Report to the Congress--Comparison of Fund (B-145650, Sept. 30, 1963) Problem Our comparison showed that the total costs of leasing 91 small- and medium-size facilities for basic 10-year periods would be about $610,000 less than the total estimated costs under Government ownership. Under Government ownership, however, the Department would have title to land originally costing $745,000 and to buildings with remaining useful lives of 30 or 40 years which were estimated to cost about $4.5 million to construct. If the Department had exercised its renewal options for 5 or 10 years beyond the basic 10-year lease terms, the costs of leasing these facilities at the end of 15 and 20 years would have exceeded the costs of Government ownership by about $2.1 million and $4.9 million, respectively. Recommendation We recommended that the Department determine on an individual facility basis whether to acquire postal space by leasing or through Government ownership rather than follow a general policy of leasing. Agency response The Postmaster General disagreed with the specific amounts by which the costs of leasing would exceed, over certain periods of time, the costs of Government ownership. The Postmaster General also emphasized that the Government must have ample flexibility in facility commitments to keep pace with operational and transportation changes in regard to mail handling as well as with other local postal problems. The need for flexibility could be a factor in determining the method of acquiring a specific facility. However, our review showed that many of the facilities leased for 10year periods had been built in relatively stable communities where the need for any great degree of flexibility was not apparent. Report to the Committee on Public Works 2 This review was performed at the request of the Senate Committee on Public Works. The review disclosed, among other things, that the Department had not formally coordinated with GSA the planning and construction of four major facilities reviewed. We estimated that the cost of leasing the four major facilities for the initial periods of 30 years would exceed the Department's estimated costs of construction by about $62.2 million. Formal comments from the Department regarding our observations were not obtained as this report was directed to the Committee. Report to the Subcommittee on Treasury, Post Office, and Executive Office, Committee This report was issued in response to a request from the Chairman of the Subcommittee for information on the Department's method of acquiring small- and medium-size facilities. Our review of the Department's leasing programs disclosed that the Department generally leased small- and medium-size post office buildings without evaluating whether it would be more economical to construct the buildings. In our opinion, the Department should base its decision as to whether to construct or lease small- and medium-size facilities on comparisons of the costs that would be incurred under both alternatives. The Department stated that, although it was desirable to compare the cost of leasing post office buildings with the cost of constructing the buildings before reaching an investment decision, the requirement that such buildings be constructed to GSA's design and construction standards and the nonavailability of construction funds made it impracticable to do so. The Department stated also that the lessors' cost of constructing the leased buildings would be less than the Government's construction cost because of the requirement that the buildings be constructed to GSA's higher standards. As previously indicated, the Department--at the time of leasing the small- and medium-size post office buildings--had not made estimates of what the Government's cost of constructing the buildings in accordance with GSA's standards would have been. Therefore, data was not available that would have permitted a determination of whether it might have been economically advantageous for the Department to have constructed rather than lease the buildings. In this regard, however, Department officials told us that, if the Department was not required to construct postal facilities to GSA's design and construction standards, a decision as to whether to construct or lease a facility would be based on cost evaluations as suggested by us. Because the Postal Reorganization Act vests the Postal Service with broad real property acquisition authority it is now practicable for the Postal Service to make cost evaluations. We believe that decisions made on that basis would result in a better managed facility acquisition program. Whether postal facilities should be leased or constructed for Government ownership has been the subject of a long standing concern by the Congress and executive agencies. Essentially, the concern includes the methodology to be used in making the lease-purchase computations, anticipated years of use, and the availability of funds. As a general proposition, a building which will be utilized over 15 years can probably be more economically constructed for Government-ownership than leased. In our opinion, however, each project should be evaluated on an individual basis. LEASING SMALL AND MEDIUM SIZE FACILITIES The following observations on the administration of the Department's leasing program were carried out primarily during 1967 and were not included in formal GAO reports. In June 1971, postal officials informed us that essentially the same policies and procedures were still in effect. Use of long-term leases The Department's policy has been to lease small- and medium-size facilities for a basic term of 10 years with options to renew for an additional 20 years. Normally, the possible economies achievable through long-term leasing or Government ownership were not evaluated by the Department in considering how to meet its space requirements. The Department contended that 10-year leases provide a flexible building program which was necessary to meet changing workload requirements. In this regard postal procedures provide that: "'*** Because of the constant shift of population In determining space requirements, the Department usually planned for sufficient space to meet estimated requirements for 10 years. However, facilities could be constructed in accordance with 20-year space needs providing such needs did not exceed by more than 10 percent the estimated 10-year space requirements. Our tests of 112 facilities with 10-year leases contracted for in fiscal years 1966 and 1967 disclosed that 90 of the facilities (80 percent) were constructed to meet 20year space needs. Also, many of these facilities were located in communities which had experienced no significant population growth in prior years. Postal officials apparently did not consider Government ownership or a lease longer than 10 years on any of these facilities. Postal officials believe that it is difficult to project space requirements 20 years into the future, so 10-year basic-term leases with renewal options are preferred even on facilities constructed to meet 20-year requirements. Renewal options were frequently exercised to extend the basic periods of leases from 10 years to 20 years or more. For example, at two postal regions visited, 76 percent (179 out of 237) of the leases subject to renewal during fiscal years 1966 and 1967 were renewed. The average length of occupancy for the 179 facilities was about 18 years. Based on these observations GAO believes that the Department's claim that flexibility is essential does not justify its policy of relying largely on 10-year leases with |