oversight

Planning a New Postal Facility in Charlotte Amalie, St. Thomas, Virgin Islands, U.S. Postal Service

Published by the Government Accountability Office on 1971-08-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                           LM089263




  Planning A New Postal Facility
  In Charlotte Amalie
  St. Thomas, Virgin islands
  U.S. Postal Service 8.171594




  BYTHE COMPTROLLER GENERAL
  OFTHEUNITED STATES
                                COMPTROIJ.ER     GENERAL     OF      THE   UNITED   STATES
                                               WASHINGTON.    D.C.     20548




             B-171594
.
           Cl. Dear Mr.   Chairman:

                 Your letter       of January 22, 1971, requested                that we ex-
          amine into and report          to you on (1) the manner in which the
          Post Office        Department,   hereafter       referred     to as the Postal          r--1
        1 Service,     selected     the sites for the postal            facilities     in Char-
       / lotte     Amalie,      St. Thomas, Virgin       Isla'~d~~'"and       in Jersey City,
          New Jersey,        and (2) the total      anticipated       cost for these
          postal    facilities.

                   This report    deals only with the results       of our review of
             the Virgin   Islands   facility.      In accordance with our agree-
             ment with you, a copy of our report          to another Congressman on
             the Jersey City facility         will be forwarded   to you upon issu-
             ance.

                     We examined records and interviewed            officials    at the head-
             quarters     offices      of the Postal Service,     the General Services
             Administration         (GSA), and the Department of the Interior            and
             at their     field     offices    in New York, Puerto Rico and the Virgin
             Islands.       We interviewed       also current   and former officials       of
             the Virgin       Islands     Government.    We also visited      the St. Thomas
             site leased by the Postal Service for a proposed postal                   fa-
             cility    and other sites which, we believe,            might be used as al-
             ternatives.

                     In 1965 the Postal Service and GSA agreed that postal
             space would be provided         in a Federal office       building  to-be
             constructed      in Charlotte    Amalie,      St. Thomas.    Because GSA was
             having difficulty      in obtaining       the required    funds for the con-
             struction    of the Federal office          building   and because of the
.
             urgent need, according        to the Postal Service,         for a postal fa-
             cility    in St. Thomas, in 1970 the Postal Service withdrew
             most of its requirements          for space in the Federal office
             building.     The Postal Service then leased land as the site
             for a new, leased post office            building.

                     As of April    1971 GSA had spent about $88,000 for design,
    c./%     soil testing,       and legal fees on the Federal office   building
             project.     Most of these costs will     not benefit  the Government



                                          50 TH ANNIVERSARY                1921-    1971
    .



        B-171594



.       because the change in the Postal             Service's   space requirements
        necessitates a complete redesign             of the building.

                It appears to us that the Postal Service,              in its desire
        to expedite     construction      of a postal   facility     in Charlotte
        Amalie,    did not adequately       consider   whether a less costly
        site could have been acquired.             In addition,    because of its
        design,    the facility      proposed for construction         and lease by
        the Postal Service may result           in a higher-than-normal        con-
        struction     cost per square foot and in higher rentals.

                In March 1971 we discussed       with the Assistant         Postmaster
        General for Facilities       the available      alternative      sites that
        came to our attention       during a visit      to the Virgin       Islands.
        He subsequently     informed us that plans for the leased post of-
        fice building     were being held in abeyance pending the results
        of a study of the Postal Services'           construction      program.         We
        believe     that, because the Postal Service has not awarded con-
        tracts    for the construction       of a leased post office          building,
        it should explore      the alternatives      discussed      in this report.

              Detailed    comments on these         matters   follow.

        INTRODUCTION
              The United States Virgin          Islands   consist principally         of
        the islands   of St. John, St.         Croix,   and St. Thomas.

               According      to the U.S. Bureau of the Census, the popula-
        tion of the Virgin         Islands     as of April    1, 1960, the date of
        the last published         census, was 32,099--consisting          of 16,201
        on St. Thomas, 14,973 on St. Croix,                and 925 on St. John.
        More recent figures          published    by the Virgin    Islands    Bureau
    .   of Vital    Statistics       showed that the population         of the Virgin
        Islands    had increased,         as of December 31, 1969, to about
        74,000--consisting         of about 37,000 on St. Thomas, 35,000 on
        St. Croix,      and 2,000 on St. John.          St. Thomas is not very
        large --about      13 miles long and 3 miles wide.


                                                2
B-171594


        The postal    activities      in Charlotte     Amalie,    the capital
of the Virgin      Islands,       are housed in three buildings          (1) the
main post office        and customhouse,       constructed      in 1938, con-
taining    13,000 square feet of space, of which the post office
occupies 7,600 square feet and four other agencies occupy the
remaining     5,400 square feet,         (2) the Kronprindsens        Gade Postal
Station,    containing        3,500 square feet,      and (3) the Veterans
Drive postal      annex building,       containing     4,500 square feet.
The main post office           and the station     are located      downtown
within    about 2 blocks of each other,            and the annex is located
less than a mile from the main post office.                    (See app. I.)

       According to the postmaster at Charlotte Amalie,                         the vol-
ume of mail handled in St. Thomas during fiscal   year                         1970 was
as follows:

                                  Flats,  magazines            Parcel
                   Letters            and papers                post           Total

Incoming         22,806,200             6,333,500              527,200      29,666,900
Outgoing         32,892,OOO             3,856,700              216,100      36,964,800

        Preferential          mail,    such as letters,       usually      arrives       in
St. Thomas by air, and other mail (bulk) usually                           arrives      by
barge via Puerto Rico.                 Preferential      mail arrives       daily      and
is transported          to the main post office            for processing           and de-
livery     to patrons.            Bulk mail arrives       at St. Thomas about
twice a week and amounts to no more than about three truck
trailer      loads of mail.            The bulk mail is transported               to-the
Veterans       Drive postal          annex for sorting       and transporting            to
other postal         facilities        located      on the Virgin     Islands       or for
delivery       to addressees on St. Thomas. The postal                      employee
complement totaled              76 persons for fiscal         year 1970.

PROPOSEDFEDERAL OFFICE BUILDING

        A GSA prospectus, dated August 1, 1966, proposing    con-
struction    of a Federal office building in Charlotte    Amalie
was approved on September 20, 1966, and October 6, 1966, by

                                             3
B-171594


                                                                                         3r:, 1
the House and Senate Public Works Committees,      respectively.   >
The prospectus  provided   that the building contain    68,000 as-
signable  square feet,   of which the Postal Service would oc-
cupy 23,000 square feet and other Federal agencies would
occupy the remainder.

        The original      estimated       total     cost of the building      proj-
ect was $3,965,000,           consisting        of $371,000 for design,       engi-
neering,    and    supervision        services      and  $3,594,000  for    con-
struction    and equipment.            A site of 77,500 square feet,
located    about a half mile from the main post office,                     was ac-
quired for the proposed building                  from the Virgin     Islands    Gov-
ernment in September 1966, in exchange for a credit                        of $387,700
to be applied        against    a mortgage owed to the United States by
the Virgin      Islands      Government on property           known as the Sub
Base which had been acquired                from the U.S. Government.

     Funds in the amount of $265,000 for the acquisition     of
the site and for the design of the building   were made avail-
able in GSA's fiscal year 1968 appropriation.

        In June      1968 GSA awarded an architect-engineer        (A-E)
contract      for    $17,600 to the firm of H. D. Nottingham        4 Asso-
ciates,     Inc.,     and Reed, Torres,    Beauchamp, Marvel for the
preparation         of concept sketches and diagrammatic       drawings.
Options were         available   to GSA for additional    drawings and
postcontract         award services,    if needed, at a cost of $129,400.

         In June 1969 the Assistant           Postmaster     General for Facili-
ties requested        GSA to provide       information      on the current    sta-
tus and estimated          completion     date of the construction         of the
Federal office        building     at Charlotte      Amalie.     On August 4,
1969, GSA stated that the design had been scheduled for com-
pletion     in November 1970.         GSA stated also that budgetary            re-
strictions      precluded      the inclusion       of the building    in its
construction       program before fiscal          year 1972 and that.GSA
planned to award a contract             in October 1971 for the construc-
tion of the building           having an estimated        completion    date of
May 1973, if funds were available                for that purpose.

                                          4
    B-171594



             On September 4, 1969, the Assistant              Postmaster   General
    for Facilities         in a letter    to the Administrator         of General
    Services urged him to consider              including     funds for the con-
    struction      of the Federal office          building    in GSA's 1971 appro-
    priation     request      to the Congress.         On October 22, 1969, the
    Administrator        replied    that,   because of the severe fiscal           con-
    straints      imposed on GSA's construction            program,    the project
    had to be deferred.            He said that,       as a result   of the budget-
    ary cutbacks,        the earliest     that GSA could expect to obtain
    construction       funds from the Congress would be in its fiscal
    year 1972 appropriation.

              On March 2, 1970, the Assistant         Postmaster  General for
    Facilities       visited   Charlotte Amalie,      St. Thomas. On this
    trip he discussed with postal         officials      and with the owner
    of land in an area known as Estate Thomas, located               about
    l-1/5      miles from the present    downtown main post office,        the
    possibility        of using some of the land as a site for a postal
    facility.        This site was eventually       leased by the Postal Ser-
    vice.       (See p. 7.)

            The New York Postal Region completed a survey of postal
    space needs in St. Thomas on March 27, 1970.                 This survey
    showed that postal     space needs had increased           from 40 percent
    to 60 percent over those originally            anticipated     in the pro-
    posed Federal office      building.        The New York Office      recom-
    mended that a firm option be obtained             on about 3 acres of the
    privately    owned site in the Estate Thomas area because the
    new space requirements       for a postal      facility    at Charlotte
    Amalie were greater     than the space that could be provided              by
    the proposed Federal office         building.

             On April    22, 1970, the Assistant          Postmaster    General for
    Facilities       met with the GSA Commissioner of Public Building
    Service,     and an agreement was reached that,               because the Fed-
    eral office       building     had a relatively       low GSA priority     and
.   because postal         space needs in Charlotte          Amalie had increased,
    the Postal Service          should proceed to obtain          its own postal    fa-
    cility.      Therefore      the Assistant       Postmaster    General directed
    the New York Postal Region, on that date, to develop plans

                                             5
    B-171594



    using 3.4 acres of the Estate           Thomas land     for   a new leased
    facility for Charlotte Amalie.

            On May 15, 1970, the Postmaster   General             advised the Ad-
    ministrator     of General Services of his plans,              based on the
    prior    agreement,  as follows:

          "Charlotte     Amalie - Inasmuch as this project                [Fed-
          eral Office      Building]      also has low priority          on your
          construction      schedule,       and our space requirements
          have increased        considerably     since the approval         of
          the prospectus , your site is inadequate                 to accomo-
          date the total        space needs.       We therefore      plan to
          proceed with this construction              of a new leased postal
          facility,     but will     retain    a station    either     in the
          existing     or new Federal building           to be constructed
          by GSA."

          As a result     of various    delays,  involving    consideration
    of potential   flooding     of the site and revisions        to the dia-
    grammatic drawings,       GSA did not approve the A-E tentative
    drawings until    August 1970.       A GSA official    informed     us that,
    in August 1970, GSA also had suspended further              work on the
    design of the building        because of the Postal Service's           re-
    duced requirements      for space in the Federal office          building.

    Effects    of Postal    Service   withdrawal

            As of April     1971 GSA had spent $88,000 for design,.soil
    testing,    and legal fees on the Federal office        building    proj-
    ect.     By letter     dated April   21, 1971, GSA authorized    its Of-
    fice of Construction          Management to proceed with the design of
.   the Federal office         building  on the basis of the reduced space
    requirements       for the Postal Service.
          Originally    the Postal Service required           about 23,000.
    square feet in the facility.            Currently     GSA will  provide
    6,840 square feet for postal use.              According    to a GSA offi-
    cial,  a new contract        will  be negotiated      for the design of the
    Federal office     building,      because the change in space require-
    ments necessitates        a complete redesign       of the building.

                                            6
B-171594



      Therefore it appears that about            $78,000 spent      by GSA to
August 1970 for design of the building             was of little      or no
value to the Government.

ACQUISITION OF SITE
FOR LEASED POSTAL FACILITY

       At the direction       of the New York Postal Regional       Office,
the regional      real estate officer     in Puerto Rico visited       the
Virgin   Islands       on May 7, 1970, to negotiate      an option  to pur-
chase the 3.4 acres of the Estate Thomas land as a site for
the postal     facility,     but the owner refused     to sell the prop-
erty.    The owner proposed a ground-lease          arrangement    at a min-
imum price of $35,000 a year.

       The regional     real estate officer         obtained      two appraisals
on the privately       owned site.      The first      appraisal,     dated Sep-
tember 4, 1970, estimated          the value of the 3.4 acres of land
to be $592,590 and the fair rental            of the land at $59,259 a
year.     The records showed that the New York Postal Regional
Office    had rejected     the appraisal    because it contained           defi-
ciencies.     Subsequently     the regional       real estate officer         ob-
tained another appraisal;          this appraisal,        dated October 8,
1970, estimated      the value of the site to be $440,850 and the
fair   rental   value of the land at $39,675 a year.

        On August 31, 1970, the regional           real estate officer   es-
timated      that the total     annual rental    for a leased postal   fa-
cility     constructed     on the leased site would be $155,570,
consisting       of $35,000 for the land and $120,570 for the build-
ing 9   including     maintenance    and insurance.

       On November 13, 1970, an assignable    ground lease was
executed by the owner and the Postal Service.         The assign-
able ground lease, which will    be assigned to a contractor       for
the construction   of a leased facility,    has a basic 20-year
term with five 5-year renewal options      and provides   for rental
of $35,000 a year.


                                        7
    B-171594


          The lease provides    also that construction       of a facility
    begin before 30 months elapse from the date of the lease and
    that,  during this period,     the Government may terminate         the
    lease upon 30 days' written       notice   to the owner.     Also, during
    this period and until    the building      has been accepted,     the
    Postal Service must pay a rental         of $500 a month, or $6,000 a
    year.   The rental  of $35,000 a year for the basic term of 20
    years is to begin on the date that the building            is accepted
    by the Postal Service.

            On the basis of our examination          of the Postal Service and
    its regional      office      files and of interviews         with postal      and
    other cognizant        officials,     we were unable to determine            conclu-
    sively    how the site came to the attention             of the Postal Ser-
    vice.     Various     Postal Service officials        told us that no other
    suitable     sites were available         on St. Thomas.         During our visit,
    however, we noted several           federally   owned sites of sufficient
    size to accommodate the proposed postal               facility.        Details     on
    these sites are discussed           on page 11.

    CURRENT STATUS

           On October 7, 1970, the New York Regional    Office     completed
    the preliminary     design of the proposed leased postal     facility,
    containing    35,000 square feet of space, and submitted       the de-
    sign to the Virgin      Islands Planning Board for approval.

          On October 22, 1970, the planning     board approved a change
    in the zoning for the proposed site for use as a post office.
    The board stated,  however,   that the structure   proposed by the
    Postal Service was unacceptable.      The board's  minutes did-not
    state the reasons for the structure     being unacceptable.     (See
    app. II.)

           According    to the postal        regional   real estate officer,        the
.   planning    board indicated         that the building     should conform to
    other Danish-style         buildings     on the Island.      The New York
    Postal Regional       Office      changed the design of the building          to
    incorporate      a Danish facade for its front           elevation,    a peaked
    shingled    roof,   arches, and other Danish architectural              features.
    However, our discussion            with the planning     board director     and
    the minutes furnished           to us of the planning       board meetings
    did not confirm this requirement.

                                             8
    B-171594



.           The new design was completed by the New York Regional
    Office    in December 1970 and was transmitted                 to the planning
    board on January 9, 1971.                The board approved the design in
    May 1971.         As of June 5, 1971, the Postal Service had not ad-
    vertised     for contracts         for the construction        of the proposed
    leased facility           due to its recent reorganization.            According
    to a postal        official,     when construction        of the new leased
    postal    facility        is completed,        the Postal Service plans to
    abandon the Kronprindsens              Gade Postal Station       and to retain
    the other existing           postal    facilities.

    AVAILABLE ALTERNATIVES
    TO EXISTING ARRANGEMENT

            We believe     that the Postal Service entered         into a costly
    ground lease for a site for the proposed postal                facility       with-
    out giving      adequate consideration        to other available        alterna-
    tives.      The rental     of the ground lease of 3.4 acres of land
    will    amount to $700,000 over the basic term of the ZO-year
    lease.      Moreover the estimated       rental   for the leased facility,
    including     the land, will      be about $3.1 million      for the 20
    years.      In addition,     the rental    payments will    be considerably
    higher    if the facility       is leased beyond the basic 20-year
    term.

           We believe     that   the following       less costly     alternatives
    were, and still       are,   available     for   consideration       by the Postal
    Service.

    Purchase    leased    site

            The Postal Service has the delegated              authority    from GSA
    to construct       post offices.        On July 1, 1971, pursuant         to pro-
    visions    of the Postal Reorganization            Act, the new Postal Ser-
    vice acquired        construction      and funding    authority     to build
    needed facilities.             On the basis of the Postal Service's          cur-
    rent and projected           increased   mail volumes and space require-
    ments in St. Thomas, there seems to be a long--range                   need for
    a new postal       facility.

                                              9
    B-171594



.         Therefore  we believe   that,  if the site currently    under
    ground lease is in fact the ideal location,       the Postal Ser-
    vice could condemn the site for postal use, purchase the land,
.   and construct   a Government-owned     building.  The Postal Service,
    upon 30 days' notice,     has the option of withdrawing    from the
    ground lease at any time within      the initial  30-month period.
    (See p. 7.)

           The Postal Service did not make an analysis   to determine
    whether it was more advantageous     to buy or lease the land.
    According   to a recent appraisal  accepted by the Postal Service,
    the estimated    value of the 3.4 acres is about $130,000 an acre.

           Our comparison     between   the cost of Government ownership
    of the land and the       cost of   leasing   the land, using three
    discount   rates and     assuming   that the residual      value of the
    land after    20 years    did not   increase.    is as follows:

                                            20-year   period
                                            present   value
                                          Lease       Ownershin     Difference
    At 7-percent discount    rate:
        Lease payments                  $370,790      $      -
        Land cost (estimated)                           440,000
        Residual value (cost)                         -113,704

               Total                    $370,790      $326.296       $44.494

    At S-percent discount    rate:
        Lease payments                  $343,635      $        -
        Land cost (estimated)                             440,000
        Residual value (cost)                             -94,401

               Total                    $343.635      $345,599       $4.964
    At g-percent discount    rate:
        Lease payments                  $319,508      $     -
        Land cost (estimated)                          440,000
        Residual value (cost)                          -78.499

               Total                    $319.508      $361,501      -$41.993

                                          10
B-171594



       The table shows that,    at a 'I-percent    discount    rate,   it
is more economical   for the Government to own, rather             than to
lease,   the land and that,   at a discount     rate approaching       8 per-
cent, a break-even   point is reached.        These   computations     do  not
make any allowance   for future    increases    in land values.

          The annual increase      in land values on St. Thomas from
July 12, 1965, to July 20, 1970, has been estimated                by the
Postal Service        to be about 20 percent,       on the basis of opinions
of real estate operators           and appraisers    on St. Thomas whose
estimates      ranged from 20 percent        to 40 percent,   depending   on
the desirability        of the land parcels.        According  to Virgin
Islands      Government officials,       land values are expected to
double within       the next 3 to 5 years.

        If the value of the land increases             at the rate that the
Virgin     Islands    Government officials        expect,   the 3.4 acres having.
an appraisal       value of $440,000 in 1970 would be worth about
$260,000 an acre, or a total           of $884,000,       at the end of 5 years.
In view of the anticipated          future     increases    in land values,     we
believe      that,  even at discount      rates higher      than 8 percent,     it
would be more economical         for the Government to purchase,            rather
than to lease,        the land.    This benefit,       however, would be re-
duced by any condemnation          costs incurred        by the Government.

Locate     facility   on Federal   property

      Information      obtained    from the Office     of Territories,       De-
partment    of the Interior,       indicates    that the Federal       Government
owns various      parcels    of land on St. Thomas which, we believe,
should be considered         for a postal    facility.

        The Virgin     Islands   Government has the use of most of this
land through revocable          permits    from the Department         of the In-
terior.     For example, one revocable               permit issued by the De-
partment    is for the use of 50 acres of land, located                  on a main
road about 1 mile from the business district,                    on which there is.
a dock where bulk mail          could be received.            For a map of avail-
able Federal lands see appendix              I.      Even though the Federal
Government has transferred           title      to considerable     amounts of land
to the Virgin      Islands     Government,        there still    remains a consider-
able amount of federally           owned acreage on St. Thomas.

                                        11
B-171594



        We were informed     by an official      of the Office of Terri-
tories,     that,    if for some reason the Federal        lands should be
undesirable       for postal  use,     the Department   of   the Interior
probably      could exchange land with the Virgin          Islands    Govern-
ment to obtain a suitable          site without    exchange of funds.

Virgin     Islands   Port   Authority    landfill

      The Port Authority       of the Virgin Islands            plans to initiate
a landfill    project    which seems, in our view,            to be in a suit-
able location      for the proposed postal   facility             on St. Thomas.

       On March 8, 1971, we discussed,                 with the executive     direc-
tor of the Virgin            Islands     Port Authority,     the authority's     func-
tions,    the property           under its control,       and the possibility
that some of its land could be acquired                    as a site for the pro-
posed postal       facility.          He told us that the port authority's
functions     included         the management of its land, the administra-
tion of long-term            leases of the land, landfill          projects,    and
the lease of the created               land.

        The executive    director      said that the port authority         would
shortly    start   a landfill     project    of about 43 acres in the Sub
Base area of St. Thomas and that the landfill                 probably   would
be ready so that construction             of buildings    could begin by the
middle of 1972.        He said also that the land would be located
less than a mile west of the present Veterans                 Drive postal
annex, would have docking facilities                that could be used to re-
ceive bulk mail, and would be close to the airport                   from which
                                                                           .
other mail was received          on St. Thomas.

        The executive   director     estimated  that the sales price for
each acre of the created         land would be about $60,000,        or about
$240,000 for the 4 acres needed by the Postal Service for its
proposed facility.        On the basis of the present      value,       at a
g-percent    discount   rate of the ZO-year ground lease, a cost
reduction    of $122,326 could be achieved         if this site were pur-
chased, rather      than leased,     for the proposed postal      facility.
At discount     rates lower than 9 percent,        the cost reduction
would be greater.



                                          12
B-171594



Design     of facility
      The design of the proposed postal         facility    provides      for
two wings, 80 feet long and 60 feet wide, to be placed in the
front  of the main structure    to form a U-shaped building            having
a covered arcade between the wings.         (See app. II.)          The re-
vised design provides    also for a Danish facade,          including       arches.
 (See app.'III.)   For comparison purposes,           see appendix    IV,
which shows the box or rectangle      design usually        used by the
Postal Service for this size postal       facility.

      According  to a      Postal Service official        in the Building
Design Division,   the      U-shaped building      and the Danish arches,
on the basis of the        Postal Service's     estimated    construction
costs, will probably        increase  construction      costs about $85,000.

CONCLUSION

        We believe     that the Postal Service did not consider                  avail-
able, less costly         alternatives        for the proposed postal         facility
 or determine      whether it would have been advantageous                  to procure
 a site and construct          the postal facility          for Government owner-
 ship before entering          into a costly        ground lease of land on which
 to have a leased facility             constructed.       In addition,     we believe
 that the facility        proposed by the Postal Service,               because of its
 design,   may result       in a higher-than-normal            cost per square foot,
which will      be passed on to the Postal Service                 in the form of
.higher rental      rates.


       We have not requested        the Postal Service to review or to
formally    comment on the information         in this report.    We plan
to make no further     distribution       of this report   unless copies
are specifically    requested,        and then we shall make distribution




                                         13
    B-171594



    only after your agreement has been obtained   or public   announce-
    ment has been made by you concerning  the contents   of the report.

                                    Sincerely   yours,




                                    Comptroller  General
                                    of the United States

    The Honorable   Kenneth J. Gray, Chairman
    Subcommittee   on Public
      Buildings   and Grounds
    Committee on Public Works       I 5:;. .:
    House of Representatives
i




                                    14
                                                  AWENDIX   IV



            POSEDSITE
             LOTTE AMALIE, V.I.
                     PLdN-@




                               I
          190’                     .25’       100’ MN

                                          t


   PROPOSED U.S.
    POST OFFICE

                           $2
APPROX.   36,000 SQ. FT.   -
                    APPENDIX   IV




DRiVEWAY        I
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