oversight

U.S. Postal Service: Deficiencies Continue While Antelope Valley Project Status Remains Uncertain

Published by the Government Accountability Office on 1999-08-31.

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

                 United States General Accounting Office

GAO              Report to the Honorable William M.
                 Thomas, House of Representatives



August 1999
                 U.S. POSTAL
                 SERVICE
                 Deficiencies Continue
                 While Antelope Valley
                 Project Status
                 Remains Uncertain




GAO/GGD-99-147
United States General Accounting Office                                             General Government Division
Washington, D.C. 20548




                                    B-282078
                                    August 31, 1999

                                    The Honorable William M. Thomas
                                    House of Representatives

                                    Dear Mr. Thomas:

                                    This report responds to your December 1, 1998, request to evaluate the
                                    project approval process the Postal Service used in proposing to relocate
                                    postal operations for the Antelope Valley area from the Main Post Office
                                    (MPO) in Mojave, CA, to a new facility in Lancaster, CA. Your request
                                    stemmed from concerns over whether the Service appropriately acquired
                                    land in Lancaster and properly considered project costs. To address your
                                    concerns, we evaluated whether the Service followed its capital project
                                    approval process for the purchase of land in Lancaster. In addition,
                                    because of the incomplete status of the project, we identified the reasons
                                    for the project delays and the effects of those delays on postal operations,
                                    project costs, and affected communities.

                                    The Antelope Valley is composed of 16 communities in northern Los
                                    Angeles County and eastern Kern County. Mojave is located in the
                                    Antelope Valley approximately 100 miles north of downtown Los Angeles,
                                    and Lancaster is located 23 miles south of Mojave. In 1989, the Service
                                    began planning for a new facility to address operational processing and
                                    delivery deficiencies it had identified in the Antelope Valley area. The rapid
                                    growth in the population and resultant mail volumes in the Antelope Valley
                                    led to space deficiencies for mail processing operations at the Mojave
                                    MPO. The growth also led to space deficiencies for carrier operations in
                                    four of the five affected post offices.

                                    In October 1991, while the overall project was still under development and
                                    review, the Service acquired a 25-acre site in the city of Lancaster, CA, at a
                                    cost of $6.5 million using its advance site acquisition procedures. The
                                    proposed project was suspended in 1992, shortly after the site was
                                    acquired, reinstated in 1995 as a fiscal year 1998 new-construction project
                                    and suspended again in March 1999 during the headquarters review
                                    process. The project was recently reclassified from an area-funded project
                                    to a headquarters-funded project. The project is now waiting to be
                                    included in the next 5-year prioritization process for ranking and funding
                                    capital projects, and this process is anticipated to be completed by August




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                   2000. The total cost of the project, including land acquisition costs, is
                   currently estimated at about $35 million.

                   The Service followed most of its key requirements for acquiring a site in
Results in Brief   Lancaster in 1991 prior to obtaining approval for the proposed Antelope
                   Valley project, although some requirements were vague. One major
                   exception was that review and approval of the proposed project
                   justification and alternatives by the Headquarters Capital Investment
                   Committee (CIC) did not take place prior to the advance site acquisition in
                   Lancaster, as required by Service policies. Service guidance was unclear
                   because it required that alternatives be identified and analyzed before a
                   project could qualify for advance site acquisition, but it did not clearly
                   state the type or depth of analysis required. At the time of the Lancaster
                   site acquisition, the analysis to support the decision was incomplete. More
                   detailed analyses, such as the space requirements and cost estimates of
                   project alternatives, were still under development.

                   Moreover, we could not determine from available documentation why the
                   alternative to construct a new facility in Lancaster was preferred over
                   other alternatives that had been proposed or why various alternatives were
                   not considered viable. For example, it is not clear why an alternative that
                   was recently under consideration—the expansion of the existing Mojave
                   facility—was not considered a viable alternative before the site in
                   Lancaster was acquired. We could not determine whether additional
                   justification of this proposed project or more detailed analyses of the
                   alternatives would have been required if this project had been reviewed
                   and approved by the Headquarters CIC or whether more justification and
                   analysis would have affected the Service’s decision to purchase the
                   Lancaster site.

                   In addition, the Lancaster site purchased for $6.5 million in 1991 has
                   remained unused since that time due to the Service’s failure to decide how
                   and when it will resolve the long-standing problems that the proposed
                   Antelope Valley project was to address. In particular, continuing negative
                   effects have resulted from the incomplete status of the project for almost
                   10 years. Project approval and funding of the project remain uncertain due
                   to delays resulting from two suspensions, limits on capital spending, and
                   changes in project classification. Consequently, it is unclear how the
                   Service intends to address the space deficiencies that have contributed to
                   operational processing and delivery deficiencies in the Antelope Valley
                   area.




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               Because of continued space deficiencies, automated equipment was sitting
               unused in warehouses, some mail delivery was being delayed, and the
               projected operating efficiencies and savings have not been realized. In
               addition, the Service has invested $6.5 million in land that has been unused
               for nearly 8 years; such an investment has a substantial annual interest
               cost estimated at over $300,000. It has also incurred additional costs to
               update documents required for project approval and may incur more costs
               if some of these documents again have to be updated when the project is
               reviewed for approval. Finally, the Lancaster and Mojave communities
               have faced uncertainty over business development opportunities as a
               result of the project delays.

               While a determination of the most appropriate course of action was
               beyond the scope of our review, it remains unclear after nearly a decade
               how the Service intends to address the long-standing mail processing and
               service delivery deficiencies in the Antelope Valley area that prompted the
               development of this proposed project. As of July 1, 1999, the project was
               on hold; these deficiencies could continue, and the land could remain
               unused for several more years unless action is taken. Accordingly, we are
               making recommendations to the Service to address the concerns we
               identified.

               In 1989, the Pacific Area Office, then called the Western Regional Office,
Background                                                   1
               identified several deficiencies in the 935 ZIP Code area and proposed
               relocating the distribution operations for five post offices in the area into a
               new facility. The key deficiencies identified by postal officials included the
               following:

             • space deficiencies for mail processing operations in the Mojave MPO,
               which is responsible for mail processing operations for all of the post
               offices in the Antelope Valley;
             • space deficiencies in carrier delivery operations in four of the five post
               offices affected by the proposed project; and
             • space deficiencies in the Lancaster MPO limited the ability to meet
               demand for post office boxes, and parking for customers, employees, and
               postal vehicles.

               Figure 1 shows the locations of the five affected post offices in the cities of
               Lancaster, Mojave, Palmdale, Tehachapi, and Ridgecrest located in the
               southern portion of the Antelope Valley.


               1
                   Zone Improvement Plan.




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                                          B-282078




Figure 1: Locations of the Five Post Offices Affected by the Proposed Antelope Valley Area Project



                                                                                                                 Ridgecrest
                                                                                                                 MPO


                                 5                                                                               Tehachapi
                                                                                                                 MPO
                                         Kern County



                                                                                                                 Mojave
                                                                                                                 MPO



                                                                                          14

                                                                                                                 Lancaster
                                                                                                                 MPO


                                                                                                                 Proposed Antelope
                                                                                                                 Valley Facility
                                                                      Los Angeles
                                                                      County                                     Palmdale
                                                                                                                 MPO

 Los Angeles
 (city)

         The location of Kern
                                                                            5       14
         and Los Angeles
         counties

         Shading indicates 935
         ZIP Code area                                                          405


                                                      Los Angeles
                                                  (downtown) and
                                          Los Angeles airport (LAX)




                                                   Shaded area indicates 935 ZIP Code area.


                                          Source: U.S. Postal Service.




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                                        Since the 1980 census, the Antelope Valley area, also known as the 935 ZIP
                                        Code area, has more than doubled its population. The growth in mail
                                        volume has paralleled the population growth. As shown in table 1, growth
                                        in this area was somewhat slower in the 1990s than in the 1980s. However,
                                        current projections expect that population and mail growth will accelerate
                                        again over the next decade.

Table 1: Population, Households, and
Mail Volume Data for the 935 Zip Code                                    Percent                      Percent      Total mail       Percent
Area in 1980, 1989, 1999, and 2009      Year            Population       change Households            change         volume         change
                                        1980a              184,435                  65,471                           100,487
                                        1989               317,441          72%    106,695                 63%       205,374             104%
                                        1999b              485,073          53%    161,528                 51%       295,204              44%
                                        2009b              623,761          29%    215,335                 33%       452,841              53%
                                        a
                                        The 1980 originating mail volume excludes third-class mail, for which data were not available.
                                        b
                                        Data for 1999 and 2009 are estimates.
                                        Source: U.S. Postal Service data acquired from Standard & Poors.


                                        Over half of the population growth in the 935 ZIP Code area occurred in
                                        two cities, Lancaster and Palmdale. From 1980 to 1990, Lancaster’s
                                        population grew from about 48,000 to 97,300, and Palmdale’s population
                                        grew from about 12,300 to 68,900. During this same period, Mojave’s
                                        population grew from about 2,900 to 3,800. The Southern California
                                        Association of Governments has projected that the Lancaster-Palmdale
                                        population would increase again over 200 percent by 2010.

                                        Mail scheduled for final delivery in the Antelope Valley originates from all
                                        over the United States and the rest of the world and is transported to the
                                        Los Angeles Processing and Distribution center located near Los Angeles
                                        International Airport. There, the mail undergoes a first-level sort by the
                                        first three digits of the ZIP Code. The mail is then transported to smaller
                                        mail processing facilities, such as the Mojave MPO, where secondary
                                        operations are performed on automated equipment to sort the mail to the
                                        five-digit ZIP Code level. Generally at this stage, some of the mail would
                                        also be automatically sorted to the carrier-route level and sequenced in the
                                        order that carriers deliver it. However, in Mojave, the necessary automated
                                        equipment is not available for sorting mail down to the carriers’ delivery
                                        sequence order. Thus, the mail is transported to the postal facilities
                                        responsible for mail delivery, such as Lancaster, where the mail carriers
                                        manually sort the mail into delivery sequence order.

                                        Administrative support and mail processing functions for mail to be
                                        delivered in the 935 ZIP Code area, as well as local retail and delivery
                                        functions, are housed at the MPO in Mojave. According to available postal



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                documents, the Mojave MPO was functioning at its maximum capacity in
                1990. Mail processing and customer service operations competed for space
                in the crowded facility. Operational efficiency was beginning to suffer due
                to the continual shifting of equipment to allow adequate space for
                processing operations. More recently, postal documents noted that some
                automated sorting equipment intended for Mojave processing operations
                was being stored in warehouses due to insufficient space.

                Postal documents from 1990 also reported that the Lancaster MPO had
                reached its maximum capacity and could not accommodate the future
                growth anticipated in Lancaster. Carrier operations had spread onto the
                loading platform, where mail was being placed to await distribution. Both
                employees and mail were exposed to weather conditions. There was a
                demand for additional post office boxes at the MPO, but there was no
                room to expand the box section. According to the Service, employee
                support facilities were inadequate; and parking facilities for customer,
                employee, and postal vehicles were also inadequate. Similar conditions
                reportedly existed in the Palmdale MPO, and a facility replacement was
                included in the Western Region’s Five-Year Facility plan. The MPOs in
                Ridgecrest and Tehachapi were also reported to be experiencing space
                deficiencies but not to the extent of the problems in Lancaster, Mojave,
                and Palmdale.

                The proposed new Antelope Valley facility would include mail-processing
                operations and support functions that are currently located at the Mojave
                MPO, and the secondary mail-processing operations would be relocated
                from the Palmdale, Ridgecrest, Mojave, and Tehachapi MPOs to the new
                facility. The Mojave MPO would be retained and would continue to provide
                retail and delivery services for the area and serve as a transfer point for
                those areas north and west of Mojave. The existing Lancaster MPO would
                be retained to serve as a carrier annex for carrier delivery operations. The
                Palmdale, Tehachapi, and Ridgecrest MPOs would be retained to provide
                full retail and delivery services for their areas.

                To evaluate the Service’s approval process for this project, we performed
Scope and       the following:
Methodology
              • obtained and reviewed Service policies and guidance in effect when the
                project began and the policies and guidance currently in effect for facility
                planning, site acquisition, and project approval;
              • obtained and analyzed Service documents related to the proposed
                Antelope Valley project and project approval process;




                Page 6                            GAO/GGD-99-147 Status of Antelope Valley Project
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• discussed the proposed project and the review process with Service
  officials in Headquarters, the Pacific Area Office, the Van Nuys District,
  and the Lancaster and Mojave MPOs;
• observed operating conditions at the existing Lancaster and Mojave postal
  facilities and visited the postal-owned site in Lancaster that was purchased
  in 1991;
• reviewed cost estimates for the two alternatives under consideration prior
  to the project being placed on hold in March 1999; these cost estimates
  were included in draft project approval documents that were submitted for
  headquarters review in February 1999; and
• discussed the impact of the proposed project with community officials in
  Mojave, Kern County, and Lancaster, CA.

  We did not evaluate whether this project should be approved or funded.
  The Service has a process and criteria for assessing and ranking capital
  facility projects for funding. However, we only reviewed this particular
  project and, therefore, did not have a basis for comparing its merits with
  those of other capital projects competing for approval and funding. We
  also did not independently verify the accuracy of the financial data
  included in the Postal Service’s analyses of the cost of various alternatives
  under consideration. Postal officials acknowledged that these preliminary
  cost estimates might need corrections and revisions because they had not
  completed their review of the project approval documents. Due to the
  incomplete status of this project, our assessment generally covered the
  requirements followed and actions taken by the Service during the period
  (1) from project initiation in 1989 until the first suspension in 1992 and (2)
  since its reinstatement in 1995 to August 1999.

  We conducted our review between December 1998 and August 1999 in
  accordance with generally accepted government auditing standards. We
  requested comments on a draft of this report from the Postmaster General.
  We received written comments from the Postmaster General, which we
  have included in appendix I. His comments are discussed near the end of
  this report.




  Page 7                             GAO/GGD-99-147 Status of Antelope Valley Project
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                       The Service followed most of its key requirements for acquiring a site in
The Service Followed   Lancaster prior to obtaining approval for the proposed Antelope Valley
Most of its Key        project, although some requirements were vague. One major exception
Requirements for       was that the Headquarters CIC did not review and approve the proposed
                       project justification and alternatives under consideration prior to advance
Advance Site           site acquisition, as required by Service policies. The Service’s guidance
Acquisition            allowed advance site acquisition before all analyses that were required for
                       final project approval were completed if, among other requirements, the
                       Service believed that the preferred site would not be available when
                       project approval was anticipated.

                       Table 2 presents the key requirements in the Service’s major facility
                       project approval process and the actions taken by the Service to meet
                       those requirements prior to project suspension in 1992. The key
                       requirements of this project approval process include formal
                       documentation, and the dates provided are based on available
                       documentation.




                       Page 8                           GAO/GGD-99-147 Status of Antelope Valley Project
                                                    B-282078




Table 2: Key Requirements and Actions Taken by the Postal Service for Project Approval Prior to 1992
                                                                                                                             Date action taken
Stage              Requirements                                                                                              by Service
Initial Planning   • Identify need for facility project and include project in Five-Year Major Facility Priority process for • May 1989
                   prioritization and funding approval

                   • Develop preliminary Facility Planning Concept document outlining functions to be performed in               • April 1990
                   proposed facility and how functions will affect other postal facilities

                   • Hold Planning Parameters meeting to finalize Facility Planning Concept and agree upon project               • June 1990
                   alternatives

                   • Hold Headquarters CIC meeting to obtain Advance Project Review approval of project                          • Not held
                   justification and alternatives
Site selection     • Define preferred site area                                                                                  • February 1990

                   • Advertise for suitable sites                                                                                • August 1990

                   • Prepare environmental assessment as required under National Environmental Policy Act                        • December 1990
                                                                                                                      a




                   • Hold Site Selection Committee meeting to choose a suitable site                                             • December 1990
Advance site       • Submit a request to purchase the site and certify that the following conditions have been met:              • June 1991
acquisition         — site control cannot be reasonably obtained through the period required for project approval,
                   specify offer expiration date;
                    — failure to control the property would result in either higher costs or the loss of the preferred
                   site;
                    — project is under way, alternatives have been identified and analyzed
                    — site acquisition cost does not exceed $10 million, and funds are available in the capital budget
                    — project is scheduled for presentation to Headquarters CIC or Board of Governors
                    — Planning Parameters and Advance Project Review stages must have been completed

                   • Obtain approval from Senior Assistant Postmaster General, Administrative Services Group,                    • Signed, but
                   Headquarters                                                                                                  undated

                 • Purchase site                                                                                                 • October 1991
Space            • Develop space requirements for proposed Facility Planning Concept alternatives to determine                   • September 1991
requirements     sizes of buildings and site requirements needed to meet operational needs
Project approval • Develop Decision Analysis Report (DAR) detailing economic analyses, including costs and                       • No action, project
                 benefits, of proposed project and alternatives under consideration to provide information                       suspended in July
                 necessary for approving authorities to make informed decisions and obtain all necessary                         1992
                 approvals of DAR from Headquarters and Area CICs, Financial Investment Committees, and
                 Board of Governors
                                                    a
                                                    National Environmental Policy Act of 1969, as amended, 42 U.S.C. section 4321, et. seq.
                                                    Source: GAO analysis of Postal Service guidance and project documents.


                                                    The Postal Service’s guidance detailing its investment policies and
                                                    procedures for major facilities explains that its purpose is to ensure that
                                                    major facility investments support the strategic objectives of the Postal
                                                    Service, make the best use of available resources, and establish



                                                    Page 9                                     GAO/GGD-99-147 Status of Antelope Valley Project
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                             management accountability for investment decisions. Postal Service
                             policies also specify the delegation of authority for approving capital
                             facility projects based on total project costs. All capital projects exceeding
                             $10 million in total project costs are considered major facility projects and
                             are required to obtain final approval from the Postal Service’s Board of
                             Governors after being approved through appropriate area and
                             headquarters officials, including the Headquarters CIC. Some facility
                             projects may be funded from the area’s budget. To obtain funding from
                             headquarters capital investment funds, these proposed major capital
                             facility projects must be prioritized along with proposed projects from all
                             other regions/areas and included by headquarters officials in the Postal
                             Service’s Five-Year Major Facilities Priority List. This list is to be updated
                             annually and included as part of the Service’s annual budget, which is then
                             reviewed and approved by postal management and the Board of
                             Governors.

                             As shown in table 2, the Service generally followed its approval process for
                             advance site acquisition. However, one major requirement that was not
                             completed before the advance site acquisition was the Advance Project
                             Review, which involves the review and approval of the project justification
                             and alternatives by the Headquarters CIC. Postal officials told us that the
                             project had met all of the Service’s requirements prior to approval for
                             advance site acquisition. However, the Service could not provide a date for
                             when the Headquarters CIC meeting occurred or any documentation of the
                             completion of the Advance Project Review stage. The purpose of the
                             Advance Project Review by the Headquarters CIC, according to postal
                             guidance, is “to be sure that the Headquarters CIC concurs with the scope
                             (especially the justification, alternatives, and strategic compatibility)
                             before the expenditure of substantial planning resources.”

Site Acquisition Permitted   According to the Service’s requirements that were in effect in 1991,
                             advance site acquisition was permitted prior to completion of the project
Prior to Final Project       approval process with the approval of the headquarters senior official
Approval                                                2
                             responsible for facilities. The regional postmaster general requested site
                             acquisition in advance of project approval for the site in Lancaster on June
                             25, 1991. The request noted that Western Region officials had approved
                             funding from the region’s budget for site acquisition in fiscal year 1991. In
                             addition, the request noted that the project was a headquarters-funded
                             project scheduled to be presented to the Headquarters CIC for review in

                             2
                              In 1991, advance site acquisition for facility projects with a total cost exceeding $5 million and sites
                             costing $10 million or less were to be approved by a headquarters official, the Senior Assistant
                             Postmaster General, Administrative Services Group.




                             Page 10                                         GAO/GGD-99-147 Status of Antelope Valley Project
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                             mid 1992, go to the Board of Governors for review and approval in August
                             1992, and begin construction in fiscal year 1992.
                                                                                          3
                             The request also noted that control of the site expired on June 30, 1991,
                             and that failure to acquire the site as an advance site acquisition may result
                             in its loss. The total project cost was estimated at just over $31 million,
                             with site purchase in the amount of $6,534,000, and site support costs of
                             $100,000 for a total funding request of $6,634,000 for advance site
                             acquisition. The request also noted that the property-owner had offered the
                             Postal Service an additional saving of $250,000, which would reduce the
                             sales price to $6,284,000, if the site acquisition were approved and closing
                             occurred prior to August 1, 1991. The funding request was approved by the
                             appropriate headquarters official, and the site was purchased for
                             $6,534,000 on October 25, 1991.

Available Analyses to        Service guidance required that alternatives be identified and analyzed
                             before a project could qualify for advance site acquisition but did not
Support Advance Site         clearly state the type or depth of analyses required. At the time of the
Acquisition Decisions Were   Lancaster site acquisition, some analyses, such as the space requirements
Incomplete and               (which determine sizes of buildings and site requirements for operational
Documentation Was            needs) as well as the cost estimates of project alternatives (which provide
                             information on projected cash flows and return on investment) were still
Inadequate                   under development. Only the estimated project costs associated with the
                             preferred alternative—construction of a new processing facility in
                             Lancaster—were available prior to site acquisition. Moreover, the available
                             documentation did not explain why this alternative was preferred over the
                             other alternatives considered.

                             According to documentation provided to us, four alternatives were
                             presented at the project planning meeting held in June 1990. The four
                             alternatives, with the key differences underscored, were as follows:

                             (A) a new area mail processing center in Lancaster for relocated mail
                             processing operations, distribution operations, and delivery services for
                             the 93535 ZIP Code area; the existing Lancaster MPO would retain its retail
                             and delivery services;

                             (B) a new general mail facility in Lancaster for relocated mail processing
                             operations, distribution operations, and delivery services for the 93535 ZIP

                             3
                              According to Postal officials, site control means “keeping the property off the market.” Site control
                             can be achieved by different means, (e.g. a down payment, good faith agreement, or monthly payment).
                             The type of site control would have to be negotiated with the seller.




                             Page 11                                      GAO/GGD-99-147 Status of Antelope Valley Project
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Code area; the existing Lancaster MPO would retain its delivery services
and retail services would be relocated in the area;

(C) new area mail processing center in the vicinity of Mojave and
Lancaster for relocated mail processing operations and distribution
operations; the existing Mojave and Lancaster MPOs would retain retail
and delivery services for their respective communities and a new facility
would be constructed in Lancaster for delivery services; and

(D) lease and modify an existing building for use as a Mail Handling Annex
for relocated mail processing operations and distribution operations; the
existing Mojave MPO would retain its retail and delivery services.

The proposed preferred alternative presented at the June 1990 meeting
was alternative A, a newly constructed area mail processing facility
located in Lancaster. The analysis related to the four alternatives consisted
of brief descriptions of each alternative. However, the documentation does
not explain why the recommended alternative was preferred over the
other alternatives considered. The only explanation provided was included
in the minutes of the June 1990 meeting as follows;

“The alternatives were discussed at length. Alternative A, B, and C were discussed. It was
agreed upon that these alternatives will solve the major operating needs of the Antelope
Valley, but will not address all of our needs for delivery and retail facilities. A reassessment
of the proposed concept and the requirements for Lancaster and Palmdale Main Post
Offices will be conducted following site selection to ascertain whether the specific site is
conducive to delivery or retail activities as a result of its location.”

Further, documentation prepared for the site selection meeting held in
December 1990, stated that

“The existing facilities in Lancaster, Palmdale, and Mojave could not be expanded to
provide sufficient space to accommodate the current and projected growth in the Antelope
Valley. Continuation of mail processing operations at the Mojave MPO will not meet
corporate goals for improved delivery times and efficiencies.”

However, since the proposed project was revised in 1998, expansion of the
existing Mojave facility was one of two alternatives under consideration,
along with the preferred alternative to construct a new facility on the
Service-owned site in Lancaster. Available documentation did not explain
why expansion of the existing Mojave facility was not considered viable in
1990 but was considered a viable alternative in 1998.




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Need to Improve Inadequate   The problem of inadequate documentation of the Service’s real estate
                             acquisition decisions is not a new issue. In 1989, we reviewed the Service’s
Documentation Previously     real estate acquisition process. At that time, we reviewed a sample of 246
Identified                   sites purchased during fiscal year 1987 and made recommendations to
                                                                                    4
                             improve the Service’s real estate acquisition program. Our 1989 report
                             found that the Service usually purchased sites that exceeded both its
                             operational needs and advertised size requirements. When alternative sites
                             were available for purchase, the Service generally selected the larger, more
                             costly sites without requiring site selection committees to document why
                             less expensive alternative sites were less desirable. The report raised
                             concerns, based on the Service’s requirements for advertising and
                             purchasing practices, that the Service might be spending more than was
                             necessary for land and accumulating an unnecessarily large real estate
                             inventory. The report also recognized that sometimes larger, more costly
                             sites may best meet the Service’s operational requirements but that
                             justification for such selections should be required when smaller, less
                             costly contending sites were available.

                             In the Service’s letter dated August 25, 1989, responding to a draft of that
                             report, the Postmaster General agreed with our recommendation relating
                             to more complete documentation of the selection process. He stated, “The
                             Postal Service is concerned only with the best value and will make sure
                             that the reasoning behind the determination of best value is more carefully
                             documented in the future.”

                             However, improvement in documentation was not evident in the
                             documentation related to the proposed Antelope Valley area project,
                             which was prepared soon after our report was issued. We identified
                             inconsistencies in internal postal memorandums related to the required
                             site size and disposition of any excess land. The region’s June 25, 1991,
                             memorandum requesting approval for advance site acquisition in
                             Lancaster stated, “No excess land is expected to remain.” Another internal
                             memorandum dated October 25, 1991—the date of final settlement for the
                             purchase of the Lancaster site—discussed preparation of the final cost
                             estimates for the proposed Antelope Valley Area project and stated “Please
                             note that the required site is considerably less than the selected site.”
                             Further, a February 1992 internal memorandum noted that the Lancaster
                             site was purchased in late 1991 and that the site area exceeded Service
                             requirements by 296,000 square feet (about 6.8 acres). The reason for the
                             purchase of a site that was larger than needed was not explained in any

                             4
                              See Postal Service: Sites for New Post Offices May Be Larger Than Needed (GAO/GGD-89-130, Sept.
                             1989).




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                                          available documents. More recent documents related to the proposed
                                          project alternatives also noted that the Service-owned site in Lancaster
                                          exceeds project requirements, but the alternatives do not discuss how the
                                          excess property would be disposed of.

                                          As of the beginning of July 1999, the Service’s consideration of the
Project Delays and                        proposed Antelope Valley project had been put on hold, and a decision
Resulting Negative                        may not be made for some time. Consequently, the status and funding of
Effects Remain                            the proposed project remains uncertain almost 10 years after it was
                                          initiated. Consideration of the project has been delayed due to two
Unresolved                                suspensions, reductions in capital investment spending, and a recent
                                          reclassification of the proposed facility. As a result, processing and
                                          delivery deficiencies that were identified as critical for this area in 1989
                                          continue to exist, and the Service has not determined how it plans to
                                          address these operational deficiencies. In addition, the Service has
                                          incurred additional costs that have resulted from the need to repeat
                                          analyses and update documents required for final project approval. With
                                          the project currently on hold, further costs may be incurred to again
                                          update required analyses. Finally, the delays have prolonged the
                                          uncertainty related to business development opportunities for the affected
                                          communities of Mojave and Lancaster.

Reduced Funding and                       Initiated in 1989, with an expectation that the project would be funded in
                                          fiscal year 1992, the proposed Antelope Valley project was suspended in
Classification                            1992, while the Service was undergoing a reorganization and had reduced
Inconsistencies Contributed               its funding for capital facility projects. Table 3 shows that between 1991
to Project Delays                         and 1995, the Service committed $999 million less to its facilities
                                          improvement program than it had originally authorized in its 1991 to 1995
                                          Capital Improvement Plan.

Table 3: Comparison of Funds
Authorized and Funds Committed For        Dollars in thousands
Facility Projects, Between Fiscal Years   Postal               Funds authorized for          Funds committed for
1991 and 1995                             fiscal year              facility projects             facility projects       Difference
                                          1991                             $1,334                        $1,118               $216
                                          1992                              1,170                           940                230
                                          1993                              1,112                           403                709
                                          1994                              1,048                         1,048                  0
                                          1995                                895                         1,051              (156)
                                          Total                            $5,559                        $4,560               $999
                                          Source: Postal Service Comprehensive Statements for 1991 through 1995.


                                          Postal Service officials could not explain why the classification of this
                                          project, as a processing facility or other type of capital facility, has been



                                          Page 14                                   GAO/GGD-99-147 Status of Antelope Valley Project
                             B-282078




                             changed several times and why it has not yet been submitted for
                             consideration in the headquarters capital facility projects prioritization and
                             funding process. All major mail processing facilities must be funded from
                             the headquarters capital facility budget, while other types of processing
                             and delivery facilities may be funded from regional/area budgets. At the
                             time that the proposed project was suspended in 1992, it was classified as
                             a mail processing facility in the Western Region/Pacific Area Major Facility
                             Priority List. It had also been submitted for headquarters funding
                             consideration in the Five-Year Major Facilities Priority List for fiscal years
                             1991 to 1995. The project was reinstated and reclassified in 1995 as a
                             Delivery and Distribution Center (DDC), with the expectation that it would
                             be funded out of area funds in fiscal year 1998. The Service suspended the
                             project a second time in March 1999, while it was undergoing review by
                             headquarters officials. Based upon the headquarters review, the project
                             was again reclassified from a DDC to a Processing and Distribution Center.
                             The latest reclassification meant that the project would have to be funded
                             by headquarters rather than the Pacific Area Office, and it would have to
                             compete nationally for funding. This means that the project will have to
                             await placement on the next headquarters Five-Year Major Facilities
                             Priority List, which is scheduled to be completed by August 2000.

                             It is also not clear why the proposed project was reinstated and
                             reclassified in 1995 as a DDC when the major purpose and design of this
                             project had not fundamentally changed. Postal officials in the Pacific Area
                             Office and Van Nuys District said that the recently proposed Antelope
                             Valley project is essentially the same as the project that was being planned
                             when the Service acquired the 25-acre Lancaster site in 1991. The major
                                                                                               5
                             differences in the two projects are in nonmail processing areas. As
                             previously mentioned, the proposed project had not had an Advance
                             Project Review by the Headquarters CIC prior to the suspension in 1992.
                             Such a review might have prevented the unexplained reclassifications of
                             this project that have contributed to delays in its funding.

Operational Processing And   Ten years after this project began, the operational processing and delivery
                             deficiencies that were identified as critical for this area in 1989 still remain.
Delivery Deficiencies        Because of continued space deficiencies, automated equipment has not
Remain Unaddressed           been deployed as scheduled, and the projected operating efficiencies and
                             savings have not been realized. The District projected that one of the

                             5
                              The recent proposal no longer includes a vehicle maintenance facility on the site because the District
                             recently decided that it was more economical to contract for vehicle maintenance with the local
                             communities as opposed to in-house maintenance. A retail operation has been added to the recent
                             proposed Lancaster alternative to eliminate the deficiencies of limited post office boxes and customer
                             parking in the Lancaster MPO.




                             Page 15                                       GAO/GGD-99-147 Status of Antelope Valley Project
                          B-282078




                          benefits from automated sorting of the mail to the carriers in delivery walk
                          sequence would be to improve delivery performance by 4.25 percent
                          annually. This additional sorting would decrease the time that the carriers
                          spend in the delivery units preparing the mail for delivery and increase the
                          amount of time the carriers would have to deliver the mail. Another
                          negative effect of the space deficiencies in Mojave was that some of the
                          mail originating in the 935 ZIP Code area (approximately 130,000 pieces
                          per day) was diverted from processing in Mojave to the processing facility
                          in Santa Clarita. According to local postal officials, the effect of this
                          diversion was to delay by 1 day the delivery of some mail that was to be
                          delivered in the 935 ZIP Code area. The local area First-Class mail was
                          supposed to be delivered within 1 day to meet overnight delivery standards
                          for First-Class mail.

                          Since this project was initiated in 1989, the Service has taken several
                          actions to address mail processing and delivery deficiencies in the
                          Antelope Valley. The Service added 2,417 square feet of interior space to
                          the Palmdale MPO by relocating the post office into a larger leased facility.
                          Some relief was provided to the cramped carrier operations at the
                          Lancaster MPO by relocating 15 of the 89 carrier routes serving Lancaster
                          to the Lancaster Cedar Station. However, as we observed on our visit to
                          the Lancaster facilities, conditions in Lancaster were still very congested.
                          Mail that was waiting to be processed and workroom operations spilled
                          out of the building onto the platform, exposing both employees and the
                          mail to weather conditions.

                          In an effort to provide the Mojave MPO with more mail-processing space, a
                          2,400 square foot tent was installed in 1998, at a cost of $30,000, next to the
                          loading platform. The tent provided additional space for processing
                          operations and for holding mail that was waiting to be processed, but it did
                          not allow for deployment of any automated equipment scheduled for use in
                          the 935 mail-processing functions. Also, we observed that the tent would
                          not provide adequate shelter from high winds or other weather-related
                          conditions. Some of the equipment was stored at district warehouses.
                          Although these efforts have allowed the district to continue to provide
                          processing and delivery service, it is not clear how the Service intends to
                          meet the operational processing and delivery deficiencies while decisions
                          related to the proposed facility are pending.

Delays Incur Additional   Project delays have also contributed to higher costs, incurred to repeat
                          and update some of the analyses and cost data needed for final project
Costs                     approval. Given that the process is not completed, additional costs may be
                          incurred to further update required analyses. The Service has incurred



                          Page 16                            GAO/GGD-99-147 Status of Antelope Valley Project
B-282078




additional costs related to developing a second set of documents required
for project approval, including Facility Planning Concept documents,
appraisals, space requirements, environmental assessments, and DARs.
Generally, the Service uses contractors to develop the environmental and
engineering studies. Although the total cost of document preparation has
not been quantified, available documentation indicates that the Service has
incurred about $254,000 for costs related to previous design efforts for this
project.

In addition, costs that have not been quantified include staff time and
travel costs associated with this project. The Area Office Operations
Analyst who was responsible for preparing the DAR told us that it took
him approximately a year to develop a DAR and the supporting documents
and analysis. This did not include the time of the other individuals who
provided him with various information needed to complete the analyses or
the time of officials responsible for reviewing and approving the project.
The Service has also incurred additional costs for travel associated with
project reviews, such as the Planning Parameters Meeting, which involved
the travel of at least three headquarters officials.

It is difficult at this stage to determine what additional analyses may be
needed because the Antelope Valley project has been suspended and,
according to Service officials, no further action is being taken on reviewing
the project until it is submitted by Pacific area officials for prioritization.
We reviewed the cost estimates for the two alternatives that were included
in the draft DAR that had been submitted to headquarters for review in
February 1999. We found some deficiencies in the information presented.
Postal officials stated that these types of deficiencies would be identified
during their review process that includes reviews by officials in three
separate headquarters departments—Facilities, Operations, and Finance.
They also said that the cost estimates in the DAR were too preliminary to
use as a basis for assessing which of the two alternatives under
consideration were more cost effective. The officials noted that significant
changes could be made to the cost estimates as the project documentation
completes the review process.

In addition, the Service has not realized any return on its investment in the
site in Lancaster, which has remained unused since 1991. This unrealized
investment has an interest cost associated with the Service’s use of funds
to purchase the Lancaster site in October 1991. We estimated that the
interest cost associated with the Service’s $6.5 million investment totaled
about $2.9 million from the time that the site was purchased in October




Page 17                            GAO/GGD-99-147 Status of Antelope Valley Project
                            B-282078




                            1991 through June 1999 and that it would likely increase by over $300,000
                                      6
                            each year.

Delays Create Uncertainty   The uncertainty of this project over such a long period has also created
                            difficulties, particularly related to business development planning, for the
for Affected Communities    affected Lancaster and Mojave communities. Mojave community officials
                            have raised concerns about the effect that relocating the postal operations
                            would have on their community. They expressed specific concerns relating
                            to the potential lost job opportunities to the Mojave and nearby California
                            City residents and the impact that losing the postal processing operations
                            would have on their effort to attract new homes and retail services. Postal
                            documents indicated that while none of the Mojave employees would lose
                            their jobs, approximately 80 employees working the evening and night shift
                            would be relocated if distribution operations were to be relocated to a new
                            facility in Lancaster. The Service projects that the proposed expanded
                            Mojave Facility would create 10 additional jobs at the facility when it
                            opens.

                            The project delay has also affected the business development
                            opportunities in Lancaster. After the Service selected the Lancaster site in
                            1991, the Mayor of Lancaster stated in a letter to the Postal Service that he
                            welcomed the new facility and that the facility would anchor the new 160-
                            acre Lancaster Business Park Project. Shortly after the Postal Service
                            selected the 25-acre site, a major mailer, Deluxe Check Printing, acquired a
                            12-acre site adjacent to the postal property. Recently, the Lancaster City
                            Manager noted that not having the Postal Service facility has made
                            marketing the Business Park to potential developers very difficult. In
                            addition, Lancaster officials stated that the city has spent over $20 million
                            to provide improvements to the business park. These improvements were
                            conditions of sale when the Postal Service acquired the site in 1991.

                            The Service followed most of its key requirements when it purchased a site
Conclusion                  in Lancaster in 1991 for the proposed Antelope Valley project before it had
                            obtained overall project approval, although some requirements were
                            vague. One major exception was that the Headquarters CIC did not review
                            and approve the proposed project justification and alternatives under
                            consideration prior to advance site acquisition as required by Service
                            guidance. The Service’s requirements for advance site acquisition were
                            unclear because they did not specify the types or depth of analyses
                            required. The Service’s analyses of alternatives were incomplete because

                            6
                             To develop a rough estimate of the interest cost, we used the average yield on Treasury securities at
                            constant maturity of 1 year prevailing in December each year from 1991 through 1998.




                            Page 18                                       GAO/GGD-99-147 Status of Antelope Valley Project
                   B-282078




                   estimated costs of the alternatives and space requirements were still under
                   development. Also, it was not clear why an alternative that was recently
                   under consideration, the expansion of the existing Mojave MPO, was not
                   considered a viable alternative before the site in Lancaster was acquired.

                   We could not determine whether review and approval of the proposed
                   project justification and alternatives by the Headquarters CIC would have
                   resulted in changes in the proposed project justification and alternatives or
                   more in-depth analysis of the alternatives. Such a review may have
                   prevented the unexplained inconsistencies in the classifications of this
                   project that have contributed to delays in its funding. Likewise, it is not
                   known whether the Committee’s review would have suggested a course of
                   action other than acquisition of the Lancaster site. Further, the more
                   recent analysis of the alternative to expand the Mojave MPO is too
                   preliminary to assess or draw any conclusions from because the
                   headquarters review of the proposed project has been suspended.
                   However, what is known is that the Service spent about $6.5 million over 8
                   years ago to purchase a site that has remained unused. This site may or
                   may not be used by the Service in the future, and its investment has a
                   substantial annual interest cost associated with it. While this interest cost
                   continues, the mail service deficiencies identified nearly 10 years ago
                   remain unaddressed, and projected operating efficiencies and savings
                   anticipated from new equipment are unrealized as the equipment remains
                   in storage.

                   Given this situation, it is not clear why the status of this project has been
                   allowed to go unresolved for such a long time. It is also unclear at this time
                   whether funding for this project will be approved and, if so, for what year
                   of the next 5-year capital projects funding cycle. Thus, the Service’s site
                   investment in unused land and the existing operational deficiencies are
                   likely to continue for some time, and the Service has not determined how
                   it will address these issues if the project is not approved or funded for
                   several years.

                   To address the long-standing uncertainties related to the proposed
Recommendation     Antelope Valley project, we recommend that the Postmaster General take
                   the following actions:

                 • Resolve the internal inconsistencies in the classification of this project,
                   determine whether the site in Lancaster should be retained, and ensure
                   that the project is considered in the appropriate funding and approval
                   process, and




                   Page 19                            GAO/GGD-99-147 Status of Antelope Valley Project
                        B-282078




                      • Require the Pacific Area office to determine whether immediate action is
                        needed to address the operational deficiencies identified in the Antelope
                        Valley area and report on planned actions and related time frames for
                        implementation.

                        We received written comments from the Postmaster General on August 20,
Agency Comments and     1999. These comments are summarized below and included as appendix I.
Our Evaluation          We also incorporated technical comments provided by Service officials
                        into the report where appropriate. The Postmaster General responded to
                        our conclusion that the Service did not follow all of its procedures in effect
                        at the time that approval was given to purchase a site for a proposed
                        facility in advance of the proposed Antelope Valley project’s review and
                        approval. He stated that the Service has revised its procedures for
                        advance site acquisition so that proposed sites are subjected to additional
                        review and approval. As a result, he stated that the advanced acquisition
                        of a site for project such as Antelope Valley now must receive approval
                        from the Headquarters Capital Investment Committee and the Postmaster
                        General.

                        The Postmaster General generally agreed with our recommendations to
                        address the unresolved status of the Antelope Valley project and the
                        operational deficiencies in the Antelope Valley area. In response to our
                        first recommendation to resolve the inconsistent classification of the
                        project, he stated that the Service has determined that the proposed
                        Antelope Valley project is properly classified as a mail processing facility.
                        He also stated that the proposed project would be considered for funding
                        along with other such projects during the next round of project review and
                        prioritization. While clarification of the project’s classification is a good
                        first step, until disposition of the entire project is completed, the status of
                        the project, including the use of the Lancaster site, remains unresolved.

                        Regarding our second recommendation to address operational deficiencies
                        in the Antelope Valley area, he stated that officials from the involved
                        Pacific Area offices have met to discuss the most workable alternatives to
                        sustain and improve mail service for Antelope Valley customers. However,
                        due to the complexity of issues, including the possibility of relocating
                        some operations into leased space on an interim basis, a fully developed
                        distribution and delivery improvement plan may take some time to
                        implement. He agreed to provide us with action plans and time frames as
                        they are finalized. If actions are taken as described by the Postmaster
                        General, we believe they would be responsive to our recommendations.




                        Page 20                            GAO/GGD-99-147 Status of Antelope Valley Project
B-282078




We are sending copies of this report to Representative Howard (Buck)
McKeon; Representative John McHugh, Chairman, and Chaka Fattah,
Ranking Minority Member, Subcommittee on the Postal Service, House
Committee on Government Reform; Mr. William J. Henderson, Postmaster
General; and other interested parties. Copies will also be made available to
others upon request. The major contributors to this report are listed in
appendix II. If you have any questions about this report, please call me on
(202) 512-8387.

Sincerely yours,




Bernard L. Ungar
Director, Government Business
 Operations Issues




Page 21                           GAO/GGD-99-147 Status of Antelope Valley Project
Contents



Letter                                                                                                   1


Appendix I                                                                                              24

Comments From the
United States Postal
Service
Appendix II                                                                                             26

GAO Contacts and
Staff
Acknowledgments
Tables                 Table 1: Population, Households, and Mail Volume Data                             5
                         for the 935 Zip Code Area in 1980, 1989, 1999, and 2009
                       Table 2: Key Requirements and Actions Taken by the                                9
                         Postal Service for Project Approval Prior to 1992
                       Table 3: Comparison of Funds Authorized and Funds                                14
                         Committed For Facility Projects, Between Fiscal Years
                         1991 and 1995


Figures                Figure 1: Locations of the Five Post Offices Affected by                          4
                         the Proposed Antelope Valley Area Project




                       Abbreviations

                       CIC           Capital Investment Committee
                       DAR           Decision Analysis Report
                       DDC           Delivery and Distribution Center
                       MPO           Main Post Office




                       Page 22                             GAO/GGD-99-147 Status of Antelope Valley Project
Page 23   GAO/GGD-99-147 Status of Antelope Valley Project
Appendix I

Comments From the United States Postal
Service




              Page 24      GAO/GGD-99-147 Status of Antelope Valley Project
Appendix I
Comments From the United States Postal Service




Page 25                               GAO/GGD-99-147 Status of Antelope Valley Project
Appendix II

GAO Contacts and Staff Acknowledgments


                  Bernard Ungar (202) 512-8387
GAO Contacts

                  Teresa Anderson, Melvin Horne, Hazel Bailey, Joshua Bartzen, and Jill
Acknowledgments   Sayre made key contributions to this report.




                  Page 26                         GAO/GGD-99-147 Status of Antelope Valley Project
Page 27   GAO/GGD-99-147 Status of Antelope Valley Project
Page 28   GAO/GGD-99-147 Status of Antelope Valley Project
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