issues? >> to date, i have not yet been involved with ambassador kirk. >> when can i expect that? >> let me look into it and i'll get back to you as soon as possible. >> thank you. my second question has to do with the reallocation of programs. it's my understanding that the tier one level has changed from five cities to ten. that has to do with drops in funding. i wanted to ask if you would consider relooking at that and consider why a change has occurred. one of the great things about your department is that you view things based on their merit and significance and not getting into the political fights in washington. if you can get back, that would be helpful. >> yes. >> thank you. number three, i wanted to talk about cargo inspection. one of my colleagues said the layered effect and all of that, i admit, it's kind of a personal issue because it's flektive of my district. i would venture to argue that in terms of traveling by air, we use the same systems. you look on the computer. you're checking who the people are and all of that, but everyone isn't just simply walking through the airport. we have a layer of inspection that occurs at the airport that you have to go through. i want to echo my concerns as the chairman did that i'm just really concerned of where we are and i realize the chatter doesn't raise to the level as you're dealing with aviation. i get all of that. but all we need is one problem and suddenly, things will change. you were quoted as saying you are looking to extend the deadline to july 2014th. do you see implementing this program? >> i'm hopeful that we can persuade the congress that the statute itself is not the best way to secure the global supply chain and that there are better ways and that we are engaged in those. given the existing statute, given the configuration of ports around the world, the expense of some of the equipment associated only by focusing on what happens as the ports as opposed to the entire supply chain, by focusing on one area, we really don't fully get to the goal. i think we always share, which is to make sure that material enteri entering the united states is safe. i think this is going to have to be an area where we continue to work with the congress and the committee moving forward. >> i have one last question. would you be open then to at least working with us? since i've been here in the last three years, it seems like we're at the same point. you say, i want to do it the way i've been doing it. could we all get together in maybe a working session and kind of talk about our concerns and come to a compromise instead of us just kicking the football back and forth? >> yeah, i know we've briefed the committee multiple times, but we would be happy as always to work with the committee. >> mr. chairman, could i have an additional 30 seconds? there was an oil spill in my district and i was not notified by dhs or anyone. i read it in the newspaper. so, what i would like to talk about as i said is continuity of government of what, and i'm willing to work with you. it's a passion of mine i see as a huge weakness from hurricane katrina and so many other areas, but i still don't think we've mastered how do we engage this end of the rail in these disasters, so i would like to work with you on that. >> and the gentleman dunk is recognized for five minutes. >> thank you, mr. chairman. thank you for coming back before this committee and i reviewed in the written statements that you gave us the six identified department homeland security missions and i appreciate you breaking that out for us. last month, this committee had the opportunity to discuss the southern border situation mainly with the chief fisher and at that time, i read the definition of operational control from the secure defense act of 2006 in which the congress defined it as unlawful entries to the united states including by terrorists, instruments of terrorism, narcotics and other contraband. this definition has brought more to the forefront with the understanding that hezbollah is in cahoots with the cartel and i'm concerned as many americans are using smuggling routes of the cartel to bring god knows what into this country. the customs and border control is publishing data saying that only 44% of the border is under control and arizona is suing the federal government. chief fisher stated they had acceptable level of operational control. means that we control who enters this country. on february 11th, a arizona sheriff, 34-year law enforcement veteran, he said this. i can't stand publicly and endorse a political initiative part of this. whose county boards mexico in the southeast area. i can't stand upsi side by side with people who say this border is safe when it's not. this came a few days after the commissioner came to arizona to meet with sheriffs to discuss security. he stated that the administration was seeking to sell the belief to american people that the border is safe and secure as part of a publicity campaign. those are his words. so, my question for you this morning is just a further understanding of what chief fisher and this administration and your office means when they talk about operational control. >> well, representative, as i've said many times, what we want to have is a safe and secure border zone from san diego to brownsville and no one is more familiar with that arizona border than i am. i have worked that border as a prosecutor, a governor and now as the secretary since 1993, so i have a lot of years of experience with that border. there are lots of disagreements along that border, so i would note that not all sheriff rs in agreement with the sheriff. here's the point that i think is so important. we have a pathway forward on that border. it includes manpower, technology. it includes infrastructure. a combination of all three. it also includes effective interior enforcement of our laws because the big driver of illegal immigration across that border is the opportunity to work in the united states, make a wage and send it back to another country, primarily mexico right now. so that's what the pathway forward is. that's what the plan, the build-up has been. that's why the president has put more border patrol agents in his budget than anytime in our nation's history. that's why hess put more funding into technology, into i.c.e. that's why he has supported the largest deployment of technology of the southwest border in our nation's history. that's the pathway forward. that is the plan. unfortunately, the hr1 that passed here counterdikts that plan. goes backwards. it will take us back to where we were several years ago in terms of the actual resources that are available at the southwest border. so, i would respectfully ask this committee to look at the continuing resolution and look at our fy12 budget requests with those priorities in mind, but i think we all hashare the same goal. to have a safe and secure border. to have a border through which legitimate travel and trade can go back and forth. we have huge land ports of entry along that border. mexico is the number one or two trading partner of i think 23 of our states, so that needs to be facilitated even as we increase the manpower and equipment lay down between the ports. >> i think our goal is the same. securing the border. determining what comes in here and thank you. >> time has expired. the gentleman from massachusetts is recognized for five minutes. >> thank you, mr. chairman. madam secretary, thank you for being here. last month, we had the chance to discuss the aftermath of a death of someone whose body was found in massachusetts in the direct line of a commercial flight that left charlotte on its way to logan. forensic experts have ascerta ascertained that mr. tisdale reached the -- hit by the wheel of the plane. to date, there's been no video surveillance that surfaced that could detail how mr. tisdale was able to breach airport operations and the case surely suggests that there may be a perimeter and air field access vulnerableties in other airports as well. this week, charlotte police department released a public version of their investigation. indeed, the police department's investigation, the local police department's investigation concluded there's the need to strengthen security in many respects. i'm glad this airport, a major hub working with t srsa to implement these new security measures and i'm sure you agree that if there's a security breakdown from one airport, particularly a hub, that countless airports and cities are vulnerable. i had four questions i'd like to pose. the first, i'd like to make sure if possible that the members of this committee are briefed on the classified police department report they have issued. can you agree to work with our committee in that respect? >> yes, it is a matter that is still under investigation. that particular -- how that breach occurred. so i'm not at liberty to discuss in a public setting. but we'll explore how we go about sharing that. >> my understanding is that the local police investigation is complete from local officials. could you share that local police report with this committee? >> let me look into this. that was not my understanding, so let me look into that. >> thank you. ranking thompson and myself asked tsa to conduct its own investigation into this matter now that the tsa has the report from the police department, when will tsa commence that investigation? >> i believe that tsa is -- their investigation is underway and in addition, you know, we learn from all these incidents. every time there's a breach of whatever type, it is something we say okay, what happened here. is it repetition? what needs to happen systemically? you're right to point out the hub nature. it is something that reminds us you know, perimeter, which as you know, the tsa doesn't control. it has standards that airports are supposed to abide by with respect to perimeters. we're looking at all that afresh in light of this incident. any kind of incident. >> let me try for the sake of time -- all the way along, i have a greater sense of urgency when a breach of this nature occurs that could threaten not only this airport, then i suppose many other people it seems, but to me, i'm a bit dumbfounded that that sense of urgency has resulted in quicker action. i have had the chance on my own to and with some assistance, to look at some minimum standards, which i will not discuss because it's not great to discuss publicly what some of the minimum standards are at airports. but looking at those, i'm not satisfied. i don't think the public would be satisfied if they knew what those minimum standards are. my question to you is given the minimum standards and the fact you just expressed there's another jurisdiction involved in implementing that, what can we give you for authority if necessary to make sure there's a seamless approach to making sure those prerimeter and tarmac ares are secure as they should be? because my view of what happened in charlotte clearly indicates there's a major breach. in a bank robbery, you can go back after someone did it and get evidence. there's no sign in the videotape that they can even locate how he did it, yet he did. so i see a major problem and we want to work with you as a committee to see if we can give you more authority, if necessary, more resources if that's necessary. but to me, this is a profound danger to the traveling public where the barrage at the gate, that's fine. we expect that. but you look out the window and the tarmac and frankly, i don't feel safe when i'm take ago plane. >> time has expired. in consultation with the ranking member to have obvious consent limited to three minutes, the secretary can make it to the white house for a meeting with the president of mexico. >> we will work with the committee on this. >> thank you. >> time limit is not three minutes. gentleman from florida. >> thank you. i appreciate it. thank you. getting back to the student visa issue, describe the enhanced monitoring capabilities of sevis 2 as opposed to one. the system has been delays and not deplayed. schedule to be deployed last year. when do you think this will be implemented and what is i.c.e. doing to monitor these individuals? >> i'll get back to you on the exact timeline, but as i mentioned earlier at this hearing, i.c.e. is able to monitor for suspicious activity and bank accounts and the like. that is indeed one of the ways in which this individual was detected. >> what is the current level of coordination information sharing between dhs and the state department recording student visa issuance and why didn't the president actually the budget's flat on the visa security units. and i know we've identified, i think there are 17 that are in place. i know we have close to 70. why is this not a priority of this administration? >> well, all issues of security are a priority and all have a sense of urgency about them in reference to the prior question. i think we put i.c.e. individuals into embassies upon agreement with the state department as to where they should go and we have requested funding for where we have agreements. >> okay. thank you. i'll yield back in the interest of time. thank you. >> thank you. and ms. clark is now recognized again. >> thank you very much, mr. chairman and so good to see you, secretary napolitano. thank you for your forthrightness in response to a very challenging budget. i'm sitting here just thinking of some of what our concerns are almost diametrically opposed to what has come forth in the cr and it's interesting to hear the conversation. but i have a question about cybersecurity. the national division is planning to deploy five enstein monitors that should be used to detect intrusions on computer systems. if the resolution is adopted by congress and you don't receive your requested funds for 2011, how would it affect this much need needed prugt and the request for 36 million? >> it will cause significant delay, representative. i think for the deployment of einstein three, we would see that move back at least two or three years in terms of our ability to deploy it. so and talk about an area where there's urgency, the cyber area has real urgency associated with it. we hope we can work with the congress to revisit that issue. >> that's an area of concerning that floats below the radar for whatever reasons and it's been the take i guess, my father would say, to feel it before we realize how much of a priority it is. >> i want to move quickly to interoperaablety. the whole question of the deblock spectrum. there seems to be dualing opinions around the spectrum and i see that you and the president have been focused on reserving in support of the reallocation of the deblock to public safety. can you elaborate the level of involvement the committee has had and how you envision fiscal year 2012 budget helping the department of the office of emergency communications safety networks? this is a key area in light of what we've seen and witnessed during the 9/11 terrorist event and hurricane katrina. >> yes, representative, we've been very involved since the edition was announced they wanted to auction off the deblock. we said, wait, there's a public safety issue involved here. i believe we will all be working with the congress on the changes needed for that. >> in closing, under the continuing resolution would lose $20 million for the acquisition this fiscal year. i'm coming around to the issue of securing the cities and how this would impact securing the city. can you share that with us? >> yes, the budget would affect both of those things as i noted in my opening statement, we have asked for money in the fy12 budget to not only continue to securing the cities, but to add to it. >> securing the cities is protected, i believe, we can discuss that with secretary before and we will -- >> yes, i was referring to the other -- but it is true that in the fy12 budget, securing is city is sustained and we want to add another city to it. >> mr. quail. >> thank you for coming. there's been a lot of talk i think in this, with the budget about the cr that just went through the house and will be going through the senate and coming back probably, but one of the focuses in both the media and here has been what effects it is going to have on securing the southwest border. i just wanted to give a little lay of the land on how this is going. my look at it is going to be adding more agents, not decreasing agents. is increased funds by $147.9 million over what it was for fiscal year ten, an increase to what 11 was. it also provides $550 million for fencing infrastructure and technology, $58.8 million for i.c.e. to maintain border hires. also $60 million for operation stone garden, the same as fiscal year 10. now, in going forward with the cr and the fiscal 12, what in terms of priorities, do you think that we should be focusing on for the southwest border? is it more technology, more border patrol agents? which do you think is more important in that regard? >> first of all, i think there's a lot of -- i really can't agree with the lay down you gave of the facts in terms of how they really affect funding sprt southwest border and president quyale will be glad to get with you after this hearing because time is precious, but even senator kyle put out an article on how it affects the laydown for immigration enforcement. i think there's some bipartisan disquiet there. it's not a good border budget. it's not a good immigration budget and we believe strongly that to keep moving in the direction we're moving is the right thing. the numbers that need to change are going in the right direction and particularly in arizona. we need more manpower, technology and more funding for infrastructure put in the right places and the right kind of infrastructure. it's hard to say well, one, two and three, it's all of the above because it's a system. then you need to back that system up with enforcement in the interior of the country, which is primarily i.c.e. when you have that in place, you begin to see the dramatic impacts you've been seeing over the past several years. >> thank you very much. i yield back. >> the gentleman from louisiana, mr. richmond, is recognized for three minutes. >> thank you, mr. chairman. and madam secretary. we're having an issue in louisiana that i think rises to a homeland security issue. you talk about dredging of the mississippi river and about all the ships that come through with petrol chemicals and so forth. one of those ran aground and we have a leak and it falls under your agency in terms of the response. are you at all involved in making sure our ports are dredged to a safe leavitt at least to their authorized level so don't have that and our pilots had to issue a warning and memorandum to their pilots, not to traverse the river at nightti nighttime. wait till high water because of a fear of running aground and having a spill. so, i know that agencies don't talk to each other, but that is a big concern of mine. have you paid any attention to that? >> i'm not personally familiar with that particular issue, but i can say that the coast guard works very directly with the shipping industry, with those involved. we have the captains of the ports for example and with the army corp. of engineers. >> the other thing i would like to add especially as states start to deal with major budget problems, especially louisiana and we deal with our own problems up here, the grants for emergency preparedness, event planning. if we see a reduction in those grants, is it possible that we create a more general pool so that the local emergency offices can better utilize or prioritize what they need to use the grants for? >> well, that's one of the reasons why we've recommended consolidated the current list of 17 into nine. to give locality some more flexibility, to reduce the number of grant applications and the paper work they have to submit. it was something we asked for last year, we're asking for it again in the fy12 budget. >> thank you. >> the chair recognizes the gentleman from pennsylvania. chairman of the committee, for three minutes. >> thank you. thank you for your extensive preparation. i among many in washington in the last 48 hours have been with those who have been sort of dog earring the most recent report from gao. it was a pretty tough challenge in many parts fs of the government as we look at the issue of homeland security. they were looking at the fragmentation among government programs, but a particular area, the area of bioterrorism and i quote from the report, at least five departments, eight agencies and more than two dozen appointees oversea $6.8 million related to bioterrorism. it says at one point, there's tho broad integrated national strategy that encompasses all stakeholders with responsibleties. this is on the front end, with respect to systemically identifying risks, assessing resources needed to address that risk and then prioritizing and a al kating that. then says there is no national plan to coordinate federal, state and local efforts following a bio terror event and the united states lacks the technical and operational capabilities required for an adequate response. that's a tough accusation for all of us who share a concern about this issue. i know you represent just one of the multiple agencies, but this is a big challenge. how do we begin to look at this incredible problem? this is a canary in a coal mine in my mind right now. how do we begin to look at the issue of a national strategy and get that focal point, go across the multiple agencies, but not only be better with our resources in terms of fiscally responsible, but deal with the issue of appropriate response? >> first of all, if i might suggest something for the committee to consider. i don't think it's overall helpful for gao reports that are allegedly pointing out alleged vulnerableties to put out in an unclassified format. i think that's a problem and i've referenced it several times. i would respectfully ask the congress to really look at that for obvious reasons. secondly, the issue, i believe, t very comp rated because you're quite correct. it does cross multiple agenciea. you've got hhs, us, the dod, some smaller agencies, all of which have a piece of this. we have been working primarily with hhs on trying to create or construct a pathway forward at the interagency level where bio is concerned. what i would like to do is have some of the people directly involved with that brief you in a classified setting. >> that would be great. a great opportunity to begin try to work on something, whether we like it or not, that's out there now in public and we're going to be asked about. thank you. >> the gentleman from texas. >> thank you very much. i'd like to personally thank you for being in brownsville attending memorial mass for agent zapat. my agency has continued to be in contact with the family and let them know you would be here today and ask if they had any questions for you. they sent a list of 17. that definitely points out the fact it's a family dedicated to law enforcement. mr. mccall has asked a couple of them and a couple are in details that aren't appropriate for the scope of this meeting, but the one i don't think was asked and i think is important we address, what concrete steps are we taking to make sure this doesn't happen again and are those steps addressed in the budget proposal put together clearly behind the scenes before this event that i consider to be an escalation on the war against drugs in our southern border? >> i think first of all, thank you for being at the service. it was very moving. the family, two other, it was five sons, i think two others are dhs employees. the father is a law enforcement official, retired now, so really a great brownsville family and great citizens of our country. moving forward, first of all, we've been working on a very sbepsive basis with the government of mexico and with doj on not only the investigation of the shooting of the agent, but what can be done to deal with the entire organizations that are now plaguing mexico. what more can we do to assist the calderon administration and their fight against the cartels? what more do we need to do to make sure that our agents are properly supported in the field and what more can we do in the continental united states to the extent the cartels have fingertip presences here to go after them and there have been at least an open source report, that there have been a number of activities on all those fronts. >> i would urge you to stay in close communication with the family. their law enforcement agency said we'll work with you and have the curiosity that only a law enforcement family might have. don't have a lot of time left. the budget indicates there's no funding in the request for uavs that have been found to be effective on the border. is there a reason for that omission? >> i believe let me clarify that for you. i believe there's funding for two more uavs at the porder and we have the capability to traverse the entire border by uav, so we've greatly expanding that capability. >> i'm out of time. i have more questions, we'll probably follow up at a future point in time. >> thank you. >> secretary, thank you very much for your time. i wish you good luck at the white house with the president of the united states and the president of mexico and members of the committee may have additional questions. ask if they could respond to you in writing and you would respond to them. the record will be open for ten days. >> thank you very much, mr. chairman. >> we trimmed $3 billion in costs on top of $6 billion in savings in 2009, and our plan this year is to take another $2 billion out further reducing work hours by 40 million. our achievements in the workforce reduction accompanied -- had been accomplished through attrition. we are unsurpassed in public and private sectors in that manner. we have reduced our workforce by almost 230,000 employees since the year 2000, and he dramatically increased total productivity. we've accomplished this all without sacrificing service. performance levels is at the highest level ever, and those results lie squarely with their dedicated, knowledgeable and committed employees and they could not be any more proud of them. we are aligning every aspect of the postal service throughout four key strategies. strengthened the business of consumer channel. improving the customer experience by making every transaction a positive transaction. competing for the package business. and continue to become leaner, faster and smarter. we are committed to ensuring that we will be successful in these business strategies and we will build to serve the american public better as a result. why we are being very aggressive within the constraints of our current business model, the fact is without some important changes to the law that shape our business model we cannot survive as a self financing entity. mr. chairman, the losses experienced by the postal service last year were staggering $8.5 billion. issue we are projected to lose another $6.4 billion. these results reflect the migration to electronic indication and shifting customer habits, but upon closer examination our losses are a result of an inflexible business model. the most serious challenge is to our unique obligation to pre-fund retiree health benefits. this pre-funding requirement borne by no other entity, public or private, places incredible burden on the postal service. to understand the full effect you just have to look at the last few years before and after the enactment of the postal accountability and enhancement act, and for your before, the postal service should a positive net income every year. in four years since we have seen billion dollars in losses every year. even during the two worst years of the recession, 2007, 2008, had not been for the pre-funding requirement the postal service would have realized a net profit of $3.3 billion, and 2.8 billion dollars respectively. the effects of the pre-funding our profound. this trend continues into 2011, our first quarter results showed a loss of $329 million, excluding retiree health benefits pre-funding costs along with workers compensation adjustments we would have had a net income of $226 million. in addition to the retiree health benefit obligations, overpayments to the civil search retirement system and federal employees retirement system have taken a significant all. restoring these funds would benefit our financial position. this year the postal service will reach statutory debt limit, liquidity concerns are limited because of a $5.5 billion payment for retirement health benefits due on september 30 of this year. the postal service will not have the cash available to make these payments. we need legislation this year to address that fact. i also encourage the subcommittee to provide greater flexibility to the postal service regarding our proposed transition. enabling greater latitude the way we provide access to the postal products and services. several bills were introduced that did just that. we appreciate those efforts and are looking forward to working with each of you in the one in the 112th congress. i believe strongly the path forward requires we embrace fundamental change and that our employees, our labor unions, management associations, the mailing industry, all of our customers and business partners play a constructive role in shaping our future. i am committed to this approach. the next few years will bring significant change but i'm confident we will be able to look back and say that working together we took advantage of the challenging times to create a stronger organization and a stronger industry, developing a true 21st century postal service. thank you for your continued efforts on behalf of the postal service, i look forward to working with each of you and will be happy to answer your questions today. thank you, mr. chairman,. >> thank you, mr. donahoe. ms. goldway, you're recognized. [inaudible] >> just push that button. >> thank you chairman ross and ranking member lynch and members of the subcommittee. thank you for inviting me to testify on the record of the paea and postal service finances. i look forward to your views and your leadership on postal issues. on the whole we can say that paea has been a positive force for change keeping posted rates low and service at acceptable levels. while providing stakeholders with information and the opportunity to participate in the process. the price cap serves as a powerful incentive for the postal service to add efficiency and reduce costs including $11 billion in the last three years. at the same time the requirement to measure service and report the results publicly insured the postal service improved service quality. seasonal pricing incentives for standard in first class mail, five expanded the product market tests and expanding use of nsa, 127 in 2010, and 56 to date in 2011, show the service is taking advantage of the flexibility. along with some others i've been concerned that there are some potentially irreconcilable legislative requirements in the law such as that all products must cover the traditional costs, but no glass of milk can have great increases greater than the cpi can't. but today the commission has been able to justify reasonable exceptions and to encourage the postal service to address others. in the recent case, the commission carefully review the postal service's current financial predicament and found it to be structural related to the pre-funding of health benefit premiums for future retirees. in the past four years the postal service has paid nearly $21 billion into the retiree health benefit fund. while incurring accusative net loss of $20 billion. bottom line, without that, the postal service would've broken even despite the impact of the recession. and declining mail by. of course, when the trend and was enacted in 2006 the economy was strong and the postal service that record profits. it was in this climate of the congressman did the postal service to make an ambitious fixed tenure series of payments at about $5.5 billion. in retrospect the r. h. f. the payments about the postal service deep into debt and close to insolvency. now, even with a brightening economy and continued cost-cutting, the postal service cannot surmount its financial crisis that congressional action. in 2009 at the request of congress our expert review of the opm's computation of the our hbf liability found that recalculation could lower the postal service's liability by nearly $35 billion. still meet the funding goals of the act and allow the required in your payments to be lowered. this could signify address the postal service's financial shortfall. last year at the request of the postal service we undertook expert actuarial study to review whether the postal service obligations have been properly calculate in relation to wages of employees of the post office department who later retired from the postal service. we found the postal service had been overcharged by an estimated $55 billion. the surplus which came from postal revenues, not taxes, should be made available in some fashion for the benefit of the postal ratepayers and customers. perhaps to fund the rhbf. the commission believes that given the postal service's record of cost-cutting over the last decade, and recognizing the price cap restrictions and competition from electronic alternatives come a significant cost cuttings will continue. the commission will serve to guard against any ill considered cats because any reduction in service could be used as a de facto rate increase. last year the commission issued its advisory opinion on postal service's proposals to shut her up to 3200 stations and branches. we are from the postal service the postal service's authority to adjust its retail networks but we made several recommendations to ensure consistency and enhanced due process for every citizen. over the last year the commission has conducted an extensive review of another postal service program, that to go from six to five day delivery. in my 13 years serving on the commission, as has been the most difficult and multifaceted issue i've been asked to address. the postal service proposal to end saturday delivery is a serious effort to improve its bottom line. budget-cutting 17% of service in order to save what the postal service estimates to be $3 billion must be carefully considered within our obligation to hold prices down, maintain service standards, and ensure efficient postal operation. we are working overtime to resolve the complex and technical policy aspects of this case, and expect to complete our opinion shortly. we hope the opinion provides the congress with the information you need to decided whether or not to let the current 60 delivery directive. the commission is now conducting its first five year review of the paea required under section 701 of the act to provide recommendations to improve the effectiveness of current postal laws. certainly a historic view that the postal system itself is of enduring value to the nation still stands strong. we look forward to working with congress, the postal service, and also depend on the mail to chart a course that keeps the mail affordable, efficient, and relevant for generations to come. thank you. that concludes my testimony. i would like to ask that the statement i made with regard to the rate case which further defines the finances of the postal service be included in the record as will. >> without objection so ordered. they could, ms. goldwater. mr. herr, you're recognized. >> ranking member lynch and members of the committee, i'm pleased to be here today to participate in this hearing. today i will discuss the postal service's financial condition and outlook, and the actions needed to modernize and restructure it. the postal service financial condition has declined significantly since fiscal year 2006 and remains on gao's high risk a list. as discussed the challenges faced the postal service are linked to decreases in mail volumes, as customers have shifted to electronic indications and payment alternatives. more specifically profitable first class mail has been declining relatively quickly. while male use has been declining postal service has large fixed costs associated with delivering to 150 million addresses. it also has a large as coal network spanning over 500 mail processing facilities and more than 32000 post offices. it has 670,000 employees, about 80% work full time. and compensation benefits comprise 80% of its costs. the postal service expects to reach $15 billion statutory debt limit this year while still facing a cash shortfall. unfunded obligations and liabilities, are detailed in my statement for such things as worker's compensation, expenses and retiree health care are now estimated to total $105 billion. the sake of strongly suggest the postal service's financial condition has reached a tipping point and key stakeholders need to reach agreement on actions to address can structural problems. we believe actions needed in five areas. first, real-time service for customers changing use of the mail. the postal service has sought to reduce delivery by one day and provide retail services outside a post office. it estimates the dropping a day of delivery decreases cost. second, postal operations, networks and its work force me to be relied to reduce excess capacity. key questions include how quickly can these networks be realized, the pace of change is simply been too slow. and should some post offices move to alternative locations to better serve customers and reduce costs? third, compensation and benefit costs need to be addressed. wages and benefits represent 80% of postal cost, about $60 billion in fiscal year 2010. congress may wish to consider revisiting the statutory framework for collective bargaining to ensure the binding arbitration takes the postal service financial condition into account. i've other options include a two tier pay system, outsourcing if it results in cost savings, or advising employee share of health and life insurance green's. fourth, generating revenue through new or enhanced products and services. the postal service has asked congress to allow the diversifying not impose our areas and sought additional pricing and flexibility. this includes either opportunity is profitable new postal products and enhance existing ones. should they be allowed to enter non-postal areas to compete with private dividers? finally, health benefits needs to be addressed. the roughly $5 billion plus payments through 2016 are steep and we believe the congress should consider modifying them. however, we also believe the postal service should prefunded is obligations to the maximum extent its finances permit because thousands of individuals rely on and expect this benefit. making changes to the postal service will not be easy. in a recent report requested by ranking member lynch comp we discussed our fourth post. key aspects of these changes include strategic outreach and coordination with stakeholders about the nature, scope and need for changes. in a transition strategy was also critical. explain improvements in customer service and cost savings and expects while ensuring that alternatives are available. in conclusion,, thank you modernizing and restructuring the postal service so that they can be viable is imperative given its financial condition. this will not be easy in changes, some difficult are needed to assure the postal service's remained available. i'm pleased to answer any questions. >> iq, mr. herr. will now move into questions and they'll recognize myself for five minutes. i want to jump right into what i think is really the heart of the first issue we are facing, and that's the paea and its aftermath today. and ms. goldway, i know you acknowledge the commission is doing a study on the. specifically, at the time the paea was passed in 2006, with certain assumptions that i think maven taken into consideration to go ad infinitum. for example, 800,000 employees at the time. now we're down to 575,000. a decline in first class mail. my question, and i will go to mr. donahoe first, with this pre-funding the pension benefit, are there not assumptions that today may not exist or have changed dramatically that in and of itself is actuarially identified could reduce the obligation of the postal service being opposed by the paea speaker we believe so, mr. chairman. we think if you take a look at the intentions behind the law was passed in 2006 they were very good intentions. expectation was the postal service, having a baseline of 213 billion pieces of mail, along with no debt at the time, could carry that burden of the health benefits going forward. it was a responsible idea. we still think it's responsible idea to account for our retiree health benefits going forward, but we think there's a number of things we have to take into consideration. number one, we have had a substantial drop in volume. that has to be considered number two, to you but we have reduced headcount. back in 2006 whenever we first when the law was passed it was basically a assumption of 757,000 employees. today we have about 570,000 employees, and we think that moving forward we will eventually break into the 400,000 rank. we know going forward we will not have the same burdens so we would ask that congress take a look at the gao to examine what the actual liability is going forward. we also think there's some solution as far as how to fund that. we think the funds that are existing in the civil service retirement funds that we have overpaid by our estimate, $75 billion to the post bigotry commission says is $55 billion, could be used to make that payment. if that's not available we think that we can also look at some other options. our own ig has suggested that we take a look forward around the option of taking a private sector model where you find it 30% versus the 100% we are required to know because this many options on the table, and would be more than happy to export any of those with you. >> ms. goldway, which at any as good as to what based on the assumptions? as to what the reduction could be. >> what he did in 2009 working with consultants is to look at the opm projections and factor in lower levels of employees, and to adjust the expectations of health care cost increases that the opm had been a formula. and we estimated that in or to fund the 100% of what would be the healthy retiree benefit problem you could do it with a $35 less money than the opm had estimated in 2006. i would suspect that that number might even be lower today than it was in 2009 when we did it. and that therefore the target for the postal service needed to pay into a healthy retiree benefit time is lower, in the annual payments that they make into it could be adjusted downward and reduce their burden. >> any idea how much? >> we estimate about 2 billion a year, reduction. so instead of 5 billion it would be 2 billion. at that was an estimate, and again, it would need the assistance of opm and perhaps gao to clarify those numbers. >> thank you. mr. donahoe, one side of the issue is the ongoing liability for the pretty funny. but the other side is a systemic change. what we've got to do and this is what i would ask your opinion on, had legal about competing in the 21st century? how do we go about now adapting to the digital age? and i think that once, we're able to do some come and power the postal service to take care of the immediate need that how does it go on from her after so that existing for another 235 years without any subsidies? >> first of all, try to come we think there is a tremendous upside on the top line and a revenue in the postal service and the entire in to see. we think there's plenty of growth available in the area of standard mail, standard and it is the most direct way to get in front of the customer's eyes better than internet, but of the internet, better than tv, better than we are. we also know there's growth in the package market. we been explained that, working with a number of new products. is in a flat rate products come out. we've introduced a number of others coming forward. as a matter fact, ms. goldway said we brought along a copy of our pre-sample box. we think there's a ton of value in the. we think this is an opportunity on a monthly basis for people to get in to the sample business at a very affordable way. we know there's an upside. on a first class mail, as you make income is declining but we think by using nsa's contracts with many of our customers, we can actually slow down the pace of change with the drop off in first class. congressman lynch mentioned opportunities in digital, and we're exploring that. we've had good ideas come back from and innovation summit, along with a number of other ideas we have been exploring with partners. digital to hard copy hardcopy, hardcopy to digital, and even digital to digital. we know the postal service provides tremendous opportunities and security in the entire market and we think there's plenty of opportunity for growth. >> my time is up. now recognize the distinguished gentleman -- are we going for vote? have they called? if no objection, the ranking member, mr. lynch. >> thank you, mr. chairman. i want to thank the witnesses for your help. mr. donahoe, let me push back on the a little bit. i know i have spoken with pitney bowes and another other firms that operate as well. they've got some systems where you can actually pull up on your laptop or on your ipad and actually click on your mail before it's delivered. you can click off the stuff that you don't want to have delivered, and click on the stuff you would like to have delivered. but that tells me that with technology and there'll be a further reduction in volume as people are given the option. and so i'm not so sure i buy into the idea that we're actually going to be built increase volume. but that much being said, let's go back to where the channel was considering paea. what does it look like right now, and mr. herr, actually ms. goldway as well, if we're overfunding future retirees health plan benefits, what is the measurement on that overpayment do we have a sense of that? i know there making a full funded in advance, and no one else is required to operate under that standard. but i'm just wondering what the overpayment is in the right now. >> i don't think, there's a overpaid and healthy retiree benefit fund at the moment. there's about 42 -- >> prefunded. i mean, what i'm trying to say is -- >> in the civil-service -- >> i know that, i know that. look, you have ordinary health benefit plans that are required to pay in annually. are not required to prefunded, okay? so if you compare the pre-funding requirement to a quote unquote normal health care benefit requirement, what access do we have in their that come if we are required to meet normal fund health care fund obligations, what would be in their that would not be required under a standard system? >> i'm not sure i understand, but i think what it means, what you're talking about is the postal service currently pays out of its existing revenues the money it needs to pay for retirees health care benefits. and that's about two and a half billion dollars a year. and there's $42 billion in a fund, so one could either take some of that money to pay the existing healthy retiree benefit, retirees funds, or at least take some income from that to help pay that off. i think that's what you're referring to. >> another way to look at it is, potentially, congressman, the estimate for the prepayment that was needed back in 2006 was $90 billion. our ig has done a study looking at regular businesses, private firms and what their requirements for pay. the average prepay is about 30%. so the recommendation has been he would owe somewhere around $30 billion. we paid 42 billion to it already so theoretically we are overfunded at that rate speaker okay. i think that probably answers the question. >> mr. lynch of? >> go ahead. >> would report the data that postal service had in its annual financial report, and as was stated is about 42 billion net fund. the unfunded liability is 48.6 billion as calculated by using the postal service numbers. >> that's the part that our consultant saw could be lowered. >> that's for all future employees who are not necessarily going to tap into the fund in one year? >> at some point. >> let me ask you this been. i know you're running out of money, mr. donahoe. issue. i mean with the obligations you've got for the health benefit, and other obligations you've got workers compensation payments of 1.3 billion i think. when does that happen and what do you do when you run out of money? >> september 30 we finished the fiscal year. i will owe the federal government $5.5 billion for the pre-funding. in november i will another 1.3 billion for workers comp. at the end of the fiscal year i'm out of cash. >> you're also up against your debt limit. >> so there's no breathing room. we will deliver mail. we will pay the employees and deliver mail. we will make sure that we pay our suppliers. they are providing contract transportation, et cetera, et cetera. the thing we will not be able to do will pay the federal government. we will talk with the board covers and come back to the treasure and forget what we have to do. that's why it's important we address this. >> thank you. my time has expired i yield back. >> the subcommittee will now stand in recess until probably five minutes after the last vote. i suspect maybe 30 minutes. thank you. >> thank you. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> good afternoon. i'll call the subcommittee back to order, and we recognize the gentleman from florida, mr. mack, for questions. >> thank you, mr. chairman, and before i begin i want to congratulate you for being the chair of this subcommittee and for being here in washington. for people who don't know, we serve in the legislature together in florida, and he's a great friend, and the committee is lucky to have you as chair. so thank you. in before i begin, before we left something kind of struck me. we keep asking, well, how can we can help get the postal service in the right direction. and part of me is thinking, government just doesn't know how to run a business. so first of all the idea that the government is going to fix a business model, i think has been proven over and over and over again, they can't do it. i mean, so i think what we're really talking about here is time. i mean, at some point some drastic changes are going to have to be made to the postal service. i mean, if you're in front, if this committee is going, and no disrespect to anybody on this committee, but the idea that somehow government is going to fix this, i'm not sure that government has a great track record when it comes to business. so i just thought i would put that out there. the office of inspector general recently released a study in which it look at shifting costs from rate payers to taxpayers here in 10. and i think the study was pretty clear about that may be a way it has to go to be solvent. are you ready, mr. donahoe, are you ready to admit that the only way to stay a float a float is to a bailout by the taxpayers of? >> thank you, congressman. i, first of all, i think i take umbrage with the fact that we can't get our finances together and right the ship in the postal service. we as a government entity are providing universal service to the american public. it we have done a good job especially in the last 10 years from the standpoint of cost and for the service improvement, and granted, we have got some constraints around some of the revenue, generation that we see. but we also think we've done a good plan going forward. and with a little freedom and flexibility we think we can get there. the major issue we have got again is the issue with the prepayment of the retiree health benefits. >> i understand. >> i think there's an opportunity to resolve that. now, i had asked a question, on your statement is that from our ig or is that from a different ig? i'm not 100% sure. >> it's a a recent release of study from the office of inspector general. >> that is probably the opn. that is the opm's ig. >> you right. but let me just ask you this. forget about the study. i mean, you've already admitted this big problems. >> absolutely. >> are you prepared to admit that you're going to need a bailout to stay afloat? >> we will not need a bailout. .. a new team down to the rest of the federal work force, pays kissel and benefits? >> the only. the post service has in excess of the federal government is in terms of the health-care contributions. a very small portion of what we pay our people. we are in negotiations working to come to the same level. that is minimal. the big opportunities -- >> do you think the unions agreed to come to the rest of the federal work force? >> the unions are already coming to that level. we have seen progress in the last contract. we move 1% in the last contract with is being discussed right now that will get us to the next level in the next four years. >> so the rest of the workforce. [talking over each other] >> that is a small portion, compensation we give our people in terms of health benefit contribution. our people pay right now 81% -- we pay 81% for their health benefits. >> i have 25 seconds. let me ask one more question. do you believe the united states postal service is too big to fail? >> we are in important part of the economy and important part of american society. we will deliver 1 seventy-one billion pieces of the -- >> without a bailout. >> we will not have a bailout. there are number of things we can do working with congress to get a resolution without a bailout. >> thank you. i know recognize the gentlewoman from the district of columbia. >> thank you for the improvements in delivery you personally made. so we see -- i love that. and where you are now. i would like to know where we are headed. we are talking about the postal service model. we see no alteration in the model and many of us on both sides can't believe the model for all time. if you look at the assumptions of the statute, when the united states congress uped the postal service, essentially a profitmaking business. >> at least. >> a profitable business. on page 1 of your testimony, you say our core business will always be delivery. there's one customer need that will not change and it is the essence of what we do day in and day out. i'm must ask you, if we make the kinds of assumptions we are making at this hearing that perhaps you will pay but not overpay into the trust fund and calculate that however many millions you want to, let's say you pay but not over day. let's assume that you are delivering mail five days a week. can't use it to us this afternoon that this model which requires you to make it profitable enterprise, delivering the mail as your delivering it now is a model -- the model in the statutes is a model of a profitable enterprise is a model we can expect to survive, that shouldn't be a profitable enterprise under the assessment of the statute you are now held to? i am saying you would not overpay? >> we can be profitable. a number of things have to happen. the postal service has undertaken a number of issues of revenue generation and cost reduction on our own that we feel responsible towards working towards that point. as i mentioned before we are working with unions going forward. we have very responsible leadership. they understand we have to have a strong coastal service. they will take care of we need to take care of. we are being required to repay health benefit rates of $5.5 billion. this year we will lose $6.4 billion. >> that is why i say if we assume that is no longer a problem, then we will be back to a profitable enterprise under the assumptions of the statutes -- >> this year if we were not required to make that payment we would break even and that is what the volume lost -- >> required not to overpay. >> volume loss of 22% so people have done a great job -- >> that is important to note. but for this overpayment, if you overpay you do a refund. i am hearing you. i would like to ask one more question and don't want false hopes here. but i know that on page 2 of your testimony, something i have not heard in a long time. the first quarter showed a modest increase of 1.5%. is that because -- i mean to what do you attribute an increase -- in testimony you say the christmas season was not very good. what is the first quarter showing a moderate increase? >> the increase is total volume and we have seen 9.6% increase in standard mail advertising mail, increase in package business of 5.9% -- first class pays the freight which is why we're asking for the consideration before congress to go from 6 to five day is. >> and you think -- at what effect? >> we can get a resolution around health benefits and the first payment. the president made that recommendation in his budget. we can get a resolution -- these are not in our control. i know we can get this organization profitable and strong going into the future. >> thank you, mr. chairman. >> unlike to recognize the gentleman from michigan for five minutes. >> thank you, mr. chair. thank you for being here. mr donahoe, i enjoyed meeting you and chatting with you. you just said that you guys break-even to make the pre funding i think your own plan shows you have operating loss. >> our plans show operating income loss of $900 million and we will continue to cut. we have a plan in place for it minister of cost reduction of $750 million. we will do some of that. we have other changes. our goal would be to make $100 billion this year if we were able to be forgiven from the prepayment plan. >> i have a copy from the office of personnel management to former postmaster general john potter from december 2004 and rejects the claim that u.s. ps has overpaid the still service system, civil service retirement system. request for return of $75 billion in overpayments is unfounded and shall not be granted by congress. furthermore sustainment from the board of actuaries which declares that it is accurately determine the financial allegations to the postal service. have unanimous consent to submit this to the record. mr. donahoe beeper and what is your response? >> we have differing opinions. the postal service estimated with external actuaries that we overpaid $75 million. the regulatory commission has the same information and their outside actuaries are estimated we overpaid 50 to 55. there's a meeting of the minds necessary. said down and get this resolved once and for all. i disagree with the letter. >> i could ask, actually have the provisions of the postal service to ask us to review the opm analysis. the regulatory commission is what we believe is an objective analysis bringing in a highly respected third-party expert to review the expectation. the self-interest of the postal service and the office of personnel management, each one wanting to protect its funds. the postal regulatory commission had no preconceptions, and a fair and adjustment -- overpayment there. >> it is entered into the record. >> i have a question as well. in your testimony, the financial issue for postal service, 80% of the costs go toward employee salaries and benefits. do you believe we should renegotiate collective bargaining agreement? >> when we suggested whether contracts have a binding arbitration if there is an impasse with the consideration given to the postal service, that is an area we highlighted against the day of my stay. >> the president suggested giving some breathing room. will that make the problem worse by delaying it? >> the postal service needed short-term relief for retiring health-care payment. this is really the time at the statutory debt limit to make some hard decisions about what this organization is going to look like going forward. overall liability is in my statement of over $100 billion. time to take into consideration the changes to the male or what kind of footprint the postal service needs and how it will be paid for including retiring benefits. >> thank you for your testimony. >> thank you. you are recognized for five minutes. >> as chairman of the subcommittee i thank my good friend and colleague mr. lunge for his leadership on these issues. it is a thoughtful and groundbreaking hearing we have had. let's start with the last point. the president brought some breathing room. in this budget, $4 billion of relief and that $4 billion, is it not predicated on the same assumption the postmaster general makes that there have been overpayment? >> there have been other efforts to restructure. this is a deferment. misunderstanding -- >> i understand that but is it not by implication a recognition that this is an issue of overpayment in the past? >> i would have to look at the fine print. >> certainly the president hopefully in his budget wasn't trying to add to the postmaster's woes. he wasn't trying to add to that debt. he was trying to provide relief. [talking over each other] >> does the gao have an opinion whether this $70 billion of overpayment -- >> you have not looked at. >> we read the reports. >> you would agree anywhere between 50 to $75 million were verified that alone could amortize over a pair of time to provide relief to what is currently significant imbalance in operational revenues of the postal service? >> that would be a significant -- >> do you have any plans to look at this? >> my -- [talking over each other] >> i would hope that with this subcommittee making such a request that is not a trivial number. if we talk about dire futures for the postal service surely we want to look into a 50 to $70 billion item to be shown quickly in the test basis and you show my concern about what is in front of us and i urge a formal request for such a study. let me ask another question, between 1990, and 2007. the mail volume goes up or down? >> between 1990, and 2007. precisely the time the internet was coming in full play. so the relationship between the internet and mail volume is not necessarily always inevitably a negative one. unlike one conclude that? >> my theory is human beings have an insatiable appetite for communication and everything will grow. it grows in different stages. >> my time is limited. [talking over each other] >> it went up and -- >> did it go up last year? did mail volume go up or down? >> it went down over the previous year. when we look at -- you referenced to the impact of the internet on your business. the internet can also generate business. if i order a book from amazon, not only is that business for the postal service but lucrative business. my time is limited. have you looked at the draft legislation we have been working on? do you find it is consistent with many findings of postal regulatory commission has brought before this subcommittee over years? >> many of these suggestions discussed by other legislative financial issues included, in addition, what we addressed that we think will improve the revenue for the postal service, modern agency -- i appreciate your efforts. it will be -- legislation. >> we can only hope. don't we have a problem on top of everything else with the aging and costly vehicular police of the postal service? >> we have a fleet of 160,000 delivery vehicles that are 22 years old on average. >> we would talk about this issue but thank you very much. >> as part of that, we have medicine and budget to entertain here. it would be healthy to have them here as well. i recognize the distinguished gentleman from elect mr. davis in five minutes. >> let me congratulate you on your elevation. we have a young fellow here testifying and the colleges he wanted to -- all of them were in florida so there must be something good about florida. >> it takes some difference in that. >> it is a pleasure to have you with us. it is good to see you again. we listen to the testimony, some of these individuals who believe government cannot get it right. i don't subscribe to the school of thought, government can in fact get it right. one of the persons who put together the enhancement and accountability act. we thought we were getting it right or at least moving in the direction of getting it right. we were providing the kind of flexibility the postal service needed. we thought we were providing opportunities for the new products and new approaches and we thought we were providing opportunity to makes use of all the resources that the postal service should have at its disposal. you attempted a moment ago to talk about your vision in terms of how we can get it right and how we can have the postal service be self-sufficient, how we can make sure we interact a certain way with our stakeholders and unions. could you share that direction for us? >> it believe the postal service is and will be a viable part of the american economy and american society. there are changes going on that we do provide, that kind of contact people are booking for. if you look at what we offer from the standpoint of availability for business to get in front, the most direct way, there is plenty of opportunity. you talk about the internet there's often times know where you can find a web site unless you get a postcard that says come to my web site and we provide value. we provide value for small business in a package where they can go to the local post office and put five packages in at a flat rate that ships with guaranteed delivery in two to three days. there's tremendous value and people will continue to mail packages. we have very valuable partnerships. ups and fedex delivers the last mile, this holiday season we deliver 16% more than we did last year. there are definitely opportunities in that area. we also realize there are costs we need to address. as i said before we have responsible leadership from our unions. you can hear the water fall. we need to make some changes. the rural carriers kept the contract open. there are some opportunities to move in the right direction. our management associations we have seen progress and a lot of changes that have been very supportive and big changes to reduce costs. i am 100% positive that there is a ton of value in the postal service from a government perspective. we do good job. excellent service, more cost than any private firm. we need the aid of congress on a couple issues. >> we have been talking about loss projection, $900 million. >> higher in terms of losses? >> that means we are actually making progress. >> the others thing that is important is with the uncertainty of all of this discussion about year after year postal service losing money that makes customers fearful of doing business. we need to get behind us. we are the linchpin of a $1 trillion interest rate. that needs to be resolved. >> i was always told that there was a way. we have the will and you are searching for the way and i think you are refreshing and i'm looking forward to working with you. >> thank you, mr. davis. thank you for taking time and not take a brief recess while we get ready for the second panel. we will have another vote after 4:00 so hopefully we can accomplish all we need to accomplish. thank you for being here. let's set up the next panel. [silence] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> good day. i know recognize senate chairman mr. sandy to my left because the executive vice president and chief operating officer of va p valkp valkpac. and mr. frederick rolando is president of mail carriers. i will ask you to stand and be sworn in. please raise your right hand. do you solemnly swear or affirm the testimony you are about to give will be the truth, the whole truth and nothing but the truth? thank you. let the record reflect all witnesses answered in the affirmative. please be seated. to allow time for discussion of questions limit your testimony to five minutes. your written testimony has been submitted and entered into the record. i will start with mr. sandy. you are recognized. >> chairman ross picks the ranking member lynch and members of the subcommittee, i am executive vice president and chief operating officer for the media headquartered in largo, florida. we alone valpac one of the direct marketing firms in north america. thank you for this opportunity to testify. ended is a looming crisis. we have been in the business for 42 years. we pioneered the concept of local cooperative direct mail in the united states. valpak is don't buy cox enterprises in atlanta which is one of the largest media conglomerate in the united states. valpak represents direct franchised employees. each year we assist more than 54,000 small businesses from local mom-and-pops to large national companies. today valpak delivers sales to forty million households each month and each year, our familiar blue envelope carries some $20 billion in money-saving offers in five hundred million envelopes. three years ago we opened the $220 million facility in st. petersburg to accommodate our growth for the future. our company has entered the digital space in the on line and mobile cubaning business. this will allow us to reach new customers with product and continue to serve as a leader in the industry. our digital strategy is will complement our mail volume. the nature of our business means we watch the u.s. ps's issues closely. we believe the post office under jack potter and now pat donahoe have done a remarkable job downsizing the post office to plummeting mail volumes while maintaining high service levels. if you were to set aside the $5 billion financial burden to prepay future retiree health costs which congress imposed the post office actually had an operating profit of $601 million in the last four years. we believe the post office's march 2nd, 2010, action plan envisioning america's future postal service was well-designed and accept for its proposal to reduce the role of post regulatory commission we supported in all respects. it seems to as the post office is constantly caught up in the political machinations of congress. it may not be popular to tell congress that the bill was ill-conceived but look at what the p a e a did. it imposed the cpi based cap on prices. gay if the post office no new powers to cut costs. at the last minute we were told it was necessary to get the bills scored properly. congress needed to impose a $5 billion annual financial burden to prepay future retiree health costs, labored and imposed on no other agency or company. valpak along with all mailers urged congress and the commission to address the financial issue by removing the artificial bird in the personal annual burden on mailers to pre fund the post retirement health benefits and require the office of personnel management to recalculate the c s r s obligations using overpayment made toward these retirement expenses to pay ordinary health benefits expenses. on the cost cutting items, congress and the commission to allow the u.s. ps to move to 5-8 delivery. at least we 2-thirds of people don't care that much about saturday delivery and it would allow the post office to save $3 billion annually. .. >> lastly, we do oppose the post office, their efforts to go into competition with existing customers. one example of this is the recently-passed market test called marketing mail made easy. easy for them to say. this proposal has generated a lot of opposition from the mail community. we don't think that cannibalizing the mail that is already in the system is the right strategy for growth. i look forward to answering any of your questions you may have. thank you. >> thank you, mr. sampey. mr. sackly, you're recognized for five minutes. >> thank you, mr. chairman, and good afternoon to you, to ranking member lynch and the members of the subcommittee. the coalition for a 21st century postal service is pleased to present our views on what we also agree is a looming crisis. the 33 trade associations and companies represent a major swath of a nearly $1 trillion industry that employs more than seven and a half million people. it runs the gamut of paper communications from forestry and paper companies, printer and technology providers to companies which create every type of mail. there is far more at stake in how the postal service fares than the postal service itself. the future of an industry roughly 15 times the size of postal revenues, the huge number of jobs it supports and the substantial impact that industry has on the economy. and we believe postal insolvency, which could happen by the end of this face call year -- fiscal year without action, will have consequences quite possibly for the nation. given the state of the industry and potential insolvency, the coalition believes the imperative for congress this year to correct the core element of the financial imbalance by eliminating a hidden tax assessed on postal rate payers that was used to reduce the deficit and effectively subsidize retirements of nonpostal federal retirees, and repatriating that money over time to underwrite the prefunding of retiree health benefits required by congress. the $50 billion in overpayments to csrs and the nearly seven million more deferrals constitute a tax that would dramatically improve the position of the service and, consequently, the industry and the publicly which it serves. some believe repatriating this money would constitute a bailout. with great respect, we strongly disagree. while these overpayments were caused by a good faith actuarial misinterpretation, they were nonetheless paid not by the american taxpayer, but by postal rate payers. as the postmaster general pointed out, usps' money comes almost exclusively from user fees, postage. and 90% of that comes from businesses. having collectively funded the bulk of these overpayments, we believe the right outcome is to use the money to benefit the postal service and, thereby, those who depend on it. on september 30th facing facinge choice of paying five and a half billion to prepay retirees' health benefits or keeping the lights on as the postmaster general put it before, they will sensibly opt for the latter. there will be no legal or other consequences for the postal service, but it will be in default of an obligation. questions about its reliability will arise for those who do business with it, and will overseas holders of u.s. securities treat this as the first loose thread in unraveling the nation's financial ball of yarn? what would that do to interest rates and yields for treasuries? after all, it remains the united states postal service. insolvency must be avoided. and if it isn't, the obligations won't simply go away. to the extent that the shortfalls, then there will be the need for an actual taxpayer-funded bailout. in our written statement, we offer other recommendations we believe would help the service and the industry grapple with the interrelated financial, structural and integrated elements of this looming crisis including addressing the high costs of compliance with mailing rules, giving the postal service more flexibility to close facilities or offer certain nonpostal products, more flexibility on negotiated service agreements and more. without structural changes as well, financial transfers will only kick the proverbial can down the road as has been noted several times during this hearing. mail remains an important communications channel. even in its current fragile state, the postal system remains effective, yet challenged by the recession, we are struggle. collectively enduring hundreds of thousands of layoffs, the shuttering of numerous businesses and other dislocations. the result has been unprecedented budgetary pressure on mailers to reduce their costs of distribution. no one can force anyone to mail. mailers have choices. because of the internet, first class, the cash cow of the system is effectively no longer a monopoly and continues to sink like a stone. each account going online costing a dozen bills, a dozen payments and several promotional pieces each year. the decline in first class threatens the system's financial stability. similarly, there's more pressure on catalogers, other advertisers and periodicals to use alternatives, decrease the weight and size of their mailing. like first class mailers, they have choices by the internet and other marketing channels. the effect on suppliers is just as significant. less mail means less paper, printing and technology business. thank you, mr. chairman, we believe that all of this financial pressure on mailers puts a premium on holding prices down while maintaining service. the coalition is prepared to work with you and your colleagues to stave off a decline in the postal service. it need not be inevitable. i'll be happy to respond to any questions you may have. >> mr. rolando, you're recognized for fife minutes. >> good afternoon, chairman ross. congratulations again on your chairmanship and good afternoon, ranking member lynch. welcome back from afghanistan. and greetings to the other members of the subcommittee. i'm pleased to be here on behalf of the nearly 290,000 members of the national association of letter carriers. we are honored to be the public face of the united states postal service, an agency mandated by the u.s. constitution and one of america's oldest, proud and most essential institutions. i've submitted a written statement, but in my few minutes here i'd like to leave you with five points to consider, some of which counter the conventional wisdom. it's worth noting that the figures i'll cite are from official sources. we can all form our own o opinions about public policy, but we should start from shared facts. first, the postal service remains a vital part of our society and our economy. it provides the only truly universal delivery and communications network in the united states. serving every corner of this country from the most rural areas of montana to every city block of manhattan six days a week. for several years in a row, the public has named the postal service is most trusted federal agency in america, in large part because of its dedicated and professional work force. the postal service is a vital infrastructure service that is not only an essential element of the country's financial payment system, but also a key facilitator of business and commune indications for the 150 million homes and businesses it serves. according to a 2009 study by the postal service, the annual value of transactions moving through the mail exceeds $30 trillion underlining its importance to the health of our nation's economy. second, there is, indeed, a financial crisis at the postal service, one we must address for the sake of the economy and the millions of workers employed by the mailing industry. but it isn't the crisis you might think it is. let me explain. with the nation still suffering from the worst recession since the great depression, mail volume has fallen, a trend exacerbated by internet diversion. and yet the postal service has been running in operational profit. you heard that correctly, postal and profit in the same sentence. in the most recent quarter alone, postal operations had a profit of $226 million taking in more than a quarter billion dollars over operating expenses. that brings to $837 billion the net operational profits over the past four years. and this has been achieved by increased productivity, labor management partnership, fair and flexible work adjustments and performance and quality that have lifted customer satisfaction all while maintaining the most affordable postal rates in the world. but while the postal service is operating more smartly than ever, it faces a huge burden unrelated to its daily work. the 2006 congressional man tate to prefund future retiree benefits within ten years, an obligation faced by no public agency or private form in america, imperils the postal service. in the past four years, the postal service has made $20.9 billion in prefunding payments. it is that unique obligation during a recessioning that has plunged the postal service into a financial crisis. point three, fortunately, there is a good solution. the postal service has a surplus of between $50-$75 billion in its pension funds according to two independent audits because of overpayments made since 1971. congressional approval to let the postal service make an internal transfer of its own money derived from the sale of products and services would leave both the pension and retiree funds in far better shape than virtually all such accounts in this country. why? because not only have daily postal service operations been carried out efficiently, the agency has been highly responsible with future obligations. all this, let me emphasize, without using any taxpayer money for over a quarter century. we're simply asking that the postal service be allowed to use its own money as any responsible business would. bipartisan agreement is forming on this crucial reform. senators tom carper and susan collins have endorsed the solution and drafted legislation to implement. i'm happy to learn that representative connolly of this subcommittee has prepared a bill addressing this issue, one that killed builds -- builds on prior work by reactioning member lynch -- ranking member lynch. we hope you and your colleagues will embrace this bipartisan consensus. fourth, while this proposal backed by the postal service has no downside, that's not the case with some of the other usps ideas. eliminating saturday service, for example, would be disastrous. it would save about 5% of the postal budget by sacrificing 17% of service. it would inconvenience millions of small business owners who transact business on saturdays and americans who need medicines on the weekend. it would add 80,000 postal employees to the jobless rolls. i would imperil the future by portion forcing customers to turn elsewhere, and future revenue would decline. all this to save an amount barely half the annual prefunding payments. no business would choose this option over an internal transfer of it own funds and neither should we. finally, the postal service has a bright future. the current channels aren't the first -- challenges aren't the first since benjamin franklin served as the first postmaster general, nor will they be the last. we know we must adapt to society's evolving needs. the mail mix, for example, is shifting with too little first class mail these days. as the economy improves, we have to watch the mail flow and adapt as needed. even as we speak, the overall mail volume is rising for the first time in four years. we have lots of ideas on new services to offer the growing number of home-based businesses, on expanding work with ups and fedex as their most economical option for last mile delivery or on adding to what letter carriers already do to protect community and national security. i'd like to conclude by congratulating all the new members of the subcommittee. we believe these are nonpartisan issues, and the tradition of bipartisan cooperation that has characterized this subcommittee is worth nurturing. we look forward to working with all of you on postal issues and to find bipartisan issues to the challenge before us. nelc has demonstrated repeatedly in recent years that it's prepared to do its part to help preserve the long-term viability of the postal service by serving the american people and helping the businesses that rely on universal service to grow and prosper, and we remain every bit as committed to that goal today the. thank you. >> thank you, mr. rolando. we have been called for votes. we've got about 11 and a half minutes to go. mr. lynch and i have agreed we're going to try to do five minutes each, and then we'll recess and come back and finish then. i'll start with a series of questions. mr. rolando, one of the things that was pointed out in the gao report, mr. herr that was here in the first panel, indicated that as now as usps now has costly excess capacity. is that something that you can comment on, and are you aware of excess capacity whether it be in distribution or wherever? >> i don't know what he was referring to, no. >> okay. with regard to, also another recommendation the gao had in terms of collective bargaining and binding arbitration, his recommendation was that the financial condition of the united states postal service should be taken into consideration in the binding arbitration procedures. how do you feel about ha? >> his wish is granted because the financial service of the postal service has been considered in every arbitration we've had. the arbitrator's required to consider the interests of both parties, and that issue has come up and been considered by the arbitrators. >> i appreciate that perspective. to all three of you, you all recognize the recession has had an impact on mail. i mean, there was an increase in volume from 1990 to 2007. we've seen a decrease. do you think that -- i'll start with you, mr. ro land doe. do you think the united states postal service has done enough to cut costs, and if not, what would you recommend they further do? >> i think they should continue what they're doing to work with the unions on win/win solutions. i know my unicaron has worked with them aggressively on adjusting routes to the change in volumes which by their own numbers has saved them over a billion dollars, and i think we need to continue to work together through negotiations and in between negotiations on these win/win solutions. >> mr. stackler? >> well, mr. chairman, the postal service and its employees have, indeed, cut a lot of costs out of the system, but by definition looking at the situation that it's in, it hasn't been enough. we think that to get to your previous question, our understanding is that the system is overbuilt by almost a factor of two and that there needs to be a drastic realignment and restructuring, closing and consolidation of facilities, and for that there will need to be some change in the law, and there will have to be support from congress -- >> so you degree there is excess capacity. >> yes, we do. >> okay. and mr. sampey, with regard to costs. >> yeah, i would say they've done a great job between the unions and the administration and in the post office they've done a fantastic job to manage the costs, and i think there's more they can do if some legislative activities are taken to give them a little more room to work on the cost said of the house. and we are very supportive of the postal regulatory commission, especially on the pricing side to give some oversight, but i think the management and the union have a lot of opportunities to take additional dollars out of the business if we give them a little bit of latitude with legislative activities. >> mr. stackler, back to you. you touched on in your opening remarks about if postal service defaulted on its obligation to the treasury. can you expound on what impact you think that would have? i mean, assuming we did nothing, they've exceeded their $15 billion borrowing limit or met it at least, what's the outcome? >> as we understand it, there are no legal operational or practical consequences for usps or its managers. but the implications in terms of how people look at the service and the fact that whether or not it is functioning largely independently, it is still an arm of the united states government. and to have an arm of the united states government default on an obligation even if actual impact is only technical, you have to think, well, what are those who are holding our bonds and have the future of our finances in their hands thinking? it's all -- >> it could effect our credit rating. >> exactly. >> okay. lastly, mr. sampey, do you want to comment on that? >> just one comment on that. i think pat brought it up in his statement. i think that the industry confidence in the post office and some of the challenges that they're having right now, you know, there are a lot of folks out in the industry that are saying should we move to digital, should we move to something else for fear of where the post office is going to end up. i think whatever we do, we need to do it quickly. i think we need to move on this as a cohesive group and work together and figure out how do we get the confidence back. the post office has done a great job, and the quality of service has been fantastic. >> thank you. mr. lynch, you're recognized for five minutes. >> thank you, mr. chairman. i just want to make a couple of clarifications. i know that my dear friend from florida, mr. mack, commented that, you know, government doesn't have the ability to help business make the necessary reforms. i just want to remind the gentleman that the united states postal service is a unique business. it was actually created by the united states congress, and it's one of the few institutions that is explicitly provided for in the united states constitution, and the government's done a pretty good job over the past 236 years in guiding the post office. in providing universal service six days a week and has done a pretty good job as some of the polling out there has indicated that our postal employees are the most trusted public employees in the united states today. i would also like to point out with respect to the suggestion that opm is correct in their assertion that the overpayment does not exist, i just want to for the benefit of the new members especially, i just want to sort of lay out the history here of opm denying only bases and what the results -- obligations and what the results have been. going back to 2002, the postal service pension fund was found to be overfunded by opm by $78 billion, and we in congress had to go back in 2003 and tell opm you've got to straighten this out. so there was an overpayment there of 73 billion. then in 2003opm attempted to make the postal service peck up the responsibilities -- pick up the responsibilities for military service pensions, obligations for postal service employees. so if they're in the service, they wanted the post office to pick up their pension credits that were due because of their military service, and we said that would not be right. so congress rejected that attempt. in 2009 we found that opm used an exaggerated 7% health care appreciation inflation forecast instead of the 5% that is the industry standard, and that resulted in an overpayment of $13.2 billion by 2016. so we had to go back and reaudit opm, cut that out, you know, use the industry standard, and so opm then went back and changed it. now the postal service has been overcharged by 75 billion for it share of csrs pensions for folks for their pension credits before they came, before they became usps employees. people have to understand that. these are pension credits for folks before they went to work for the post office, but they've been overcharged, and the post office is picking up the inflation for those costs. so there's a whole history here of the opm. and, look, anybody can make a mistake, but in every single case omm overcharge -- opm overcharged the post office by tens of billions of dollars. so that's the record we have here. those are the facts. and, you know, there does seem to be a -- oh, and by the way, the opm wrote a rather gratuitous letter that they thought, by god, the post office should have to prefund their, their health care obligations 100%, prefunded by 100%. but if you look at what opm is doing, they prefund their obligations by 40%. you would think what's good for the goose is good for the gander, but that's not the case. i just wanted to make those clarifications for some of the newer members on board here. before i run up the hill, i want to ask with respect to going from six-day delivery to five-day delivery, that effects your membership, the letter carriers and the mail handlers dramatically. is there any information that you'd like congress to have before -- or you think the post office should provide to congress before we make that decision? >> well, i think it's important that it not only effects my members, it effects thousands and thousands of billions -- thousands and thousands of businesses across america who have contacted the nalc directly, respond today the nalc in terms of their objections to five-day delivery and how it would effect them -- >> right. i don't mean to interrupt you, but in fairness, i heard loud and clear from the folks that have catalogs and magazines that, apparently, they use saturday as their delivery day because they want folks to actually on their day off read the product that they deliver. so you're right, it's not solely in your interest, but go ahead. >> that was what i wanted to say, the effect on the businesses, not to mention the public and the customers. >> all right, thank you. >> we're going to recess to go take our votes, and we will return after this first vote, okay? and then we should be able to finish, finish up. thank you for your pains, we'll be back. thereby [inaudible conversations] >> in a few moments, the head of the consumer product >> there's a new way to get a concise review of the day's events. it's washington today on c-span radio. we'll take you to capitol hill, the white house and anywhere news is happening. we'll also talk with the experts, the politicians and the journalists as we put the day's events into perspective. the stories that matter to you the most every weekday, 5-7 eastern time, on c-span radio. you can listen in the washington/baltimore area at 90.1 fm and nationwide on xm satellite channel 132 or go online at c-span.org. you can download the program every evening as a c-span podcast. >> now, the head of the consumer products safety commission on ways the commission and states attorneys general can work together. from a meeting of the national association of attorney general, this is a half hour. we'll show you as much of this as we can until live coverage of white house economic adviser austan goosbee. >> now we have a real treat, we have the united states' consumer product safety commissioner, the chairman of that commission, inez tennen balm. she was nominated by the president in june of 2009 to serve as the ninth chairman of the u.s. consumer product safety commission. throughout her career ms. tennen bam has been an energetic and determined advocate for children and families and has extensive experience in regulatory matters. she previously served as south carolina's state superintendent of education, and she's also served as special counsel to the mcnair law firm in the area of public school finance prior to being nominated by the president. let's give a warm welcome to chairman tenenbaum. [applause] >> thank you very much, and it's my pleasure to welcome all the states' attorneys general to washington. i'm honored to have the opportunity to speak to you this afternoon about the u.s. consumer products safety commission and the partnership that we share with the states' attorneys generalment -- general. as general cooper said, my background is in state government having served as state superintendent of education before coming to be the chair of the commission, and it was natural for me when i became the chairman of the cpsc in july of 2009 to develop a close working relationship with the states' attorneys general. and since assuming the chairmanship, the agency's office of general counsel can has held monthly conference calls and other meetings with the attorneys general. excuse me. so let's get started. what is the new cpsc? well, we are striving to be the global leader in consumer product safety. i know that 20 attorneys general are new to their positions, so i wanted to give you an overview of what the cpsc does and how we work with you under the cpsia and the other statutes that we enforce. now, the cpsc was established in 1972. that's not working. by the consumer products safety act which is our umbrella statute. we began operations in may of 1973. it's an independent commission, it's not in the cabinet. we have five commissioners, two democrats, two republicans and the chairman is always the same party as the president. we are appointed by the president, and we are approved by the senate. we have a total of 546 staff members, and we're growing, and we're a very small agency. our budget is only $118 million. okay, now get this -- >> and here are the pictures of the commission. thomas moore, nancy nord, robert and ann northrup serve with me. now, what is the mission of the cpsc? the cpsc is responsible for protecting the public from unreasonable risk of serious injury or death from consumer products under the agency's jurisdiction. [inaudible conversations] >> oh, forward. okay, thank you. okay. >> [inaudible] >> we have broad authority. we educate consumers on the safe use of products, we educate industry on our rules and regulations, we work with industries to develop voluntary standards. in fact, we cannot issue mandatory standards unless the voluntary standards prove ineffective for keeping consumers safe or unless congress gives us the authority. congress, under the cpsa, gave us the authority to write durable standards for nursery equipment. we can ban products where standards are not feasible. example of us banning products are lawn darts and wicks containing lead in candles. we seize products at the ports, and we seek criminal and civil penalties. well -- sorry, scott. if you will come upper hoo: -- up here. here we go. all right, this shows our most, our history of funding and full time equivalent employees. it shows that the two tracks together, again reflecting the fact that most of our budget was spent on salaries. as the dollars go, the ftes go. and you can see when we were first started in the 1970s, we reached almost a thousand employees and then with the budget cuts we went down until about 2007 which was the year of the recall. inversely related, the more ftes we have on staff, the better able we're able to identify hazards before they reach the hands of consumers. and this slide will show the red line or the number of recalls; the blue line is the number of ftes. and as you can see, as our ftes went down, we were not able to respond to the number of recalls that were, that -- we were not able to respond to the demands that we had in consumer product safety. the number of reported incidences have risen, but we're only able to investigate approximately 10% of all the incidents that are reported to us. now, what is the definition of a consumer product? well, it's an article or a component of an article produced or distributed for sale, for personal use, consumption or enjoyment, and you can find it in residences, schools, recreations or other environments. we have jurisdiction over thousands of consumer products, but we do not have jurisdiction over products that are covered by other federal agencies. automobiles and related equipment are under nhtsa, food, drugs, medical devices and coz cosmetics are under the fda, firearms are under afc, airplanes are under faa, poets and related -- boats and related equipment are under the coast guard, and pesticides are under the epa. now, what acts do we enforce? first of all, the consumer products safety act is our umbrella agency. we also enforce the federal hazardous substance act that requires a product with a hazardous substance to carry warning labels to inform consumers of the hazards. now, under the fhsa, we can ban a substance if cautionary label is not enough to protect the protect. additional legal authority that we have and we share with you is the virginia graham-baker spa safety act, the flammable fabrics act, the poison prevention and packaging act. we also enforce the children's bass lean burn prevention act and the refrigerator safety act. now, what are the facts about consumer product safety? first of all, tens of millions of consumers are injured each year. about 473 recalls occur each year, but that results in 100 million units or items. four out of the five products that we recall are imported. monitoring the imports is cpsc's most senate challenge. we have an mou with customs and border protection giving us access to the cargo data before the ships come into port. we also have worked with customs and border protection on an import surveillance risk management project so we can spot early those high-risk shipments before they come into port. now, the rate of importation from china has quadrupled over the last 20 years. 42% of all imported consumer products that come into the united states come in -- are manufactured in china. 80% of all the toys that are imported into the united states are imported from china. and the value of the cpsc in terms of imported products has skyrocketed, and we have more than a thousand standards organizations in the united states and the world creating voluntary standards. look at this chart. it shows that in 1999 china imported $80 billion worth of products into the united states, and by ten years later by the year 2009, this rose to $273 billion annually. so china is our largest importer. the next largest importers to the united states are mexico, canada, japan, malaysia and korea. and as you can see from this chart, the number of their imports has pretty much remained consistent. now, in 2007 it, there were a number of high, high-visible recalls, high-profile products. one, the lead paint in children's toys made national news. powerful magnets that were falling out of toys that proposed -- posed that serious health risk to children, and dangerous cribs that kill children became headlines. and congress responded by passing the consumer products safety improvement act of 2008. we call it the cpsia. now, what are the major provisions of the cpsea? -- cpsia? first of all, they set new stringent levels on lead in paint, it's now 90 parts per million in consumer products and children's products, and the lead content in the substrait of children's products. it will drop to 100 parts per million in august if it's technologically feasible. it's established a permanent ban of phthalates found in plastics, and it banned three permanently and put an interim ban on three others until the advisory panel that we put together can come back and advise us on whether those three other phthalates should be banned. it requires tracking labels on all children's labels so we know where the product was made. it mandated federal safety standards for durable infant nursery equipment like cribs. we just came out with our new crib standards, the first one in 0 -- 30 years. and be it also required third-party testing and a certificate of compliance if you are going to import or manufacture nestically a child's product -- domestically a child's product. for example, if you're going to import a child's toy, you have to have those products tested by a third party laboratory, and that certificate has to come into the port stating that that product meets all the rules and standards -- not just lead, but all of the rules and standards -- under the cpsc. now, the cpsia also mandated that our agency create a publicly-searchable, web-based database of injuries, of risk or injuries, and that's something you've read a lot about in the last few weeks in the paper. it conferred greater powers to order mandatory recalls and protect the public, it prohibits the sale or resale of recalled products, so that's where you find in your thrift stores the issue of reselling recalled products is now illegal. and an increase of civil penalties for violaters of the cpsc laws and enhance criminal penalties provisions. it's now $100,000 per incident with a total of $15 million total per case. now, the cpsc also nearly doubled the funding of our agency. and it also restored the commission instead of just two commissioners, it went to the five commissioners that was statutorily mandated. what did it do for the attorneys general? well, under section 24 of the act which is the act that applies to the states' attorneys general, it expanded your authority. it also enhanced -- it expanded your authority to enforce provisions of the consumer product safety act and any other act which is enforced by the agency. and it also expands your authority to obtain an injunctive relief on behalf of the residents of your state for certain prohibited acts under section 19. but you must give notice, however, if you're going to bring an action. you have to give the cpsc30 days' notice before the date that you file your complaint. however, the notice for the 30 days does not apply if you are bringing an action to -- that involves a substantial product hazard. we also have the right when you bring that case, if it's -- to intervene in that, in your casement -- case. now, actions involving substantial product hazards allows the state to initiate a civil action by filing a complaint immediately after notifying the commission. so if you have a case involving a substantial product hazard, you give immediate note, and then you file your complaint. what is a substantial product hazard? the it is the failure to comply with an applicable consumer product safety standard under cpsc or a similar rule, regulation, standard or ban under any act enforced by the cpsc. for example, pools. pools that don't comply with the virginia-graham-baker act, lead in children's products, cadmium, the attorneys general can bring cases under those acts or any other act or any other -- to enforce any rule or ban that under the cpsc. now, notification under this provision is that a state determines that immediate action is necessary to protect the residents of the state from a substantial b product hazard. what are the limitations to state attorneys general action? you cannot bring a separate suit seeking injunctive relief for violations of the act or any act if at the same time the suit is brought there is a pending civil or criminal action by the united states under the cpsc. however, there are two exceptions. one, you can seek injunctive relief even if we even have a case pending to enjoin the importation, distribution and sale of products which violates a commission mandatory standard or just stop sale of a recalled product. those are the two ways that you can intervene with an injunctive relief even if we have a case pending. now, since i have been at the commission, july of 2009, we started monthly conference calls with attorneys general or their designee. and we discuss the upcoming issues we're going to review, what are the rules that we're writing that are pending. we talk about ongoing regulatory matters and importance like our safe sleep initiative and how the commission is enforcing the new lead ban with. we talk about recalls of significant, special significance. we talk about issues where we seek help from the state ags like the enforcement of virginia-graham-baker pool and spa safety act. we talk about the launch of the commission's first publicly-searchable consumer product information database which gets launched this friday, and we also make our technical and scientific staff available in these monthly calls to answer questions from the states. so we are there if you have questions about a product or you need technical information, we are there to provide that for you. now, the cpsc staff and the states have had an ongoing project to come up with a collaborative memorandum of understanding. we think if we can get memorandums of understanding between the state ags and the cpsc, then we can share more information. but this information has to be kept confidential, and also it is -- we want to work collaboratively, side by side, with you. we also have representatives from the state ags come to washington and meet with us several times a year, and our next meeting is may the 24th out in our headquarters in bethesda, so we urge you, please, to send a representative from your office so that we can give them the latest on, on compliance as well as rulemaking and other technical studies that we have just completed. the database is mandated by the cpsia, launches on friday, and it will allow consumers to directly submit reports of harm. it enables manufacturers, importers and private labelers to respond to the database to the reports of harm involving their products. we're the only federal agency that allows manufacturers or importers or private labelers to respond to these reports and have us post it online along with -- >> remarks from the national association of attorneys general spring meeting happening this week here in washington. we'll have further coverage later on the c-span networks. check our web site for scheduling information. we're in arlington, virginia, this morning for coverage from chief economist austin austin g. >> as professors at the university of chicago, they were neighbors in chicago, and they saw eye to eye on many economic ideas, and as a result, dr. goolsbee was the economickic adviser to the senator's campaign and run for president. he brings great skill set to the job with a master's from yale, he's also a fulbright scholar, an alfred p. sloan fellow. at chicago his main areas of study were tax policy, american industry, technology and innovation. in other words, he's a great chief economist for the president. on that note, austan, i would like to give you -- hold on -- the executive summary from the conference so far. [laughter] sorry. so the executive summary is you've got your work cut out for you. [laughter] we have had many, we have many challenges, some new, and many who took years and actually decades to be created. we started the conference with release of the nabe policy survey, and it shows that our membership believes tackling the deficit is the policy challenge of today. 87% of our members, and these are business economists, support the simpson-bowles commission recommendations. but dealing with the deficit is not going to be easy. it's actually going to be a pure heroic act. 71% of our members believe that there will be no progress on the deficit this year. on our political panel yesterday, we learned how difficult true fiscal compromise will be from our health care policy panel we learned that bending the cost curve will require an almost messianic focus. from the imf we heard about the global challenges of food and energy, and from our fannie/freddie group we heard that tackling their structures will be yet another heroic act. finally, on our panel on fiscal imbalances, they outlined that waiting further will only make the eventual pain more difficult. in other words, you do, indeed, have your work cut out for you. we at nabe whole heartedly support any and all heroic efforts that could be introduced. [laughter] over the decades policymakers have regularly turned to nabe and business economists for guidance on what works and what doesn't. we are very pleased that you are maintaining the tradition of cea's relationship with nabe, and we are especially pleased that you are part of the policy team tackling some of these significant challenges. i'm very pleased to now welcome you up. [applause] >> okay, thank you for taking a little time this morning, and can thanks to nabe for everything you do. for six years i was on the census advisory commission, and nabe and the advisory commission are basically the only two bodies in the united states strongly and totally voting issue is quality of our economic data. [laughter] and i remember -- [applause] that the september 11th, september 11, 2001, the nabe meeting was in new york, and alan greenspan at that meeting filmed a series of videotapes calling for improvement of the economic data and that -- they were destroyed in the september 11th attack. [laughter] but thank you, again, for your efforts on that. i thought what i would do is go through a little bit of where i see the state of the economy, where i see us going, talk a little bit about some of the deficit issues. i was somewhat surprised to find that there wasn't more many your executive summary -- more in your executive summary discussion about growth and the importance of growth and getting us onto a stronger growth path, but clearly the deficit reduction is one of the two most important things we've got to confront. and a little bit on what the areas of weakness are and see whether you guys agree with those or not. i start by saying when i look -- am i buzzing, or is it the -- >> t something up there. not you. >> okay. see if we can fix this. if does it buzz if i don't say anything? [laughter] i said nothing. she said better. [laughter] look, as i look out in the circumstance -- there it was again, huh? we're gonna just lev with it. it strikes me we're going from phase one to phase two. i mean, phase one was really rescue phase. i believe it's inherently more controversial, the rescue phase, because there wasn't any, there wasn't any alternative to heavy government direct involvement in the economy. for anybody who believes that in phase one we should have just not done anything and just let it take care of itself, i would suggest, respectfully, that you weren't paying attention. [laughter] i mean, we were very close to being in a depression. the depression was financial crisis plus deep recessioning leading to collapse of the entire financial sector which erased, essentially, all the self-correcting mechanisms of the business cycle, and we went down a hole that we couldn't get out of for ten years. we had a financial shock bigger than 1929, the impact on household balance sheets was larger, net worths of the household sector went down more than 1929. worst recession since 1929, and the financial system this close to coming unraveled. i also believe it could have been worse than the depression in that financial, the financial sector is far more integrated in the rest of the economy now than it was in 1929. so phase one i can understand is inherently controversial, but as i'll go through in the data, feels to me like phase one is over. we're now transitioning to a growth phase which is phase two. and as we shift, as the conditions change and the private sector and the financial system both show clear signs of life standing up, the policy shift of what is the appropriate response also changes. incentives replace direct government involvement, a focus on growth, on competitiveness, on longer-run investments becomes totally appropriate. emphasizing partnership between the public sector and the private sector, where we can do things to rely on the private sector to stand up and drive growth become totally appropriate. though i do think there's a bit of an element of if you have just gone through a period where you're running into the burning hotel and taking children and throwing them down into the pool to save their lives, it's not right to evaluate them as if it was the olympic diving contest and we have a little bit of that. [laughter] look, when the president came into office, we're losing 800,000 jobs a month. and people, we, the fed, congress, other governments were trying to save the lives of the economy. and that we got from phase one to phase two is, is a testament to a lot of people's work in the private sector and the public sector, at the fed and the administration. i do think that we tend to have a bias toward the present in our, if only in our expectationations. it's kind of -- i used to drive the carpool for our, a bunch of kids down to school in chicago. and one of the kids in the carpool got the guitar hero video game, and he had guitar hero 1980s edition, and i said -- and he had the manual, and i said, let me see that. i said, i remember all these songs. he looked mortified, mr. goolsbee, you were alive in the 1980s? [laughter] and the thing is, when i start listening to people analyzing the economy, i kind of get the sense they've got the total forgetting any previous business cycle, forgetting what it was like in the end of 2008, beginning of 2009. if you had said in march of 2009 when we had just lost almost 800,000 jobs a month, gdp is in the steepest decline in more than a half century that by march of 2011 we're going to have grown for six straight quarters, we're going to have added jobs for 12 straight months, spreads are going to be pack to lower than they were -- back to lower than they were before the financial crisis, i would have given you a kiss. i'd have been really -- oh, my god, please! from your lips to to god's ears, that's what, you know, that's what we need to be doing. [laughter] which -- and i do feel we have turned a very serious corner. now, partly i base that just on the business cycle data that you guys observe every day. the gdp has turned around, the nber declared the recession was over, actually, even before that. the blue chip survey keeps going up. in november of 2010, not five months ago, the blue chip for 2011 was going to be 2.9%, and by this february that's raised to 3.5%. if you look at the purchasing managers, you've got strong indicators that manufacturing is coming back. on the expectations of jobs, it's the highest in, really, decades that business confidence appears to be coming back by any of the measures consumer confidence, the highest in at least three or four years. separate from the data coming in on the stronger side, anecdotally if you've talked to business people, the closer those business people are to the cycle, the stronger are their expectations for the coming '11 and '12. so big durable goods manufacturers, business quite a equipment, high-tech sectors that are historically cyclical, they have the strongest expectations. as you move toward the less cyclical industries, they're positive but milder. that feels like anecdotal evidence backing up what's coming in from the business cycle data. and the one exception i will say which i'll return to in a moment is small business which is historically quite cyclical, one of the first to go down and one of the first to come back. small business has tended to lag this recovery, not drive it. and so that's why that's been a policy area of focus for us. okay. so i think the data suggests transiti