[Federal Register Volume 62, Number 50 (Friday, March 14, 1997)]
[Notices]
[Pages 12266-12269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-6462]


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DEPARTMENT OF TRANSPORTATION
Federal Transit Administration


Policy on Transit Joint Development

AGENCY: Federal Transit Administration (FTA), U.S. Department of 
Transportation.

SUMMARY: FTA is revising and clarifying its Joint Development policies 
with respect to program income in relation to real estate acquired with 
funds under Federal transit law, 49 U.S.C. 5301 et seq. This Notice 
supplements the guidance contained in Appendix B of FTA Circular 9300.1 
``Joint Development Projects.'' All joint development projects 
undertaken in conformance with this policy will be considered ``mass 
transportation projects'' eligible for funding under FTA capital 
programs. This policy is applicable to development of properties 
acquired under previous grants as well as new grants, as specified in 
the FTA Master Agreement dated October 1, 1996. All such projects must 
generate a one-time payment or revenue stream for transit use, the 
present value of which equals or exceeds the fair market value of the 
property. In determining the fair market value, FTA will consider 
appraisal methods which factor in the ``highest and best transit use'' 
of the property as defined in the body of this notice. Where the 
grantee retains continuing control and use of the joint development for 
mass transportation purposes, all proceeds will be considered program 
income. Proposals that meet the criteria described below may be 
submitted at any time to the appropriate FTA regional office, listed in 
Attachment A.

DATES: Effective March 14, 1997.

FOR FURTHER INFORMATION CONTACT: Richard Steinmann, Director, Office of 
Policy Development, on (202) 366-4060; or Paul Marx, Economist, on 
(202) 366-1675.

SUPPLEMENTARY INFORMATION:

Introduction

    Transit systems have long been encouraged to undertake joint 
development projects in connection with their rail transit stations. 
However, apparent inconsistencies between transit laws, the Common 
Grant Rule and FTA policy may have dissuaded some transit authorities 
from initiating joint development projects. This notice clarifies the 
relationship between transit laws and regulations and FTA policy 
regarding property disposition, leases of property, and sale of 
property for joint development. This FTA policy statement affects 
primarily the treatment of program income with regard to joint 
development and the definition of ``highest and best transit use'' in 
joint development.
    Transit systems are permitted in 49 U.S.C. 5309 (a)(1)--(5) and (7) 
[former Section 3(a)(1)(D) of the Federal Transit Act] to use grant 
funds to also support ``transportation projects which enhance the 
effectiveness of any mass transportation project and are physically or 
functionally related to such mass transportation project or which 
create new or enhanced coordination between public transportation and 
other forms of transportation, either of which enhance urban economic 
development or incorporate private investment including commercial and 
residential development.'' The Intermodal Surface Transportation 
Efficiency Act of 1991 (ISTEA) added Section 3 (a)(1)(F), now codified 
at 49 U.S.C. 5309(a)(7), to the Federal transit laws. This section 
allows FTA grant funds to support any ``other nonvehicular capital 
improvements that the Secretary may decide would result in increased 
mass transportation usage in the corridor.''
    FTA is encouraging transit systems to undertake transit-oriented 
Joint Development projects either under new grants or with property 
acquired under previous grants, whether the property is associated with 
a rail, bus or other transit facility. The purpose of this Joint 
Development should be both to secure a revenue stream for the transit 
system and to help shape the community that is being served by the 
transit system. Where the grantee retains effective continuing control 
over the joint development for mass transportation purposes (such as an 
easement, or a contractual arrangement), all proceeds of sale, lease or 
other incumbrance of the property will be treated as program income for 
use by the transit system to meet capital and operating needs. This is 
a departure from previous policy in two areas. First, FTA will now 
define all

[[Page 12267]]

revenue derived from such joint development to be program income as 
defined in the Common Grant Rule at 49 CFR, Subtitle A, Sec. 18.25. 
Second, grantees may use the new concept of ``highest and best transit 
use'', as an alternate to ``highest and best use'', in valuing real 
property for transit-oriented joint development. To accomplish this 
change, the FTA Master Agreement has been expressly modified to include 
joint development as an eligible activity in all capital grants to 
which it applies. Further, grantees may request amendment of grants 
issued prior to FY 1997, as desired, to expressly include joint 
development within the scope of such grants.
    In accordance with this new policy, transit agencies have three 
options: they can sell property as excess for non-transit use; they can 
lease the property for incidental, non-interfering use by others while 
the property is held for a future identified transit use; or they can 
undertake a transit-oriented joint development on the property. In the 
case of a sale without a continuing transit use, property disposition 
rules under the Common Grant Rule at 49 CFR, Subtitle A, Sec. 18.31 
apply. That is, the pro-rata Federal share of the net proceeds of a 
sale at fair market value are returned to the U.S. Treasury.
    Transit-oriented joint development can be accomplished through a 
sale or lease of federally funded property, or through direct 
participation of the transit agency in the development e.g., as a 
general partner, depending upon the needs of the project. To qualify as 
a ``transportation project'', the transit agency must retain sufficient 
continuing control over the property to ensure its continued physical 
or functional relationship to transit. <SUP>1 This control may be 
exerted through any number of legally enforceable contractual 
arrangements, ranging from a simple easement to ensure unimpeded access 
between the development and the transit factility by transit patrons, 
or perhaps some form of reverter clause to take effect in the event 
access becomes unreasonably curtailed. Any legally enforceable 
arrangement between the transit system and the developer which 
preserves the defined physical or functional relationship between the 
development and the transit facility should satisfy this requirement. 
As long as such control is maintained, the transit agency may retain 
all revenues from such joint development as program income.
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    \1\ Effective, continuing control of the property for transit 
purposes does not substitute for the grantee's obligation to ensure 
ongoing access by the general public to the transit facility.
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    Policy: FTA encourages transit systems to undertake joint 
development projects at and around transit stations, bus terminals, 
intermodal facilities and other transit properties, where such projects 
are physically or functionally related to the provision of transit 
service, and where they increase transit revenues through proceeds from 
the joint development. FTA will do this by: making grants under the 
authority to support Joint Development provided by 49 U.S.C. 
5307,<SUP>2 5309 (a) (1)-(5), 5309 (a)(7), and 5309 (f), and by 
allowing the proceeds from sale, lease or other incumbrance of property 
for transit-oriented joint development to be retained by the transit 
system for transit operating and capital expenses.
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    \2\ FTA has determined that joint development authority under 
section 5309(a) is coextensive with section 5307.
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    FTA considers transit-oriented joint development already to be 
within the scope of nearly all capital grants involving real property 
unless expressly prohibited by a special term or condition of the 
grant. This is due to a term in most, if not all, capital grants 
requiring the grantee to follow FTA's most recent policies and 
procedures in administering its grants. Notwithstanding, FTA will 
modify existing grants at the request of the grantee, when this step is 
desired to expressly reflect transit-oriented joint development in the 
grant purpose. In the case of a section 5309 grant made between 1978 
and 1983,<SUP>3 and certain section 5307 grants, FTA will review joint 
development proposals on a case-by-case basis, and will work with the 
grantee to achieve the purposes of this policy. The FTA Master 
Agreement dated October 1, 1996 expressly includes transit-oriented 
joint development as an authorized grant purpose.
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    \3\ Funding for certain grants may have lapsed which could 
prevent their reopening should a change in scope be necessary to 
carry out transit oriented joint development.
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    This policy applies to projects funded under the following transit 
programs: Section 5309, Capital; Section 5307, Urbanized Area Formula; 
Section 5310, Elderly and Persons with Disabilities; and Section 5311, 
Nonurbanized Area Program.<SUP>4
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    \4\ FTA realizes that properties supported with Nonurbanized 
Area or Elderly and Persons with Disabilities program funds are 
unlikely candidates for joint development. However, FTA wishes to 
make it clear that the source of funding is not to be regarded as an 
impediment to a joint development proposal under this policy.
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    The policy will not affect leases of real property for non-transit 
purposes or disposition of property that is no longer needed for 
transit purposes.

Criteria

    To be eligible for consideration as a transit-oriented joint 
development project under this policy, the project must have the 
following characteristics:
    <bullet> It includes a transit element; and
    <bullet> It enhances urban economic development or incorporates 
private investment including office, commercial, or residential 
development; and
    <bullet> It enhances the effectiveness of a mass transit project, 
and the non-transit element is physically or functionally related to 
the mass transit project; or
    <bullet> it creates new or enhanced coordination between public 
transit and other forms of transportation; or,
    <bullet> it includes nonvehicular capital improvements that result 
in increased transit usage, in corridors supporting fixed guideway 
systems.
    Financial criteria that FTA will use in assessing joint development 
projects using land acquired with FTA funds are as follows:

    <bullet> It is FTA's intent that the transit system be able to 
negotiate its project benefit whenever possible, on the basis of the 
value added to the property by the planning, design and construction 
of transit-oriented joint development around the transit facility. 
Therefore the project shall generate either a one-time payment or a 
revenue stream, the present value of which equals either the current 
market value or the appraised value of the property, taking highest 
and best transit use into account.<SUP>5
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    \5\ The proposer must make a convincing case that the transit-
oriented joint development will be more beneficial to the transit 
system than an outright sale of the property for non-transit 
purposes. For example, ``Highest and best transit use'' of a 
property for a day care center produces less income than ``highest 
and best use'' as a coin-operated laundry, but market sureveys show 
it would attract and serve a greater number of transit riders and is 
better suited to the overall plan for the area. This would be an 
appropriate trade-off.
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    <bullet> When the joint development project is one of several 
being undertaken in a program of joint development projects, the 
combined revenue streams from all of the projects may be balanced 
against the cumulative appraised value of the combined real estate 
on a portfolio basis. In such an approach, one project could be 
carried forward at a nominal loss, provided other projects in the 
same portfolio produced a proportionally greater revenue for the 
transit system, resulting in a net present value benefit equal to 
the appraised value of the property used, taking highest and best 
transit use into account.
    <bullet> As long as the grantee retains effective continuing 
control of the joint development project we do not consider this a 
disposition of property. Thus, the grantee may retain all revenues 
from the project as program income. However, if the grantee cedes 
effective continuing control of the property for transit

[[Page 12268]]

use the grantee could be liable for repayment of the Federal share 
of the current market value of the property.

Local Supportive Actions

    While the preceding criteria are mandatory, the following are 
factors that will directly affect the successful implementation of any 
transit-oriented joint development, and warrant consideration in a 
joint development proposal. To ensure a transit-supportive environment 
in the community served by the transit system, FTA encourages local 
governments, transportation agencies, employers, building owners and 
managers, and public and private developers to work together to 
implement policies and strategies that will support transit use in 
daily activities. Supportive land use policies include promoting mixed 
use and high density development around transit facilities. Urban 
design enhancements include landscaping, pedestrian and bicycle 
amenities, safety and security improvements, and improved access to 
transit services. Transportation management actions include parking 
management strategies to increase the cost and reduce the number of 
non-transit parking spaces for single occupant vehicles, priority 
treatment for transit vehicles, and transit pass programs. Also 
included would be activities that extend the hours of operation of 
transit facilities and thereby enhance the perception of safety in the 
surrounding areas.

Definitions

Joint Development

    Joint development projects are commercial, residential, industrial, 
or mixed use developments that are undertaken in concert with transit 
facilities. They may include private, and non-profit development 
activities usually associated with fixed guideway (Rail or Busway) 
transit systems that are new or being modernized or extended. Joint 
development projects may also be associated with bus facilities, 
intermodal transfer facilities (e.g., bus to rail), transit malls, and 
Federal, State or local investments in local facilities (such as a bus 
terminal and tourist facility). FTA funds may be used to facilitate 
development that enhances transit; they may not be used for purely 
private development such as construction and permanent financing costs 
related to the design or construction of purely retail, residential, or 
other commercial public and private revenue-producing facilities.

Highest and Best Transit Use

    The highest and best transit use is that combination of 
residential, retail, commercial and parking space that results in the 
highest level of transit support from a combination of project revenues 
and increased ridership. The term is intended to combine the concepts 
of highest and best use in real estate assessment with transit-oriented 
development. In some circumstances, the highest and best use for a 
property, i.e., that use resulting in the greatest cash price for the 
property, may not be transit-oriented. Secure storage for construction 
equipment, or a coin-operated car wash would be examples of non-
transit-oriented developments. FTA does not intend to limit the local 
community's ability to define social or other benefits that it wishes 
to achieve through a transit-oriented development. Thus, locally 
preferred plans for ``highest and best transit use'' may be acceptable 
even if they do not generate the highest possible level of financial 
return. The Joint Development proposal will indicate the extent to 
which the highest and best transit use value varies from the 
traditional highest and best use assessment, and the basis for this 
variation.

Physically or Functionally Related

    Each project must establish the link between transit and the 
proposed joint development project. Issues to be addressed should 
include travel time between the joint development and the transit 
facility, reasonable access between the development and the transit 
facility, trip generation rates of the proposed development, and the 
transit system's share of those trips. Functional relationships should 
not extend beyond the distance most people will reasonably walk to use 
a transit service--about 1,500 feet.

Revenue Stream

    Research has shown that the siting and development of transit 
service adds to property values near transit stations, and that 
collocation of residential, commercial and retail establishments with 
the transit system enhances social and economic returns for the 
community. Therefore, a joint development project should be planned to 
generate revenue for the transit system from this added value. This 
revenue may take the form of a one-time cash payment for the sale of 
land, air rights, or some other form of property rights. Or it may be a 
revenue stream from an installment sale, lease, ground rent, or other 
compensation as agreed between the transit system and the developer, 
including but not limited to in-kind services such as construction or 
maintenance. The payment or revenue stream may be delayed for a time to 
support the project purpose, but the present value of all revenues must 
equal the current market value based on the highest and best transit 
use.
    In the case of a program of joint development, conducted on a 
corridor or system wide level, FTA will evaluate the revenue stream on 
a portfolio basis, requiring that the sum of revenue streams for all 
developed properties be equal to the combined appraised value of the 
land used to generate the revenues, taking into account the highest and 
best transit use.<SUP>6 There may be instances where the transit 
system's participation in a joint development project adds value to 
that project above the value of the land itself. This additional value 
will allow the transit system to attract development at other, more 
``difficult'' properties along the same corridor by making some revenue 
concessions on these properties.
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    \6\ Within reason, the grantee may also postpone development of 
some properties along the corridor, to enhance their final 
development value. This should be declared in the joint development 
proposal.
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    As long as the grantee can demonstrate that it has the ability to 
retain effective continuing control of the joint development for 
transit use, i.e. its physical or functional relation to transit, it 
may retain any proceeds from the project as program income. However, if 
the grantee cedes effective control over the property for transit use 
it may be liable for reimbursement of the Federal interest in the 
property.

Procedures

    Joint Development proposals that meet the criteria in this notice 
may be submitted at any time to the appropriate FTA regional office, 
listed in attachment A. They should include, at a minimum, the Joint 
Development agreement, a market and financial assessment of the Joint 
Development and its impact on the transit system, and a statement of 
the outcome of planning and coordination between the Joint Development 
and the transit facility. The proposal should document the projected 
benefits for the transit system as well as the effective continuing 
control of the Joint Development project for transit purposes, as 
outlined in the definition section above.

    Authority: 49 U.S.C. 5307, 5309(a)(1)-(5), 5309(a)(7), and 
5309(f), as well as 49 CFR Subtitle A.


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    Issued on March 10, 1997.
Gordon J. Linton,
Administrator.

Attachment A

    Listing of FTA Regions:

Region 1

Volpe National Transportation Systems Center, Kendall Square, 55 
Broadway, Suite 920, Cambridge, MA 02142-1093

Region 2

26 Federal Plaza, Suite 2940, New York, NY 10278-0194

Region 3

1760 Market Street, Suite 500, Philadelphia, PA 19103-4124

Region 4

Atlanta Federal Center, 100 Alabama Street, N.W., 17th Floor, Suite 
T1750, Atlanta, GA 30303

Region 5

55 East Monroe Street, Rm 1415, Chicago, IL 60603-5704

Region 6

Parkview Place, 524 East Lamar Street, Suite 175, Arlington, TX 
76011-3900

Region 7

6301 Rockhill Road, Suite 303, Kansas City, MO 64131-1117

Region 8

Columbine Place, 216 16th Street, Suite 650, Denver, CO 80202-5120

Region 9

201 Mission Street, Suite 2210, San Francisco, CA 94105-1831

Region 10

Jackson Federal Building, 915 Second Ave., Suite 3142, Seattle, WA 
98174-1002.

[FR Doc. 97-6462 Filed 3-13-97; 8:45 am]
BILLING CODE 4910-57-P