The U.S. Postal Service, on the verge of default, is leasing nearly 1,000 postal buildings from current or former employees and paying millions in rent to postmasters and carriers, in apparent violation of federal regulations. This is according to a recent audit by the service's Office of the Inspector General, which found 982 current leases with employees, former employees or their relatives.
Auditors also found 78 mail delivery contracts with current or former employees, which pay as much as $67,000 a year.
Many of those contracts went to retired carriers who continued delivery routes. But $591,000 worth were given to current employees, in violation of federal law and postal regulations.
Of the 1,200 leases in question, 14 are for offices in North Carolina, including two in Raleigh. The Indy examined tax records for seven of these buildings, called the local postmasters and in two cases spoke to the building's owner.
Two of the questionable contracts, totaling nearly $119,000 a year, were with people in North Carolina. Those were impossible to check because the Inspector General's Office would not release employees' names, citing an exemption in federal information laws meant to protect medical files and anything rising to a "clearly unwarranted invasion of privacy."
The names of government employees and contractors are generally public information, but Betsy Cuthbertson, the Inspector General's Freedom of Information Act office manager, said she didn't believe the law applies to "contract employees, especially at a relatively low level."
The leasing practice goes back to the early years of the post office, when postmasters delivered mail out of their homes. It's grown to a more formal arrangement, with many postmasters owning a separate building and leasing it to the service. In many cases, the service may be saving money through the practice, which is common in rural areas.
But the audit repeatedly found "apparent violations of federal regulations," "the appearance of impropriety" and "financial conflicts" in how leases and contracts were decided.
In some cases the employee helped decide the lease for the post office, despite benefiting from it financially. By spot checking location, auditors estimated $5.4 million worth of "potential conflicts" among the questioned leases.
Investigators also saw a sense of entitlement among some postmasters. "In one instance the Postal Service decided to move from the postmaster's facility due to poor conditions," auditors wrote. "The postmaster subsequently solicited community support to discourage the move. When she was unsuccessful, she submitted a bid for a leasing land for the new Post Office location and her lease bid was selected."
Auditors didn't compare rent payments to prevailing local rates, to see if payments were in line with the market. But they did review notes from lease negotiations, and decided all the leases were competitively bid, even if they ended up going to a local postmaster.
The questionable leases and contracts represent a very small percentage of the Postal Service's full operation. It spends about $1 billion annually on rent at 24,000 locations. The 78 contracts in the audit, which are generally for mail delivery in rural areas, make up about 1 percent of all such contracts for the post office.
But the practice of granting leases and extra contracts to employees has drawn scrutiny, considering postal officials' announcement earlier this week that the service is in "the equivalent of Chapter 11 bankruptcy," according to The New York Times. It won't be able to make a $5.5 billion payment to finance retirees' future health care benefits without congressional intervention, the article reported, and the service could run out of money early next year.
In Ash, N.C., down east near the South Carolina border, postmaster Neil Walton said he's been renting to the service for decades. He built the current building "to their specifications" in 1967 and said he cut the grass himself for 20 years, but stopped when he retired in 1994.
The first lease paid him $119 a month for 20 years, Walton said. He said that amount has increased to $450 a month now, though that figure doesn't quite jibe with the lease total listed in a database released by the Inspector General's Office through the Freedom of Information Act.
In Corolla, 25 miles north of Kitty Hawk on the Outer Banks, the post office rents from retired postmaster Norris Austin. Austin is generally considered the town's oldest living resident and, based on a number of newspaper and magazine profiles, is nicknamed "Mr. Corolla."
"I built the building in 1980," Austin said. "My father was postmaster before me and they leased a building from him."
That facility burned in 2006, and Austin said the postal service had a hard time finding an affordable building in the growing beach town. He said he rebuilt and kept the rent the same.
Today the 6,500-square-foot building sits on $700,000 worth of land near the ocean, according to Currituck County tax records available online. The post office rents it for $8,700 a year, according to the lease database.
There is a discrepancy on the rent, though. Reached two weeks ago, Austin said the Postal Service pays him $8,700 a month. Agapi Doulaveris, a spokeswoman for the Inspector General's Office, said the lease is for $8,700 a year, which is what the database lists.
An attempt to reach Austin again on this matter, in the week after Hurricane Irene blew through the Outer Banks, was not successful.
The two Raleigh leases with employees were both inactive because the buildings have been sold or deeded to new owners with no apparent connections to the Postal Service. The postal facility next to Kroger at 350 Six Forks Road is owned by a company based in Michigan. It had been owned by a company managed by Craig Ralph, a former seasonal postal employee, according to post office records.
It's not entirely clear why the post office on Beryl Road was included in the Inspector General's report. It was deeded to Shaw University in 2003, but was apparently owned by a seasonal employee in the past.
Walton and Austin both indicated that negotiations with the Postal Service are fairly one-sided, but that the leases aren't particularly lucrative.
"You can take it or leave it," Walton said. "They get the final say-so."
Repeated efforts to reach an official spokesperson for the Postal Service, as opposed to the Inspector General, were unsuccessful. But service officials did respond in writing to the audit. They agreed with some conclusions but denied an ethical problem in renting from and contracting with employees—particularly in rural areas.
"Such awards are not only ethically permissible and appropriate, but are most often fiscally prudent and operationally efficient business decisions," that official response states in part.