[Federal Register Volume 61, Number 21 (Wednesday, January 31, 1996)]
[Proposed Rules]
[Pages 3532-3533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1830]
[[Page 3531]]
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Part II
Department of Transportation
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Federal Transit Administration
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49 CFR Part 639
Capital Leases; Proposed Rule
Federal Register / Vol. 61, No. 21 / Wednesday, January 31, 1996 /
Proposed Rules
[[Page 3532]]
DEPARTMENT OF TRANSPORTATION
Federal Transit Administration
49 CFR Part 639
[Docket No. FTA-96-1031]
RIN 2132-AA55
Capital Leases
AGENCY: Federal Transit Administration, DOT.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document proposes to amend ``Capital Leases'' to treat
maintenance costs under a commercial lease of a capital asset as an
eligible capital expense. ``Capital Leases'' implements section 308 of
the Surface Transportation and Uniform Relocation Assistance Act of
1987, which allows capital grants under the Federal transit laws to be
used for leasing facilities or equipment if a lease is more cost
effective than purchase or construction of such items. FTA believes
that this proposal is consistent with industry practice and with recent
Federal initiatives to streamline federally assisted procurement
practices and to ensure that Federal investment in the nation's
transportation infrastructure is properly protected.
DATES: Comments must be submitted by April 1, 1996.
ADDRESSES: United States Department of Transportation, Central Dockets
Office, PL-401, 400 Seventh Street, S.W., Washington, D.C. 20590.
FOR FURTHER INFORMATION CONTACT: Rita Daguillard, Deputy Assistant
Chief Counsel, Office of Chief Counsel, (202) 366-1936, or Douglas
Kerr, Office of Program Guidance and Support, (202) 366-1656.
SUPPLEMENTARY INFORMATION:
A. Background
Under 49 U.S.C. 5307, Federal funds are provided to urbanized areas
on the basis of a statutory formula. These funds are available for the
acquisition or construction of mass transportation facilities and
equipment (``capital assistance grants''), as well as for payment of a
portion of the net operating cost of mass transportation facilities and
equipment (``operating assistance grants'').
Historically, Federal Transit Administration (FTA) recipients have
had the discretion to acquire capital assets by long-term or short-term
lease, but few have done so, since the significant portion of the lease
cost (as much as forty percent) representing imputed interest was
ineligible for reimbursement under Office of Management and Budget
(OMB) cost principles (OMB Circular A-87, ``Cost Principles for Grants
to State and Local Governments'').
In 1987, section 308 of the Surface Transportation and Uniform
Relocation Assistance Act, Public Law 100-17 (STURAA), expressly
authorized the use of section 5307 capital assistance funds to acquire
facilities and equipment by lease where leasing is more cost effective
than purchase or construction. As explained in the accompanying Senate
Report, section 308
Permits grantees to use [section 5307] grant funds to lease
major capital cost items such as computers, maintenance of way and
other heavy equipment, maintenance of effort rail equipment, radio
equipment, bus garages, property or structures for park and ride,
and other buildings or facilities used for mass transit purposes.
The Committee recognizes that it is often more cost effective for
grantees to lease rather than purchase major capital items. Leasing
arrangements can also provide transit authorities with flexibility
that is needed, for example, to maintain technological advance in
their communications and computing equipment or to adapt buildings
and other facilities to changing needs. By including this section,
the Committee intends to help grantees better manage their
operations and conduct long-term and short-term planning. S. Rep.
No. 3, 100th Cong., 1st Sess. 6 (1987).
On October 15, 1991, FTA issued 49 CFR Part 639 (56 F.R. 51786),
which implements section 308. The rule provides that capital grants
under section 5307 may be used for leasing facilities or equipment if
leasing is more cost effective than purchase or construction of such
items. Section 639.27 lists maintenance costs among the factors that a
recipient may consider in making its cost-effectiveness determination.
Section 639.17, provides that ``only costs directly attributable to
making a capital asset available to the lessee are eligible for capital
assistance'' and cites as examples finance charges and ancillary costs
such as delivery and installation charges.
B. Proposed Amendment
In reviewing the subject of capital leases, particularly vehicle
leases, FTA has noted that maintenance and repair costs are often an
integral component of standard commercial lease agreements and that use
of capital assistance for such costs is expressly permitted under
section 5307. Many commercial vehicle leases, for instance, state that
the lessor will provide all maintenance, repairs, and replacement parts
needed to keep the capital asset in good operating condition. These
services are included in the overall lease cost, rather than being
itemized as a separate charge. In such cases, it is not feasible for
lessees to separate maintenance charges from the overall lease cost.
Requiring grantees to do so imposes an accounting burden that is
inconsistent with Congress' recognition that leasing is often more cost
effective and with its intention in section 308 to facilitate grantee
operations.
Moreover, since regular maintenance is necessary to ensure the
availability and adequate functioning of a capital asset, FTA believes
that it is an essential and inseparable element of the lease agreement.
Congress has expressly recognized this relationship in allowing capital
assistance to be used to acquire ``associated capital maintenance
items'' under section 5307(b)(1), where such items would otherwise have
to be funded under the operating assistance program. FTA therefore
proposes to recognize maintenance charges as eligible capital costs
under a commercial lease directly attributable to the lessee's use of
the asset within the definition of section 639.17.
This proposal is consistent with several recent initiatives,
including the President's National Performance Review, Executive Order
12931 (Federal Procurement Reform), and the Federal Acquisition
Streamlining Act of 1994 (FASA) (Pub. L. 103-355, 108 Stat. 3243
(October 13, 1994)), which direct Federal agencies to remove
administrative burdens in procurement processes. They encourage and
facilitate the procurement of commercially available items by exempting
agencies from unnecessarily burdensome government-unique certifications
and accounting requirements that add costs and discourage companies
from doing business with them. Section 8203 of FASA, for instance,
requires that agencies use uniform, simplified contracts for the
procurement of commercial items and that they revise all procurement
procedures not required by law to eliminate impediments to use of such
contracts. FTA believes that requiring its recipients to account
separately for maintenance costs under a commercial lease is
unnecessarily burdensome and makes such leases more costly and
cumbersome to administer. Recognizing these costs explicitly in section
639.17 should facilitate recipients' acquisition and maintenance of
capital assets by allowing them to enter into standard commercial lease
agreements more easily and at less cost.
Moreover, this proposal is consistent with FTA's recently issued
Circular 4220.1C (``Third Party Contracting Requirements,'' October 1,
1995), which
[[Page 3533]]
reduces FTA requirements; provides grantees increased flexibility in
soliciting, awarding, and administering contracts; reduces FTA's role
in third party procurement activity; and allows recipients to use their
own procurement practices that reflect State or local laws, provided
that they conform to applicable Federal law. FTA notes that neither
section 308 of the STURAA nor the accompanying Senate Report indicates
that maintenance costs should not be treated as eligible capital
expenses.
Accordingly, consistent with common industry practice and Federal
procurement streamlining measures, FTA proposes to amend 49 CFR 639.17
to recognize maintenance costs as ``costs directly attributable to
making a capital asset available to the lessee.''
C. Request for Comments
FTA seeks comment on its proposal to recognize maintenance costs as
eligible capital expenses under leasing agreements.
Regulatory Impacts
A. -Executive Order 12866
FTA has determined that this action is not significant under
Executive Order 12866 or the regulatory policies and procedures of
Department of Transportation regulatory policies and procedures. Since
this final rule makes only a technical amendment to current regulatory
language, it is anticipated that the economic impact of this rulemaking
will be minimal; therefore, a full regulatory evaluation is not
required.
B. -Regulatory Flexibility Act
In accordance with 5 U.S.C. 603(a), as added by the Regulatory
Flexibility Act, Pub. L. 96-354, FTA certifies that this rule will not
have a significant impact on a substantial number of small entities
within the meaning of the Act.
C. -Paperwork Reduction Act
This action does not contain a collection of information
requirement for purposes of the Paperwork Reduction Act of 1980, 44
U.S.C. 3501, et seq.
D. -Executive Order 12612
This action has been reviewed under Executive Order 12612 on
Federalism and FTA has determined that it does not have implications
for principles of federalism that warrant the preparation of a
Federalism Assessment. If promulgated, this rule will not limit the
policy making or administrative discretion of the States, nor will it
impose additional costs or burdens on the States, nor will it affect
the States' abilities to discharge the traditional governmental
functions or otherwise affect any aspect of State sovereignty.
List of Subjects in 49 CFR Part 639
Government contracts, Grant programs--Transportation, Mass
transportation.
Accordingly, for the reasons described in the preamble of this
document, FTA is proposing to amend title 49, Code of Federal
Regulations, part 639 as follows:
PART 639--[AMENDED]
1. The authority citation on Part 639 is revised to read as
follows:
Authority: 49 U.S.C. 5307; 49 CFR 1.51.
2. Section 639.17 is revised to read as follows:
Sec. 639.17 Eligible lease costs.
(a) All costs directly attributable to making a capital asset
available to the lessee are eligible for capital assistance, including,
but not limited to--
(1) Finance charges, including interest;
(2) Ancillary costs such as delivery and installation charges; and
(3) Maintenance costs.
(b) The cost of materials, supplies and services provided under the
terms of the lease may not be eligible for capital assistance, if they
would not be eligible for capital assistance under a traditional
purchase or construction grant.
Issued on: January 26, 1996.
Gordon J. Linton,
Administrator.
[FR Doc. 96-1830 Filed 1-30-96; 8:45 am]
BILLING CODE 4910-57-U