Legislature(2005 - 2006)CAPITOL 106

04/19/2006 05:15 PM House ECONOMIC DEV., TRADE, AND TOURISM


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05:21:47 PM Start
05:22:46 PM Presentation: Economic Implications of Proposed Usps Bypass Mail System Between Fairbanks and North Slope Borough
07:11:55 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Presentation: Economic implications of
proposed USPS bypass mail system between
Fairbanks and North Slope Borough
                    ALASKA STATE LEGISLATURE                                                                                  
 HOUSE SPECIAL COMMITTEE ON ECONOMIC DEVELOPMENT, INTERNATIONAL                                                               
                       TRADE AND TOURISM                                                                                      
                         April 19, 2006                                                                                         
                           5:21 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mark Neuman, Co-Chair                                                                                            
Representative Jay Ramras, Co-Chair                                                                                             
Representative John Coghill                                                                                                     
Representative Bob Lynn                                                                                                         
Representative Nancy Dahlstrom                                                                                                  
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Harry Crawford                                                                                                   
Representative Beth Kerttula                                                                                                    
                                                                                                                                
OTHER LEGISLATOR PRESENT                                                                                                      
                                                                                                                                
Representative Michael "Mike" Kelly                                                                                             
Representative Mary Kapsner                                                                                                     
Representative Reggie Joule                                                                                                     
Senator Donny Olson                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION:  ECONOMIC IMPLICATIONS OF PROPOSED USPS BYPASS                                                                    
MAIL SYSTEM BETWEEN FAIRBANKS AND NORTH SLOPE BOROUGH                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
STEVE DEATON, Western Area Distribution Networks Office                                                                         
United States Postal Service                                                                                                    
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided a presentation regarding the                                                                      
proposed USPS bypass mail system between Fairbanks and the North                                                                
Slope Borough.                                                                                                                  
                                                                                                                                
DENNIS ROPER, Special Assistant to the Mayor                                                                                    
Office of the Mayor                                                                                                             
Government and External Affairs                                                                                                 
North Slope Borough                                                                                                             
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Expressed  concerns with the  proposed USPS                                                               
bypass  mail  system  between  Fairbanks   and  the  North  Slope                                                               
Borough.                                                                                                                        
                                                                                                                                
JAMES DODSON                                                                                                                    
Fairbanks Economic Development Corporation                                                                                      
Mayor's Office                                                                                                                  
Fairbanks North Star Borough                                                                                                    
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:   Expressed  concerns with the  proposed USPS                                                               
bypass  mail  system  between  Fairbanks   and  the  North  Slope                                                               
Borough.                                                                                                                        
                                                                                                                                
TRENT BLANKENSHIP, Superintendent                                                                                               
North Slope Borough School District                                                                                             
Barrow, Alaska                                                                                                                  
POSITION  STATEMENT:     Shana  Blankenship  read  Superintendent                                                               
Blakenship's testimony regarding concerns  with the proposed USPS                                                               
bypass mail system.                                                                                                             
                                                                                                                                
BILL MACKAY, Senior Vice President, Alaska                                                                                      
Alaska Airlines                                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in  opposition to the USPS plan to                                                               
truck  the  Fairbanks-Barrow   nonpriority  bypass  and  in-house                                                               
nonpriority mail from Fairbanks to  Deadhorse where it would then                                                               
be flown to Barrow.                                                                                                             
                                                                                                                                
NATE OLEMAUN, JR., Mayor                                                                                                        
City of Barrow                                                                                                                  
Barrow, Alaska                                                                                                                  
POSITION STATEMENT:   Expressed  concerns with the  proposed USPS                                                               
bypass  mail  system  between  Fairbanks   and  the  North  Slope                                                               
Borough.                                                                                                                        
                                                                                                                                
REX WILHELM, President/Chief Operating Officer                                                                                  
Alaska Commercial Company                                                                                                       
Barrow, Alaska                                                                                                                  
POSITION STATEMENT:   Expressed  concerns with the  proposed USPS                                                               
bypass  mail  system  between  Fairbanks   and  the  North  Slope                                                               
Borough.                                                                                                                        
                                                                                                                                
LINDA WENNING, Finance Director                                                                                                 
City of Barrow                                                                                                                  
Barrow, Alaska                                                                                                                  
POSITION STATEMENT:   Expressed  concerns with the  proposed USPS                                                               
bypass  mail  system  between  Fairbanks   and  the  North  Slope                                                               
Borough.                                                                                                                        
                                                                                                                                
SUSAN HOPE                                                                                                                      
Barrow, Alaska                                                                                                                  
POSITION STATEMENT:   Expressed  concerns with the  proposed USPS                                                               
bypass  mail  system  between  Fairbanks   and  the  North  Slope                                                               
Borough.                                                                                                                        
                                                                                                                                
JOHN GLEASON, Manager                                                                                                           
Wells Fargo Bank - Barrow                                                                                                       
Barrow, Alaska                                                                                                                  
POSITION STATEMENT:   Expressed  concerns with the  proposed USPS                                                               
bypass  mail  system  between  Fairbanks   and  the  North  Slope                                                               
Borough.                                                                                                                        
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CO-CHAIR  JAY  RAMRAS  called  the  House  Special  Committee  on                                                             
Economic Development, International Trade  and Tourism meeting to                                                               
order at  5:21:47 PM.   Representatives Neuman,  Ramras, Coghill,                                                             
and  Lynn were  present at  the  call to  order.   Representative                                                               
Dahlstrom   arrived    as   the   meeting   was    in   progress.                                                               
Representatives Joule, Kapsner, and  Kelly and Senator Olson were                                                               
also in attendance.                                                                                                             
                                                                                                                                
^PRESENTATION:   ECONOMIC  IMPLICATIONS OF  PROPOSED USPS  BYPASS                                                             
MAIL SYSTEM BETWEEN FAIRBANKS AND NORTH SLOPE BOROUGH                                                                         
                                                                                                                                
5:22:46 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS announced  that the only order  of business would                                                               
be the  presentation regarding the  economic implications  of the                                                               
proposed U.S.  Postal Service (USPS)  bypass mail  system between                                                               
Fairbanks and the North Slope Borough.                                                                                          
                                                                                                                                
5:24:38 PM                                                                                                                    
                                                                                                                                
STEVE DEATON,  Western Area Distribution Networks  Office, United                                                               
States Postal  Service, turned the  committee's attention  to the                                                               
PowerPoint  presentation  entitled,  "Fairbanks  to  Barrow  Mode                                                               
Conversion  Overview."   He explained  that the  current business                                                               
plan  indicates that  the certified  air carriers  of Everts  Air                                                               
Cargo, Northern  Air Cargo, and Alaska  Airlines transport bypass                                                               
mail and  in-house nonpriority mail between  Fairbanks and Barrow                                                               
and  Barrow's  Bush  points.    The  [bypass  mail  and  in-house                                                               
nonpriority mail]  form a single  rate class that is  referred to                                                               
as standard  mail.   The business plan  identifies a  proposal to                                                               
create a surface leg of this  route such that the mail is trucked                                                               
from Fairbanks to  Deadhorse at which point it would  be flown to                                                               
Barrow   on  any   of  the   mainline   carriers  interested   in                                                               
participating in the mail movement.                                                                                             
                                                                                                                                
CO-CHAIR RAMRAS  inquired as to  the general weather  patterns in                                                               
Deadhorse.                                                                                                                      
                                                                                                                                
MR. DEATON related  that there has been  established road service                                                               
into Deadhorse and  established air service out  of Deadhorse for                                                               
over  20  years.    However,   he  acknowledged  that  there  are                                                               
certainly days  when the weather restricts/eliminates  the use of                                                               
air  traffic.   He then  turned  the committee's  attention to  a                                                               
slide with a  map of the proposed  service via land and  air.  As                                                               
mentioned earlier, there  is already a contract in  place to move                                                               
mail  via the  road  on  a three-day  a  week  schedule and  then                                                               
transfer  it to  air carriers  to fly  to its  final destination.                                                               
This  contractor has  existing  facilities  located in  Deadhorse                                                               
that are sufficient to handle  mail storage, transfer, and ground                                                               
handling activities.   One of  the concerns  of the USPS  and the                                                               
customers is the  actual handling of the mail as  it moves up the                                                               
road to  Deadhorse.  The  trailer specifications in  the contract                                                               
include  technology for  a specific  type of  temperature control                                                               
van, Thermo  King vans,  which allow for  dry, freeze,  and chill                                                               
capacity within  the same  van.   In the  winter, these  vans can                                                               
utilize a  heater so  that dry and  chill products  don't freeze.                                                               
The  facilities  in Deadhorse  for  the  ground handler  and  the                                                               
participating air carriers  will also be heated  and meet storage                                                               
requirements.                                                                                                                   
                                                                                                                                
5:31:54 PM                                                                                                                    
                                                                                                                                
MR. DEATON continued by reviewing  the projected mail volume.  He                                                               
explained that  the in-house nonpriority (IHNP)  mail consists of                                                               
the  nonpriority mail  and boxes  that consumers  bring into  the                                                               
post  office.   Bypass  mail  is  mail that  authorized  shippers                                                               
provide in  1,000 pound minimum  units to the USPS  for transport                                                               
to restaurants, stores, businesses, and  people.  Based on fiscal                                                               
year (FY) 05, the projected IHNP  is about 1.7 million pounds per                                                               
year.                                                                                                                           
                                                                                                                                
5:33:46 PM                                                                                                                    
                                                                                                                                
MR.  DEATON,  in  response to  Co-Chair  Ramras,  specified  that                                                               
bypass  mail  can,  at the  shipper's  risk,  accept  perishable,                                                               
freeze,  and  chill  items.   In  further  response  to  Co-Chair                                                               
Ramras, Mr. Deaton  said that the bypass  mail program recognizes                                                               
that  there  are  subsistence-type   commodities  that  are  more                                                               
difficult and  costly to obtain  in a  freight manner.   The USPS                                                               
doesn't guarantee  bypass mail freeze and  chill perishable items                                                               
because  by   the  domestic  mail  manual   it  isn't  mail-able.                                                               
However,  in  recognizing  the  need   of  those  in  the  Alaska                                                               
Interior,  shippers and  customers are  allowed to  enter such  a                                                               
product  so long  as it's  frozen  solid upon  entry and  clearly                                                               
marked freeze and  chill.  Carriers, whether surface  or air, are                                                               
asked to make every effort to  care for the product in freeze and                                                               
chill facilities if  they have such and to  expedite the movement                                                               
of such  mail so that  it doesn't degrade.   Therefore, shipper's                                                               
risk acknowledges  that the items  aren't technically  allowed in                                                               
the bypass  mail system, but all  will be done to  transport such                                                               
mail and have it arrive in a reasonable condition.                                                                              
                                                                                                                                
5:35:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS  asked if such mail  is likely to take  longer on                                                               
the proposed bypass than the current mechanism for delivery.                                                                    
                                                                                                                                
MR. DEATON said  that it's possible, but noted that  later in the                                                               
presentation he will  discuss the service standard  of such mail.                                                               
He then  returned to the  projected mail volume and  related that                                                               
bypass  mail amounts  to about  8.5 million  pounds of  mail that                                                               
would be  added to  the surface  contract.   He pointed  out that                                                               
volumes specified  on slide  10 would  be divided  equitably, per                                                               
the statute requirements, between the participating carriers.                                                                   
                                                                                                                                
5:36:23 PM                                                                                                                    
                                                                                                                                
MR. DEATON moved  on to slide 11, which relates  that the current                                                               
cost of  transporting [bypass] mail  from Fairbanks to  Barrow is                                                               
$6.7 million to  USPS.  He emphasized that the  surface mail rate                                                               
is being  paid for this  mail, although  it is be  transported by                                                               
air  in Alaska  due to  the lack  of roads.   The  aforementioned                                                               
causes a serious  shortfall in the amount of about  $60 million a                                                               
year for the  USPS budget.  Therefore, this  proposal attempts to                                                               
decrease the revenue losses the USPS experiences in Alaska.                                                                     
                                                                                                                                
5:38:13 PM                                                                                                                    
                                                                                                                                
MR. DEATON continued  with slide 12, which  relates the projected                                                               
cost of surface  transportation.  He informed  the committee that                                                               
the USPS  has negotiated a rate,  about $.11 per pound,  with the                                                               
incumbent surface  provider.  Therefore, the  surface movement of                                                               
the  10.2 million  pounds of  nonpriority rate  mail yearly  will                                                               
cost  approximately $1.2  million a  year to  move to  Deadhorse.                                                               
Slide 13  relates that the  existing rate  of $.41 per  pound for                                                               
transportation  of the  10.2  million pounds  of  mail [via  air]                                                               
between  Deadhorse and  Barrow  would cost  the  USPS about  $4.1                                                               
million.   Therefore, this proposal  results in $1.35  million in                                                               
savings annually, which is fairly substantial savings.                                                                          
                                                                                                                                
5:39:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS asked  if the USPS takes into  account the impact                                                               
the service  has on the communities  or is this all  about profit                                                               
and loss and seeking efficiency.                                                                                                
                                                                                                                                
MR. DEATON emphasized  that with this and all  modal changes, the                                                               
impact to  the communities is  considered, which is why  the USPS                                                               
has  had  several  meetings with  the  communities,  the  mayoral                                                               
offices, and borough  offices.  In fact, slide  15 specifies some                                                               
of the community  meetings that have been held.   Generally, when                                                               
the  USPS   makes  transportation   decisions,  they   are  based                                                               
specifically on the service standard.                                                                                           
                                                                                                                                
5:42:32 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NEUMAN inquired  as  to the  general  consensus of  the                                                               
meetings  in  Barrow and  Fairbanks.    He  also inquired  as  to                                                               
whether  the  USPS  had  discussions with  some  of  the  smaller                                                               
communities such as Fort Wainwright.                                                                                            
                                                                                                                                
MR. DEATON  explained that prior  to the presentation  in Barrow,                                                               
the meeting  announcement was  posted in the  Point Lay  and Fort                                                               
Wainwright  post offices  and  community offices.    A number  of                                                               
people flew  in or called  in from  those outlying areas  to have                                                               
their comments heard.   He related that at the  time, people were                                                               
negative  about the  proposal.   However, they  hadn't heard  the                                                               
proposal  or the  facts but  rather had  heard rumors  and fears.                                                               
Some people  from Barrow and  the outlying communities  were also                                                               
in attendance in  Fairbanks and the concerns remained.   In fact,                                                               
there are still many people who  are concerned with regard to the                                                               
proposal and its potential impacts.                                                                                             
                                                                                                                                
5:44:50 PM                                                                                                                    
                                                                                                                                
MR. DEATON, in  further response to Co-Chair  Neuman, related his                                                               
belief that the  majority of the impacted  residents are hesitant                                                               
to embrace this  proposal.  He opined that some  of the hesitancy                                                               
has to do  with the perception that the proposal  will impact the                                                               
residents  negatively.    However,  Mr.  Deaton  said  that  this                                                               
proposal will  have absolutely no  impact on the Bush  service or                                                               
the mail service standard for the  mail from Barrow to any of the                                                               
[outlying communities].   He opined  that the USPS  believes this                                                               
change will be transparent, but  he acknowledged that many people                                                               
are concerned  because of  their uncertainty  with regard  to how                                                               
the proposal will happen.                                                                                                       
                                                                                                                                
5:46:25 PM                                                                                                                    
                                                                                                                                
MR. DEATON  continued with  slide 16,  which relates  the service                                                               
standards for  non-priority standard mail that  includes IHNP and                                                               
bypass  mail.   The service  standards are  universal across  the                                                               
country.  The  service standard for bypass mail is  5-7 days.  He                                                               
explained  that  carriers are  required  to  move the  mail  from                                                               
Fairbanks to  Barrow by the end  of the second day  following the                                                               
day  of tender.    If the  mail hasn't  been  transported by  the                                                               
first-leg air carrier by the end  of the second day following the                                                               
day  of tender,  it's subject  to transfer  to a  second carrier.                                                               
The Bush carrier  has until the end of the  day following the day                                                               
of receipt  to deliver the mail  to its final destination.   This                                                               
5-7 service standard  for bypass mail doesn't change.   The truck                                                               
surface contract has  until the end of the day  following the day                                                               
of tender  to move the mail  to Deadhorse.  Furthermore,  the two                                                               
air legs don't change and continue  to have the end of the second                                                               
day  following the  day  of  receipt to  transport  the mail  via                                                               
mainline to  Barrow.  The same  is true for the  Bush carrier for                                                               
mail going  past Barrow.  For  instance, for Barrow mail  if mail                                                               
was tendered to  the surface contract on Monday,  that mail would                                                               
be in Deadhorse  by Tuesday and the air carrier  would have until                                                               
the end  of Thursday to  move that  mail to Barrow  for delivery.                                                               
This still  falls within the five  to seven days.   If the mail's                                                               
destination is past  Barrow, one day would be  added, which still                                                               
falls well  within the five  to seven days.    Mr.  Deaton opined                                                               
that now  and under the  proposal, the USPS anticipates  the mail                                                               
will move faster than the service standard and transit windows.                                                                 
                                                                                                                                
5:51:03 PM                                                                                                                    
                                                                                                                                
MR. DEATON  then pointed out  that the Fairbanks to  Barrow modal                                                               
change  isn't unique  in the  postal service  nor within  Alaska.                                                               
The USPS  has done many  modal changes and surface  diversions in                                                               
Alaska over the last 20 years.   For example, all bypass mail was                                                               
diverted  to Dutch  Harbor from  air to  once a  week service  on                                                               
container ships [in  1992].  He noted that the  USPS offers other                                                               
products if  people want to move  mail within one to  three days.                                                               
In terms of impacts to the  community, one of the concerns was in                                                               
regard to passenger  service regarding space and  cost under this                                                               
proposal.  Alaska Airlines has  attended all of the USPS meetings                                                               
at  which it  has  consistently  said that  it  doesn't know  the                                                               
impacts to  the passenger  services.   Mr. Deaton  specified that                                                               
although the  USPS doesn't set  carrier schedules or  pricing, it                                                               
does  realize that  mail  piggybacks on  those  flights.   Alaska                                                               
Airlines does  have an essential air  service minimum requirement                                                               
to provide  service to Barrow at  the level of 14  flights a week                                                               
in the summer and 7 flights a week in the winter.                                                                               
                                                                                                                                
5:54:22 PM                                                                                                                    
                                                                                                                                
MR.  DEATON recalled  that similar  concerns  to those  expressed                                                               
regarding Barrow  were heard when  USPS diverted Dutch  Harbor to                                                               
surface  once a  week.   As slide  19 relates,  when the  surface                                                               
diversion  to Dutch  Harbor took  place Alaska  Airlines provided                                                               
one flight daily and one flight six  days a week with the cost of                                                               
a "Y" fare one-way ticket of  $537.00 and the cost of a seven-day                                                               
advance  one-way   ticket  of  $447.00.     However,   after  the                                                               
diversion, PenAir  began providing  five flights  daily on  a 30-                                                               
passenger  aircraft.   The  cost  of a  "Y"  fare one-way  ticket                                                               
decreased by  $10 while the  cost of a seven-day  advance one-way                                                               
ticket  increased by  $10.   Although the  aforementioned doesn't                                                               
predict the future,  it does provide a like  circumstance and the                                                               
results.                                                                                                                        
                                                                                                                                
5:55:52 PM                                                                                                                    
                                                                                                                                
MR.  DEATON reiterated  that this  proposal is  not unique.   The                                                               
USPS is scheduled  to lose over $1 billion  this year nationwide.                                                               
Nationwide  the USPS  is seeking  cost  deferments and  reduction                                                               
efforts.   In  Alaska, the  aforementioned is  being accomplished                                                               
and past  surface diversions in  Alaska have  happened statewide,                                                               
in the communities  specified on slide 20.   Although the changes                                                               
weren't  readily  accepted by  the  communities,  the change  was                                                               
transparent to the customer.                                                                                                    
                                                                                                                                
5:57:14 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS interjected that a recent Fairbanks Daily News-                                                               
Miner article reported that Fairbanks  mail is going to Anchorage                                                             
for   processing  and   then  to   Fairbanks  for   distribution.                                                               
Therefore, no  one in Fairbanks  is enjoying a  three-day service                                                               
standard.                                                                                                                       
                                                                                                                                
MR. DEATON  indicated that  may be  a misunderstanding  because a                                                               
small  portion  of one  class  of  mail  [is being  delivered  to                                                               
Anchorage]  in order  to  temporarily  use Anchorage's  automated                                                               
system  to delivery  point sequence  the  mail.   He related  his                                                               
understanding that the goal is  for Fairbanks to obtain that type                                                               
of automation  equipment in the  future.  In further  response to                                                               
Co-Chair  Ramras, Mr.  Deaton opined  that all  mail coming  into                                                               
Anchorage that is utilizing the  delivery point sequence is still                                                               
moving that evening via surface up to Fairbanks.                                                                                
                                                                                                                                
5:58:37 PM                                                                                                                    
                                                                                                                                
MR. DEATON highlighted  slide 20, which relates  the locations of                                                               
other  successful   past  surface  diversions  in   Alaska.    In                                                               
conclusion, Mr.  Deaton specified that  the USPS is  not changing                                                               
anything  in   the  bypass  mail  program,   rather  it's  simply                                                               
implementing a  modal change  within that bypass  mail flow.   He                                                               
reiterated the  USPS's belief that  the change in mail  flow will                                                               
be transparent to the customer,  the mail will continue to arrive                                                               
at   its   destination   well  within   the   service   standard.                                                               
Furthermore, he  opined that  the freeze  and chill  should enjoy                                                               
better conditions  due to the  technology of the  transport vans,                                                               
which is  not the case  with mail being transported  by aircraft.                                                               
Mr. Deaton specified  that this proposal doesn't  effect the Bush                                                               
communities  because  once  mail  arrives  in  Barrow,  the  same                                                               
carriers will take  it out to its destination in  the Bush within                                                               
the service  standard.   With regard to  passenger air  fares and                                                               
service, the  essential air service  program is designed  and has                                                               
established the required minimum number  of flights of a carrier.                                                               
All  of  the  aforementioned  will  contribute  to  decrease  the                                                               
revenue shortfall in  Alaska for the USPS, which  allows the USPS                                                               
to  continue  to  operate using  certificated  air  carriers  and                                                               
assist  in providing  a stable  air transportation  system within                                                               
the state.                                                                                                                      
                                                                                                                                
6:02:35 PM                                                                                                                    
                                                                                                                                
DENNIS  ROPER, Special  Assistant  to the  Mayor,  Office of  the                                                               
Mayor,  Government and  External  Affairs,  North Slope  Borough,                                                               
began by  stating that this issue  has been tracked by  the North                                                               
Slope  Borough   since  it  was   first  introduced   last  year.                                                               
Therefore,   the  borough   has  stayed   in  contact   with  the                                                               
congressional  delegation.    In  fact,   he  said  that  he  has                                                               
personally made three trips to  Washington, D.C., when the matter                                                               
was on  the agenda.  Mr.  Roper informed the committee  that over                                                               
100  people attended  the public  hearing in  Barrow.   Mr. Roper                                                               
pointed out  that the cost  issues are  up for debate.   Although                                                               
the USPS  says it can save  $1.3 million by using  the truck haul                                                               
approach,   the  air   carriers  view   the  USPS's   numbers  as                                                               
unrealistic.   The  air carriers,  he said,  believe the  savings                                                               
will  be small  or nonexistent.   The  North Slope  Borough's big                                                               
concern is the local and social  impacts this change will have on                                                               
the  communities.   The  potential  lack  of air  service  and/or                                                               
increase in  fares is  of concern  because it  will make  it more                                                               
difficult for  people to  do business.   Mr.  Roper characterized                                                               
the proposal  as a step  backward, the  impacts of which  will be                                                               
greatly  magnified in  the outlying  communities.   For  example,                                                               
weather is  a factor that  results in products sitting  in Barrow                                                               
waiting   for  weather   that  will   allow  small   aircraft  to                                                               
depart/arrive.                                                                                                                  
                                                                                                                                
MR. ROPER  said that the loss  of the current bypass  system will                                                               
result  in  a  range  of  effects  in  the  community,  including                                                               
lowering   the  quantity   and  quality   of  perishable   goods.                                                               
Recalling raising his  children in Barrow, Mr.  Roper opined that                                                               
no  one wants  to  return  to the  days  of  black bananas,  soft                                                               
tomatoes, and  powdered milk.   Furthermore, the lack  of service                                                               
or  increase  in air  fare  could  impact  tourism in  the  area;                                                               
increase difficulties in recruiting  teachers, doctors, and other                                                               
professionals; impact  those with  medical needs; and  the travel                                                               
required for academic activities as well as sports.                                                                             
                                                                                                                                
MR. ROPER opined that this is  a difficult issue, for which Mayor                                                               
Itta is  preparing to  monitor if  the change  occurs.   In fact,                                                               
Mayor  Itta has  requested  that  one of  the  economists in  the                                                               
Government and  External Affairs agency  to track the  new system                                                               
if it's implemented.   If the system is implemented  and the USPS                                                               
is saving  nickels and  dimes as  compared to  the damage  to the                                                               
local economies,  [the borough]  plans on contacting  the state's                                                               
congressional delegation.                                                                                                       
                                                                                                                                
6:08:20 PM                                                                                                                    
                                                                                                                                
MR. ROPER concluded  his testimony by reading a  quote from Mayor                                                               
Itta's article in the Arctic Sounder, as follows:                                                                             
                                                                                                                                
     I am very concerned about  the long-term effects of the                                                                    
     proposed  changes  in the  service.    Bypass mail  was                                                                    
     created to  make local  economies stronger.   If  it is                                                                    
     eliminated,  the   economies  of   Barrow,  Wainwright,                                                                    
     Atqasuk, Point  Lay will suffer.   The question  is not                                                                    
     whether  the savings  to the  Postal Service  justifies                                                                    
     the  economic  damage  to the  communities,  I  do  not                                                                    
     believe that  they do.   For $1.3 million this  is just                                                                    
     plain a bad idea.                                                                                                          
                                                                                                                                
6:09:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NEUMAN inquired  as  whether the  concern is  the                                                               
financial  aspect  of the  proposal  or  the tradeoff  in  social                                                               
terms.                                                                                                                          
                                                                                                                                
MR.  ROPER said  that  he  doesn't have  any  numbers, but  could                                                               
specify  the areas  of  concern.   For  instance,  the USPS  just                                                               
related that there  has to be at least seven  flights [a week] in                                                               
the  winter,  but  the  community  of  Barrow  is  accustomed  to                                                               
fourteen.  He suggested the committee  think of the impact to the                                                               
community from that alone.   Within the community of Barrow there                                                               
are about  4,300 people and it  doesn't take long to  disrupt the                                                               
community.                                                                                                                      
                                                                                                                                
6:11:18 PM                                                                                                                    
                                                                                                                                
JAMES   DODSON,  Fairbanks   Economic  Development   Corporation,                                                               
Mayor's   Office,  Fairbanks   North  Star   Borough,  began   by                                                               
highlighting  that Alaska  has few  transportation road  systems.                                                               
Furthermore, Congress  gerrymandered Alaska  when it  divided the                                                               
state and disallowed  roads in many areas.   Therefore, the Rural                                                               
Service Development  Act was  intended to  provide transportation                                                               
for  quality of  life, goods  and services,  and passenger  seats                                                               
into  rural Alaska.    The USPS  says it  costs  $118 million  to                                                               
supply  rural Alaska  with such  service.   He  pointed out  that                                                               
Alaska  doesn't  have  the federal  highway  dollars  that  other                                                               
states  enjoy  and thus  rural  Alaska  needs the  aforementioned                                                               
transportation system.   If this system is  dismantled, the state                                                               
will have  to step in  and [make up  the difference].   The Rural                                                               
Service Development Act supports the  entire U.S. while the Rural                                                               
Service Act supports  Alaska.  Currently, there is  a proposal in                                                               
Congress  to  cut  the  Rural  Service  Development  Act  by  $77                                                               
million.   Mr. Dodson said, "We  are trying to save  $1.3 million                                                               
out  of  $118  million  to  dismantle  a  system  that  has  been                                                               
effective for  years."   Today, there  are three  carriers flying                                                               
airplanes  out  of  Fairbanks to  provide  goods,  services,  and                                                               
seats.   This proposal  would have those  three carriers  fly the                                                               
same  aircraft  out  of  Deadhorse   and  thus  Barrow  would  be                                                               
connected with  Deadhorse rather than Fairbanks.   Therefore, the                                                               
residents  of Barrow  would be  serviced by  Deadhorse and  would                                                               
have to park  their cars in Deadhorse and drive  the 502 miles to                                                               
Fairbanks.     The  aforementioned   defies  logic,   he  opined.                                                               
Moreover, it defies logic that  the USPS would suggest that there                                                               
is no impact to rural Alaska.                                                                                                   
                                                                                                                                
6:15:05 PM                                                                                                                    
                                                                                                                                
MR. DODSON, in response to  Co-Chair Ramras, specified that there                                                               
are no  mainline carriers  based in  Deadhorse.   If the  USPS is                                                               
allowed to implement its business  plan, the airplanes would have                                                               
to be  flown to Deadhorse for  nothing.  At that  point, the USPS                                                               
could then charge the $.41 from  Deadhorse to Barrow.  Mr. Dodson                                                               
said  that  in  doing  the calculations,  he  couldn't  find  the                                                               
savings  projected to  occur  under this  proposal  and the  USPS                                                               
claims  there  is proprietary  information.    He questioned  how                                                               
there could be proprietary information  when the USPS is the only                                                               
entity doing the job in Alaska  as it has been granted a monopoly                                                               
to move the mail in Alaska.                                                                                                     
                                                                                                                                
6:16:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MICHAEL "MIKE"  KELLY, Alaska  State Legislature,                                                               
inquired as  to how many air  carriers have gone out  of business                                                               
because of the bypass mail changes that have already occurred.                                                                  
                                                                                                                                
6:16:44 PM                                                                                                                    
                                                                                                                                
MR. DODSON recalled that the law  has changed twice since the law                                                               
was implemented.   He estimated that  at least 25 percent  of the                                                               
smaller carriers have went out of business.                                                                                     
                                                                                                                                
REPRESENTATIVE KELLY posed a situation  in which a route that was                                                               
profitable  going  from  Fairbanks  to  Deadhorse  to  Barrow  is                                                               
changed to  only go  from Deadhorse  to Barrow.   He asked  if in                                                               
such  a   situation,  the   cost  of   air  fare   will  increase                                                               
considerably once re-bid because the  plan has to travel empty to                                                               
accomplish this proposal.                                                                                                       
                                                                                                                                
MR.  DODSON  related  that the  Department  of  Transportation  &                                                               
Public Facilities  (DOT&PF) is charged  with gathering  the costs                                                               
of  the mainline  carriers  and recalculating  it  annually.   He                                                               
opined  that  the   cost  to  the  carriers   will  increase  and                                                               
consequently the cost of moving mail will increase.                                                                             
                                                                                                                                
REPRESENTATIVE KELLY  mentioned that he  used to fly  bypass mail                                                               
service and worked for one of  the small carriers that closed due                                                               
to the  change in bypass rules.   While one may  applaud the USPS                                                               
in  its attempts  to cut  costs, the  result in  Alaska could  be                                                               
devastating for  these communities.   He inquired as to  how many                                                               
passenger seats  this proposal might eliminate  from Fairbanks to                                                               
Deadhorse.                                                                                                                      
                                                                                                                                
MR. DODSON  answered that  he didn't know.   However,  he related                                                               
his understanding that  Alaska Airlines is about to  file its new                                                               
schedule, which will provide that information.                                                                                  
                                                                                                                                
6:18:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KELLY asked if the  result might be very different                                                               
than  that  of the  situation  of  Dutch  Harbor and  PenAir,  as                                                               
presented by the USPS.                                                                                                          
                                                                                                                                
MR. DODSON replied  yes, and opined that there will  be a drastic                                                               
reduction of seats between Fairbanks and Barrow.                                                                                
                                                                                                                                
TRENT  BLANKENSHIP, Superintendent,  North  Slope Borough  School                                                               
District, had his testimony read  by Shana Blankenship as follows                                                               
[original punctuation provided]:                                                                                                
                                                                                                                                
     In  the  Postal  Reorganization  Act of  1970,  the  US                                                                    
     Postal Service  is granted  special protection  for the                                                                    
     right of  post boxes and  delivery of first  class mail                                                                    
     to  the  US Government  because  of  its commitment  to                                                                    
     provide  a  standard of  service  to  all box  holders,                                                                    
     rural and urban.                                                                                                           
                                                                                                                                
     In a 1976  amendment to the act, the  US Postal Service                                                                    
     was required  to provide a maximum  degree of effective                                                                    
     and   regular   postal   services   to   rural   areas,                                                                    
     communities,  and small  towns where  post offices  are                                                                    
     not self-sustaining;  it being  the specific  intent of                                                                    
     Congress that  effective postal services be  insured to                                                                    
     residents of both urban and rural communities.                                                                             
                                                                                                                                
     In assisting  the Senate  to craft  reform legislation,                                                                    
     the Governmental  Accounting Office [GAO]  crafted GAO-                                                                    
     04-803  USPS Report  on Delivery  and Retail  Services.                                                                    
     In  it  was  the  recommendation  that  the  Postmaster                                                                    
     General     provide    improved     transparency    and                                                                    
     communication  to  inform   Congress  and  other  stake                                                                    
     holders of the  actions it plans to  take regarding its                                                                    
     retail optimization strategy, including:                                                                                   
     (1)  The  criteria  USPS will  use  to  make  decisions                                                                    
     related  to  changing  its   retail  network;  we  have                                                                    
     requested the  cost analysis and specific  data used to                                                                    
     propose this decision, and it has not been provided.                                                                       
     (2) The process it will  use to communicate with postal                                                                    
     stake holders  throughout the  decision-making process;                                                                    
     The Rural  Post Office  and Community  Preservation Act                                                                    
     of   2003  and   H.R.  3432,   Post  Office   Community                                                                    
     Partnership Act of 2003,  requires USPS decision makers                                                                    
     in  our region  to involve  us in  decisions that  will                                                                    
     impact the quality  of service we receive.   The Alaska                                                                    
     postmaster  has   not  given  us  the   information  we                                                                    
     requested, we  have not been  given the  opportunity to                                                                    
     propose   and  examine   alternatives  to   this  plan.                                                                    
     Clearly  this decision  hasn't been  responsive to  the                                                                    
     Rural Post Office and Community Partnership Acts.                                                                          
     (3) The  impact on customers, including  those in rural                                                                    
     areas;  Where is  the  impact data  on  Barrow and  the                                                                    
     North Slope  for this  decision?   You are  required to                                                                    
     share it.                                                                                                                  
     (4) The time frames for  implementing all phases of its                                                                    
     retail optimization  initiative; We have  requested the                                                                    
     cost  analysis,  impact  data, timelines  and  specific                                                                    
     data  used to  propose this  decision, and  it has  not                                                                    
     been provided.   We  have asked you  to involve  us, to                                                                    
     generate  alternatives, you  have not  responded.   The                                                                    
     GAO noted  that the  US Congress has  made it  clear on                                                                    
     several  occasions  to  the  USPS  that  the  Universal                                                                    
     service  standard is  not to  be  compromised in  rural                                                                    
     areas  in any  contemplated reform,  we have  requested                                                                    
     information   that  assures   us  that   the  Universal                                                                    
     Standard will be  preserved here; that the  mail on the                                                                    
     North  Slope  will  be  delivered   in  as  timely  and                                                                    
     reliable  fashion under  this proposal  as it  has been                                                                    
     delivered  previously, but  our  concerns  to this  end                                                                    
     were not addressed either.                                                                                                 
                                                                                                                                
     But there is hope for us.   In February, S662 on Postal                                                                    
     Reform passed, despite  being opposed by the  USPS.  We                                                                    
     support their reform of the  USPS; we are encouraged to                                                                    
     see Congress  exert control over  our postal  system to                                                                    
     protect us.  We know all  too well, it cannot come soon                                                                    
     enough for us.                                                                                                             
                                                                                                                                
     If   this  decision   moves  forward,   without  having                                                                    
     provided  us a  timeline,  fiscal impact,  cost-benefit                                                                    
     analysis, or opportunity for  participation, we must be                                                                    
     prepared to act as a community.                                                                                            
                                                                                                                                
     We need  to let  this bill's sponsors:  Senator Collins                                                                    
     of Maine and Senator Carper  of Delaware, know that, in                                                                    
     the eyes  of the Alaska  USPS, the people of  the North                                                                    
     Slope  are  somehow less  deserving  than  the rest  of                                                                    
     Alaska.                                                                                                                    
                                                                                                                                
     That  while the  Senators are  championing transparency                                                                    
     at a  national level, this transaction  is being rushed                                                                    
     to completion behind closed  doors, with no cooperation                                                                    
     with our  elected representatives  in the  Borough, the                                                                    
     Tribes or the cities.                                                                                                      
                                                                                                                                
     That  while  the  Senators  are  championing  universal                                                                    
     service  to  all rural  areas  -  in Alaska,  the  USPS                                                                    
     believes  it  is  only those  rural  areas  surrounding                                                                    
     Anchorage  and Fairbanks  that should  enjoy comparable                                                                    
     services, while  the service to  native peoples  in the                                                                    
     bush  is  held  to  a different,  more  cost  effective                                                                    
     standard.                                                                                                                  
                                                                                                                                
     That  while  those   Senators  believe  that  providing                                                                    
     universal postal  service is the cornerstone  of USPS's                                                                    
     mission, the  Alaska USPS  will discriminate  among its                                                                    
     customers in  order to provide a  trucking contract and                                                                    
     a processing center to businessmen in Fairbanks.                                                                           
                                                                                                                                
     We  need  to write  to  Senators  Collins and  Carpers,                                                                    
     Senators  Murkowski  and  Stephens  and  support  their                                                                    
     belief, embodied in S662, that, and I quote,                                                                               
                                                                                                                                
     "universal  service   is  essential  to   the  nation's                                                                    
     communications network  and economy;  that it  is vital                                                                    
     to  the American  people, many  of whom  rely upon  the                                                                    
     consistency of  mail delivery and convenient  access to                                                                    
     the retail postal network."                                                                                                
                                                                                                                                
     We can prove that,  without roads, consistent access to                                                                    
     mail  is more  important here  than almost  anywhere in                                                                    
     America.    It  is  the cornerstone  of  not  only  our                                                                    
     economy, but our quality of life.                                                                                          
                                                                                                                                
     In  summary, if  this  proposal  moves forward  without                                                                    
     transparency, opportunity  for participation  or regard                                                                    
     for  universal  service, we  must  come  together as  a                                                                    
     community and provide  universal opposition however and                                                                    
     wherever possible.                                                                                                         
                                                                                                                                
6:27:07 PM                                                                                                                    
                                                                                                                                
BILL MACKAY, Senior Vice President, Alaska, Alaska Airlines,                                                                    
paraphrased from the following written testimony [original                                                                      
punctuation provided]:                                                                                                          
                                                                                                                                
     Co-chairs Ramras, Neuman and  members of the Committee,                                                                    
     my  name is  Bill MacKay  and  I serve  as Senior  Vice                                                                    
     President,  Alaska for  Alaska Airlines.   I  am joined                                                                    
     today  by   Jeff  Carlson,  the  Manager   of  Contract                                                                    
     Stations for Alaska Airlines.   We are grateful for the                                                                    
     opportunity  to discuss  the Barrow  bypass mail  issue                                                                    
     with   you  today   and   appreciate  the   Committee's                                                                    
     leadership in addressing this important  matter.  In my                                                                    
     Anchorage-based  position,  I  am involved  in  leading                                                                    
     many aspects  of our  operations here  in the  state of                                                                    
     Alaska  and  have  been coordinating  Alaska  Airlines'                                                                    
     response to the Barrow mail issue for over a year.                                                                         
                                                                                                                                
     Alaska Airlines  is opposed to the  U.S. Postal Service                                                                    
     plan to  truck the Fairbanks-Barrow  nonpriority bypass                                                                    
     and  in-house   nonpriority  mail  from   Fairbanks  to                                                                    
     Deadhorse  where  it would  then  be  flown to  Barrow.                                                                    
     Having spent  over two decades in  statewide leadership                                                                    
     positions for  Alaska Airlines here  in Alaska,  I have                                                                    
     come  to understand  very well  the  critical role  the                                                                    
     bypass mail  program serves in getting  essential goods                                                                    
     shipped into  rural Alaska  communities.   What's more,                                                                    
     this program helps to ensure  the economic viability of                                                                    
     scheduled passenger airline service  to these towns and                                                                    
     villages - air service that  is critical given the lack                                                                    
     of any road connections to these locations.                                                                                
                                                                                                                                
     Alaska  Airlines currently  operates at  least 11  non-                                                                    
     stop flights  each week  between Fairbanks  and Barrow.                                                                    
     We operate  an additional  daily roundtrip  flight from                                                                    
     Anchorage to Deadhorse.  This  level of service assures                                                                    
     that Barrow  residents receive  all of  the necessities                                                                    
     moving under the bypass mail  program on a daily basis.                                                                    
     The  Postal  Service,  however,  is  now  proposing  to                                                                    
     transfer the approximately 10  million pounds of annual                                                                    
     bypass  and  in-house   nonpriority  mail  for  surface                                                                    
     carriage from  Fairbanks to  Deadhorse to  connect with                                                                    
     an  as  yet  undetermined  number  of  flights  between                                                                    
     Deadhorse  and  Barrow.   While  we  are  committed  to                                                                    
     minimizing  the negative  impact for  residents of  the                                                                    
     North Slope  and the interior, the  Postal Service plan                                                                    
     will force  us to significantly alter  our schedule and                                                                    
     pattern of service to Fairbanks, Barrow and Deadhorse.                                                                     
                                                                                                                                
     Alaska  Airlines understands  and appreciates  that the                                                                    
     plan  is  driven  by the  Postal  Service's  desire  to                                                                    
     reduce its  costs.  However,  we sympathize  with those                                                                    
     living  in  the  North  Slope   Borough  who  are  very                                                                    
     concerned with  how this altered flow  of shipped goods                                                                    
     will  impact   the  timeliness  and  quality   of  mail                                                                    
     delivery   to   their    communities.      Their   very                                                                    
     understandable anxiety  over delays in receipt  of mail                                                                    
     and  increases  in  damaged goods  caused  by  the  new                                                                    
     overland segment  and additional  handling of  the mail                                                                    
     should be carefully considered.                                                                                            
                                                                                                                                
     Alaska Airlines, therefore,  hopes that the Legislature                                                                    
     will  encourage  the  Postal  Service  to  indefinitely                                                                    
     postpone  implementation  of  its  proposed  Fairbanks-                                                                    
     Barrow program until there  has been additional review,                                                                    
     with full participation by the  residents of Barrow and                                                                    
     the other affected communities,  of the entire range of                                                                    
     social and  economic costs the program  would impose in                                                                    
     addition to whatever savings the USPS might accrue.                                                                        
                                                                                                                                
     I thank the  co-chairs and the committee  for your time                                                                    
     and interest in this very important matter.                                                                                
                                                                                                                                
6:30:51 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS asked  if there will be a reduction  in seats for                                                               
passenger service between Fairbanks and Barrow.                                                                                 
                                                                                                                                
MR.  MACKAY responded  that it  remains to  be seen  because it's                                                               
difficult to determine  the necessary reaction until  there is an                                                               
implementation  date.    He  highlighted  that  Alaska  Airlines'                                                               
operation  is  a bit  complex  as  there is  aircraft  scheduling                                                               
challenges,  flight  and  ground  crew  rotations,  and  advanced                                                               
loading of computer schedules.   Furthermore, the $1.3 million in                                                               
savings predicted by  the USPS will be a loss  in revenue to some                                                               
entity.   How  much  of  that loss  will  be  incurred by  Alaska                                                               
Airlines remains to be seen, he remarked.                                                                                       
                                                                                                                                
6:32:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DAHLSTROM asked  if the USPS was  established as a                                                               
service  to the  people  of  this country  or  as a  money-making                                                               
organization.                                                                                                                   
                                                                                                                                
MR.  DEATON   related  his  understanding   that  the   USPS  was                                                               
established as a governmental entity to provide mail service.                                                                   
                                                                                                                                
REPRESENTATIVE  DAHLSTROM   asked  then  whether  the   USPS  has                                                               
received a  federal mandate to  now be charged with  making money                                                               
rather than an organization that provides a service.                                                                            
                                                                                                                                
MR.  DEATON pointed  out that  one of  the tenets  of the  Postal                                                               
Reorganization  Act of  1970 removed  the USPS  from the  Federal                                                               
Treasury  and  mandated  that  USPS act  as  a  business  entity.                                                               
Therefore, the  USPS no  longer receives  tax dollars.   Although                                                               
USPS  still  has  postal rate  commissions  and  oversights  that                                                               
regulate its fees, USPS is required  to operate as a business and                                                               
generate its own  revenue.  Since the early 1970s  the only funds                                                               
from the  Federal Treasury  have been  the $5,000-$10,000  a year                                                               
for free mailing for the blind.                                                                                                 
                                                                                                                                
6:35:37 PM                                                                                                                    
                                                                                                                                
MR. DEATON,  in response to  Representative Dahlstrom,  said that                                                               
the USPS losses money some years  and makes money some years.  He                                                               
related his understanding  that the USPS is looking at  a loss of                                                               
about  $1  billion.    In   further  response  to  Representative                                                               
Dahlstrom, he said  that he didn't know whether,  during years in                                                               
which the USPS makes money, it's invested.                                                                                      
                                                                                                                                
REPRESENTATIVE DAHLSTROM  asked if all federal  agencies mandated                                                               
to act as a business entity are required to make money.                                                                         
                                                                                                                                
MR.  DEATON related  that he  doesn't know  of any  other federal                                                               
agency that  does not receive  government tax dollars  other than                                                               
the USPS.                                                                                                                       
                                                                                                                                
6:37:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DAHLSTROM  surmised that it appears  as though the                                                               
original goal  of the USPS has  been changed and now  the effects                                                               
of that are being seen.                                                                                                         
                                                                                                                                
MR. DEATON informed the committee  that universal service doesn't                                                               
mean that everyone  receives mail service to their  town or house                                                               
because  there  are density  requirements.    Therefore, in  some                                                               
places people  must go to  a distribution sight to  receive mail.                                                               
The  case being  addressed  today  is a  situation  in which  the                                                               
communities  qualify for  mail  service of  a  specific type  and                                                               
service  standard.   The intention  is for  nothing to  change in                                                               
Barrow  as  the  community  will continue  to  receive  the  same                                                               
service standard  for the products  purchased as they did  in the                                                               
past.                                                                                                                           
                                                                                                                                
REPRESENTATIVE DAHLSTROM inquired as  to whom Mr. Deaton reports.                                                               
She  opined  that the  legislature  is  interested in  continuing                                                               
negotiations  so  that  the  best   deal  for  everyone  involved                                                               
results.     Therefore,  she   asked  if   Mr.  Deaton   has  the                                                               
understanding that this proposal is a done deal.                                                                                
                                                                                                                                
MR. DEATON responded  that the most current decision  was to move                                                               
to  the last  step of  the proposal,  which was  to request  that                                                               
interested carriers  submit schedules to  the USPS.   He reminded                                                               
the  committee  that  the USPS  doesn't  dictate  the  schedules,                                                               
flight patterns,  or fares  of carriers.   If  the carriers  as a                                                               
group  aren't interested  in participating  in  the Fairbanks  to                                                               
Barrow leg, then the proposal  cannot move forward and the status                                                               
quo would continue.                                                                                                             
                                                                                                                                
MR.  DEATON, in  response to  Representative Dahlstrom's  earlier                                                               
question,  explained   that  he   works  for  the   Western  Area                                                               
Distribution Networks, which is based  out of Seattle and Denver.                                                               
Mr. Deaton  further explained that  he is in a  two-person office                                                               
in Anchorage that the USPS  established because of the uniqueness                                                               
of Alaska.   He specified that  he reports to the  manager of the                                                               
Western  Area  Distribution  Networks  Office in  Denver.    This                                                               
project is being  jointly proposed and shepherded  by the Western                                                               
Area   Distribution   Office   and   Commercial   Air   in   USPS                                                               
headquarters.                                                                                                                   
                                                                                                                                
6:41:56 PM                                                                                                                    
                                                                                                                                
NATE OLEMAUN,  JR., Mayor, City  of Barrow, began by  relating to                                                               
the  committee that  his  family  has a  long  history with  mail                                                               
service.  In fact, his grandfather  Perry Inavenna was a dog team                                                               
mail  carrier from  Barrow to  Nome in  the 1900s.   Furthermore,                                                               
Mayor Olemaun's dad  was a telegram and Morse  code operator with                                                               
the Army Signal  Corp. before there was regular  delivery of mail                                                               
to  Barrow.   Mayor Olemaun  then recalled  the August  24, 2005,                                                               
public meeting in  Barrow that was attended  by approximately 150                                                               
residents and  was broadcast  over the local  radio station.   He                                                               
then  provided the  committee with  some of  the statements  that                                                               
arose at  that meeting.   Mayor  Olemaun opined  that no  one has                                                               
taken the time  to investigate the nature or  management of these                                                               
impacts.     This  proposal,  he  further   opined,  will  return                                                               
residents  back to  the  1960s in  terms  of air  transportation.                                                               
Without  bypass mail  [traveling by  air], the  current passenger                                                               
air  service will  be severely  reduced.   He predicted  that the                                                               
current 15  flights per week  would be  reduced to 4  flights per                                                               
week.   Moreover,  either passenger  fees will  skyrocket or  air                                                               
carriers will  serve the market  with much smaller planes.   This                                                               
while a  new airport  runway is being  built to  accommodate more                                                               
air service to Barrow.                                                                                                          
                                                                                                                                
MAYOR OLEMAUN expressed  concern with regard to  the reduction of                                                               
USPS service because it will  significantly delay the delivery of                                                               
perishable  goods  and  thus cause  more  spoilage.    Therefore,                                                               
retail costs  in the communities  will increase.   Moreover, even                                                               
with bypass  mail, [Barrow] is  running out of stock  for whaling                                                               
crews  preparing for  the  hunt.   Without  enough supplies,  the                                                               
whaling  crews will  return to  the 1950s  when whalers  lived on                                                               
what they caught while camping on  the ice.  In conclusion, Mayor                                                               
Olemaun related  his support  for the  committee's letter  to the                                                               
Postmaster General regarding the Rural Service Improvement Act.                                                                 
                                                                                                                                
6:47:18 PM                                                                                                                    
                                                                                                                                
REX   WILHELM,   President/Chief    Operating   Officer,   Alaska                                                               
Commercial Company  (AC), paraphrased from the  following written                                                               
statement [original punctuation provided]:                                                                                      
                                                                                                                                
     Mr.  Chairman  and Committee  Members  my  name is  Rex                                                                    
     Wilhelm  and  I am  the  President  and CEO  of  Alaska                                                                    
     Commercial  Company.  ACC  is the  largest retailer  of                                                                    
     food,  apparel,   and  general  merchandise   in  rural                                                                    
     Alaskan  communities.  We  have 28  stores in  26 rural                                                                    
     Alaskan  communities  and  as   of  May  1  through  an                                                                    
     acquisition on Prince of Wales  Island, we will have 32                                                                    
     stores  in 29  rural Alaskan  communities.  I  am a  25                                                                    
     year  Alaskan and  from  1986 through  1990  I had  the                                                                    
     pleasure of managing the AC  store in Barrow so; I have                                                                    
     first hand knowledge of the community.                                                                                     
                                                                                                                                
     As a  retailer looking  to ship  more than  5.5 million                                                                    
     pounds  of  bypass  to  Barrow this  year,  I  am  very                                                                    
     concerned that  this change will negatively  impact our                                                                    
     store, Barrow, and the surrounding communities.                                                                            
                                                                                                                                
     The Haul Road  from north of Fairbanks  to Deadhorse is                                                                    
     very  rough and  will inevitably  lead to  more damaged                                                                    
     mail, which  for AC  is mostly  food.  The  mail trucks                                                                    
     will  encounter extreme  temperatures  and winds,  road                                                                    
     problems including  closures, all  of which  will cause                                                                    
     delays and  possibly more  damaged freight.   Also, the                                                                    
     unloading and  loading in Deadhorse will  result in the                                                                    
     mail  being  handled  two more  times  with  the  added                                                                    
     potential for even more damage.                                                                                            
                                                                                                                                
     Since  there are  no claims  allowed with  bypass mail,                                                                    
     our store  would have  to absorb  the lost  product and                                                                    
     shipping  costs, which  in turn  would be  reflected in                                                                    
     higher local retails.                                                                                                      
                                                                                                                                
      Another issue of concern is the added transit time.                                                                       
     Under  the  present  situation,  our  bypass  generally                                                                    
     arrives in Barrow within 3  days of mailing.  Under the                                                                    
     proposed change,  it would take  a minimum of  4-5 days                                                                    
     for the mail  to reach Barrow.  Those  extra days would                                                                    
     decrease  the life  expectancy and  quality of  produce                                                                    
     and dated products such as dairy.                                                                                          
                                                                                                                                
     Additionally, the  post office  does not  require hubs,                                                                    
        such as Deadhorse, to have coolers and freezers.                                                                        
     Under  the   new  scenario,   once  the   mail  reaches                                                                    
     Deadhorse and  is transferred to  the air  carrier, the                                                                    
     post  office will  allow the  air carrier  two days  to                                                                    
     move  the   mail  from  Deadhorse  to   Barrow.   I  am                                                                    
     concerned that  our freeze and chill  products could be                                                                    
     potentially  stored  in  unrefrigerated  storage  space                                                                    
     during those two days.                                                                                                     
                                                                                                                                
     Lastly, another concern is  the inevitable reduction of                                                                    
     scheduled service to Barrow by  large aircraft for both                                                                    
     passengers  and cargo.   I assume  a reduction  of 10.2                                                                    
     million pounds  to the three  carriers has  to decrease                                                                    
     their ability  to keep  their current  service schedule                                                                    
     and  both  passengers and  cargo  will  then move  less                                                                    
     frequently into and out of Barrow.                                                                                         
                                                                                                                                
     Alaska Commercial  Company is  the largest  retailer in                                                                    
     Rural  Alaska  and we  work  hard  to keep  our  prices                                                                    
     down.  I  am seriously  concerned this  proposed change                                                                    
     would  result in  lower product  quality and  increased                                                                    
     damage  and  loss of  products  all  of which  will  be                                                                    
     reflected in  higher retails to our  customers.  I feel                                                                    
     this  change would  be a  disservice to  the people  of                                                                    
     Barrow and the surrounding communities.                                                                                    
                                                                                                                                
6:50:22 PM                                                                                                                    
                                                                                                                                
CO-CHAIR RAMRAS inquired as to who wins under this proposal.                                                                    
                                                                                                                                
MR.   WILHELM  said   that  he   didn't   believe  anyone   wins.                                                               
Ultimately, the large losers are  the consumers in Barrow and the                                                               
surrounding  villages.    These  individuals have  the  right  to                                                               
expect the same  lifestyle that other Americans  enjoy, which was                                                               
why  the  bypass mail  service  was  created.   He  echoed  Mayor                                                               
Olemaun's testimony  regarding the concern that  Barrow will slip                                                               
significantly  backwards.   Although Mr.  Wilhelm said  he wasn't                                                               
sure of the results of such  a change, in his experience a change                                                               
of this magnitude is of great concern.                                                                                          
                                                                                                                                
6:51:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REGGIE  JOULE, Alaska State  Legislature, surmised                                                               
that while this may  be the first step in the  loss of service to                                                               
one part  of rural Alaska,  is the  main store concerned  that it                                                               
could become a trend.                                                                                                           
                                                                                                                                
MR. WILHELM,  recalling his  experience as  a grocery  manager in                                                               
Barrow in the  early 1980s, said the bypass mail  system was more                                                               
effective than today.   He expressed concern that  if this change                                                               
happens  in Barrow,  there will  be changes  in other  areas that                                                               
rely  heavily on  the  bypass mail  system to  keep  the cost  of                                                               
living [reasonable].                                                                                                            
                                                                                                                                
6:55:14 PM                                                                                                                    
                                                                                                                                
LINDA WENNING,  Finance Director, City  of Barrow, said  that she                                                               
attended the August 24, 2005,  meeting at which only 4,100 people                                                               
were allowed only  two hours to present.   The presenters claimed                                                               
that the meeting had to end  [by a certain time] because they had                                                               
to  fly out  that night.   However,  the presenters  didn't leave                                                               
until  the next  morning.   Ms.  Wenning characterized  it as  an                                                               
adversarial  situation.   Furthermore, the  USPS doesn't  seem to                                                               
understand the current level of  service that Barrow enjoys.  The                                                               
proposed  changes along  with the  increase in  fuel prices  will                                                               
negatively  impact Barrow's  air  passenger  service, which  will                                                               
impact  tourism.    Moreover,  medical care  access  is  also  of                                                               
concern [under the  new proposal].  Ms. Wenning  pointed out that                                                               
the weather will need to be  good in three locations:  Fairbanks,                                                               
Deadhorse,  and Barrow,  in order  to  fly.   She predicted  that                                                               
there will be  more canceled flights, which will  result in worse                                                               
mail  service.    She  then  questioned why  there  is  only  one                                                               
trucking firm and three airlines involved in this.                                                                              
                                                                                                                                
6:56:40 PM                                                                                                                    
                                                                                                                                
SUSAN HOPE  provided her understanding  of how bypass  mail would                                                               
move  out of  Seattle  to  Anchorage, then  to  Fairbanks and  be                                                               
driven up  the Haul Road to  Prudhoe Bay where it's  placed on an                                                               
air  carrier destined  for  Barrow  and then  on  to  one of  the                                                               
outlying villages.   With the  ability for each location  to have                                                               
about two  days to  move the  mail, she  questioned how  the mail                                                               
could  arrive in  just  seven days.   She  said  that it  doesn't                                                               
include  the  19 hours  of  driving  time between  Fairbanks  and                                                               
Barrow.   Ms. Wenning then  turned to the storage  facilities and                                                               
the  concern that  already there  have been  situations in  which                                                               
food  hasn't  been  stored  properly  and has  been  lost.    For                                                               
example,  when  only  one  carrier was  going  to  Kaktovik,  the                                                               
carrier couldn't  store all of a  meat order and thus  the school                                                               
district  lost $10,000-$14,000  worth  of meat.   Therefore,  she                                                               
inquired as to  how [USPS] will regulate what moves  or how it is                                                               
prioritized.  For instance, if Barrow  has all of its [food being                                                               
sent] bypass  on an air  carrier, she questioned what  happens to                                                               
the food for  Fort Wainwright.  It seems that  there would be the                                                               
possibility  for  inconsistency.    She  expressed  concern  that                                                               
Barrow will inundate  the carriers with so much  freight that the                                                               
smaller  carriers won't  be  able  to serve  the  villages.   She                                                               
informed  the  committee  that it's  even  difficult  to  charter                                                               
planes not  to mention  the weather  delays, which  she indicated                                                               
impact the  smaller carriers more  so than the larger  air lines.                                                               
Ms. Wenning  related that her  biggest concern is that  if things                                                               
do return  to the old ways,  not everyone will be  able to afford                                                               
to follow the old ways.                                                                                                         
                                                                                                                                
7:02:36 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  RAMRAS explained  how the  follow up  to this  issue is                                                               
going to be handled.                                                                                                            
                                                                                                                                
7:03:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LYNN  asked if the  legislature has  contacted the                                                               
Alaska congressional delegation regarding this matter.                                                                          
                                                                                                                                
CO-CHAIR  RAMRAS replied  yes.   He said  that the  congressional                                                               
delegation is  aware of the concerns  and the USPS is  awaiting a                                                               
response from them.   By and large,  the congressional delegation                                                               
seems to maintain neutrality on the matter.                                                                                     
                                                                                                                                
7:04:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LYNN  commented  that   he  would  hope  Alaska's                                                               
congressional delegation  wouldn't remain  neutral as it  and the                                                               
USPS are federal entities.                                                                                                      
                                                                                                                                
CO-CHAIR  RAMRAS reminded  members  that US  Senator Ted  Stevens                                                               
authored the Rural  Service Act and that his stance  is in regard                                                               
to the legislature addressing the bypass mail issue.                                                                            
                                                                                                                                
7:05:07 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  NEUMAN noted  that the  social impacts  have been  well                                                               
stated,  but  the  fiscal  impacts have  not  been  addressed  as                                                               
thoroughly.  However,  in reviewing the backup  material the City                                                               
of  Barrow  estimates  that  the  USPS will  lose  a  minimum  of                                                               
$400,000 a year.   While in Fairbanks there will  be an estimated                                                               
loss of  $240,000 in landing fees.   Alaska Airlines will  have a                                                               
loss of  approximately $2 million,  of which he queried  how much                                                               
would  be  shifted  to  passenger   traffic.    Furthermore,  the                                                               
Fairbanks North Star Borough estimates  a loss of visitors to the                                                               
Top of the World day trips in  the amount of $260,000 in pure and                                                               
direct spending  and an additional  $80,000 in  indirect spending                                                               
for  a  total of  $340,000  in  lost  revenue.   Co-Chair  Neuman                                                               
commented  that  the USPS  does  a  good  job, but  he  expressed                                                               
concern  that the  actual costs  are being  transferred to  these                                                               
communities.                                                                                                                    
                                                                                                                                
7:07:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOULE  inquired as  to the  vehicle infrastructure                                                               
required  to  move   5.5  million  pounds  of   freight  a  year.                                                               
Furthermore, he inquired  as to what type of  schedule would have                                                               
to  be kept  to meet  such  demand.   Highlighting the  increased                                                               
traffic, he inquired as to who  pays for the road maintenance and                                                               
improvements and  questioned whether  those costs  would outweigh                                                               
the proposed savings.                                                                                                           
                                                                                                                                
7:10:09 PM                                                                                                                    
                                                                                                                                
JOHN GLEASON,  Manager, Wells Fargo  Bank - Barrow,  informed the                                                               
committee  that currently  Wells  Fargo Bank  has  the luxury  of                                                               
working on  the same day banking  system and thus the  proof work                                                               
is processed and delivered to  Anchorage to the processing center                                                               
the same day via Alaska Airlines  Gold Streak.  Any change in the                                                               
airlines schedule  could drastically  impact customers  in Barrow                                                               
and how quickly their funds are  credited to their account.  [The                                                               
teleconference link was lost.]                                                                                                  
                                                                                                                                
The committee took an at-ease from 7:10:44 PM to 7:11:52 PM.                                                                
                                                                                                                                
7:11:55 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  RAMRAS  related  that  it  seems  there  are  technical                                                               
difficulties in Barrow.  He  then informed the committee that the                                                               
information obtained  today will be  processed and a  letter will                                                               
be authored and sent to USPS for response.                                                                                      
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Special Committee on Economic Development, International Trade                                                                  
and Tourism meeting was adjourned at 7:12 p.m.                                                                                  

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