Notice of Proposed Asset Disposition Guidance and Request for Comments
Recent changes in law allow transit agencies to repurpose qualified properties for transit-oriented development and affordable housing projects. See the Notice of Proposed Asset Disposition Guidance and Request for Comments and FTA’s interim guidance in the form of FAQs below. The Federal Register Notice is open for public comment until April 14, 2023.
Transit agencies, state and local governments and authorities, housing nonprofits, and other interested parties may learn more about this proposed guidance at one of our webinars (registration required):
Notice of Proposed Asset Disposition Guidance and Request for Comments
This proposed guidance does not have the force and effect of law and are 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 the Federal Transit Administration (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 with federal assistance, but no longer needed for the originally authorized purpose. In addition to prior provisions allowing for transfers to local governments, under the new provision, FTA also may authorize the transfer of an 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 is unique in that it 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, per 49 USC § 5334(h)(1)(B)(i)-(iii):
- 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;
- 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.
3. When does this provision become effective?
The effective date was 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 transit- oriented development (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. Dispositions under 49 USC § 5334(h)(1)(A) remain an option as well, 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 for TOD, FTA proposes to define TOD 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 (TOD), 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 (TOD) 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 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 active awards related to the assets must include the disposition request, approval, and related documentation.
10. 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.
11. How does an FTA recipient adequately demonstrate that “the transit-oriented development (TOD) project will increase transit ridership?”
Because the NDAA provision ties increased ridership to affordable housing, FTA will require that at least 20 percent of the total floor area ratio (FAR) of the development be 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).
12. 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.
13. 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
14. 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.).