[Federal Register Volume 63, Number 237 (Thursday, December 10, 1998)]
[Rules and Regulations]
[Pages 68366-68367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32897]



[[Page 68365]]

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Part V





Department of Transportation





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Federal Transit Administration



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49 CFR Part 639



Capital Leases; Final Rule

  Federal Register / Vol. 63, No. 237 / Thursday, December 10, 1998 / 
Rules and Regulations  

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DEPARTMENT OF TRANSPORTATION

Federal Transit Administration

49 CFR Part 639

[Docket No. FTA-98-4407]
RIN 2132-AA65


Capital Leases

AGENCY: Federal Transit Administration, DOT.

ACTION: Final rule

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SUMMARY: This final rule implements the Transportation Equity Act for 
the 21st Century, Public Law 105-178 (TEA-21), which allows all Federal 
Transit Administration (FTA) capital grant funds to be used for leasing 
facilities and equipment if a lease is more cost effective than 
purchase or construction. Before the enactment of TEA-21, recipients 
were permitted to lease assets only with funds received under 49 U.S.C. 
5307. This rule amends FTA's leasing regulation to extend this option 
to all FTA funds, to the extent a recipient meets all other regulatory 
requirements.

EFFECTIVE DATE: This rule is effective January 11, 1999.

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, beginning in 
fiscal year 1999, for the payment of a portion of the net operating 
cost of mass transportation facilities and equipment (``operating 
assistance grants'') in areas of less than 200,000 in population.
    Historically, few Federal Transit Administration (FTA) grantees 
leased capital assets, because under Office of Management and Budget 
cost principles (OMB Circular A-87, ``Cost Principles for Grants to 
State and Local Governments'') a significant portion of lease costs (as 
much as forty percent) representing imputed interest was ineligible for 
reimbursement.
    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 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 sets out the factors for 
determining whether leasing is more cost effective than purchase or 
construction of such items. In accordance with section 308, sections 
639.1, 639.3, 639.5, and 639.13(a) of the regulation limit eligibility 
for the award of capital leasing funds to requests for assistance under 
section 5307.

B. Section 3003 of TEA-21

    Section 3003 of the Transportation Equity Act for the 21st Century, 
Public Law 105-178 (TEA-21), amends 49 U.S.C. 5302(a)(1) by adding, 
inter alia, the following subsection to the definition of ``capital 
project'':

    (F) Leasing equipment or a facility for use in mass 
transportation, subject to regulations that the Secretary prescribes 
limiting the leasing arrangements to those that are more cost 
effective than purchase or construction.

    Section 3003 therefore makes all leasing arrangements for mass 
transit projects that meet FTA's cost-effectiveness criteria eligible 
for capital funding. Moreover, section 3003 does not limit eligibility 
for capital lease funding to requests for assistance under section 
5307, but allows all categories of FTA funds to be used for leasing 
purposes, to the extent that they meet the regulatory requirements. FTA 
is thus amending 49 CFR Part 639 to reflect this expansion of its 
capital leasing authority.

C. FTA's Final Action

    In keeping with section 3003 of TEA-21, FTA is amending 49 CFR 
639.1, 639.3, 639.5 and 639.13(a) to recognize that all categories of 
FTA funds, and not merely section 5307 block grant formula funds, may 
be used to acquire equipment and facilities under leases that meet 
FTA's cost-effectiveness criteria.

Regulatory Impacts

A. Regulatory Analyses and Notices

    FTA has determined that this action is not significant under 
Executive Order 12866 or the Department of Transportation regulatory 
policies and procedures. Because this rule merely expands the 
categories of FTA grant funds eligible for capital leasing and does not 
make substantive changes in evaluation criteria, it is anticipated that 
the impact of this rulemaking will be minimal; therefore, a full 
regulatory evaluation is not required. There are not sufficient 
Federalism implications to warrant the preparation of a Federalism 
Assessment under Executive Order 12612.

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, because it gives section 5311 recipients 
an option not currently extended to them, which is to lease mass 
transit equipment or facilities when it is more cost effective than 
purchasing them.

C. Paperwork Reduction Act

    This action does not contain a collection of information 
requirement for purposes of the Paperwork Reduction Act of 1995.

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 of Part 639 is revised to read as 
follows:

    Authority: 49 U.S.C. 5302; 49 CFR 1.51.

    2. Section 639.1 is revised to read as follows:


Sec. 639.1  General overview of this part.

    This part contains the requirements to qualify for capital 
assistance when leasing facilities or equipment under the Federal 
transit laws. This part is set out in four subparts, with subpart A 
containing general information on scope and definitions. Subpart B 
contains the principal requirements of this part, including eligibility 
requirements, the self-certification system used, and identification of 
the various forms of leases and grants that are eligible under

[[Page 68367]]

the program. Subpart B also contains a section on other Federal 
requirements that may apply. Subpart C includes the actual calculations 
that each recipient should undertake before certifying that a lease is 
cost-effective. Finally, subpart D contains requirements on early lease 
termination and project management in general.
    3. Section 639.3 is revised to read as follows:


Sec. 639.3  Purpose of this part.

    This rule implements section 3003 of the Transportation Equity Act 
for the 21st Century (Pub. L. 105-178). Section 3003 amended section 
5302 of Chapter 53 of Title 49 of the United States Code to allow a 
recipient to use capital funds to finance the leasing of facilities and 
equipment on the condition that the leasing arrangements are more cost 
effective than purchase or construction.
    4. Section 639.5 is revised to read as follows:


Sec. 639.5  Scope of this part.

    This part applies to all requests for capital assistance under 
Chapter 53 of Title 49 of the United States Code where the proposed 
method of obtaining a capital asset is by lease rather than purchase or 
construction.
    5. Section 639.13(a) is revised to read as follows:


Sec. 639.13  Eligible types of leases.

    (a) General. Any leasing arrangement, the terms of which provide 
for the recipient's use of a capital asset, potentially is eligible as 
a capital project under Chapter 53 of Title 49 of the United States 
Code, regardless of the classification of the leasing arrangement for 
tax purposes.
* * * * *
    Issued on: December 7, 1998.
Gordon J. Linton,
Administrator.
[FR Doc. 98-32897 Filed 12-9-98; 8:45 am]
BILLING CODE 4910-57-P