[Federal Register Volume 76, Number 221 (Wednesday, November 16, 2011)]
[Rules and Regulations]
[Pages 70878-70882]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-29533]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF DEFENSE
Office of the Secretary
32 CFR Part 174
[Docket ID: DOD-2010-OS-0135]
RIN 0790-AI67
Revitalizing Base Closure Communities and Addressing Impacts of
Realignment
AGENCY: Office of the Under Secretary of Defense for Acquisition,
Technology, and Logistics, DoD.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: Section 2715 of the National Defense Authorization Act for
Fiscal Year 2010, Public Law 111-84, amended the Defense Base Closure
and Realignment Act of 1990 to change the authority of the Department
of Defense to convey property to a local redevelopment authority (LRA)
for purposes of job generation on a military installation closed or
realigned under a base closure law. Such a conveyance is known as an
Economic Development Conveyance (EDC). Economic Development Conveyances
were created by amendments to the Base Closure and Realignment law in
1993, creating a new tool for communities experiencing negative
economic effects caused by the elimination of a significant number of
jobs in the community. Congress recognized that the existing authority
under the Federal Property and Administrative Services Act of 1949 (as
amended and otherwise known as the Real Property Act) was not
structured to deal with the unique challenges of assisting base closure
communities with economic recovery and job creation, many with decaying
or obsolete infrastructure and other redevelopment
[[Page 70879]]
challenges. Under this revised authority, the Department is no longer
required to seek fair market value for an EDC. An EDC may be for
consideration at or below the estimated fair market value, including
without consideration. The amendment expands the flexibility of the
Department regarding the form of consideration it may accept, including
the authority to accept consideration in the form of revenue sharing or
so-called ``back-end'' funding. Back-end funding is consideration
consisting of a share of the revenues that the LRA receives from third-
party buyers or lessees from sales and leases of the conveyed property,
consideration in kind (including goods and services), real property and
improvements, or such other consideration as the Secretary considers
appropriate.
The amendment also provides that the Department's determination of
the consideration may account for the economic conditions of the local
affected community and the estimated costs to redevelop the property.
This final rule amends the existing regulation on reutilization of
installations closed under the base closure process to conform to the
amendment to the Defense Base Closure and Realignment Act of 1990 and
makes other improvements that encourage expedited property transfers
for job creation that allow for the Department to recover a share of
the revenues obtained.
DATES: Effective Date: This final rule is effective December 16, 2011.
FOR FURTHER INFORMATION CONTACT: Robert Hertzfeld, (703) 604-6020.
SUPPLEMENTARY INFORMATION:
I. Background
This final rule implements statutory changes and enables the
military departments to expedite the EDC process. Closed military bases
represent a potential engine of economic activity and job creation for
the local affected communities. When disposing of property using an
EDC, the military departments should use the full breadth of their
authority to structure conveyances that respond to the job creation and
redevelopment challenges of the individual community.
The amended law no longer requires the Department to seek fair
market value when conveying property to eligible recipients.
Accordingly, a transfer may be made below estimated fair market value
or without consideration if the LRA agrees to reinvest sale or lease
proceeds for not less than seven years and to take title to the
property within a reasonable timeframe. This rule also amends the
regulation to delete the requirement for the Department to obtain an
appraisal of the property as part of an EDC conveyance, and instead
allows the military departments to conduct the type of analysis it
deems appropriate to protect the interest of the Government and to make
an informed decision. The analysis should be based on the uses
identified in the community reuse plan, rather than an independent
analysis of highest and best use. This regulation emphasizes the use of
EDCs to best promote the economic redevelopment of the former
installation. With this change, the Department has the option to pursue
property value by obtaining a share of the revenues obtained from the
redevelopment of the property. Experience has shown that estimates of
fair market value for property at closing installations, especially
those requiring substantial future investment in redevelopment, can
vary widely due to the uncertainties inherent in significant long-term
redevelopment projects and different projections of costs and revenues
over a potential 20-30 year development cycle that may occur on a large
closing installation. Elimination of the requirement to estimate the
fair market value, along with related appraisal requirements, should
expedite the conveyance process and remove what has been a common
source of conflict and delay between the community and the Department.
Accordingly, the final rule establishes as DoD policy a requirement
that, for every EDC, the LRA must reinvest sale or lease proceeds for
at least seven years after transfer and take title to the property
within a reasonable timeframe. This makes the determination of fair
market value of the property unnecessary for purposes of establishing
EDC terms and conditions. It also eliminates the need to establish a
process by which the fair market value of property to be conveyed by
EDC must be determined. The final rule does allow the Secretary
concerned to obtain and use any information deemed appropriate, which
may include economic and market analysis, construction estimates, a r
pro forma cash flow analysis, and appraisals, to ensure that decisions
regarding property disposal are properly informed. If the proposed
conveyance does not meet the requirements for an EDC, or if the LRA
does not agree to reinvest sale or lease proceeds for at least seven
years and to take title to the property within a reasonable timeframe,
the Secretary concerned may pursue a negotiated sale to a public entity
at fair market value, including a negotiated sale for economic
development purposes, under regulations at 41 CFR 102-75.880, et seq,
or competitive public sale.
This rule streamlines the disposal process by separating the
eligibility criteria for an EDC from the criteria guiding the
negotiation of the terms and conditions. It also makes the application
more concise and incorporates adjustments to reflect current market
conditions and to recognize local community investment and risk. This
final rule implements the revised EDC authority in a manner intended to
clarify and streamline the Economic Development Conveyance process and
assist affected communities in job generation. As explained below in
the response to public comments, additional changes have been made to
address those comments and to better clarify the Department's intent.
Public Comments
The Department of Defense published a proposed rule on December 17,
2010 (75 FR 78946) and received comments from four individuals/
organizations. All comments were generally supportive of the revised
regulation, particularly the increased flexibility and promotion of
community reuse and redevelopment efforts. Following is a summary of
the individual comments and the Department's responses.
Comment: One comment addressed the reporting requirements contained
in paragraph 174.9(d)(8); specifically the requirement to maintain
separate reinvestment reporting requirements for each transfer when
property is transferred in phases. The person making the comment
thought that this proposed requirement would result in a ``difficult,
expensive and time consuming process for both local jurisdiction and
the Department''. The commenter suggested that the reporting
requirement should be at least seven years from the date of the initial
transfer.
Response: The Department agrees that, as proposed, the requirement
for keeping track of separate reporting timelines for individual
parcels conveyed would create a confusing and burdensome requirement.
The Department thinks a simple solution to meet the congressional
intent of the reinvestment requirement is to have the reinvestment
requirement extend for at least seven years after the last transfer.
This requirement should simplify the process and ensure that funds are
dedicated to the redevelopment of the former installation to promote
its successful redevelopment. The Department recognizes that some
parcels may have beneficial use
[[Page 70880]]
transferred before physical title through the use of a lease in
furtherance of conveyance, and the final rule treats such property as a
transfer for determining the start of the reinvestment period. The rule
has been changed accordingly.
Comment: One comment addressed the requirement contained in
paragraph 174.9(d)(9) that requires the Local Redevelopment Authority
to accept control of the property within a reasonable time after the
date of the property disposal record of decision. The commenter was
concerned that this requirement does not fully address the
circumstances of the transfer and asks the Department to add ``under
the circumstances'' after ``in a reasonable time''.
Response: The Department does not believe a change is necessary. It
is assumed that all parties act reasonably with regard to the
individual facts and circumstances of each property. The property will
only be ready for transfer after a property disposal record of decision
is issued. No change was made to the rule to address this comment.
Comment: One comment was very supportive of the removal of the
requirement to conduct an appraisal in all circumstances and was
generally supportive of the language contained in paragraph 174.9(k)
which provides that the consideration should be based on a business
plan and development pro forma that assumes the uses in the
redevelopment plan. The commenter suggests that the basis of
consideration should be required to be a business plan and development
pro forma. This would be accomplished by changing the word ``should''
to ``shall''.
Response: The Department believes that the military departments
should have the flexibility to treat each EDC application on an
individual basis and create a transaction that is both fair to the
Government and to the local community. For most large redevelopment
projects, the basis of consideration needs to be a business plan and
development pro forma due to the uncertainties inherent in large, long
term redevelopment projects. Not all properties subject to this
regulation are large, long term redevelopment projects and the
Department needs to maintain flexibility for differing circumstances.
The use of the word ``should'' maintains needed flexibility, but
denotes a policy preference for use in most circumstances. No change in
the final rule was made to address this comment.
Comment: One comment expressed concern over the inclusion of
environmental clean-up savings when evaluating an EDC application, as
provided for in paragraph 174.9(f)(8). The commenter thought that
consideration of this factor would transfer the burden of clean-up
costs to the local community.
Response: Paragraph 174.9(f)(8) does not transfer clean-up costs to
local communities. The Department retains the responsibility for
environmental restoration to meet all applicable standards. This
paragraph allows the Department to take into account the benefit of
phasing clean-up schedules with planned reuse when negotiating the
consideration paid by the Local Redevelopment Authority. No change was
made in the final rule to address this comment.
Comment: One comment raised a concern about complying with the
provisions of the McKinney Act with regard to the needs of the homeless
as part of a community economic development strategy.
Response: The Base Closure Community Redevelopment and Homeless
Assistance Act exempted Base Closure communities from the McKinney Act
and substituted an alternative process for evaluating the needs of the
homeless in the base property disposal process. This rule only effects
Local Redevelopment Authorities that have already complied with the
requirements of the Base Closure Community Redevelopment and Homeless
Assistance Act, since a requirement of making an EDC application is an
approved redevelopment plan. No change was made to the final rule to
address this comment.
II. Regulatory Procedures
Executive Order 12866, ``Regulatory Planning and Review'' and Executive
Order 13563, ``Improving Regulation and Regulatory Review''
It has been certified that 32 CFR part 174 does not:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy; a section of the
economy; productivity; competition; jobs; the environment; public
health or safety; or State, local, or tribunal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another Agency;
(3) Materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs, or the rights and obligations of
recipients thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
these Executive Orders.
Sec. 202, Public Law 104-4, ``Unfunded Mandates Reform Act''
It has been certified that 32 CFR part 174 does not contain a
Federal mandate that may result in the expenditure by State, local and
tribunal governments, in aggregate, or by the private sector, of $100
million or more in any one year.
Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)
It has been certified that 32 CFR part 174 is not subject to the
Regulatory Flexibility Act (5 U.S.C. 601) because it would not, if
promulgated, have a significant economic impact on a substantial number
of small entities.
Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35)
It has been certified that 32 CFR part 174 does not impose
reporting or recordkeeping requirements under the Paperwork Reduction
Act of 1995.
Executive Order 13132, ``Federalism''
It has been certified that 32 CFR part 174 does not have federalism
implications, as set forth in Executive Order 13132. This rule does not
have substantial direct effects on:
(1) The States;
(2) The relationship between the National Government and the
States; or
(3) The distribution of power and responsibilities among the
various levels of Government.
List of Subjects in 32 CFR Part 174
Community development; Government employees; Military personnel;
Surplus Government property.
Accordingly, 32 CFR part 174 is amended as follows:
PART 174--[AMENDED]
0
1. The authority citation for part 174 continues to read as follows:
Authority: 10 U.S.C. 113 and 10 U.S.C. 2687 note.
0
2. Section 174.9 is revised to read as follows:
Sec. 174.9 Economic development conveyances.
(a) The Secretary concerned may transfer real property and personal
property to the LRA for purposes of job generation on the former
installation. Such a transfer is an Economic Development Conveyance
(EDC).
(b) An LRA is the only entity eligible to receive property under an
EDC.
(c) The Secretary concerned shall use the completed application,
along with other relevant information, to decide
[[Page 70881]]
whether to enter into an EDC with an LRA. An LRA may submit an EDC
application only after it adopts a redevelopment plan. The Secretary
concerned shall establish a reasonable time period for submission of an
EDC application after consultation with the LRA.
(d) The application shall include:
(1) A copy of the adopted redevelopment plan.
(2) A project narrative including the following:
(i) A general description of the property requested.
(ii) A description of the intended uses.
(iii) A description of the economic impact of closure or
realignment on the local community.
(iv) A description of the economic condition of the community and
the prospects for redevelopment of the property.
(v) A statement of how the EDC is consistent with the overall
redevelopment plan.
(3) A description of how the EDC will contribute to short- and
long-term job generation on the installation, including the projected
number and type of new jobs it will assist in generating.
(4) A business/operational plan for development of the EDC parcel,
including at least the following elements:
(i) A development timetable, phasing schedule, and cash flow
analysis.
(ii) A market and financial feasibility analysis describing the
economic viability of the project, including an estimate of net
proceeds over the planned life of the redevelopment project, but in no
event for less than fifteen years after the initial transfer of
property, and the proposed consideration or payment to the Department
of Defense. The proposed consideration should describe the methodology
for payment and include draft documents or instruments proposed to
secure such payment.
(iii) A cost estimate and justification for infrastructure and
other investments needed for redevelopment of the EDC parcel.
(iv) A proposed local investment and financing plan for the
development.
(5) A statement describing why an EDC will more effectively enable
achievement of the job generation objectives of the redevelopment plan
regarding the parcel requested for conveyance than other federal real
property disposal authorities.
(6) Evidence of the LRA's legal authority to acquire and dispose of
the property.
(7) Evidence that:
(i) The LRA has authority to perform the actions required of it,
pursuant to the terms of the EDC, and
(ii) That the officers submitting the application and making the
representations contained therein on behalf of the LRA have the
authority to do so.
(8) A commitment from the LRA that the proceeds from any sale or
lease of the EDC parcel (or any portion thereof) received by the LRA
during at least the first seven years after the date of the initial
transfer of property, except proceeds that are used to pay
consideration to the Secretary concerned under paragraph (h) of this
section, shall be used to support economic redevelopment of, or related
to, the installation. In the case of phased transfers, the Secretary
concerned shall require that this commitment apply during at least the
first seven years after the date of the last transfer of property to
the LRA. For the purposes of calculating this reinvestment period, a
lease in furtherance of conveyance shall constitute a transfer. The use
of proceeds to pay for, or offset the costs of, public investment on or
related to the installation for any of the following purposes shall be
considered a use to support the economic redevelopment of, or related
to, the installation--
(i) Road construction;
(ii) Transportation management facilities;
(iii) Storm and sanitary sewer construction;
(iv) Police and fire protection facilities and other public
facilities;
(v) Utility construction;
(vi) Building rehabilitation;
(vii) Historic property preservation;
(viii) Pollution prevention equipment or facilities;
(vix) Demolition;
(x) Disposal of hazardous materials and hazardous waste generated
by demolition;
(xi) Landscaping, grading, and other site or public improvements;
and
(xii) Planning for or the marketing of the development and reuse of
the installation.
(9) A commitment from the LRA to execute the agreement for transfer
of the property and accept control of the property within a reasonable
time, as determined by the Secretary concerned after consultation with
the LRA, after the date of the property disposal record of decision.
The determination of reasonable time should take account of the ability
of the Secretary concerned to provide the deed covenants, or covenant
deferral, provided for under section 120(h)(3) and (4) of the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 (42 U.S.C. 9620(h)(3) and (4)).
(e) The Secretary concerned shall review the application and, to
the extent practicable, provide a preliminary determination within 30
days of receipt as to whether the Military Department can accept the
application for negotiation of terms and conditions, subject to the
following findings:
(1) The LRA submitting the application has been duly recognized by
the DoD Office of Economic Adjustment;
(2) The application is complete. With respect to the elements of
the application specified in paragraph (d)(6) and (d)(7)(i) of this
section, the Secretary concerned may accept the application for
negotiation of terms and conditions without this element, provided the
Secretary concerned is satisfied that the LRA has a reasonable plan in
place to provide the element prior to transfer of the property; and
(3) The proposed EDC will more effectively enable achievement of
the job generation objectives of the redevelopment plan regarding the
parcel requested than the application of other federal real property
disposal authorities.
(f) Upon acceptance of an EDC application, the Secretary concerned
shall determine if the proposed terms and conditions are fair and
reasonable. The Secretary concerned may propose and negotiate any
alternative terms or conditions that the Secretary considers necessary.
The following factors shall be considered, as appropriate, in
evaluating the terms and conditions of the proposed transfer, including
price, time of payment, and other relevant methods of compensation to
the Federal government:
(1) Local economic conditions and adverse impact of closure or
realignment on the region and potential for economic recovery through
an EDC.
(2) Extent of short- and long-term job generation.
(3) Consistency with the entire redevelopment plan.
(4) Financial feasibility of the development and proposed
consideration, including financial and market analysis and the need and
extent of proposed infrastructure and other investments.
(5) Extent of state and local investment, level of risk incurred,
and the LRA's ability to implement the redevelopment plan. Higher risk
assumed and investment made by the LRA should be recognized with more
favorable terms and conditions, to encourage local investment to
support job generation.
[[Page 70882]]
(6) Current local and regional real estate market conditions,
including market demand for the property.
(7) Incorporation of other Federal agency interests and concerns,
including the applicability of other Federal surplus property disposal
authorities.
(8) Economic benefit to the Federal Government, including
protection and maintenance cost savings, environmental clean-up
savings, and anticipated consideration from the transfer.
(9) Compliance with applicable Federal, state, interstate, and
local laws and regulations.
(g) The Secretary concerned shall negotiate the terms and
conditions of each transaction with the LRA. The Secretary concerned
shall have the discretion and flexibility to enter into agreements that
specify the form of payment and the schedule.
(h)(1) The Secretary concerned may accept, as consideration, any
combination of the following:
(i) Cash, including a share of the revenues that the local
redevelopment authority receives from third-party buyers or lessees
from sales and leases of the conveyed property (i.e., a share of the
revenues generated from the redevelopment project);
(ii) Goods and services;
(iii) Real property and improvements; and
(iv) Such other consideration as the Secretary considers
appropriate.
(2) The consideration may be accepted over time.
(3) All cash consideration for property at a military installation
where the date of approval of closure or realignment is before January
1, 2005, shall be deposited in the account established under Section
2906(a) of the Defense Base Closure and Realignment Act of 1990 (part A
of title XXIX of Pub. L. 101-510; 10 U.S.C. 2687 note). All cash
consideration for property at a military installation where the date of
approval of closure or realignment is after January 1, 2005, shall be
deposited in the account established under Section 2906A(a) of the
Defense Base Closure and Realignment Act of 1990 (part A of title XXIX
of Pub. L. 101-510; 10 U.S.C. 2687 note).
(4) The Secretary concerned may use in-kind consideration received
from an LRA at any location under control of the Secretary concerned.
(i) The LRA and the Secretary concerned may agree on a schedule for
sale of parcels and payment participation.
(j) Additional provisions shall be incorporated in the conveyance
documents to protect the Department's interest in obtaining the agreed
upon consideration, which may include such items as predetermined
release prices, accounting standards, or other appropriate clauses
designed to ensure payment and protect against fraudulent transactions.
Every agreement for an EDC shall contain provisions allowing the
Secretary concerned to recoup from the LRA such portion of the proceeds
from a sale or lease by the LRA as the Secretary concerned determines
appropriate if the LRA does not use the proceeds to support economic
redevelopment of or related to the installation during the period
specified in paragraph (d)(8) of this section. The Secretary concerned
and an LRA may enter into a mutually agreed participation agreement
which may include input by the Secretary concerned on the LRA's
disposal of EDC parcels.
(k) The Secretary concerned should take account of property value
but is not required to formally determine the estimated fair market
value of the property for any EDC. The consideration negotiated should
be based on a business plan and development pro-forma that assumes the
uses in the redevelopment plan. The Secretary concerned may determine
the nature and extent of any additional information needed for purposes
of an informed negotiation. This may include, but is not limited to, an
economic and market analysis, construction estimates, a real estate pro
forrma analysis, or an appraisal. To the extent not prohibited by law,
information used should be shared with the LRA.
(l) After evaluating the application based upon the criteria
specified in paragraph (f) of this section, and negotiating terms and
conditions, the Secretary concerned shall present the proposed EDC to
the Deputy Under Secretary of Defense (Installations and Environment)
for formal coordination before announcing approval of the application.
Sec. 174.10 [Removed and Reserved]
0
3. Section 174.10 is removed and reserved.
Dated: November 10, 2011.
Aaron Siegel,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 2011-29533 Filed 11-15-11; 8:45 am]
BILLING CODE 5001-06-P