would get us toward this $4.5 billion by 1995?

MS. PACE. Well, that would be very difficult since labor is 83 percent of our total cost. You would have to take the other 17 percent and whack it down to zero practically to make that happen. It is because we are a very labor intensive type of industry that makes it necessary for us to look at labor.

Ms. NORTON. See, I wouldn't call this cost containment then. I think it ought to be called what it is. If you anticipate that essentially the only practical way to save costs in the Postal Service is to reduce person power, then you ought to say that and not frame it in cost containment terms which makes the committee believe that you have a variegated plan for cutting costs.

There are many ways to cut costs, productivity savings, for example, can cut costs without laying off people. I would be most interested in seeing precisely what you mean by cost containment of a very specific figure by a very specific time.

MS. PACE. Let me just try to clarify why the expression cost containment is used. Costs go up. They go up every year, so you can't say cutting costs because that gives you the impression that they are going to go down, so what we are saying is we are containing the costs so that they will not go up as rapidly as we were projecting.

MS. NORTON. But your testimony says, for a reduction of $4.5 billion in costs by 1995.

Ms. PACE. Yes.

Ms. NORTON. That certainly leaves the impression that you are talking about cutting something from somewhere.

MS. PACE. We are, but that still means our overall costs are going to be rising but they will not be rising as rapidly as they would if we didn't institute the program to keep the costs from rising that rapidly.

So that is why the expression cost containment is used that way. It isn't really meant to deceive anybody. But we all know that the service is made up principally of labor. So we either have to get the volume to justify all the people that we need or we have to slim down the organization to satisfy the volume requirements that we have.

Now I don't think we can make a specific judgment at this point because we are still uncertain as to the degree of loss that we may be experiencing from our areas of communicating. We know that there are ways to communicate the fax and electronic ways of communicating, that take away from the use of mail. We know

that.

We know that advertisers may not be using the printed word as much as before, but we are not sure how those forces are working out. So we have to do some studies before we can convince ourselves on this and our financial department really spends a tremendous amount of time trying to come up with volume forecasts. Chairman CLAY. Ms. Alvarado, did you want to comment?

Ms. ALVARADO. Yes, Mr. Chairman. The Congresswoman, in fact, expanded on what the Chairman had said. I think you are right, there are a lot of nonpersonnel areas you would like us to look at and I think one of the areas that we have all now had a new occasion to revisit is the area of capital expenditures, which is one of the major areas where we can really wield our budget cutting knives if you will.

I think that as a result of some recent presentations we have been disappointed in the process. I think that is fair to say, and we are attempting to look at projects as they come up.

For example, expansions of current postal-postal facilities, general mail facilities, vehicle maintenance facilities. All those things are getting a second look. We have also tried to put within our purview, or give ourselves greater purview over areas that are noncapital expenditures, such as the Olympics program, which was put in place without necessarily the tacit approval of the board, so I think there are a lot of areas that don't relate to personnel that we are going to be looking at, and frankly I think all of us would prefer that we look in that direction first and most closely before we get to the question of people, because we understand the pain and heartache that is associated with that particular cut.

MS. NORTON. Thank you.

Ms. PACE. If I may, I would like to take up one area. Here is an illustration of where we could save without touching a single employee. The way we do our financing is through the Federal Financing Bank, and because we do it that way, we are fixed to certain interest rates. Now, we all know interest rates have come down very sharply during the past 2 years, and-most companies are saving money because they are taking the debt that was financed at higher interest rates and they are refinancing it at lower interest rates so that their costs are considerably reduced.

If we had the option of doing that, which we do not have under the existing rules, if we had the option of doing that, we could save $175 million. So there is a constraint we have because of the way we are forced to finance our debt.

Now, we would like to change that. We think we can and we would like to change it but that would be a way to save a significant amount of money in a very sensible way.

Chairman CLAY. Well, let me ask you a question about that. If you did that, you would be going outside of your authority. As I understand it, it is Congress' authority to decide what the limit or level of your borrowing is.

Ms. PACE. I am not talking about the level of borrowing. I am talking about what we borrowed say 2 or 3 years ago at interest rates that could be 5 or 6 points higher than they are now, and what companies do when they borrow at high interest rates and then interest rates drop sharply, they simply pay that off and reborrow at much lower interest rates and they get their interest costs down. So it doesn't change how much debt we have.

Chairman CLAY. But you aren't authorized under the law to do that and that would be arbitrarily done. The Congress has to authorize you to do that and I understand that Treasury and OMB are opposed to it and in all probability Justice will tell you that you can't do it.

Ms. PACE. No, no. The way I understand it, Congressman Clay, is that the Federal Financing Board was established in 1974 in order to coordinate the borrowing of all of the agencies.

Chairman CLAY. And they gave you a limit.

Ms. PACE. Pardon?

Chairman CLAY. They gave you a limit as to how much you could borrow; is that correct?

Ms. PACE. Yes. I don't want to break that limit. What I am saying has nothing to do with the limit. We will stay within the