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[Federal Register Volume 76, Number 221 (Wednesday, November 16, 2011)]
[Rules and Regulations]
[Pages 70878-70882]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29533]

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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.

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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]
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