[Federal Register Volume 62, Number 50 (Friday, March 14, 1997)]
[Notices]
[Pages 12266-12269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-6462]
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DEPARTMENT OF TRANSPORTATION
Federal Transit Administration
Policy on Transit Joint Development
AGENCY: Federal Transit Administration (FTA), U.S. Department of
Transportation.
SUMMARY: FTA is revising and clarifying its Joint Development policies
with respect to program income in relation to real estate acquired with
funds under Federal transit law, 49 U.S.C. 5301 et seq. This Notice
supplements the guidance contained in Appendix B of FTA Circular 9300.1
``Joint Development Projects.'' All joint development projects
undertaken in conformance with this policy will be considered ``mass
transportation projects'' eligible for funding under FTA capital
programs. This policy is applicable to development of properties
acquired under previous grants as well as new grants, as specified in
the FTA Master Agreement dated October 1, 1996. All such projects must
generate a one-time payment or revenue stream for transit use, the
present value of which equals or exceeds the fair market value of the
property. In determining the fair market value, FTA will consider
appraisal methods which factor in the ``highest and best transit use''
of the property as defined in the body of this notice. Where the
grantee retains continuing control and use of the joint development for
mass transportation purposes, all proceeds will be considered program
income. Proposals that meet the criteria described below may be
submitted at any time to the appropriate FTA regional office, listed in
Attachment A.
DATES: Effective March 14, 1997.
FOR FURTHER INFORMATION CONTACT: Richard Steinmann, Director, Office of
Policy Development, on (202) 366-4060; or Paul Marx, Economist, on
(202) 366-1675.
SUPPLEMENTARY INFORMATION:
Introduction
Transit systems have long been encouraged to undertake joint
development projects in connection with their rail transit stations.
However, apparent inconsistencies between transit laws, the Common
Grant Rule and FTA policy may have dissuaded some transit authorities
from initiating joint development projects. This notice clarifies the
relationship between transit laws and regulations and FTA policy
regarding property disposition, leases of property, and sale of
property for joint development. This FTA policy statement affects
primarily the treatment of program income with regard to joint
development and the definition of ``highest and best transit use'' in
joint development.
Transit systems are permitted in 49 U.S.C. 5309 (a)(1)--(5) and (7)
[former Section 3(a)(1)(D) of the Federal Transit Act] to use grant
funds to also support ``transportation projects which enhance the
effectiveness of any mass transportation project and are physically or
functionally related to such mass transportation project or which
create new or enhanced coordination between public transportation and
other forms of transportation, either of which enhance urban economic
development or incorporate private investment including commercial and
residential development.'' The Intermodal Surface Transportation
Efficiency Act of 1991 (ISTEA) added Section 3 (a)(1)(F), now codified
at 49 U.S.C. 5309(a)(7), to the Federal transit laws. This section
allows FTA grant funds to support any ``other nonvehicular capital
improvements that the Secretary may decide would result in increased
mass transportation usage in the corridor.''
FTA is encouraging transit systems to undertake transit-oriented
Joint Development projects either under new grants or with property
acquired under previous grants, whether the property is associated with
a rail, bus or other transit facility. The purpose of this Joint
Development should be both to secure a revenue stream for the transit
system and to help shape the community that is being served by the
transit system. Where the grantee retains effective continuing control
over the joint development for mass transportation purposes (such as an
easement, or a contractual arrangement), all proceeds of sale, lease or
other incumbrance of the property will be treated as program income for
use by the transit system to meet capital and operating needs. This is
a departure from previous policy in two areas. First, FTA will now
define all
[[Page 12267]]
revenue derived from such joint development to be program income as
defined in the Common Grant Rule at 49 CFR, Subtitle A, Sec. 18.25.
Second, grantees may use the new concept of ``highest and best transit
use'', as an alternate to ``highest and best use'', in valuing real
property for transit-oriented joint development. To accomplish this
change, the FTA Master Agreement has been expressly modified to include
joint development as an eligible activity in all capital grants to
which it applies. Further, grantees may request amendment of grants
issued prior to FY 1997, as desired, to expressly include joint
development within the scope of such grants.
In accordance with this new policy, transit agencies have three
options: they can sell property as excess for non-transit use; they can
lease the property for incidental, non-interfering use by others while
the property is held for a future identified transit use; or they can
undertake a transit-oriented joint development on the property. In the
case of a sale without a continuing transit use, property disposition
rules under the Common Grant Rule at 49 CFR, Subtitle A, Sec. 18.31
apply. That is, the pro-rata Federal share of the net proceeds of a
sale at fair market value are returned to the U.S. Treasury.
Transit-oriented joint development can be accomplished through a
sale or lease of federally funded property, or through direct
participation of the transit agency in the development e.g., as a
general partner, depending upon the needs of the project. To qualify as
a ``transportation project'', the transit agency must retain sufficient
continuing control over the property to ensure its continued physical
or functional relationship to transit. 1 This control may be
exerted through any number of legally enforceable contractual
arrangements, ranging from a simple easement to ensure unimpeded access
between the development and the transit factility by transit patrons,
or perhaps some form of reverter clause to take effect in the event
access becomes unreasonably curtailed. Any legally enforceable
arrangement between the transit system and the developer which
preserves the defined physical or functional relationship between the
development and the transit facility should satisfy this requirement.
As long as such control is maintained, the transit agency may retain
all revenues from such joint development as program income.
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\1\ Effective, continuing control of the property for transit
purposes does not substitute for the grantee's obligation to ensure
ongoing access by the general public to the transit facility.
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Policy: FTA encourages transit systems to undertake joint
development projects at and around transit stations, bus terminals,
intermodal facilities and other transit properties, where such projects
are physically or functionally related to the provision of transit
service, and where they increase transit revenues through proceeds from
the joint development. FTA will do this by: making grants under the
authority to support Joint Development provided by 49 U.S.C.
5307,2 5309 (a) (1)-(5), 5309 (a)(7), and 5309 (f), and by
allowing the proceeds from sale, lease or other incumbrance of property
for transit-oriented joint development to be retained by the transit
system for transit operating and capital expenses.
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\2\ FTA has determined that joint development authority under
section 5309(a) is coextensive with section 5307.
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FTA considers transit-oriented joint development already to be
within the scope of nearly all capital grants involving real property
unless expressly prohibited by a special term or condition of the
grant. This is due to a term in most, if not all, capital grants
requiring the grantee to follow FTA's most recent policies and
procedures in administering its grants. Notwithstanding, FTA will
modify existing grants at the request of the grantee, when this step is
desired to expressly reflect transit-oriented joint development in the
grant purpose. In the case of a section 5309 grant made between 1978
and 1983,3 and certain section 5307 grants, FTA will review joint
development proposals on a case-by-case basis, and will work with the
grantee to achieve the purposes of this policy. The FTA Master
Agreement dated October 1, 1996 expressly includes transit-oriented
joint development as an authorized grant purpose.
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\3\ Funding for certain grants may have lapsed which could
prevent their reopening should a change in scope be necessary to
carry out transit oriented joint development.
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This policy applies to projects funded under the following transit
programs: Section 5309, Capital; Section 5307, Urbanized Area Formula;
Section 5310, Elderly and Persons with Disabilities; and Section 5311,
Nonurbanized Area Program.4
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\4\ FTA realizes that properties supported with Nonurbanized
Area or Elderly and Persons with Disabilities program funds are
unlikely candidates for joint development. However, FTA wishes to
make it clear that the source of funding is not to be regarded as an
impediment to a joint development proposal under this policy.
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The policy will not affect leases of real property for non-transit
purposes or disposition of property that is no longer needed for
transit purposes.
Criteria
To be eligible for consideration as a transit-oriented joint
development project under this policy, the project must have the
following characteristics:
It includes a transit element; and
It enhances urban economic development or incorporates
private investment including office, commercial, or residential
development; and
It enhances the effectiveness of a mass transit project,
and the non-transit element is physically or functionally related to
the mass transit project; or
it creates new or enhanced coordination between public
transit and other forms of transportation; or,
it includes nonvehicular capital improvements that result
in increased transit usage, in corridors supporting fixed guideway
systems.
Financial criteria that FTA will use in assessing joint development
projects using land acquired with FTA funds are as follows:
It is FTA's intent that the transit system be able to
negotiate its project benefit whenever possible, on the basis of the
value added to the property by the planning, design and construction
of transit-oriented joint development around the transit facility.
Therefore the project shall generate either a one-time payment or a
revenue stream, the present value of which equals either the current
market value or the appraised value of the property, taking highest
and best transit use into account.5
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\5\ The proposer must make a convincing case that the transit-
oriented joint development will be more beneficial to the transit
system than an outright sale of the property for non-transit
purposes. For example, ``Highest and best transit use'' of a
property for a day care center produces less income than ``highest
and best use'' as a coin-operated laundry, but market sureveys show
it would attract and serve a greater number of transit riders and is
better suited to the overall plan for the area. This would be an
appropriate trade-off.
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When the joint development project is one of several
being undertaken in a program of joint development projects, the
combined revenue streams from all of the projects may be balanced
against the cumulative appraised value of the combined real estate
on a portfolio basis. In such an approach, one project could be
carried forward at a nominal loss, provided other projects in the
same portfolio produced a proportionally greater revenue for the
transit system, resulting in a net present value benefit equal to
the appraised value of the property used, taking highest and best
transit use into account.
As long as the grantee retains effective continuing
control of the joint development project we do not consider this a
disposition of property. Thus, the grantee may retain all revenues
from the project as program income. However, if the grantee cedes
effective continuing control of the property for transit
[[Page 12268]]
use the grantee could be liable for repayment of the Federal share
of the current market value of the property.
Local Supportive Actions
While the preceding criteria are mandatory, the following are
factors that will directly affect the successful implementation of any
transit-oriented joint development, and warrant consideration in a
joint development proposal. To ensure a transit-supportive environment
in the community served by the transit system, FTA encourages local
governments, transportation agencies, employers, building owners and
managers, and public and private developers to work together to
implement policies and strategies that will support transit use in
daily activities. Supportive land use policies include promoting mixed
use and high density development around transit facilities. Urban
design enhancements include landscaping, pedestrian and bicycle
amenities, safety and security improvements, and improved access to
transit services. Transportation management actions include parking
management strategies to increase the cost and reduce the number of
non-transit parking spaces for single occupant vehicles, priority
treatment for transit vehicles, and transit pass programs. Also
included would be activities that extend the hours of operation of
transit facilities and thereby enhance the perception of safety in the
surrounding areas.
Definitions
Joint Development
Joint development projects are commercial, residential, industrial,
or mixed use developments that are undertaken in concert with transit
facilities. They may include private, and non-profit development
activities usually associated with fixed guideway (Rail or Busway)
transit systems that are new or being modernized or extended. Joint
development projects may also be associated with bus facilities,
intermodal transfer facilities (e.g., bus to rail), transit malls, and
Federal, State or local investments in local facilities (such as a bus
terminal and tourist facility). FTA funds may be used to facilitate
development that enhances transit; they may not be used for purely
private development such as construction and permanent financing costs
related to the design or construction of purely retail, residential, or
other commercial public and private revenue-producing facilities.
Highest and Best Transit Use
The highest and best transit use is that combination of
residential, retail, commercial and parking space that results in the
highest level of transit support from a combination of project revenues
and increased ridership. The term is intended to combine the concepts
of highest and best use in real estate assessment with transit-oriented
development. In some circumstances, the highest and best use for a
property, i.e., that use resulting in the greatest cash price for the
property, may not be transit-oriented. Secure storage for construction
equipment, or a coin-operated car wash would be examples of non-
transit-oriented developments. FTA does not intend to limit the local
community's ability to define social or other benefits that it wishes
to achieve through a transit-oriented development. Thus, locally
preferred plans for ``highest and best transit use'' may be acceptable
even if they do not generate the highest possible level of financial
return. The Joint Development proposal will indicate the extent to
which the highest and best transit use value varies from the
traditional highest and best use assessment, and the basis for this
variation.
Physically or Functionally Related
Each project must establish the link between transit and the
proposed joint development project. Issues to be addressed should
include travel time between the joint development and the transit
facility, reasonable access between the development and the transit
facility, trip generation rates of the proposed development, and the
transit system's share of those trips. Functional relationships should
not extend beyond the distance most people will reasonably walk to use
a transit service--about 1,500 feet.
Revenue Stream
Research has shown that the siting and development of transit
service adds to property values near transit stations, and that
collocation of residential, commercial and retail establishments with
the transit system enhances social and economic returns for the
community. Therefore, a joint development project should be planned to
generate revenue for the transit system from this added value. This
revenue may take the form of a one-time cash payment for the sale of
land, air rights, or some other form of property rights. Or it may be a
revenue stream from an installment sale, lease, ground rent, or other
compensation as agreed between the transit system and the developer,
including but not limited to in-kind services such as construction or
maintenance. The payment or revenue stream may be delayed for a time to
support the project purpose, but the present value of all revenues must
equal the current market value based on the highest and best transit
use.
In the case of a program of joint development, conducted on a
corridor or system wide level, FTA will evaluate the revenue stream on
a portfolio basis, requiring that the sum of revenue streams for all
developed properties be equal to the combined appraised value of the
land used to generate the revenues, taking into account the highest and
best transit use.6 There may be instances where the transit
system's participation in a joint development project adds value to
that project above the value of the land itself. This additional value
will allow the transit system to attract development at other, more
``difficult'' properties along the same corridor by making some revenue
concessions on these properties.
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\6\ Within reason, the grantee may also postpone development of
some properties along the corridor, to enhance their final
development value. This should be declared in the joint development
proposal.
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As long as the grantee can demonstrate that it has the ability to
retain effective continuing control of the joint development for
transit use, i.e. its physical or functional relation to transit, it
may retain any proceeds from the project as program income. However, if
the grantee cedes effective control over the property for transit use
it may be liable for reimbursement of the Federal interest in the
property.
Procedures
Joint Development proposals that meet the criteria in this notice
may be submitted at any time to the appropriate FTA regional office,
listed in attachment A. They should include, at a minimum, the Joint
Development agreement, a market and financial assessment of the Joint
Development and its impact on the transit system, and a statement of
the outcome of planning and coordination between the Joint Development
and the transit facility. The proposal should document the projected
benefits for the transit system as well as the effective continuing
control of the Joint Development project for transit purposes, as
outlined in the definition section above.
Authority: 49 U.S.C. 5307, 5309(a)(1)-(5), 5309(a)(7), and
5309(f), as well as 49 CFR Subtitle A.
[[Page 12269]]
Issued on March 10, 1997.
Gordon J. Linton,
Administrator.
Attachment A
Listing of FTA Regions:
Region 1
Volpe National Transportation Systems Center, Kendall Square, 55
Broadway, Suite 920, Cambridge, MA 02142-1093
Region 2
26 Federal Plaza, Suite 2940, New York, NY 10278-0194
Region 3
1760 Market Street, Suite 500, Philadelphia, PA 19103-4124
Region 4
Atlanta Federal Center, 100 Alabama Street, N.W., 17th Floor, Suite
T1750, Atlanta, GA 30303
Region 5
55 East Monroe Street, Rm 1415, Chicago, IL 60603-5704
Region 6
Parkview Place, 524 East Lamar Street, Suite 175, Arlington, TX
76011-3900
Region 7
6301 Rockhill Road, Suite 303, Kansas City, MO 64131-1117
Region 8
Columbine Place, 216 16th Street, Suite 650, Denver, CO 80202-5120
Region 9
201 Mission Street, Suite 2210, San Francisco, CA 94105-1831
Region 10
Jackson Federal Building, 915 Second Ave., Suite 3142, Seattle, WA
98174-1002.
[FR Doc. 97-6462 Filed 3-13-97; 8:45 am]
BILLING CODE 4910-57-P
