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Project Development Guide

Specialized Acquisition Function

REFERENCES

16 U.S.C. 470(f)
23 U.S.C. 108
23 U.S.C. 123
42 U.S.C. 4651 and 4652
Uniform Act, Sections 301 and 302
49 U.S.C. 303
23 CFR 1.23
23 CFR Part 645
23 CFR 645.111
23 CFR 645.209(i)
23 CFR 710.203
23 CFR 710.405
23 CFR 710 Subpart E

23 CFR 710.509
23 CFR 710.601
49 CFR 24.306

The Federal Highway Administration (FHWA), in cooperation with state and local governments, is involved in a number of special programs that are noted in this chapter. Among these are hardship and protective buying of properties on proposed highway locations; utility adjustments in cooperation with public utilities; joint development and multiple use of highway corridors; functional replacement of public facilities; and Federal land transfers for highway purposes.

14.1. HARDSHIP AND PROTECTIVE BUYING

ATTEMPTED CIRCUMVANTION

The Uniform Act states that acquiring agencies shall, to the greatest extent practicable under state law, acquire at least an equal interest in tenant-owned improvements when acquiring real property for a project.

In one example, a state and county were to acquire right-of-way (ROW) from an abandoned railroad. When it became known that the local public agency (LPA) was about to acquire the ROW, the railroad company issued notices to vacate to its tenants, most of whom had tenant-owned improvements. The act of requiring tenants to vacate by the railroad prior to acquisition was considered an attempt to circumvent the rights and entitlements of the tenant-owners under Title III of the Uniform Act.

Corridor preservation for transportation projects is often sought by governmental agencies. While various activities can occur in support of corridor preservation, a number of difficulties remain to be resolved before widespread use of this concept may be available. For information on corridor preservation, look at the early acquisition authority and options outlined in Chapter 6 of this manual.

The hardship and protective buying regulation in 23 CFR 710.503 provides that, prior to the state Department of Transportation (DOT) obtaining environmental approval, a state DOT may request FHWA agreement to provide reimbursement for advance acquisition of a particular parcel or
a limited number of parcels, to prevent imminent development and increased costs on the preferred location, or to alleviate hardship to a property owner, provided:

  1. The project is included in a currently approved statewide transportation improvement program (STIP),

  2. The agency has complied with applicable planning and environmental public involvement requirements in 23 CFR parts 450 and 771,

  3. A determination has been made for any property subject to 23 U.S.C. 138, preservation of parkland, and

  4. Procedures are completed for historic properties.

See Chapter 6 for details.

14.2. TENANT-OWNED IMPROVEMENTS

Under the provisions of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, P.L. 91-646 (Uniform Act) Section 302(b)(1), and 49 CFR 24.105, when an acquiring agency acquires any interest in real property, it shall, to the greatest extent practicable under state law, acquire at least an equal interest in all buildings, structures, or other improvements located upon the real property which it requires to be moved from the real property or which will be adversely affected by the use for which the real property is being acquired.

In many instances, the acquiring agency will discover that the real property has been leased by the owner to a tenant who has erected a building or installed other improvements. The Uniform Act requires that such tenant receive just compensation for any such buildings, structures or improvements. The tenant is due this compensation even if the lease requires the tenant to remove any buildings, structures, or other improvements at the end of the lease term.

Per 49 CFR 24.105(b), any building, structure, or other improvement which would be considered to be real property if owned by the owner of the real property on which it is located shall be considered to be real property for acquisition purposes. Normally, acquisition from the tenant-owner follows the same general acquisition procedures as for a fee owner.

Just compensation for a tenant-owned improvement is the amount which the improvement contributes to the fair market value (FMV) of the whole property or its removal value, whichever is greater. Removal value is considered to be salvage value.

The term salvage value means the probable sale price of an item, if offered for sale on the condition that it will be removed from the property at the buyer's expense, allowing a reasonable period of time to find a person buying with knowledge of the uses and purposes for which it is adaptable and capable of being used, including separate use of serviceable components and scrap when there is no reasonable prospect of sale except on that basis.

The contributory value consists of:

The value in place of a building, structure, or other improvement, the present use of which is the highest and best use (HBU) of the land to be acquired, for its remaining economic life; or

The interim use value of a building, structure, or other improvement, the present use of which is not the HBU of the land to be acquired, for a specified interim time period longer than the remaining term of the lease (interim use value includes the salvage value of the buildings, structures, or other improvements at the end of the interim time period); or

The value in place of a building, structure, or other improvement, the present use of which is not the HBU of the land to be acquired, for the remaining term of the lease plus the worth of its salvage value at the end of the lease term.

Per 24.105(d), no payment shall be made to a tenant-owner for any improvements unless:

  1. The tenant-owner, in consideration for the payment, assigns, transfers, and releases to the (acquiring) agency all of the tenant-owner's right, title, and interest in the improvement;
  2. The owner of the real property on which the improvement is located disclaims all interest in the improvement; and
  3. The payment does not result in the duplication of any compensation otherwise authorized by law.

Per 24.105(e), this provision shall not be construed to deprive the tenant-owner of any rights to reject payment under this provision and to obtain payment for such property interests in accordance with other applicable law.

If there is a possibility that the improvements being acquired are contaminated with hazardous materials or waste, other limitations may apply. If there is known contamination on the property or improvements, contacts with the local health department, the Fire Marshall or state environmental agency become very important. Legal direction may be needed regarding possible retention of these improvements and the potential liability.

14.2.1. IMPLEMENTATION OF TENANT-OWNED IMPROVEMENTS POLICY

This issue has been widely researched throughout the Uniform Act era. States have developed procedures based on state law, however, if there is uncertainty as to how to proceed, legal assistance should be requested. The following are FHWA policy interpretations concerning this section of the Uniform Act.

The Uniform Act requires that if the acquiring agency acquires any interest in real property, then it shall acquire at least an equal interest in all buildings, structures, or improvements located upon the real property acquired which will have to be removed from the real property or which will be adversely affected by the use to which the real property will be put. All owners, whether part-owner, full fee owner, or tenant-owner, are covered under Section 301(2) of the Uniform Act if buildings, structures, and improvements are involved. If buildings, structures, or improvements are not involved, then the obligations to the tenant are a matter only of state law. The following general interpretations have been made by the FHWA and are paraphrased for easier reference.

Refusal to make an offer to acquire buildings, structures, or other improvements of a tenant-owner when the fee to the land is being acquired may constitute a coercive action under Section 301(7). Failure to offer to acquire these would be a violation of the law; would be considered a coercive act by the acquiring agency; and could result in the tenant owner filing an inverse condemnation action. The provisions of Section 301(a) apply to all buildings and structures; and the provisions of Section 302(a) apply to all buildings, structures, and improvements regardless of ownership.

14.3. UTILITY ADJUSTMENTS

Historically, it has been in the public interest for utility facilities to use and occupy the ROW of public roads and streets. This is especially the case on local roads and streets that provide a land service function to abutting residents, as well as on conventional highways that serve a combination of local, state, and regional traffic needs. This practice has been followed nationwide since early development of utility and highway transportation networks. It has proven to offer a feasible, economic, and reliable solution for transporting people, goods, and public service commodities (water, electricity, communications, gas, oil, etc.), all of which are vital to the general welfare, safety, health, and well being of our citizens. To do otherwise would require a tremendous increase in the cost of utilities and result in significant added costs to utility consumers.

Under the common practice of jointly using a common ROW, there are three broad areas of concern to highway and utility officials.

First, is the cost of relocating, replacing, or adjusting utility facilities that fall in the path of proposed transportation improvement projects, commonly referred to as Utility Relocations and Adjustments.

Second, is the installation of utility facilities longitudinally within or across highway ROW and the manner in which they occupy and jointly use such ROW, commonly referred to as the Accommodation of Utilities.

Third, the Congress, in passing the Surface Transportation and Uniform Relocation Assistance Act of 1987 (STURAA), set forth a series of responsibilities that utilities have in other areas of their activities. See the implementing regulations at 49 CFR 24.306. A major issue concerns the secondary acquisition and displacement activities that may occur when a utility restores its facilities when displaced by a highway project. In such cases, a utility receives compensation for its relocation/adjustment costs, in which the FHWA participates pursuant to 23 USC 123, and may include the cost of required replacement utility ROW.

The FHWA has concluded that the secondary acquisition of replacement ROW by a utility compensated for its relocation/ adjustment costs under 23 USC 123 is not subject to the Uniform Act. The FHWA considers this reimbursement made to states pursuant to 23 USC 123 to be a form of compensation to the utility, which is not subject to the requirements of the Uniform Act.

TEMPORARY EASEMENTS

Temporary easements are often required for utility work. The FHWA policy is that if a state or political subdivision acquires replacement ROW, the requirements of the Uniform Act apply. If a utility acquires replacement ROW, the requirements of the Uniform Act do not apply.
In the Uniform Act and 49 CFR Part 24, the meaning of temporary easement is somewhat unclear. This term covers a number of types of documents obtaining a number of temporary property rights or licenses, and must be viewed in each case in light of the specific conditions pertaining to the project. This applies to utilities, as well as other types of projects. Common sense should be applied to minor takings as to whether they are subject to the Uniform Act. Temporary easements may be for: 1) the benefit of the property owner, 2) for mutual benefits to the owner and the acquiring agency, or 3) primarily for the benefit of the acquiring agency. Since frequently there is a taking from the property comprised of a fee simple taking or permanent easement, as well as one or more temporary easements, each element of the taking must be considered separately for application of the Uniform Act. It is the position of the FHWA that the facts related to a temporary taking determine the application or non-application of the Uniform Act and Part 24, rather than the name of the given instrument or the duration of the instrument's effect. You may need legal assistance on this.

Federal-aid funds may participate in relocating utilities displaced by a proposed transportation project when certain conditions have been met. For further details, see 23 CFR Part 645, Subpart A - Utility Relocations, Adjustments, and Reimbursement. Other references include 23 CFR 710.203 and 49 CFR 24.306.

The first step is to check with the appropriate section of the state DOT or with your FHWA Division Office regarding compliance with the appropriate state or agency procedures.

When it is determined that the utility is in fact serving the public, the next step is to determine which of the utility adjustments are potentially eligible for Federal-aid funding. In general, Federal-aid funds may participate in the costs of adjusting utilities where:

If, after the above is satisfied, it is determined that new ROW is required for the utility, there are two options available for obtaining the ROW. First, the utility may obtain the replacement ROW and be reimbursed for its costs. The second option is for the highway agency to be the responsible party for obtaining the ROW for the utility. Many state DOTs now reimburse the utilities cost, with Federal-aid participation. It has been determined to be effective in delivering the project.

If the highway agency acquires the replacement ROW on behalf of the utility, the Uniform Act applies. The responsibility for acquiring the replacement ROW needs to be covered as part of the utility relocation agreement between the highway agency and the public utility approved by the Federal funding agency. The Uniform Act does not require that payment be made to a utility located on highway ROW that is displaced by Federal-aid highway projects, but the Uniform Act does apply to acquisitions of replacement ROW by a state DOT or local highway agency in dealing with property owners. Where the highway agency is paying the displaced utility for the replacement ROW outside the highway limits, the provisions of the Uniform Act do not apply.

Federal Financial Assistance under the Uniform Act

Just compensation that is paid for the acquisition of real property for a public project, and relocation assistance payments that are provided by either the Uniform Act or 23 U.S.C. 123 to businesses, utilities, farms, or persons are not considered to constitute "Federal financial assistance" as defined in the Uniform Act (grants, loans, or contributions) and therefore the recipients of such payments are not required to comply with the requirements of the Uniform Act that are placed upon acquiring or displacing agencies.

14.4. JOINT DEVELOPMENT AND MULTIPLE USE

MULTIPLE USE

The FHWA publication called Highway Joint Development and Multiple Use was prepared in 1979. While not recent, it is useful in understanding these programs and giving examples from around the country. You may be able to view this publication in the FHWA Division Office or state DOT library.

Multiple use of ROW takes place when the corridor serves the needs of more than one corridor user. This is most frequently found between the government transportation agency and public utilities. It involves a continual relationship between the agencies. Co-location of utility substations on publicly-owned lands may be one example, particularly if they are excess to roadway needs. Others may involve coordination of other transportation systems (like bus systems) with development of highway facilities, with added features that benefit both systems (and that may also partially pay for the highway investment through other funding sources). 23 U.S.C. 142(f) requires special consideration be granted to transit uses within the corridor.

Highway joint development or multiple use projects have been carried out for many purposes, but the basic objectives have been to achieve better compatibility between the highway and its environment, and to obtain maximum benefit from the use of scarce real estate. This policy was issued as Chapter 7 of the FHWA Program Manual, but was rescinded and not replaced by other policy statement or regulatory authority. In recent years, security has become a major issue. Restrictions may be put in place to assure public safety.

Joint development or multiple use projects can have a major influence on project location and design. Non-highway activities such as housing, business activities, parking, and recreation can be located in the airspace above or below the highway or on land adjacent to the highway. The designs for highway and the non-highway elements should be developed in close coordination and with a view toward achieving aesthetic harmony, safety, economy, and compatibility with the adjoining neighborhood.

Joint development applies not only to cooperative planning by highway and non-highway agencies, but also involves concern for land use beyond the highway ROW. The intent is to encourage coordinated planning within a broad highway corridor to identify opportunities which would benefit the adjoining communities while achieving transportation objectives and overall cost effectiveness. This is a key component of corridor preservation and is a philosophical base for a number of project development activities.

Federal-aid funds are available for joint development and multiple use studies and may be available for certain multiple use activities. Eligibility for Federal funding is established on a case-by-case basis, taking into account factors such as environmental impacts, degree of mitigation the joint development or multiple use may provide, effects on the transportation objectives, and cost effectiveness. In many cases funding for such features may come from a combination of sources, including Federal, state, local governments, and the private sector. See additional discussion of this subject in Chapter 12.

OPTIONAL METHODS

A number of states and local agencies have active programs to explore joint development and multiple use possibilities. Various methods can include: city/developer funded parking ramps, pedestrian overpasses that improve access to shopping areas, and mall and beautification projects. Most of these are done at the city or local level, and involve coordination between several city departments. Usually these are proposed by the private sector and are explored with the city planning department or political authorities first. It is important that the real estate section become involved early in this process, to protect the substantial transportation investment that the local government has in the roadway facility, and preserve options for future road improvements as well as serving revenue enhancement, joint use purposes in the shorter term.

SAMPLE PROJECTS

A typical joint development / multiple use process would include:

  1. A study to investigate the potential for joint development / multiple use activities for the various highway locations;
  2. The continuation of that process after the highway location has been selected to identify specific multiple use activities in the highway corridor;
  3. The economic evaluation of the real estate interests needed by each party and the payments due under the requirements of 23 U.S.C. 142(f) and 156;
  4. Implementation of design and construction of necessary features; and
  5. Implementation of security measures, as needed.

Some examples follow:

14.5. FUNCTIONAL REPLACEMENT

The functional replacement program was developed by the FHWA to provide an alternative method of acquiring and compensating for publicly owned property providing essential public services. The regulatory reference is 23 CFR 710.509, functional replacement of real property in public ownership. Ready examples are schools, police and fire stations, and local parks.

Functional replacement is at the option of the acquiring agency and may be utilized if: (1) it is allowed under state law; (2) the owning agency requests functional replacement; (3) the state ROW operating manual incorporates full procedures covering review and oversight that will be applied to each case; and (4) the state DOT requests functional replacement from the FHWA, and FHWA concurs in the public interest determination. The governmental agency owning the facility may, at its option, choose to accept conventional acquisition and cash compensation based on the appraised FMV of the acquired property. Cash compensation is not based on the value of the replacement facility. The functional replacement program amounts to an administrative settlement where recognition is given to the situation where cash compensation may be insufficient to restore the status quo as the result of acquiring a public facility. In a sense, this is similar to a last resort housing concept applied to publicly owned properties.

Upon state DOT request, Federal-aid funds may participate in functional replacement costs involving:

  1. The cost of the actual facility replacement, plus
  2. The reasonable cost of acquiring a functionally equivalent substitute site. The appraised FMV of the land to be acquired for highway purposes is used when the owning agency has land on which to relocate the facilities.

Costs of increases in capacity and other betterments or enhancements are not eligible for Federal participation except where necessary to replace the public facility's utility, unless required by existing codes, laws, zoning regulations, or related to reasonable prevailing standards for the facility being replaced. Where the FMV of the property to be acquired exceeds the cost of functional replacement, Federal-aid funds may participate in the FMV amount.

Publicly owned land and/or improvements may be functionally replaced with a facility of equivalent functional utility to that acquired for the highway project. As primary coordinators, state DOT should meet early in the process with the owning agency, and develop a mutually acceptable course of action.

At the earliest stage, the state DOT shall have the property appraised to establish its FMV, and inform the owning agency of the FMV. The FHWA may participate in the cost of specialty appraisals required in establishing FMV. At this point, the owning agency has the option of accepting the amount of compensation based on the FMV determination or accepting functional replacement. The owning agency may waive its opportunity to have an estimate of compensation established by appraisal if it prefers functional replacement.

Where a state DOT wishes to have the opportunity to offer public agencies the opportunity to have their facilities acquired for transportation purposes through the functional replacement process, the state DOT will set forth in their ROW operations manual full procedures covering review and oversight which will be applied to each case. These processes will include where FHWA participation in costs is desired, concurrence in the state DOT determination that functional replacement is in the public interest.

Functional replacement has been used in a limited number of cases in most states. Typically, functional replacement projects have been replacement of publicly owned land or state/municipal facilities. Replacement of lands may involve parks, recreational areas, wetlands, and other publicly owned areas. Among the most commonly replaced facilities have been police and fire stations, as well as municipal garages or maintenance facilities. Other types of buildings have been libraries and city or county government buildings. Because facilities must meet current codes and standards, a good deal of coordination and agreement between all parties is necessary before such projects can be undertaken. The importance of early coordination cannot be over stressed. If functional replacement will apply to a project, contact the state DOT or the FHWA as soon as possible to discuss the specifics of the situation.

14.6. FEDERAL LAND TRANSFERS

Title 23 U.S.C. Sections 107(d) and 317 provide for the transfer of lands or interests in the lands owned by the United States to a state DOT or its nominee for highway purposes. The regulations which prescribe the procedures relating to Federal land transfers are found in 23 CFR 710.601.

If lands or interests in lands owned by the United States are needed for highway purposes, the state DOT or its nominee should first file a land transfer application with the FHWA. There is an exception to this process when such lands or interests are managed or controlled by an agency with independent transfer authority, such as the Army, Air Force, Navy, Veterans Administration, or Bureau of Indian Affairs, for example. Transfer application can be made directly to these agencies or their land acquisition agent. The state DOT should ascertain if the agency desires or will entertain direct application.
Information on the contents of the application, the deed for conveying the lands or interests and other details on the transferring of lands can be found in the 2009 FHWA Manual for Federal Land Transfer for Federal-aid Projects. This Manual provides step-by-step procedures for transferring Federal lands, as well as examples of application and conveyance deeds.

Usually, the state DOT, or its nominee, will work out the details of a project with the local office of the Federal agency, e.g., National Forest or Park Service from whom the land is sought, prior to submitting the formal application to the FHWA. This eases the application process and minimizes delays and surprises. A local public agency that desires a Federal land transfer should apply through the state DOT to the FHWA to assure state requirements are met.

Updated: 04/02/2013
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