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Transportation Equity Act for the 21st Century

Provisions for Greater Flexibility in Acquiring and Managing Real Property


TEA-21 - Corridor and Property Management Opportunities

Office of Real Estate Services

Introduction

Sections 1301 and 1303 of TEA-21, signed into law by President Clinton on June 9, 1998, provide States and local governments greater flexibility in acquiring and managing real property to support transportation systems. While no additional Federal funding is provided by TEA-21, sections 1301 and 1303 provide opportunities for States and local governments to leverage their transportation investment through prudent and timely acquisition and management of real property.

This document outlines TEA-21's amendments to 23 U.S.C. sections 108 (Advance acquisition of real property), 323 (Donations and credits), and 156 (Proceeds from the sale or lease of real property). Attachments include the amended language in 23 U.S.C. sections 108, 156, and 323 (Attachment A) and questions and answers regarding program implementation of TEA-21's right-of-way provisions (Attachment B).

Amendment of 23 U.S.C. 108 and 323

Sections 1211 (e) and 1301 of TEA-21 amend 23 U.S.C. sections 108 and 323. The impacts of these changes are discussed in the following paragraphs.

Continued Support for Advance Acquisition of Real Property

The amended 23 U.S.C. 108 (a), which contains only minor editorial revisions, does not change any program requirements and retains FHWA's ability to provide funding for protective purchases and hardship acquisitions necessitated by Federally funded projects.

23 U.S.C. 108 (c), formerly subsection (d), has not been revised. Section 108 (c) permits Federal reimbursement of costs incurred by States and local governments for the acquisition of real property in advance of Federal approval or authorization if the real property is incorporated into a Federally funded project. Additional restrictions governing the Federal share payable of such costs are specified in section 108 (c)(2).

As discussed below, in lieu of Federal reimbursement of the fair market value of real property incorporated into Federally funded projects, the amended 23 U.S.C. 323 (b) allows the value of such lands, with certain restrictions specified in section 323 (b), to be credited toward the non-Federal share of Federally funded projects. If this option is selected, Federal reimbursement of other costs associated with the acquisition (e.g., relocation expenses, net property management costs, etc.) would be subject to the requirements of 23 U.S.C. 108 (c).

Termination of the Right-of-Way Revolving Fund

Section 1211 (e) of TEA-21 amends 23 U.S.C. 108 (c) to terminate the right-of-way revolving fund and adds a transition provision. It provides that funds advanced to a State prior to June 9, 1998 will remain available to that State for acquisition purposes for a period of 20 years. The requirements for the utilization of these funds were not affected. It also provides that a credit to the Highway Trust Fund, in an amount equal to the funds advanced, will be made by the State upon the expiration of the 20 year period, when construction commences, or upon approval of the plans, specifications, and estimates for the project, whichever occurs first.

Credit for State or Local Government Acquired Lands and Local Government Contributions

Prior to TEA-21, 23 U.S.C. 323's provision for non-Federal share credits was limited to the fair market value of real property, funds, materials, and services that had been donated by private citizens and incorporated into Federally funded projects. The amended section 323 expands the non-Federal share credit provision to include the fair market value of lands acquired by States and local governments in accordance with subsection (b), and local government contributions of real property, funds, and materials. The expanded non-Federal share provisions of section 323 apply to projects where the initial project agreement is executed on or after June 9, 1998. The intent of this provision is to provide a means of leveraging the Federal funds apportioned to each State by providing a credit based on the value of publicly-owned assets incorporated into Federally funded projects.

There are, based on current Office of Real Estate Services (ORES) policy, certain exemptions to the non-Federal share credit provisions of section 323. Non-Federal share credits are not available for: (1) lands acquired with any form of Federal financial assistance, and (2) lands currently incorporated within the operating right-of-way limits of a transportation facility.

Amendment of 23 U.S.C. 156

Section 1303 of TEA-21 amends 23 U.S.C. 156 to require States to charge fair market value (with certain exceptions for social, environmental, and economic purposes) for the sale or lease of real property acquired with Federal assistance from the Highway Trust Fund, and allows States to use the Federal share of net income from the sale or lease of such property for Title 23 eligible projects. The impact of this change is discussed in the following paragraphs.

Property Management Income Retained for Use on Title 23 Eligible Projects

Prior to TEA-21, section 156 required States to charge fair market value (with certain exceptions for social, environmental, and economic mitigation purposes) for the sale or lease of right-of-way airspace acquired in whole or in part with Federal assistance from the Highway Trust Fund, and allowed States to retain the Federal share of net income generated from the sale or lease of such airspace for use on Title 23 eligible projects. The amended section 156 expands this provision to include income generated from the sale or lease of all real property acquired with Federal assistance from the Highway Trust Fund.

A credit to Federal funds, as outlined in 49 CFR 18.31 (c) and 23 CFR 713.307, is no longer required for real property disposals consummated on or after June 9, 1998. This change will eliminate the States' administrative overhead costs associated with Federal fund credits andallow States to expand their Federal-aid programs.

The requirement for States to charge, "at a minimum, fair market value" for the sale or lease of real property requires clarification. For real property disposals and leases, fair market value may represent either: (1) the amount of the approved appraisal or agent's price estimate, (2) the negotiated price, or (3) the highest bid received at a public sale. The term "at a minimum, fair market value" does provide for negotiations or public bidding in excess of the amount of the approved appraisal or price estimate. This does not, however, preclude a State from negotiating a price or accepting a high bid that is less than the amount of the approved appraisal or price estimate.

As was previously the case, FHWA may grant an exception to the fair market value requirement if the real property will be used for a social, environmental, or economic purpose. The purpose of this provision is to provide States with the flexibility to charge less than fair market value for lands acquired with Federal assistance if such lands, once sold or leased, would be used for some purpose of public benefit. The elimination of the term "mitigation" broadens the scope of the exception provision.

Conclusion

TEA-21's amendment of 23 U.S.C. sections 108, 156, and 323 provides greater opportunities for States and local governments to leverage their transportation investments in Federally funded projects. 23 U.S.C.'s new provisions allow States and local governments to: (1) retain the Federal share of net income from the sale or lease of real property acquired with Federal assistance for use on Title 23 eligible projects, and (2) receive credit toward the non-Federal share for the fair market value of acquired lands and local government contributions of real property, funds, or material incorporated into Federally funded projects. These new provisions, which provide opportunities to increase funding of the non-Federal share of Federally funded projects, will allow States and local governments to expand their Federal-aid programs.

Attachments

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ATTACHMENT A

Amended 23 U.S.C. 108, 156, and 323

Sec. 108. Advance acquisition of real property

  1. In General.--

    1. Availability of funds.-- For the purpose of facilitating the timely and economical acquisition of real property for a transportation improvement eligible for funding under this title, the Secretary, upon the request of a State, may make available for the acquisition of real property, such funds apportioned to the State as may be expended on the transportation improvement under such rules and regulations as the Secretary may issue.

    2. Construction.--The agreement between the Secretary and the State for the reimbursement of the cost of the real property shall provide for the actual construction of the transportation improvement within a period not to exceed 20 years following the fiscal year for which the request is made, unless the Secretary determines that a longer period is reasonable.

  2. Federal participation in the cost of rights-of-way acquired under subsection (a) of this section shall not exceed the Federal pro rata share applicable to the class of funds from which Federal reimbursement is made.

  3. Early Acquisition of Rights-of-Way.

    1. General rule. - Subject to paragraph (2), funds apportioned to a State under this title may be used to participate in the payment of-

      1. costs incurred by the State for acquisition of rights-of-way, acquired in advance of any Federal approval or authorization, if the rights-of-way are subsequently incorporated into a project eligible for surface transportation program funds; and

      2. costs incurred by the State for the acquisition of land necessary to preserve environmental and scenic values.

    2. Terms and conditions. - The Federal share payable of the costs described in paragraph (1) shall be eligible for reimbursement out of funds apportioned to a State under this title when the rights-of-way acquired are incorporated into a project eligible for surface transportation program funds, if the State demonstrates to the Secretary and the Secretary finds that-

      1. any land acquired, and relocation assistance provided, complied with the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970;

      2. the requirements of title VI of the Civil Rights Act of 1964 have been complied with;

      3. the State has a mandatory comprehensive and coordinated land use, environment, and transportation planning process under State law and the acquisition is certified by the Governor as consistent with the State plans before the acquisition;

      4. the acquisition is determined in advance by the Governor to beconsistent with the State transportation planning process pursuant to section 135 of this title;

      5. the alternative for which the right-of-way is acquired is selected by the State pursuant to regulations to be issued by the Secretary which provide for the consideration of the environmental impacts of various alternatives;

      6. before the time that the cost incurred by a State is approved for Federal participation, environmental compliance pursuant to the National Environmental Policy Act has been completed for the project for which the right-of-way was acquired by the State, and the acquisition has been approved by the Secretary under this Act, and in compliance with section 303 of title 49, section 7 of the Endangered Species Act, and all other applicable environmental laws shall be identified by the Secretary in regulations; and

      7. before the time that the cost incurred by a State is approved for Federal participation, both the Secretary and the Administrator of the Environmental Protection Agency have concurred that the property acquired in advance of Federal approval or authorization did not influence the environmental assessment of the project, the decision relative to the need to construct the project, or the selection of the project design or location.

TRANSITION PROVISION

  1. In General.-- Funds advanced to a State by the Secretary from the right-of-way revolving fund established by section 108(c) of title 23, United States Code, prior to the date of enactment of this Act shall remain available to the State for use on the projects for which the funds were advanced for a period of 20 years from the date on which the funds were advanced.

  2. Credit to the Highway Trust Fund.-- With respect to a project for which funds have been advanced from the right-of-way revolving fund, upon the termination of the 20-year period referred to in subparagraph (A), when actual construction is commenced, or upon approval by the Secretary of the plans, specifications, and estimates for the actual construction of the project on the right-of-way, whichever occurs first -

    1. the Highway Trust Fund (other than the Mass Transit Account) shall be credited with an amount equal to the Federal share of the funds advanced, as provided in section 120 of title 23, United States Code, out of any Federal-aid highway funds apportioned to the State in which the project is located and available for obligation for projects of the type funded; and

    2. the State shall reimburse the Secretary in an amount equal to the non-Federal share of the funds advanced for deposit in, and credit to, the Highway Trust Fund (other than the Mass Transit Account).

Sec. 156. Proceeds from the sale or lease of real property.

  1. Minimum Charge.--Subject to section 142(f), a State shall charge, at a minimum, fair market value for the sale, use, lease, or lease renewal (other than for utility use and occupancy or for a transportation project eligible for assistance under this title) of real property acquired with Federal assistance made available from the Highway Trust Fund (other than the Mass Transit Account).

  2. Exceptions.--The Secretary may grant an exception to the requirement of subsection (a) for a social, environmental, or economic purpose.

  3. Use of Federal Share of Income.--The Federal share of net income from the revenues obtained by a State under subsection (a) shall be used by the State for projects eligible under this title.

Sec. 323. Donations and credits

  1. Donations of Property Being Acquired. - Nothing in this title, or in any other provision of law, shall be construed to prevent a person whose real property is being acquired in connection with a project under this title, after he has been fully informed of his right to receive just compensation for the acquisition of his property, from making a gift or donation of such property, or any part thereof, or of any of the compensation paid therefor, to a Federal agency, a State or a State agency, or a political subdivision of a State, as said person shall determine.

  2. Credit for Acquired Lands.--

    1. In General.-- Notwithstanding any other provision of this title, the State share of the cost of a project with respect to which Federal assistance is provided from the Highway Trust Fund (other than the Mass Transit Account) may be credited in an amount equal to the fair market value of any land that--

      1. is lawfully obtained by the State or a unit of local government in the State;

      2. is incorporated into the project;

      3. is not land described in Section 138; and

      4. the Secretary determines will not influence the environmental assessment of the project, including--

        1. the decision as to the need to construct the project;

        2. the consideration of alternatives; and

        3. the selection of a specific location.

    2. Establishment of fair market value.-- The fair market value of land incorporated into a project and credited under paragraph (1) shall be established in the manner determined by the Secretary, except that--.

      1. the fair market value shall not include any increase or decrease in the value of donated property caused by the project; and.

      2. the fair market value of donated land shall be established as of the earlier of--

        1. the date on which the donation becomes effective; or

        2. the date on which equitable title to the land vests in the State

    3. Limitation on applicability.-- This subsection shall not apply to donations made by an agency of the Federal government.

    4. Limitation on amount of credit. - The credit received by a State pursuant to this subsection may not exceed the State's matching share for the project.

  3. Credit for Donations of Funds, Materials, or Services. - Nothing in this title or any other law shall prevent a person from offering to donate funds, materials, or services in connection with a project eligible for assistance under this title. In the case of such a project with respect to which the Federal Government and the State share in paying the cost, any donated funds, or the fair market value of any donated materials or services, that are accepted and incorporated into the project by the State highway department shall be credited against the State share.

  4. Procedures. - A gift or donation in accordance with subsection (a) may be made at any time during the development of a project. Any document executed as part of such donation prior to the approval of an environmental document prepared pursuant to the National Environmental Policy Act of 1969 shall clearly indicate that -

    1. all alternatives to a proposed alignment will be studied and considered pursuant to such Act;

    2. acquisition of property under this section shall not influence the environmental assessment of a project including the decision relative to the need to construct the project or the selection of a specific location; and

    3. any property acquired by gift or donation shall be revested in the grantor or successors in interest if such property is not required for the alignment chosen after public hearings, if required, and completion of the environmental document.

  5. Crediting of Contributions by Units of Local Government Toward the State Share.--A contribution by a unit of local government of real property, funds, or material in connection with a project eligible for assistance under this title shall be credited against the State share of the project at the fair market value of the real property, funds, or material.

ADVANCE ACQUISITION OF REAL PROPERTY & DONATIONS AND CREDITS

Purpose

Section 1301 of TEA-21amends sections 108 (a) and 323 of Title 23, United States Code, to provide States and local governments greater flexibility in acquiring and managing real property to support transportation systems.

Continued Support for Protective Purchases and Hardship Acquisitions

The amended 23 U.S.C. 108 (a), contains only minor editorial revisions to pre-TEA-21 provisions permitting Federal funding for protective purchases and hardship acquisitions necessitated by Federally funded projects [1301 (a)].

Credit for Acquired Land and Local Government Contributions

Prior to TEA-21, 23 U.S.C. 323's provision for non-Federal share credits was limited to the fair market value of real property, funds, materials or services that had been donated by private citizens and incorporated into Federally funded projects. The amended 23 U.S.C. 323 expands the non-Federal share credit provision to include the fair market value of lands acquired by States and local governments in accordance with subsection (b), and local government contributions of real property, funds or materials in connection with a project [1301 (b)].

The expanded non-Federal share provision of 23 U.S.C. 323 applies to projects where the initial project agreement is executed on or after June 9, 1998. The intent of this provision is to provide greater flexibility to states and local governments.

Based on current Office of Real Estate Services (ORES) policy, the non-Federal share credit provision of 23 U.S.C. 323 does not apply to: (1) lands acquired with any form of Federal financial assistance, and (2) lands currently incorporated within the operating right-of-way limits of a transportation facility.

TEA-21's amendment of 23 U.S.C. 323, which expands the non-Federal share credit provision, will provide States and local governments greater flexibility. Questions and answers regarding program implementation of section 1301 of TEA-21 are addressed in Advance Acquisition of Real Property & Donations and Credits - Questions and Answers.

TEA-21 establishes how the value of donations by private individuals is to be determined. Property purchased by local public agencies or states in advance of project authorization are not donations and are to be valued on the basis of historic cost or current fair market value at the state's or local public agency's election.

PROCEEDS FROM THE SALE OR LEASE OF REAL PROPERTY

Purpose

Section 1303 of TEA-21 amends section 156 of Title 23, United States Code, to provide States and local governments greater flexibility in acquiring and managing real property to support transportation systems.

Before Amendment by TEA-21

Prior to TEA-21, 23 U.S.C. 156 required States to charge, "as a minimum, fair market value" (with certain exceptions for social, environmental and economic mitigation purposes), for the sale or lease of right-of-way airspace acquired as a result of a project funded in whole or in part with Federal assistance from the Highway Trust Fund, and allowed States to retain the Federal share of net income generated from the sale or lease of right-of-way airspace on Title 23 eligible projects.

After Amendment by TEA-21

The amended section 156 expands this provision by requiring States to charge, "at a minimum, fair market value" (with certain exceptions for social, environmental or economic purposes), for the sale or lease of real property acquired with Federal assistance from the Highway Trust Fund, and allows States to retain the Federal share of net income generated from the sale or lease of real property for use on Title 23 eligible projects [1303 (a)].

The requirement for States to charge, "at a minimum, fair market value" for the sale or lease of real property requires clarification. For real property disposals and leases, fair market value may represent either: (1) the amount of the approved appraisal or agent's price estimate, (2) the negotiated price, or (3) the highest bid received at public sale. The term "at a minimum, fair market value" does provide for negotiations or public bidding in excess of the amount of the approved appraisal or price estimate. This does not, however, preclude a State from negotiating a price or accepting a high bid that is less than the amount of the approved appraisal or price estimate.

A credit to Federal funds, as outlined in 49 CFR 18.31 (c) and 23 CFR 713.307, is no longer required for real property disposals consummated on or after June 9, 1998. This change will eliminate the States' administrative overhead costs associated with Federal fund credits and allow State to leverage their transportation investments in Federally funded projects and thereby expand their Federal-Aid programs. Questions and answers regarding program implementation of section 1303 of TEA-21 are addressed in Proceeds from the Sale or Lease of Real Property -Questions and Answers.

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ATTACHMENT B

Questions and Answers

Section 1301 of TEA-21, Advance Acquisition of Real Property and Donations and Credits
Section 1211 of TEA-21, Termination of Right of Way Revolving Fund

Q1. Is there any significance in the change from using the term "right-of-way" to "real property?"

A1. Yes. There is legal significance to changing the term "right-of-way" to "real property." The term "real property" generally refers to any interest in land. The term "right-of-way," on the other hand, generally refers to a longitudinal strip of land used for transportation purposes. For example, the amended 23 U.S.C. 156 permits States to retain the Federal share of net income from the sale or lease of real property acquired with Federal assistance from the Highway Trust Fund. In this instance, the term "real property" provides for States to retain the Federal share of net income from the sale or lease real property located both within and outside of the right-of-way. In the amended 23 U.S.C. 108 (a), the use of the term "real property" takes into account that not all acquired real property will ultimately be incorporated into Federally funded projects. The term also encompasses property that may be required for transportation enhancements, environmental mitigation, or CMAQ projects.

Q2. Will the allowable credit for early acquisitions be the historic cost incurred or the current fair market value of the acquired property?

A2. The allowable credit for early acquired lands may be based on either the current fair market value or historic acquisition cost of such lands. The method selected (i.e., current fair market value or historic acquisition cost) by the State must be used on a consistent basis and specified in the State's Right-of-Way Manual. The State's Right-of-Way Manual may also specify certain criteria which would allow for use of the alternate method. For example, a State's Right-of-Way Manual may require that historic acquisition costs be used as the primary basis for credit purposes and that current fair market value would be used in those instances where: (1) there has been a significant lapse in time since the property was acquired, or (2) there has been a significant change in market conditions (not caused by the project) since the property was acquired.

Q3. Can the credit for early acquired lands include all costs associated with the early acquisition such as relocation expenses, property management costs, and costs incidental to the purchase, e.g., appraisal fees, recording costs, etc.?

A3. No. The allowable credit for early acquired lands is limited to the current fair market value or historic acquisition costs of such lands (see above). Federal reimbursement of other costs associated with the acquisition are subject to the requirements of the amended 23 U.S.C. 108 (c).

Q4.Will credit for the cost of early acquisitions before the passage of TEA-21 be allowed?

A4. Yes, provided the relevant project agreement is executed on or after June 9, 1998.

Q5. If an agency decides to acquire all of the project right-of-way with its own funds and apply the value of the property incorporated into the project toward its share of the cost of construction, what will the acquiring agency be required to provide to the Federal funding agency to support the amount of the desired credit?

A5. The agency must provide documentation supporting the amount of credit sought for the acquired lands. The documentation must include: (1) a certification by the agency that the requirements for acquired lands specified in 23 U.S.C. 323 (b)(1) were satisfied, and (2) evidence supporting either the current fair market value (e.g., copies of the Certificates of Value or Review Appraiser Statements) or historic acquisition costs (e.g., closing statements, etc.) of the acquired lands.

Q6. When a project advances to the construction authorization stage, the final cost of the acquired right-of-way is frequently unknown due to outstanding condemnation cases. Assuming the agency has acquired the required property with its own funds and desires a credit toward the cost of construction, will the allowed credit be limited to the acquisition costs incurred as of the date of the credit application?

A6. In such cases, while the initial allowable credit would be limited to the current fair market value of the acquired lands as of the date of the project agreement, the allowable credit may be adjusted upon resolution of the outstanding condemnation case(s).

Q7. How will the credit be applied to innovative projects such as SIB loans? Should the credit be taken from the amount the State or local government has pledged to repay the loan?

A7. While there is a possibility that credit for land acquisition may be used in SIB-assisted projects, the main application of the changes in 23 U.S.C. 323 applies to standard Federal-aid project activities. The SIB is a State-backed entity that is capitalized with Federal funds and matched with non-Federal funds, at the State's traditional matching ratio. According to the SIB Guidance, SIB capitalization grants must be matched with liquid funds. So, at the time of capitalization, donated land, etc., would not count toward the State match. However, the non-Federal match is not required at the project-by-project loan level. The board of the SIB establishes its own requirements for repayments. It would be up to each SIB whether it found sufficient value in donated land, etc., to give up the liquid repayment funds available to lend to subsequent projects. SIBs have assisted projects that receive some portion of a project's total cost in regular Federal-aid grant funds and some portion in SIB loan funds. The matching requirements would be different for each portion of the financing. Regarding the second question, see the above reservation on whether the SIB would be willing to accept such payment. The purpose and operating characteristics of each SIB may dictate whether they would be willing to use land, materials or other non-cash contributions to fulfill repayment terms. The credit provisions will more likely apply to normal Federal-aid projects where the State matching share can be reduced by the acquisition cost of land incorporated into the project. Such credit,while available as of the effective date of TEA-21, must be determined and agreed upon as of the date FHWA and the State enter into the project agreement for the project on which the credit will be applied. Lands already used for transportation purposes, such as existing right-of way being required for a new or upgraded facility, will not be eligible for receipt of a credit.

Q8. Do early acquisitions by local governments or private parties for Federally funded projects need to conform to the Uniform Act requirements?

A8. Yes, to be eligible for reimbursement, the amended 23 U.S.C. 108 (c)(2)(A) requires that any land acquired, and relocation assistance provided, comply with the requirements of the Uniform Act. To be eligible for credit, the amended 23 U.S.C. 323 (b)(1)(A) requires that the acquired land was "lawfully obtained." In such instances, if the property was acquired for a transportation purpose under the threat of eminent domain (subsequent to the Uniform Act), the requirements of the Uniform Act would apply. If the property was acquired by other means (e.g., local government acquisition via tax delinquency or exaction), it must have been acquired in accordance with the laws of the jurisdiction in which the property is located.

Q9. Is park land the land described in section 138 of Title 23? Can public park land incorporated into a project which furthers the park use qualify for credit? Can public owned right-of-way incorporated into a project qualify for credit?

A9. 23 U.S.C. 138, 49 U.S.C. 303, and 23 CFR 771.135 describe the national policy regarding the preservation of 4(f) lands (i.e., publicly owned park and recreation lands, wildlife and waterfowl refuges, and historic sites). Federally funded projects requiring the use of such lands will not be approved unless: (1) there is no feasible and prudent alternative to the use of such land, and (2) the action includes all possible planning to minimize harm to such park, recreational area, wildlife and waterfowl refuge, or historic site resulting from such use. 23 U.S.C. 323 (b)(1)(C) prohibits non-Federal share credits for the incorporation of lands described in 23 U.S.C. 138 into Federally funded projects. Based on current Office of Real Estate Services (ORES) policy, non-Federal share credits are also not available for: (1) lands acquired with any form of Federal financial assistance, and (2) lands currently incorporated within the operating right-of-way limits of a transportation facility.

Q10. Can lands acquired as part of a project funded by the right-of-way revolving fund, where the right-of-way project has been converted to a regular Federal-aid project, be credited toward the non-Federal share of the project?

A10. No. A credit toward the non-Federal share of the project would not allowed since the lands were acquired with Federal assistance.

Section 1303 of TEA-21, Proceeds from the Sale or Lease of Real Property

Q1. Does the net income received from the sale or lease of real property acquired with Federal funds have to be applied to a project of like nature, or can the funds be used on any kind of Title 23 eligible project?

A1. The net income received from the sale or lease of real property can be used on any Title 23 eligible project, including transit.

Q2. What should the State do with the net income received from the sale or lease of real property acquired with Federal funds if the funds can't be used right away?

A2. The Federal share of net income should be held in an appropriate state account. It does not have to be a unique account, as long as records are adequate to document ultimate use of the funds. When the State is ready to use the funds, the total amount of such funds shall be used on Title 23 eligible projects.

Q3. Would a sale of excess real property initiated prior to June 9, 1998 and closed on or after that date require a credit to Federal funds as required by 23 CFR 713.307 or 49 CFR 18.31?

A3. There would be no credit to Federal funds provided the sale closed on or after June 9, 1998. (Note: 23 CFR Subchapter H is currently being revised to address this and other real estate program issues.)

Q4. Do the changes in the right-of-way sales and lease provisions apply to mineral sales and royalties from Federal-aid purchased property (i.e., can proceeds be used for Title 23 purposes and not credited back to the Federal funds)? Can these funds be used on Title 23 eligible projects that do not follow Federal requirements?

A4. Oil, gas, and other mineral interests are real property interests. When States acquire real property with Federal assistance from the Highway Trust Fund, 23 U.S.C. 156 permits States to sell or lease such interests for fair market value and retain the Federal share of net income (gross proceeds less sale or lease costs) for use on Title 23 eligible projects. A credit to Federal funds is not required. With regards to the second question, the project would only need to be a Title 23 eligible project. The State-retained Federal share of net income must be used on either a Federal-aid project or a State-funded project that is eligible for Title 23 funding.

Q5. In order for an acquiring agency to retain the proceeds from the sale, lease, etc. of property acquired with Federal assistance, Section 1303 provides that the agency shall charge, at a minimum, the fair market value of the property to be leased or sold. Considering that an acquiring agency rarely, if ever, receives more than the fair market value of property sold or leased, what was the intent of Congress by including the language "at a minimum?"

A5. It is unclear what the specific intent of Congress was in requiring States to charge, at a minimum, fair market value for the sale or lease of real property acquired with Federal assistance. The previous 23 U.S.C. 156, enacted in 1987, required States to charge, as a minimum, fair market value for the sale or lease of airspace acquired with Federal assistance. One possible explanation is that Congress wanted States to be able to negotiate or dispose of properties via public sale for amounts in excess of the approved appraisals.

Q6. Can expenses associated with the sale or lease of real property acquired with Federal funds be deducted from the gross proceeds for the purpose of calculating the proceeds subject to use on Title 23 projects?

A6. Yes. The Federal share of net income, to be retained by the States and used for Title 23 eligible projects, is calculated by deducting the disposition or leasing costs from the gross proceeds from the sale or lease.

Q7. Can income from the sale or lease of real property acquired with Federal funds be credited to an account or project that would benefit transit?

A7. The net income may be used for any project that is eligible for assistance under Title 23. This would include transit projects that are eligible for assistance under the surface transportation or CMAQ programs.

Q8. If the State chooses, can income from the sale or lease of real property acquired with Federal funds be credited to a past or future project instead of making a showing that the income was credited to their transportation program?

A8. The net income should be deposited in a state transportation fund or credited to a current Title 23 eligible project.

Q9. Neither the old or amended section 156 of Title 23 addresses the status of a project relative to being open or closed. How does Section 1303 of TEA-21 affect 23 CFR 713, Subpart C and 49 CFR 18.31? If the referenced CFR sections are eliminated, and all income can now be handled under the amended section 156 procedures, is it necessary to be concerned whether a project is open or closed? If so, if disposal income is received for property originally purchased with Federal funds which have since lapsed, what effect, if any, would that have on the policies as outlined in section 1303? Would there ever be a time in project delivery when a credit would still be required, i.e., acquisition phase/post construction phases?

A9. The credit to Federal funds requirements of 23 CFR 713.307 and 49 CFR 18.31 have been superceded by the amended 23 U.S.C. 156, i.e., a credit to Federal funds is no longer required for disposals of real property which close on or after June 9, 1998. Regardless of the status of the project, the Federal share of net income would be retained by the States and used for Title 23 eligible projects.

Q10. Will property management disposition costs now be considered eligible for Federal participation and chargeable to Federal-aid projects? If so, will it be necessary for State agenciesto credit Federal-aid projects which have had disposition costs billed to them prior to depositing a net proceed amount into a State Road Fund? If not, should disposition costs be deducted from sale proceeds to arrive at a net income amount which would be deposited in the State Road Fund or can the total gross amount of sale income be deposited for use on Title 23 eligible projects?

A10. Real property disposition and leasing costs should be deducted from gross sales or lease proceeds to arrive at a net income amount that would be deposited in an appropriate state fund until used on Title 23 eligible projects. Net property management costs for maintenance, protection, clearance, and improvement disposition until final project acceptance are eligible for Federal participation.

Q11. Will FHWA Headquarters be issuing guidance on what FHWA considers to be an acceptable method(s) of State certification regarding the Federal share of net income that has been deposited in the State Road Fund during the fiscal year and the amount of the Federal share of net income that was expended on Title 23 eligible projects during the fiscal year?

A11. 23 U.S.C. 156 does not require State certification regarding the amount of the Federal share of net income deposited in a transportation fund and subsequently expended on Title 23 eligible projects. However, as a practical matter, States should have an accounting system in place which documents: (1) the amount of the Federal share of net income deposited in the a state transportation fund during the fiscal year, and (2) the amount of the Federal share of net income expended on Title 23 eligible projects during the fiscal year.

Q12. Can States retain the net income from dispositions of withdrawn Interstate segments or would a credit to Federal funds in accordance with 23 CFR 480.109 be required?

A12. States may retain the net income for dispositions of withdrawn Interstate segments provided that: (1) such title transfers occur on or after June 9, 1998, and (2) the Federal share of net income is used on Title 23 eligible projects.

Q13. Our state has and continues to reimburse FHWA for their participation in the purchase of excess lands at the time of sale. We are proposing to payback FHWA's financial investment in our excess land inventory as soon as we can reach an agreement. One aspect of our proposal is that we deposit 100% of the sales revenues to our State Highway Account until used for Title 23 eligible projects. Does this aspect of our proposal comply with the intent of TEA-21? With the implementation of our proposal, will we be required to continue to sell Federal excess land parcels prior to submission of the final voucher or not later than 2 years from the time the highway is open for traffic, whichever is earlier? Will we be required to track Federally eligible sales, and if so, to what degree do they need to be tracked? Will it be necessary to track the exact amount of the Federal billing portion? (Note: Any FHWA requirements for the preceding two questions would require complex and time-consuming modifications to our computer systems. Any such required modifications to our computer systems would not be accomplished in the foreseeable future due the amount of computer programming required for the year 2000.) TEA-21 has been in effect since June 9, 1998, however, we understand that it will take some time to revise the CFRs. What are the risks involved if we decide to implement procedures to comply with TEA-21 prior to the completed revision of the CFRs?

A13. TEA-21's amendment of 23 U.S.C. 156 eliminated the required credit to Federal funds for disposals of real property acquired with Federal assistance. The Federal share of net income from excess land disposals should be deposited into an appropriate state account until used on Title 23 eligible projects. The answer to the second question is no. 23 CFR 713.306 (c) outlines the time frame for excess land disposals when a credit to Federal funds is required in accordance with 23 CFR 713.307. As noted above, the amended 23 U.S.C. 156 eliminated this required credit. Excess lands should, however, be disposed of as soon as it is determined that such lands are not required for a present or future transportation use. To answer the third question, while not required by current Federal regulations, as a good business practice, your State should maintain a current inventory of its excess lands regardless of whether such properties were acquired with Federal funds. To answer the fourth question, the amended 23 U.S.C. 156 requires that the Federal share of net income from the sale or lease of real property acquired with Federal assistance be used by the State for Title 23 eligible projects. To account for the Federal share of net income generated from the sale or lease of such real property, your State should have an accounting system in place which documents: (1) the amount of the Federal share of net income deposited in a state account during the fiscal year, and (2) the amount of the Federal share of net income expended on Title 23 eligible projects during the fiscal year. To answer your final question, there is little risk if your procedures are consistent with the statute, but they will also have to be consistent with the revised CFR. It is not expected that the revised CFR will be more prescriptive than TEA-21 language.

Q14. If a state law requires the state DOT to sell or lease property at less than the current fair market value, does the state law take precedence over federal law requiring fair market value for property or access control previously obtained with Title 23 funds?

A14. No, the state law does not take precedence. Federal law governs the sale or lease of real property that was obtained as apart of a Federal-Aid project. If Federal funds are used to purchase real property, or if Federal credit is received for real property used in a federally funded project, the sale, use or lease of such property rights are subject to Federal law. State laws do not take precedence over Federal property disposition standards where Federal funds or credits were involved in the property acquisition.

To provide Feedback, Suggestions or Comments for this page, contact Kathleen Facer at kathleen.facer@fhwa.dot.gov.

 

Updated: 09/05/2014
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