[Federal Register Volume 62, Number 244 (Friday, December 19, 1997)]
[Rules and Regulations]
[Pages 66523-66527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33109]


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DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 175

[DoD Instruction 4165.67]
RIN 0790-AF62


Revitalizing Base Closure Communities and Community Assistance

AGENCY: Department of Defense, Office of the Deputy Under Secretary of 
Defense (Industrial Affairs and Installations).

ACTION: Final rule.

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SUMMARY: This rule establishes procedures for implementing section 2837 
of the National Defense Authorization Act for FY96 concerning the 
Federal Agency leaseback of property transferred to Local Redevelopment 
Authorities (LRAs) at installations approved for closure or 
realignment, and informs communities affected by base closure of these 
procedures.

EFFECTIVE DATE: December 19, 1997.

FOR FURTHER INFORMATION CONTACT:
Jennifer Atkin, Base Closure and Community Reinvestment Office, 400 
Army-Navy Drive, Suite 200, Arlington, VA 22202, telephone (703) 604-
2400.

SUPPLEMENTARY INFORMATION: 

Regulatory History and Background Information

    DoD published a proposed rule on February 21, 1997 (62 FR 7966) 
implementing section 2837 of the National Defense Authorization Act for 
FY96 (Pub. L. 104-106). Public comments were accepted until April 22, 
1997. This final rule addresses the comments received on the proposed 
rule.

Discussion of Public Comments

    During the public comment period, the Department received over 40 
public comments from 14 sources, including numerous LRAs. The comments 
are summarized generically below. Changes that have been made to the 
rule in response to public comments are noted. The comments fall into 
eight broad categories including:

Federal Tenant Procurement Authority

    Many comments requested that the rule revise the provisions 
regarding what services a Federal tenant may pay for and how the 
services can be obtained. Examples include: (1) The rule should 
authorize LRAs to charge Federal leaseback tenants a Common Area 
Maintenance Fee; (2) the rule should authorize Federal tenants to sole 
source for ``landlord'' services; and, (3) the rule should require 
Federal tenants to pay for services if the Agency paid for the services 
when it owned the property (note: this would only apply to existing 
Federal tenants rather than agencies relocating to the site).
    Response: The Federal Government cannot pay for municipal services 
that are provided by a locality to its population using tax revenues. 
Doing so would, in effect, result in a taxing of the Federal 
Government. But, as evidenced by numerous Supreme Court Cases 
interpreting the Supremacy Clause of Article VI of the United States 
Constitution, States cannot tax the Federal Government. With respect to 
other services, Federal tenants can only pay for those services that 
are a requirement of the Federal Government. Paying a Common Area 
Maintenance Fee could result in the Federal tenant paying for services 
that are above and beyond what is needed to use the property being 
leased. For those services that are necessary, the leaseback authority 
does not remove the Federal Government's responsibility to abide by 
existing procurement laws. As a result, such services must be acquired 
using existing procurement laws and regulations. In some circumstances, 
a sole source contract may be allowable.

Leaseback Transfer Approval/Rejection Authority

    Out of concern that prospective Federal tenants will reject an 
LRA's request for a leaseback transfer with virtually no justification, 
some comments requested that the rule establish criteria that would 
have to be

[[Page 66524]]

met for a Federal Agency to reject a leaseback in favor of property 
ownership. Other comments suggested that an arbitration or grievance 
process be established or that the General Services Administration 
(GSA) should be assigned the task of approving leaseback requests.
    Response: The Federal Property and Administrative Services Act of 
1949 gives Federal Departments and Agencies priority on the use of base 
closure and realignment property. This ``right of first refusal'' to 
obtain ownership of property is unchanged by the leaseback authority. 
As a result, DoD does not have the legal authority to require a Federal 
Department or Agency to give up the right of ownership in favor of a 
leasehold interest. However, if a leaseback is requested by an LRA, the 
Department urges Federal Agencies to give serious consideration to 
leasing the property from the LRA instead of pursuing ownership through 
a Federal-to-Federal transfer.

Process For Securing Another Federal Tenant

    The proposed rule specified that if the Federal Tenant no longer 
requires use of the property before the expiration of the lease term, 
the remainder of the term may be satisfied by the same or another 
Federal Agency for a similar use. The rule stated that GSA would assist 
in identifying interest in the property. Comments raised by the public 
requested that this process be clarified to include how GSA will screen 
for another user and how long GSA will have to secure another tenant.
    Response: Section 175.7(k)(10(vi) has been amended to provide more 
guidance on how a replacement tenant would be identified by GSA. The 
rule also stipulates that GSA would have only 60 days in which to find 
a new tenant.

Valuation and Consideration

    Numerous public comments addressed the issue of determining value 
for the leaseback property and setting the level of consideration. The 
comments included: (1) The value of leaseback property should be set at 
zero; (2) consideration for the leaseback property should not be due 
until after the Federal tenant vacates; (3) consideration for leaseback 
property should be set at zero; and, (4) the rule should define how 
value will be determined for a stand-alone leaseback.
    Response: The leaseback authority requires the Department to 
determine the fair market value of the property before transfer. As a 
result, the value of the leaseback property cannot be preset through 
regulation. The rule does allow, however, for flexibility with respect 
to payment terms. Consideration can be in cash or in kind, and can be 
paid up front, over time, or when the Federal tenant vacates the 
property, as long as the amount of consideration (or formula for 
determining the amount of consideration) and the schedule for payment 
are agreed upon before the property is transferred. The value of 
leaseback property being transferred under an Economic Development 
Conveyance (EDC) will be determined in accordance with existing EDC 
valuation procedures. Property being conveyed as a stand-alone 
leaseback will be valued based on the proposed reuse.

Federal Tenant Improvements

    Several LRAs expressed concern that the proposed rule allows a 
Federal tenant to repair, improve, and maintain the property at its 
expense without the approval of the LRA. The comments stated that 
without requiring a Federal tenant to consult with the LRA, alterations 
made to the property could be inconsistent with the community's plans 
for ultimate use of the property.
    Response: The Department agrees with the comments that were 
submitted and has revised the rule to require Federal tenants to 
consult with the LRA before making repairs and improvements.

Insurance

    A few comments requested that the rule require Federal tenants to 
obtain insurance for property leased back from an LRA in the same way 
that LRAs are required to have insurance for property leased from DoD.
    Response: Requiring Federal tenants to obtain insurance is 
unnecessary because the Federal Government is self insured.

Leaseback Compatibility With Other Conveyance Regulations

    Comments received from another Federal Agency raised concerns that 
a leaseback transfer may be incompatible with a public benefit transfer 
(PBT) when the leaseback property is located within the PBT property. 
For example, for leaseback property located within or adjacent to 
property being conveyed via a PBT, the public benefit grantee may not 
be the LRA--the recipient of the leaseback property. In addition, if 
leaseback property is located within or adjacent to PBT property, the 
Federal Agency's use of the property may be incompatible with the 
public benefit use (e.g. obstructing airspace near a public airport). 
The comment recommended that the rule require the Military Departments 
to consult with the Federal sponsoring Agency if the property to be 
transferred under the leaseback authority is within or adjacent to PBT 
property.
    Response: Property needed by another Federal Department or Agency 
is either transferred using the Federal-to-Federal transfer process or 
it is transferred to an LRA and then leased back to the Federal entity 
under the leaseback authority. The use of the property is the same 
regardless of the transfer method. The Department does not consult with 
Federal sponsoring Agencies when using a Federal-to-Federal transfer, 
so the rule has not been changed to require consultation when using a 
leaseback. In some cases use of a leaseback transfer rather than a 
Federal-to-Federal transfer could actually be more beneficial if the 
property is located within or adjacent to PBT property because the 
leaseback rule allows the property to be transferred to another entity 
(e.g. an airport authority) and provides a guarantee on the future use 
of the property.

Legality of a Lease/Leaseback Arrangement

    One comment stated that, contrary to the provisions of 
Sec. 175.7(k)(7) of the proposed rule, it is legally impossible to have 
a leaseback without first deeding the property to the LRA. The letter 
stated that if a Federal Agency needs access to the property before a 
deed can be issued, the Military Department can allow the Agency access 
without first going through a leasback transaction. The letter also 
stated that non-DoD Federal agencies would refuse to enter into lease/
leaseback arrangement.
    Response: The Department's legal counsel indicates that a lease in 
furtherance of conveyance/leaseback transaction is allowable if a deed 
transfer cannot yet be accomplished. But, the Department acknowledges 
that in some circumstances other options may be available to provide a 
Federal Agency access to the property including the use of a permit.

Statement of Determination and Certifications

Executive Order 12866, ``Regulatory Planning and Review''

    It has been determined that this rule is not a significant 
regulatory action as defined under section 3(f)(1) through 3(f)(4) of 
Executive Order 12866.

Public Law 95-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)

    It has been determined that this rule will not have a significant 
economic

[[Page 66525]]

impact on a substantial number of small entities.

Public Law 104-13, ``Paperwork Reduction Act of 1995'' (44 U.S.C. 
Chapter 35)

    It has been certified that this rule does not impose any reporting 
or recordkeeping requirements.

List of Subjects in 32 CFR Part 175

    Community development, Government employees, Military personnel, 
Surplus Government property.

    Accordingly, 32 CFR part 175 is amended to read as follows:

PART 175--[AMENDED]

    1. The authority citation for 32 CFR part 175 continues to read as 
follows:

    Authority: 10 U.S.C. 2687 note.

    2. Section 175.3 is amended by adding a new paragraph (l) to read 
as follows:


Sec. 175.3  Definitions.

* * * * *
    (l) Similar use. A use that is comparable to or essentially the 
same as the use under the original lease.
    3. Section 175.4, Sec. 175.5, and Sec. 175.6 are revised to read as 
follows:


Sec. 175.4  Policy.

    It is DoD policy to help communities impacted by base closures and 
realignments achieve rapid economic recovery through effective reuse of 
the assets of closing and realigning bases-more quickly, more 
efficiently, and in ways based on local market conditions and locally 
developed reuse plans. This will be accomplished by quickly ensuring 
that communities and the Military Departments communicate effectively 
and work together to accomplish mutual goals of quick property disposal 
and rapid job generation. This regulation does not create any rights of 
remedies and may not be relied upon by any person, organization, or 
other entity to allege a denial of any rights or remedies other than 
those provided by Title XXIX of Public Law 103-160, Public Law 103-421, 
or Title XXVII of Public Law 104-106.


Sec. 175.5  Responsibilities.

    (a) The Deputy Under Secretary of Defense (Industrial Affairs and 
Installations), after coordination with the General Counsel of the 
Department of Defense and other officials as appropriate, may issue 
guidance through the publication of a Manual or other such document 
necessary to implement laws, Directives and Instructions on the 
retention or disposal of real and personal property at closing or 
realigning bases.
    (b) The Heads of the DoD Components shall ensure compliance with 
this part and guidance issued by the Assistant Secretary of Defense for 
Economic Security and the Deputy Under Secretary of Defense (Industrial 
Affairs and Installations) on revitalizing base closure communities.


Sec. 175.6  Delegations of authority.

    (a) The authority provided by sections 202 and 203 of the Federal 
Property and Administrative Services Act of 1949, as amended (40 U.S.C. 
483 and 484) for the utilization and disposal of excess and surplus 
property at closing and realigning bases has been delegated by the 
Administrator, GSA, to the Secretary of Defense by delegations dated 
March 1, 1989; October 9, 1990; September 13, 1991; and, September 1, 
1995.\1\ Authority under these delegations has been previously 
delegated to the Secretaries of the Military Departments, who may 
delegate this authority further.
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    \1\ Available from the Base Closure and Community Reinvestment 
Office, 400 Army Navy Drive, Suite 200, Arlington, VA 22202, email: 
``[email protected]''
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    (b) Authorities delegated to the Deputy Under Secretary of Defense 
(Industrial Affairs and Installations) \2\ by Sec. 174.5 of this 
chapter are hereby redelegated to the Secretaries of the Military 
Departments, unless otherwise provided within this part or other DoD 
Directive, Instruction, Manual, or Regulation. These authorities may be 
delegated further.
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    \2\ A Deputy Secretary of Defense memorandum of May 15, 1996, 
``OUSD (Acquisition and Technology) Reorganization'' disestablished 
the office of the Assistant Secretary of Defense for Economic 
Security and established the office of the Deputy Under Secretary of 
Defense (Industrial Affairs and Installations). Copies are available 
from the Base Closure and Community Reinvestment Office, 400 Army 
Navy Drive, Suite 200, Arlington, VA 22202, email: 
``[email protected]''
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    4. Section 175.7 is amended by revising paragraph (a)(13)(i) and 
paragraph (d)(3)(i), by reserving paragraph (j) and by adding paragraph 
(k) to read as follows:


Sec. 175.7  Procedures.

    (a) * * *
    (13) * * *
    (i) In unusual circumstances, extensions beyond six months can be 
granted by the Deputy Under Secretary of Defense (Industrial Affairs 
and Installations).
* * * * *
    (d) *  *  *
    (3) *  *  *
    (i) In the event there is no LRA recognized by DoD and/or if a 
redevelopment plan is not received from the LRA within 15 months from 
the determination of surplus under paragraph (a)(13) of this section, 
(unless an extension of time has been granted by the Deputy Under 
Secretary of Defense (Industrial Affairs and Installations)), the 
applicable Military Department shall proceed with the disposal of 
property under applicable property disposal and environmental laws and 
regulations.
* * * * *
    (k) Leaseback of real property at base closure and realignment 
sites. (1) Section 2905(b)(4)(c) of Public Law 101-510, 10 U.S.C. 2687 
note (BRAC 1990), as added by section 2837 of Public Law 104-106, gives 
the Secretary of Defense the authority to transfer real property that 
is still needed by a Federal Department or Agency to an LRA provided 
the LRA agrees to lease the property back to the Federal Department or 
Agency in accordance with all statutory and regulatory guidance. The 
purpose of this authority, hereinafter referred to as a ``leaseback,'' 
is to enable the LRA to obtain ownership of the property pursuant to 
the BRAC process while still ensuring that the Federal need for use of 
the property is accommodated.
    (2) Subject to BRAC 1990 and this part, the decision whether to 
transfer property pursuant to a leaseback rests with the relevant 
military department. However, a military department may only transfer 
property via a leaseback if the Federal entity that needs the property 
agrees to the leaseback arrangement.
    (3) If for any reason property cannot be transferred pursuant to a 
leaseback (e.g., the relevant Federal Agency prefers ownership, the LRA 
and the Federal entity cannot agree on terms of the lease, or the 
military department determines that a leaseback would not be in the 
Federal interest), such property shall remain in Federal ownership 
unless and until the relevant landholding entity determines that it is 
surplus pursuant to the Federal Property Management Regulations.
    (4) If a building or structure is proposed for transfer under this 
authority, that which is leased back to the Federal Department or 
Agency may be all or a portion of that building or structure.
    (5) The leaseback authority may be used at all installations 
approved for closure or realignment under BRAC 1990.
    (6) Transfers under this authority must be to an LRA.
    (7) Transfers under this authority may be by lease in furtherance 
of conveyance or deed. A lease in furtherance of conveyance is 
appropriate only in those circumstances where deed transfer cannot be 
accomplished because the requirements of the Comprehensive 
Environmental Response,

[[Page 66526]]

Compensation, and Liability Act (CERCLA) (42 U.S.C. 9601, et seq.) for 
such transfer have not been met. The lease in furtherance of conveyance 
or accompanying contract shall include a provision stating that the LRA 
agrees to take title to the property when requirements for the transfer 
have been satisfied.
    (8) The leaseback authority can be used to transfer property that 
is needed either by existing Federal tenants or by Federal Departments 
or Agencies desiring to locate onto the property after operational 
closure. The Military Department that is closing or realigning the 
installation may not transfer property to an LRA under this authority 
and lease it back unless:
    (i) The Military Department is acting in an Executive Agent 
capacity on behalf of a Defense Agency that certifies that a leaseback 
is in the interest of that Defense Agency; or,
    (ii) The Secretary of the Military Department certifies that a 
leaseback is in the best interest of the Military Department and that 
use of the property by the Military Department is consistent with the 
obligation to close or realign the installation in accordance with the 
recommendations of the Defense Base Closure and Realignment Commission.
    (9) Property eligible for a leaseback is not surplus because it is 
still needed by a Federal entity. However, notwithstanding that the 
property is not surplus and that the LRA would not otherwise have to 
include such property in its redevelopment plan, the LRA should include 
the proposed leaseback of property in its redevelopment plan, taking 
into account the planned Federal use of such property.
    (10) The terms of the LRA's lease to the Federal entity should 
afford the Federal Department or Agency rights as close to those 
associated with ownership of the property as is practicable. The 
requirements of the General Services Acquisition Regulation (GSAR) (48 
CFR Part 570) are not applicable to the lease, but provisions in the 
GSAR may be used to the extent they are consistent with this part. The 
terms of the lease are negotiable subject to the following:
    (i) The lease shall be for a term of no more than 50 years, but may 
provide for options for renewal or extension of the term at the request 
of the Federal Department or Agency concerned. The lease term should be 
based on the needs of the Federal entity.
    (ii) The lease, or any renewals or extensions thereof, shall not 
require rental payments.
    (iii) The lease shall not require the Federal Government to pay the 
LRA or other local government entity for municipal services including 
fire and police protection.
    (iv) The Federal Department or Agency concerned may be responsible 
for services such as janitorial, grounds keeping, utilities, capital 
maintenance, and other services normally provided by a landlord. 
Acquisition of such services by the Federal Department or Agency is to 
be accomplished through the use of Federal Acquisition Regulation 
procedures or otherwise in accordance with applicable statutory and 
regulatory requirements.
    (v) The lease shall include a provision prohibiting the LRA from 
transferring fee title to another entity during the term of the lease, 
other than one of the political jurisdictions that comprise the LRA, 
without the written consent of the Federal Department or Agency 
occupying the leaseback property.
    (vi) The lease shall include a provision specifying that if the 
Federal Department or Agency concerned no longer needs the property 
before the expiration of the term of the lease, the remainder of the 
lease term may be satisfied by the same or another Federal Department 
or Agency that needs property for a similar use.
    (A) Prior to exercising this option, the Federal tenant shall 
consult with the LRA concerned or other property owner if the property 
has been conveyed by the LRA to another entity in accordance with 
Sec. 175.7(k)(10)(v) of this part.
    (B) If the Federal tenant decides to exercise this option after 
consulting with the LRA or other property owner, it shall notify the 
appropriate General Services Administration regional office that the 
property is available for use by a Federal Department or Agency. The 
General Services Administration regional office shall have 60 days from 
the date of notification in which to identify a Federal Department or 
Agency to serve out the term of the lease and to notify the LRA or 
other property owner of the new tenant. If the regional office does not 
notify the LRA or other property owner of a new tenant within 60 days 
from the date of notification, the property is available for use by the 
LRA or other property owner.
    (C) If the Federal tenant decides not to exercise this option after 
consulting with the LRA or other property owner, the property is 
available for use by the LRA or other property owner.
    (vii) The terms of the lease shall provide that the Federal 
Department or Agency may repair and improve the property at its expense 
after consultation with the LRA.
    (11) Conveyance to an LRA under this authority shall be in one of 
the following ways:
    (i) Lease back property that will be conveyed under an Economic 
Development Conveyance (EDC) shall be conveyed as part of the EDC in 
accordance with the existing EDC procedures and 
Sec. 175.7(k)(11)(ii)(B)(4). The LRA shall submit the following in 
addition to the application requirements outlined in Sec. 175.7(e)(5):
    (A) A description of the parcel or parcels the LRA proposes to have 
transferred to it and then to lease back to a Federal Department or 
Agency;
    (B) A written statement signed by an authorized representative of 
the Federal entity that it agrees to accept a leaseback of the 
property; and,
    (C) A statement explaining why a leaseback is necessary for the 
long-term economic redevelopment of the installation property.
    (ii) Leaseback property not associated with property to be conveyed 
under an EDC shall be conveyed in accordance with the following 
procedures:
    (A) As soon as possible after the LRA's submission of its 
redevelopment plan to the DoD and HUD, the LRA shall submit a request 
for a leaseback to the Military department. The Military Department may 
impose additional requirements as necessary, but at a minimum, the 
request shall contain the following:
    (1) A description of the parcel or parcels the LRA proposes to have 
transferred to it and then to lease back to a Federal Department or 
Agency;
    (2) A written statement signed by an authorized representative of 
the Federal entity that it agrees to accept a leaseback of the 
property; and,
    (3) A statement explaining why a leaseback is necessary for the 
long-term economic redevelopment of the installation property.
    (B) The transfer may be for consideration at or below the estimated 
present fair market value. In those instances in which the property is 
conveyed for consideration below the estimated present fair market 
value, the Military Department shall prepare a written explanation of 
why the estimated present fair market value was not obtained.
    (1) In a rural area, the transfer shall comply with 
Sec. 175.7(f)(5).
    (2) Payment may be in cash or in-kind.
    (3) The Military Department shall determine the estimated present 
fair market value of the property before transfer under this authority.
    (4) The exact amount of consideration, or the formula to be used

[[Page 66527]]

to determine that consideration, as well as the schedule for payment of 
consideration must be agreed upon in writing before transfer under this 
authority.

    Dated: December 15, 1997.
L.M. Bynum,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 97-33109 Filed 12-18-97; 8:45 am]
BILLING CODE 5000-04-M