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[Federal Register Volume 75, Number 242 (Friday, December 17, 2010)]
[Proposed Rules]
[Pages 78946-78949]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-31649]

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DEPARTMENT OF DEFENSE

Office of the Secretary

[Docket ID DoD-2010-OS-0135]
RIN 0790-AI67

32 CFR Part 174

Revitalizing Base Closure Communities and Addressing Impacts of 
Realignment

AGENCY: Office of the Under Secretary of Defense for Acquisition, 
Technology, and Logistics, DoD.

ACTION: Proposed rule.

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SUMMARY: Economic Development Conveyances were created in amendments to 
the Base Closure and Realignment law in 1993, creating a new tool for 
communities experiencing economic dislocation from the closing of a 
major employer 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 community 
economic recovery and job creation of such large installations, many 
with decaying or obsolete infrastructure and other redevelopment 
challenges. Section 2715 of Public Law 111-84 changed 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, known as an 
Economic Development Conveyance (EDC). Under this revised authority, 
the Department is no longer required to seek to obtain fair market 
value for an EDC: An EDC may be for consideration at or below the 
estimated fair market value, including for no consideration. The law 
also now explicitly provides authority for the Department to be 
flexible regarding the form of consideration, including the authority 
to accept consideration in the form of revenue sharing or so-called 
``back-end'' funding. (i.e., ''The Secretary may accept, as 
consideration, a share of the revenues that the redevelopment authority 
receives from third-party buyers or lessees from sales and long-term 
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 revised language 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 proposed regulation provides guidance to implement recent 
changes to the law and makes other improvements that encourage 
expedited property transfers for job creation that allow for the 
Department to obtain a share of the revenues obtained.

DATES: Written comments received at the address indicated below by 
February 15, 2011 will be accepted.

ADDRESSES: You may submit comments, identified by docket number and/or 
Regulatory Information Number (RIN) number and title, by any of the 
following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Federal Docket Management System Office, 1160 
Defense Pentagon, Room 3C843, Washington, DC 20301-1160.
    Instructions: All submissions received must include the agency name 
and docket number or RIN for this Federal Register document. The 
general policy for comments and other submissions from members of the 
public is to make these submissions available for public viewing on the 
Internet at http://www.regulations.gov as they are received without 
change, including any personal identifiers or contact information.

FOR FURTHER INFORMATION CONTACT: Robert Hertzfeld, (703) 604-6020.

SUPPLEMENTARY INFORMATION: The proposed rule implements these statutory 
changes and is also intended to enable the Military Departments to 
expedite the EDC process. Closed military bases represent a potential 
engine of economic activity and job creation for former host 
communities. When disposing of property using this method, the Military 
Departments should use the full breadth of the EDC authority to 
structure conveyances that respond to the job creation and 
redevelopment challenges of the individual community.
    The new law no longer requires the Department to seek Fair Market 
Value. 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. As such, this regulation 
deletes the requirement for the Department to obtain an appraisal of 
the property as part of an EDC conveyance, including analysis of 
highest and best use, for that purpose. This regulation

[[Page 78947]]

places the emphasis of EDCs on the economic redevelopment of the former 
installation. With this regulation, the Department approaches 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 differences in projected costs and revenues over a 
potential 20-30 year development cycle that may occur on many large 
closing installations. Elimination of the requirement to determine 
estimated fair market value and related appraisal requirements should 
expedite the conveyance process and remove what has been a common 
source of conflict and delays between the community and the Department. 
Accordingly, the proposed rule establishes as DoD policy a requirement 
that, for every EDC, the LRA must reinvest sale or lease proceeds for 
not less than seven years 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 that comply with statutory requirements. Consequently, 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. 
However, the proposed rule does not interfere with the ability of the 
Secretary concerned to obtain and use any information deemed 
appropriate, including market analysis, construction estimates, a real 
estate proforma, 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 not less than seven years and to 
take title to the property within a reasonable timeframe, the Secretary 
concerned may pursue a negotiated sale to a public body at fair market 
value, including a negotiated sale for economic development purposes, 
under regulations at 41 CFR Part 102-75.880, et seq., or competitive 
public sale.
    This regulation seeks to streamline the 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. 
Finally, this proposed regulation 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.

Regulatory Procedures

Executive Order 12866, ``Regulatory Planning and 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 
this Executive Order 12866, as amended by Executive Order 13422.

Section 202, Pub. L. 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 proposed to be amended as follows:

PART 174--[AMENDED]

    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.

    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) A completed application will be used to decide whether the 
Secretary concerned will 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 the EDC parcel, including at 
least the following elements:
    (i) A development timetable, phasing schedule, and cash flow 
analysis.

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    (ii) A market and financial feasibility analysis describing the 
economic viability of the project, including an estimate of net 
proceeds over a fifteen year period and proposed consideration or 
payment to the Department of Defense,
    (iii) A cost estimate and justification for infrastructure and 
other investments needed for redevelopment of the EDC parcel.
    (iv) Local investment and proposed 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 the LRA has authority to perform the actions 
required of it, pursuant to the terms of the EDC, and that the officers 
executing the EDC documents on behalf of the LRA have 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 may also require that this commitment apply during at least 
the first seven years after the date of every subsequent transfer of 
property to the LRA. 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;
    (ix) Demolition;
    (x) Disposal of hazardous materials 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 make the deed covenant, or covenant 
deferral, required under 42 U.S.C. 9620(h)(3).
    (e) The Secretary concerned will review the application and, to the 
extent practicable, provide a preliminary determination within 30 days 
whether the Military Department can accept the application for 
negotiation of terms and conditions, pursuant to the following 
determinations:
    (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 paragraphs (d)(6) and (d)(7) of this 
section, the Secretary concerned may accept the application for 
negotiation of terms and conditions without these elements, provided 
the Secretary concerned is satisfied that the LRA has a reasonable plan 
in place to provide these elements 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 other federal real property disposal authorities.
    (f) Upon acceptance of an EDC application, the Secretary concerned 
will 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 will 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, including market 
analysis and 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 plan. Higher risk and investment 
made by the LRA should be recognized with more favorable terms and 
conditions, to encourage local investment to support job generation.
    (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, and conflicts with, 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 will negotiate the terms and conditions 
of each transaction with the LRA. The Secretary concerned will 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 redevelopment 
authority receives from third-party buyers or lessees from sales and 
long-term 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; or
    (iv) Such other consideration as the Secretary considers 
appropriate.
    (2) The consideration may be paid 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).

[[Page 78949]]

    (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 its sale or lease as the Secretary concerned determines 
appropriate if the LRA does not use the proceeds to support economic 
redevelopment of or related to the installation for 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 may 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 negotiation. 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]

    3. Sec.  174.10 is removed and reserved:

    Dated: December 10, 2010.
Patricia L. Toppings,
OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 2010-31649 Filed 12-16-10; 8:45 am]
BILLING CODE 5001-06-P
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