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White House Resume of the Report on Post Office Leases.

September 25, 1930

POSTMASTER GENERAL Brown has filed with the President an exhaustive report concerning Post Office leases. The report is the result of a detailed survey of the Government and Post Office rental problem requested by the President last March.

This report shows that the Department's rent bill has increased from $4 million in 1913 to $20 million per annum in 1930, and that due to the Great War and the necessity for restriction of national expenditure following it, no substantial construction had been undertaken until 1926-a period of 13 years. The growth of postal business, particularly parcel post, had necessitated a great expansion of quarters in all directions, as the postal business had increased from $266,619,525 per annum to $659,819,801 per annum in this period.

A digest of the situation shows that on June 30, 1930, there were 49,103 post offices. In addition to the post offices themselves, in each large city the Government must supply quarters for post office stations and branches and railway transit stations as well as garage space for the care and upkeep of collection and delivery trucks. There are a total of 2,798 such quarters, or a grand total of 51,901 places where the Post Office does business.

Of these stations, 33,483 were 4th class offices in which the Government does not contract directly for the housing of the post office. Usually these 4th class offices are conducted by the general storekeeper of a community as an incident to his livelihood, and the necessary facilities are located in a portion of the store. For the remaining 18,418 stations, the Government must supply quarters. Of these the Government owns 1,359, rents by the month 10,468, and leases 6,526. Under the Post Office building bills of 1926 and 1930, the construction of about 900 stations is provided for, mostly main post offices.

Of the 10,468 stations now rented from month-to-month the average rental is $25.38 per month, the aggregate rent being $3,185,597 annually.

Of the 6,526 leased stations, 5,735 fall below $250 per month, the total aggregate rentals being $6,468,752, averaging $93.99 per month. There are 428 further leased stations of less than $500 per month of an aggregate rental of $1,781,809 or an average of $346.92 per month. As a general rule leases below $500 are more desirable than ownership as the minimum of attendance required on Government owned buildings amounts to that much. There is a total of 353 leases above $500 per month, of which 212 exceed $10,000 per annum. They consist largely of substations in the cities. The aggregate annual rent of these 353 leases is $8,290,763.

The problem before the Post Office resolves itself into a question as to whether it is desirable for the Government to own or to continue to lease these more expensive quarters.

In his report, Mr. Brown described the efforts of the Department to lease satisfactory quarters for these purposes at reasonable rental rates, and urges the abandonment of the leasing policy so far as it relates to the quarters required on a substantially permanent basis in the large cities.

"Restricted as it has been by a policy of Congress which compelled the lease of extensive properties for postal purposes," Mr. Brown said, "the Department has continuously sought to mitigate as far as possible the excessive expense that was bound to result from such a policy. It has repeatedly called the extravagance of the present system to the attention of Congress, and on more than one occasion has recommended that authority be given for the acquisition by the Government of the buildings required, not only for all first-class post offices and the larger second-class offices (which is as far as existing legislation has gone), but also, so far as practicable, for permanent stations and branches and garages in the larger cities. It has asked for and secured authority to lengthen the term of leases to 20 years, with a view to cutting down the rental rate. It has secured authority to eliminate from the lease contracts, when advisable, the so-called cancellation clauses, reserving to the Government the right arbitrarily to terminate the lease for specified causes, which, by adding to the risks of the lessor, operated to increase rental rates in a very substantial way. It was formerly common to secure leases by negotiation with the owners of available property or with contractors and builders. For the past year and a half the Department has advertised in all cases publicly for sealed competitive bids. In the early years of the leasing system, but little consideration was given either to the relation between the rental asked and the value of the property, or to the unit rental rate, that is, the rate per square foot. The best obtainable offer was usually accepted and often had to be accepted without regard to yield of more than a fair return to the lessor. It is now the practice to scrutinize every lease proposal with these things in mind, and before any lease contract is entered into, to make sure that it involves no greater return on the lessor's investment that he is justly entitled to, and that the unit rental rate is reasonably in line with the prevailing rate in the locality for similar properties. In instances where the construction of a special building is required, the Department has adopted the practice of securing an assignable purchase option on the most suitable site, of drawing the specifications for a building to be erected on that site, and then of advertising for sealed competitive bids for the desired lease. This operates to put all bidders on exactly the same footing and assures the Government the lowest rental possible. In connection with leases of this kind, it is now customary to include an option to the Government to purchase the property at a fair price. This is the invariable practice in all large projects, so that the Department may readily avail itself of any authority which may be granted for the acquisition of buildings specially constructed for its use. Necessarily, this has involved a more careful selection of sites, a more careful planning of the buildings, and a more thoroughgoing inspection in the process of construction, with a view to ultimate ownership by the Government.

"These changes in practice, coupled with the establishment of a special corps of post office inspectors to handle all lease matters in the field, have had a salutary effect; and it is believed that the leasing of quarters for post offices and post office stations and garages is now being administered in the most economical and business-like manner possible. But the system itself, as it is applied to extensive quarters required for postal uses in the larger cities, is neither businesslike nor economical."

It is not the Postmaster General's view, however, that the Government should invariably own the quarters which it requires for postal purposes. The report goes on to say: "It is not intended to give the impression that it would be in the public interest to abandon altogether the practice of leasing premises for postal purposes and to embark upon a broad-scale program of building or buying."

Mr. Brown's view is that the immediate problem is the 353 properties leased at annual rates above $6,000, upon which the Department is paying a yearly rent totalling $8,290,763. It is the leases on these properties that the Postmaster General considers uneconomical and generally disadvantageous to the Government. Eighteen of the 353 leases in this group are for main post offices; 34 are for railway terminal post offices; 264 are for station and branch buildings; and 37 are for garages. All the properties in the group are situated in large cities.

In view of recent charges that the owners of buildings leased to the Government for postal purposes have been able to derive excessive profits from their transactions with the Postal Service, the Postmaster General had a special survey made of this group of leases. Each property was appraised on the basis of estimated costs of reproduction less depreciation, and the findings of the Department's investigators were that the net return to the owners and lessors from rentals on this group of properties, with allowance for depreciation, is on the average 6.8 percent of their present sound value. The Postmaster General reported to the President that he was convinced that there was no ground for the charge that the owners have generally secured an exorbitant return on buildings leased to the Government for post office purposes.

Mr. Brown believes, however, that it would be much more economical and businesslike for the Government to own any large properties which it needs for post offices and post office stations and garages, and he recommended that the Department be given the authority and the funds necessary to make this possible. "In the nature of things," Mr. Brown advised the President, "the Government--exempt as it is from local taxes, in a position to secure capital at a mere fraction of its cost to private corporations and individuals, and providing its own fire insurance--can usually own such quarters more cheaply than it can lease them, and the existing system should be so modified as to permit the Department to acquire them, by purchase or construction, or, if need be, by condemnation. This, of course, would necessitate special legislative authority and the appropriation of substantial sums of money in addition to the amounts authorized under existing public-building legislation."

Taking up in detail the 353 leases on which the annual rental rate exceeds $6,000, which he referred to in his report as "major leases," the Postmaster General submitted a program to the President which, generally speaking, would involve the acquisition and ownership by the Government of buildings to accommodate the postal facilities now housed under these leases. He did not include in this program the 18 leased buildings now used for main post offices, pointing out that in these cases Government buildings will ultimately be provided under the present Federal building program. He also excluded from his program the 34 buildings leased for the railway mail service. "So closely related are the activities of the terminal railway post offices to train movements," Mr. Brown said, "that they must be located in, or immediately adjacent to, the railway stations, and the space now occupied for terminal post office purposes is in practically all cases leased from the railroad or terminal companies, and is located in the station property. Quarters so located, are, of course, the most convenient which it would be possible to obtain. The rentals now being paid are believed to be fair and reasonable, and to involve a minimum of expense to the Government. It is the Department's view that, except as in particular cases additional Federal buildings may become available adjacent to railroad stations, it would not be practicable or economical to attempt to house terminal post office facilities in Government-owned buildings."

The 264 station and branch leases and the 37 garage leases which are in force at rates of rental exceeding $6,000 a year, however, the Postmaster General believes should be terminated as rapidly as it can be found possible for the Government to acquire its own buildings. "It is these leases," Mr. Brown said, "which generally result in excessive costs for the space occupied." In all cases where the buildings occupied under lease are suitable, considering their design, the character of their construction, their present condition, their location, and their size with reference to the probable future growth of business, the Postmaster General recommends that the Department be given the authority to negotiate with the owners for their immediate purchase. He advised the President that 78 station and branch buildings and 14 garage buildings fall in this category. The yearly rental on these 92 properties amounts to $2,145,331, and they have a value, according to the Department's appraisal, of $19,060,998, although the Postmaster General estimates that their cost to the Government, in the event their purchase is authorized, would be in the neighborhood of $21,800,000. Mr. Brown predicted that if this group of properties could be purchased by the Government at that price, there would be a saving amounting to $650,000 a year over the 20-year period estimated as the average remaining life of the 92 buildings. This is almost one-third of the expenditure which would be necessary to continue to rent the same properties.

As to the 209 major station and garage leases which are in effect on buildings which are not suitable for purchase, Mr. Brown said, "It would be practicable for the Department to select and acquire sites and to erect buildings suitable to accommodate the facilities now housed under these leases, with a view to vacating the leased premises as the respective leases expire and removing to Government-owned quarters, excepting, of course, in the limited number of instances where, for reasons already outlined, the ownership of quarters by the Government would not be advantageous and this is recommended."

One hundred and six of these 209 leases expire in the course of the next 5 years, and the Postmaster General estimated that it would cost $21,340,000 to buy the sites and construct the buildings which would be necessary to house the activities now taken care of under these 106 leases. More than one-third of the amount which would be necessary to rent privately-owned quarters would be saved by the adoption of this part of the program, Mr. Brown estimated.

The Postmaster General's report concluded with a statement recapitulating the appropriations which would be necessary to carry out the entire program. For the next 5 years, the following amounts would be required: 1931, $10,350,000; 1932, $14,650,000; 1933, $8,750,000; 1934, $4,090,000; and 1935, $5,300,000. The total outlay would be $43,140,000. "The appropriation of this sum," Mr. Brown said, "would, of course, result in a reduction in the appropriations made annually to the Department for rent. When the program was completed, this would reach an amount estimated at $3,700,000 a year, or approximately 8.6 percent of the appropriations for purchase and construction. Thus, strictly on the basis of appropriations, the program can be paid for out of the rentals which would be saved in the course of the next 12 years, leaving the Government with title to properties conservatively valued at $28 million after allowance for depreciation."

The 5-year program which he recommended, would not, Mr. Brown said, completely dispose of major post office leases of the classes which the Department considers uneconomical and generally disadvantageous to the Government. At least 90 such leases, he pointed out, having expiration dates subsequent to June 30, 1935, and involving rental payments of almost $3 million a year, would still remain in force, to be dealt with as they respectively expire. Further appropriations of not less than $30 million would be required during the period following June 30, 1935, completely to shift post office stations, branches, and garages, from leased to Government-owned quarters.

If the President approves the Postmaster General's proposals, it is Mr. Brown's intention to ask Congress at the December session for the legislation necessary to enable the Post Office Department to undertake to carry out the program outlined in his report. Should Congress promptly grant the required authority, work on the program would be started at once.

Note: The report, dated September 16, 1930, is entitled "Report on Post Office Leases, With Recommendations" (1930, 18 pp.).

Herbert Hoover, White House Resume of the Report on Post Office Leases. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/211805

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