What's New

• FTA hosted a webinar about the Asset Disposition Guidance on January 31, 2024 and February 8, 2024.
  • View the presentation
  • Listen to the recording (Passcode: .kf5HA^*) 

This interim guidance does not have the force and effect of law and is not meant to bind the public in any way. This document is intended only to provide clarity to the public regarding existing requirements under the law or agency policies. Grantees and subgrantees should refer to FTA’s statutes and regulations for applicable requirements.

1. How did the National Defense Authorization Act (NDAA) for Fiscal Year 2022 change the disposition options for FTA recipients in 49 USC § 5334(h)(1)?

Section 6609 of the National Defense Authorization Act (NDAA) amended 49 USC § 5334(h)(1), adding a new disposition option for assets acquired or improved with federal assistance (including FTA-administered federal funds that have been flexed over from other Operating Administrations, such as Federal Highway Administration (FHWA)), but no longer needed for the originally authorized purpose. In addition to the prior authority  allowing for transfers to local governments (49 USC § 5334(h)(1)(A)), under the new provision, FTA also may authorize the transfer of the asset to a local governmental authority, non-profit organization, or other third- party entity if, among other factors, it will be used for transit-oriented development (TOD) and includes affordable housing.

2. What are the criteria to use this new provision?

This disposition option is available for transit-oriented developments (TOD). This provision uniquely allows recipients to transfer assets to local governmental entities, non-profit organizations, or third-party entities with no further obligation to the Government. First, however, FTA must concur that the following five statutory criteria are met:

• the asset is a necessary component of a proposed transit-oriented development project;
• the transit-oriented development project will increase transit ridership;
• at least 40 percent of the housing units offered in the transit-oriented development, including housing units owned by nongovernmental entities, are legally binding affordability restricted to tenants with incomes at or below 60 percent of the area median income and owners with incomes at or below 60 percent of the area median income, which shall include at least 20 percent of such housing units offered restricted to tenants with incomes at or below 30 percent of the area median income and owners with incomes at or below 30 percent of the area median income;*
• the asset will remain in use for at least 30 years after the date the asset is transferred; and
• with respect to a transfer to a third-party entity, 
  • a local government authority or nonprofit organization is unable to receive the property; and
  • the overall benefit of allowing the transfer is greater than the interest of the Government in liquidation and return of the financial interest of the Government in the asset, after considering fair market value and other factors; and
  • the third party has demonstrated a satisfactory history of construction or operating an affordable housing development.

49    USC § 5334(h)(1)(B)(i)-(iii).
* The 20% of units that must meet 30% AMI are included within the total 40% of units that must meet the 60% AMI, meaning that at least 8% of the total amount of housing units must be restricted at 30% AMI. Please note that this requirement is separate from the requirement that at least 20% of the total floor area ratio of the development be dedicated to affordable housing.

3. When does this provision become effective?

The effective date is December 27, 2021, when the National Defense Authorization Act (NDAA) for Fiscal Year 2022 (FY22) was signed into law.

4. Can assets disposed of prior to December 27, 2021 be applied to current or future TOD projects?

This change to 49 USC § 5334(h)(1) took effect on December 27, 2021. Assets disposed of prior to this date cannot use this provision. However, dispositions under 49 USC § 5334(h)(1)(A) remain an option for future projects, whereby assets may be transferred to a local governmental authority without repayment of the federal interest, if it meets the statutory criteria and is approved by FTA. Other options to encourage affordable housing near transit may also be available. Please contact your regional office for technical assistance if this is of interest.

5. How does FTA define “Transit Oriented Development (TOD)?”

While there is no statutory definition of TOD, FTA proposes to define it as real property development that includes a mix of commercial, residential, office and entertainment uses centered around, or located near, a transit station that is served by reliable public transit with a mix of other transportation options.

6. What is considered an “asset?”

An “asset,” as it relates to Transit Oriented Development, should be read to mean “real property,” which is defined in 49 C.F.R. § 262.3 to include: "land, including land improvements, structures and appurtenances thereto, excluding movable machinery and equipment." 

7. What constitutes a “necessary component” of a proposed Transit-Oriented Development project?

An asset is a “necessary component” of TOD if the proposed project would not proceed without the asset, or would be significantly smaller in scope.

8. What are the ramifications if the asset is transferred to a local governmental authority, non-profit organization, or other third-party entity, but that third party entity fails to meet any of the criteria under 49 USC § 5334(h)(1)(B) during the 30-year term of the agreement?

If an asset is transferred and the recipient of the asset falls out of compliance with the legal criteria within the 30-year term of the agreement, FTA will require the recipient to compensate FTA a percentage of the fair market value of the asset at the time of transfer or at the time the noncompliance commences, whichever is greater. The percentage owed will be based on the federal contribution to the original acquisition and the number of years that the asset was used for TOD and affordable housing in accordance with the statute. If the circumstances and timeframe allow for the asset to be returned to the original FTA recipient for a transit use without significant difficulty or added expense, the parties may also arrange for a return of the asset.

9. How can compliance monitoring be conducted during the 30-year term?

The requirement for a property to remain in compliant use with the affordable housing requirements for 30 years after the date of transfer is a statutory requirement. This guidance does not prescribe how the recipient must ensure compliance with affordable housing requirements over the 30-year term. FTA recognizes that there are many ways in which a recipient could ensure oversight and compliance with this requirement, including long-term monitoring by a third party or other public agency.

10. How will FTA “approve” transactions using this disposition method?

FTA recipients interested in using this provision should send their FTA Regional Office a request letter with documentation demonstrating that the disposition meets the legal requirements. Any awards related to the assets must include this disposition and related documentation.

11. How does an FTA recipient demonstrate that a “local government authority or nonprofit organization is unable to receive the property?”

If the FTA recipient proposes to transfer the asset to another third-party entity, the recipient must attest, in writing, that a local government authority or nonprofit organization is unable to receive the property, per 49 USC § 5334(h)(1)(B)(v)(I). The attestation should include a description of the recipients’ efforts supporting this representation.

12. How does an FTA recipient adequately demonstrate that “the transit-oriented development project will increase transit ridership?”

Because the NDAA provision ties increased ridership to affordable housing, FTA will require that at least 20% of the total floor area ratio (FAR) of the development is dedicated to affordable housing, as defined in FAQ 2(c), to meet this requirement. In addition, FTA recommends that at least 50 percent of the TOD’s FAR is dedicated to housing or other community benefits (e.g., community centers, educational or other community-serving uses such as libraries, childcare, public health or workforce development centers).

13. How is a “third party entity” defined?

“Third party entity” is not defined in statute, though it may include private developers, companies, or organizations with a demonstrated satisfactory history of construction or operation of affordable housing development. It would not include a local government authority or non-profit organization.

14. How does FTA determine that the overall benefit of allowing the transfer to a third-party entity is greater than the interest of the Government in liquidation?

FTA will consider the fair market value of the asset, amongst other factors such as local/regional economic development activity. However, FTA will not prescribe specific studies or analyses, nor who is responsible for developing them. A baseline market analysis is not required, but can help recipients who wish to transfer assets under this provision identify the following information:

• Fair market value of any FTA-assisted property or assets to be transferred consistent with FTA’s Award Management Requirements Circular 5010;
• The percentage of the value of the assisted property to the cost of the overall TOD project;
• Expected transit ridership increase;
• Expected amount of revenue generated by the project to be provided for public transportation purposes, if applicable;
• Expected amount of housing generated by the project and housing needs in the region/area;
• The potential social benefits of providing additional affordable housing;
• Existing conditions of the project property;
• General economic and market conditions of the region/area;
• Current and planned economic development activity for the region/area; and
• Development risks and benefits.

 
15. How do I demonstrate a satisfactory history of construction and/or operation of an affordable housing developer?

As part of its request to the Regional Office, recipients should include information on a third party’s past affordable housing projects sufficient to demonstrate a likelihood of success for the TOD proposed (e.g. project delivered on time, within budget, occupancy rates, etc.).   

16. For the purposes of transferring eligible assets under this provision, will Special Purpose Entities created with a non-profit organization for the purpose of utilizing Low-Income Housing Tax Credits (LIHTC) be treated as non-profit organizations, rather than third-party entities?

In determining the status of Special Purpose Entities formed for the purpose of utilizing LIHTCs under this provision, FTA will look to which party (i.e., nonprofit vs. for-profit entity) has control over the project. Ownership may be transferred to a for-profit entity to facilitate the use of tax credits for the project only if the public or nonprofit entity demonstrates in its application that it retains control over the property (i.e., still considered “owned” for purposes of this provision). Sufficient control may be satisfied by any of the following: (1) a fee simple interest in the project property, (2) ownership of 51 percent or more of the general partner interests in a limited partnership or 51 percent or more of the managing member interests in a limited liability company with all powers of the general partner or managing member, (3) ownership of a lesser percentage of the general partner or managing member interests but holding control rights, or (4) ownership of 51 percent or more of all ownership interests in a limited partnership or limited liability company and holding certain control rights.

“Control rights,” as referenced above include control over leasing of the project (e.g., exclusively maintaining and administering the waiting list, performing eligibility determinations) and consent rights over certain areas such as changing the number of affordable housing units, setting utility allowances, selecting the management agent, or setting the operating budget. FTA will treat a Special Purpose Entity as a nonprofit entity under this asset disposition provision if they meet the above requirements.