[Federal Register Volume 73, Number 225 (Thursday, November 20, 2008)]
[Rules and Regulations]
[Pages 70570-70581]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-27462]



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Part V





Department of Education





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34 CFR Part 222



Impact Aid Programs; Final Rule

  Federal Register / Vol. 73, No. 225 / Thursday, November 20, 2008 / 
Rules and Regulations  

[[Page 70570]]


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DEPARTMENT OF EDUCATION

34 CFR Part 222

RIN 1810-AB00
[Docket ID: ED-2008-OESE-0008]


Impact Aid Programs

AGENCY: Office of Elementary and Secondary Education, Department of 
Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends regulations governing the Impact Aid 
program under Title VIII of the Elementary and Secondary Education Act 
of 1965 (Act), as amended by the No Child Left Behind Act of 2001. The 
program, in general, provides assistance for maintenance and operations 
costs to local educational agencies (LEAs) that are affected by Federal 
activities. These amended regulations are necessary to clarify and 
improve the administration of payments under section 8002 of the Act 
relating to the Federal acquisition of real property.

DATES: These regulations are effective December 22, 2008. However, 
affected parties do not have to comply with the information collection 
requirements in Sec.  222.23 until the Department of Education 
publishes in the Federal Register the control number assigned by the 
Office of Management and Budget (OMB) to these information collection 
requirements. Publication of the control number notifies the public 
that OMB has approved these information collection requirements under 
the Paperwork Reduction Act of 1995.

FOR FURTHER INFORMATION CONTACT: Catherine Schagh, Director, Impact Aid 
Program, U.S. Department of Education, 400 Maryland Avenue, SW., room 
3E105, Washington, DC 20202-6244. Telephone: (202) 260-3858 or via the 
Internet, at: [email protected].
    If you use a telecommunications device for the deaf (TDD), you may 
call the Federal Relay Service (FRS) at 1-800-877-8339.
    Individuals with disabilities may obtain this document in an 
alternative format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed in the preceding 
paragraph.

SUPPLEMENTARY INFORMATION: On June 2, 2008, the Secretary published a 
notice of proposed rulemaking (NPRM) in the Federal Register (73 FR 
31592) to amend the regulations implementing the Payments for Federal 
Property portion of the Impact Aid program. The Payments for Federal 
Property portion of the Impact Aid program is authorized under section 
8002 of the Elementary and Secondary Education Act of 1965 (Act), as 
amended by the No Child Left Behind Act of 2001. Current regulations 
implementing the program authorized under section 8002 are found in 34 
CFR 222.20 through 222.23. In the preamble to the NPRM, the Secretary 
discussed on pages 31593-31595 the major changes proposed for Sec.  
222.21, concerning how an LEA establishes eligibility for section 8002 
payments, and the major changes proposed for Sec.  222.23, concerning 
how a local official determines an aggregate estimated assessed value 
(EAV) for the eligible Federal property upon which section 8002 
payments are based.

Analysis of Comments and Changes

    In response to the Secretary's invitation in the NPRM, thirty-six 
parties submitted comments on the proposed regulations. In general, 
except as described below, the comments supported the proposed 
regulations or did not oppose them. An analysis of the comments and of 
the changes in the regulations since publication of the NPRM follows. 
We group major issues according to subject. We discuss other 
substantive issues under the sections of the regulations to which they 
pertain. Generally, we do not address technical and other minor changes 
or suggested changes the Secretary is not authorized to make under 
applicable law.

Requirements That a Local Educational Agency Must Meet Concerning 
Federal Acquisition of Real Property Within the Local Educational 
Agency (Sec.  222.21)

    Comment: Nearly every commenter expressed support for the proposal 
to expand the scope of records upon which the Secretary bases 
determinations and redeterminations of eligibility under section 
8002(a)(1) of the Act. We received no comments that opposed it.
    Discussion: The Secretary appreciates the commenters' support. The 
regulations will provide greater flexibility to applicants in 
documenting their eligibility for assistance under section 8002 of the 
Act.
    Changes: None.

Non-Availability of Adjacent Taxable Land (Sec.  222.23)

    Comment: One commenter expressed concerns about proposed Sec.  
222.23 insofar as this section provides that the EAV of eligible 
Federal property is based on adjacent taxable property. The commenter 
asserted that there are not suitable adjacent taxable properties in the 
commenter's LEA, due to the prevalence of tax-exempt property. As a 
result, the commenter further asserted that, with regard to the LEA in 
question, the proposed general method for determining EAV provided for 
in Sec.  222.23 is not feasible.
    Discussion: The proposed regulations anticipated cases in which 
taxable property close to eligible Federal property or within a 
particular LEA might not be available. Accordingly, proposed Sec.  
222.23(e)(1)(iii), which defines adjacent properties, allowed the use 
of taxable properties outside the boundaries of the LEA or beyond the 
distance from the eligible Federal property specified in the definition 
in extremely rare circumstances determined by the Secretary. The 
circumstances described by the commenter, when there are no suitable 
adjacent taxable properties within the LEA that could be used to 
determine the EAV of eligible Federal property, if verified, would 
warrant a determination by the Secretary that ``extremely rare 
circumstances'' exist so that the exception in Sec.  222.23(e)(1)(iii) 
would apply and more distant properties could be used.
    The Secretary is aware of other similar circumstances in which all 
of the waterfront or oceanfront property within an LEA is located on 
the eligible Federal property and there is no comparable taxable 
waterfront or oceanfront property in the LEA. If the Secretary 
determines that such a situation exists, the Secretary would invoke 
Sec.  222.23(e)(1)(iii), upon request by the LEA, to permit the use of 
appropriate waterfront or oceanfront properties located in another LEA. 
The Secretary is amending the definition of adjacent to provide 
examples of situations that would be considered extremely rare 
circumstances and might warrant the use of more distant adjacent 
taxable properties.
    Changes: We have revised Sec.  222.23(e)(1)(iii) to provide 
examples of some extremely rare circumstances that might warrant the 
use of adjacent taxable properties more than two miles from the 
eligible Federal property or outside of the LEA.

Imputing a Non-Assessed or Tax-Exempt Portion of Eligible Federal 
Property (Sec.  222.23(C)(1)(I))

    Comment: Many comments expressed strong support for the general 
requirement in the proposed regulations that local officials allocate a 
proportion of the eligible Federal property acres in each usage 
category for expected non-assessed or tax-exempt uses. None opposed it.
    In the NPRM, the Secretary stated that she was particularly 
interested in comments related to whether it would be appropriate to 
establish a standard

[[Page 70571]]

proportion for each use category of eligible Federal property that 
would be allocated to anticipated non-assessed or tax-exempt uses and, 
if so, what a reasonable standard proportion would be. In response to 
the Secretary's query, most commenters opposed the idea of establishing 
a standard proportion, urging instead that the local official should 
rely on his or her expert knowledge of the area and of the eligible 
Federal property in making the allocation. One commenter requested that 
the Department provide guidelines about how to determine the proportion 
of eligible Federal property that likely would be exempt from local 
real property taxes.
    Another commenter noted that the list of non-assessed or tax-exempt 
uses in proposed Sec.  222.23(c)(1)(i) is not exhaustive. The same 
commenter noted that the failure to allocate a proportion of the 
eligible Federal property acres in each usage category for expected 
non-assessed or tax-exempt uses would result in the gross overstatement 
of the estimated assessed value. That commenter also believed that in 
arriving at a percentage to be used in allocating non-assessed and tax-
exempt uses to the eligible Federal property, the local official would 
be looking at the prevalence of those uses within the boundaries of a 
one-mile perimeter of the eligible Federal property.
    Discussion: Based upon the strong opposition expressed in the 
comments to the idea of establishing a standard proportion for non-
assessed or tax-exempt uses, and in light of the widely divergent 
circumstances from locality to locality, the Secretary has decided to 
retain the approach in the proposed regulations of relying on the local 
official's expert knowledge of the area and of the eligible Federal 
property in making the allocation. Additionally, we have decided not to 
issue specific methodological guidelines on how local officials must 
make this determination. We will monitor the implementation of this new 
regulatory requirement to determine whether there is a need for further 
elaboration in order to assure consistent practice.
    The Secretary acknowledges that the regulations do not contain an 
exhaustive list of non-assessed or tax-exempt uses. The words ``such 
as'' in the proposed regulation were meant to convey that the 
allocation should include any non-assessed or tax-exempt uses common in 
the area, not just those enumerated in the regulations. All of the non-
assessed or tax-exempt uses common to the tax jurisdiction(s) should be 
considered by the local official in making the allocation.
    The Secretary agrees that the failure to allocate a proportion of 
the eligible Federal property acres in each usage category for expected 
non-assessed or tax-exempt uses would result in the overstatement of 
the estimated assessed value. The regulations are intended to prevent 
such overstatement by ensuring that non-exempt or non-assessed uses are 
ascribed to a portion of eligible Federal property.
    The Secretary disagrees with the commenter who stated that the 
percentage used to allocate a proportion of eligible Federal property 
to non-assessed or tax-exempt uses should be based on the property 
within a one-mile perimeter of the eligible Federal property. The 
Secretary believes that use of the tax jurisdiction(s) as a whole is a 
more suitable basis for projecting the non-assessed and tax-exempt uses 
likely to occur on the eligible Federal property should it revert to 
private ownership. We have revised Sec.  222.23(c)(1)(i) to clarify 
this point.
    Changes: Section 222.23(c)(1)(i) has been amended to specify that 
the local official bases non-assessed or tax-exempt proportions for the 
Federal property on the actual non-assessed or tax-exempt uses for each 
category in the entire tax jurisdiction(s) where the selected taxable 
adjacent properties are located.

Minimum Number of Adjacent Taxable Properties (Sec.  222.23(c)(2)(i))

    Comment: Many comments supported the requirement in the proposed 
regulations for local officials to use a minimum sample of ten adjacent 
taxable properties for each use category. However, many commenters 
objected to the proposal requiring a local official to replicate the 
property with the lowest per-acre value of the selected adjacent 
taxable properties as many times as necessary to reach ten values when 
at least three but fewer than ten taxable properties are selected.
    The commenters argued that the average value of the selected 
adjacent taxable properties should be used in lieu of the lowest value, 
because using the lowest value would artificially deflate the estimated 
value of the eligible Federal property while the average value would 
more accurately reflect the value of the eligible Federal property. 
Some commenters stated that the proposed use of the lowest value would 
be a hardship on rural districts.
    One commenter supported the use of the lowest-value taxable 
property as the basis for replication because, according to the 
commenter, this value represents a truer indication of an estimated 
value for the Federal property given limitations of physical 
adaptability, legal permissibility, and financial feasibility. 
Moreover, according to this commenter, the inability to obtain ten 
adjacent taxable properties would be indicative of other economic 
factors at play in the area, such that the use of the lowest value for 
replication is appropriate. The commenter further asserted that by 
basing replication on the lowest value, the proposed regulations were 
taking the calculations away from a true highest and best use 
methodology.
    Discussion: In setting the lowest per-acre value as the basis for 
replication to reach ten properties, the Secretary's intent was to 
create a strong incentive for local officials to perform an exhaustive 
search for taxable adjacent properties before relying on the 
alternative replication approach. Accordingly, we do not agree with the 
suggestion that the average value of the selected adjacent taxable 
properties should be used as the basis for replication. However, as 
noted elsewhere in this preamble, we are revising the regulations to 
increase, from one mile to two miles, the area within which adjacent 
taxable properties may be selected. This change should significantly 
reduce the number of cases in which replication will be necessary.
    As described elsewhere in this preamble in the discussion of the 
limitation on the use of recent sales (Sec.  222.23(d)(2)(i)), contrary 
to the comment that using the lowest value as the basis for replication 
would artificially deflate the value of the eligible Federal 
property,these final regulations comport with the statutory requirement 
that the aggregate assessed value of eligible Federal property be 
determined on the basis of the highest and best use of adjacent 
property. This requirement is implemented when the local official 
categorizes and allocates the expected uses of eligible Federal 
property through a consideration of the highest and best uses of the 
adjacent taxable properties.
    Finally, we have revised Sec.  222.23(c)(2)(i) to specify that in 
those extremely rare circumstances in which the Secretary authorizes a 
local official to use fewer than three adjacent taxable properties to 
establish the base value for eligible Federal property, the average 
per-acre value of the selected adjacent property or properties is to be 
used in lieu of replication. An example of such ``extremely rare 
circumstances'' has also been added to the regulations.
    Changes: Section 222.23(c)(2)(i) has been revised to specify that 
the Secretary may permit the local official

[[Page 70572]]

to select fewer than three parcels in a tax classification if doing so 
is determined by the Secretary to be necessary and reasonable and there 
is an insufficient number of adjacent taxable parcels to replicate. The 
revised regulations further provide that in these extremely rare 
circumstances, the local official establishes the base value of the 
eligible Federal property on the average per-acre value of the selected 
adjacent property or properties. We have also added to the regulations 
an example of the use of fewer than three adjacent taxable properties 
in extremely rare circumstances.

Three-Year Cycle (Sec.  222.23(d)(1))

    Comment: Nearly all of the commenters supported the establishment 
of a three-year cycle for the local official to determine the EAV for 
the Federal property. Under the proposed regulations, the local 
official establishes the base value for eligible Federal property by 
selecting adjacent taxable properties in a base year and then updating 
the values of those adjacent taxable properties in the two succeeding 
years.
    One commenter suggested that the three-year cycle moves the EAV 
away from the common definition of highest and best use, presumably on 
the assumption that it slows increases in the EAV in the two non-base 
years in which the selected adjacent taxable properties must be used 
again. The same commenter questioned whether the foreclosure of a 
selected taxable property would be among the circumstances under which 
the regulations would permit the substitution of a new selected taxable 
property in one of the two years succeeding the base year.
    Discussion: The three-year cycle does not conflict with the concept 
of highest and best use because this concept is implemented through the 
local official's identification of, and proportions for, the expected-
use categories for the Federal property. The assumption that it slows 
growth in the EAV in the non-base years is also not accurate since, 
under the regulations, the values and acreages of the selected adjacent 
taxable properties are updated in the non-base years.
    Under Sec.  222.23(d)(1)(iii), the substitution of an adjacent 
taxable property in a non-base year is appropriate only in the event of 
a change in assessment classification, a change to tax-exempt status, 
or a change in the character of the property. A foreclosure does not 
change the essential character of a property, although it may affect 
its value. Absent an accompanying change in assessment classification 
or change to tax-exempt status, foreclosure alone would not justify a 
substitution of an adjacent taxable property unless it could be shown 
that the character of the property has changed.
    Changes: None.

Limitation on the Use of Recent Sales (Sec.  222.23(d)(2)(i))

    Comment: Nearly all of the commenters supported the provision in 
the proposed regulations that would limit the use of recent sales in 
the selection of adjacent taxable properties. One commenter, however, 
asserted that the proposed limitation would be contrary to the ordinary 
understanding of highest and best use assessed value and a step in the 
direction of current actual assessed values.
    The same commenter questioned the basis for the numerator and 
denominator in the proportion governing the maximum permissible number 
of adjacent taxable properties that are recent sales. The commenter 
suggested three possible alternatives: (1) All recent sales of taxable 
properties for the LEA divided by all taxable properties in the LEA; 
(2) all recent sales of taxable properties within a one-mile radius of 
the eligible Federal property divided by all taxable property within 
that radius; or (3) all recent sales of taxable properties within the 
local tax areas of the sample group divided by all taxable property in 
those areas.
    The commenter asserted that the first option would be very 
difficult because hundreds of thousands of parcels within the LEA would 
have to be examined. Finally, the commenter questioned whether all 
parcels would be of equal weight, regardless of size, in calculating 
the limitation on the use of recent sales.
    Discussion: The limitation on the use of recent sales was proposed 
because, under the existing regulations, some LEAs have selected 
different adjacent taxable properties each year consisting exclusively 
of new sales. This resulted in disparities among LEAs with respect to 
the relative rates of annual section 8002 maximum payment increases. 
Moreover, the preamble to the NPRM noted that it is unlikely that an 
eligible Federal property would change hands in its entirety every year 
if it were on the tax rolls (73 FR 31595). The virtually unanimous 
support by the commenters for the limit on the use of recent sales 
confirms the seriousness of the problem.
    As explained in the preamble to the NPRM (73 FR 31595), the 
limitation on the use of adjacent taxable properties that are recent 
sales does not contravene the statutory requirement in section 
8002(b)(3) that the aggregate assessed value of eligible Federal 
property be determined on the basis of the highest and best use of 
adjacent property. Under the final regulations, the local official 
takes into consideration the highest and best uses of the adjacent 
taxable properties in categorizing and allocating the expected uses of 
eligible Federal property, a crucial step in arriving at an aggregate 
assessed value.
    Limiting the extent to which adjacent taxable properties used in 
calculating base values may be recent sales later on in the process 
does not negate the use of the highest and best use concept in the 
earlier stage. The aggregate assessed value obtained at the conclusion 
of the process is based upon highest and best use, by virtue of the 
application of that concept in categorizing and allocating the expected 
uses of eligible Federal property.
    As Examples 4 and 5 accompanying the final regulations make clear, 
the numerator and denominator of the proportion used to determine the 
number of selected adjacent taxable properties that may be recent sales 
are based upon sales in the relevant tax jurisdiction(s). To prevent 
any possible further confusion, we are clarifying Sec.  222.23(d)(2)(i) 
to specify that it is in fact the tax jurisdiction that is used to 
identify taxable parcels in a category and recent sales in that 
category.
    The comment regarding the necessity for examining hundreds of 
thousands of parcels is incorrect. Under the regulations, no 
examination of individual parcels is needed with respect to the 
limitation on recent sales; all that is necessary for each relevant 
category is the number of properties in that category that are recent 
sales and the total number of properties in that category within the 
taxing jurisdiction.
    In the preamble to the NPRM, the Secretary requested comments on 
the availability of the data necessary to determine the number of 
selected adjacent taxable properties that may be recent sales (73 FR 
31592). While no commenter specifically addressed this point, as 
stated, nearly all of the commenters supported the proposed limitation 
on the use of recent sales.
    The proportion used to limit the use of adjacent taxable properties 
that are recent sales is unweighted. Each property counts equally 
regardless of size.
    Changes: We have revised Sec.  222.23(d)(2)(i) to specify that the 
numerator and denominator are based on the numbers of properties in the 
relevant tax jurisdiction(s).

[[Page 70573]]

Definition of ``Adjacent'' (Sec.  222.23(e)(1))

    Comment: Many commenters objected to the proposed definition of 
adjacent, which is used to describe the taxable properties used in 
deriving the EAV of eligible Federal property. Most commenters objected 
to the requirement that, among other things, adjacent properties be 
within one mile of the perimeter of the Federal property. The 
commenters preferred a wider range for the selection of adjacent 
taxable properties.
    Some commenters said that the proposed restriction creates 
difficulties for rural LEAs. On the other hand, one LEA representative 
commented that the proposed one-mile limitation is reasonable, but that 
using a range of more than one mile would raise concerns about the 
validity of the EAV of the eligible Federal property.
    That commenter expressed concern that the Department did not 
provide any examples of what circumstances might qualify as extremely 
rare circumstances justifying the use of adjacent taxable properties 
beyond the one-mile range. The commenter queried whether prior approval 
would be necessary before an LEA exceeds the specified range and how 
information about decisions of this nature will be communicated to 
other applicants.
    Discussion: Under proposed Sec.  222.23(e)(1), adjacent was defined 
to mean next to or close to the eligible Federal property with the 
specification that in most cases it means the closest taxable parcels 
in the LEA and that more distant ones could be used only where the 
Secretary finds it to be necessary and reasonable. Moreover, taxable 
properties further than one mile from the perimeter of the eligible 
Federal property could be used only in extremely rare circumstances 
determined by the Secretary.
    Based on the volume of comments stating that a range of one mile 
from the perimeter of eligible Federal property would be inadequate for 
the selection of taxable properties, we have decided that it is 
appropriate to increase the maximum distance to no farther than two 
miles from the perimeter. Only when the Secretary determines that 
``extremely rare circumstances'' exist may more distant taxable 
properties be used. Given that the final regulations also require the 
use of the closest taxable properties in most cases, we do not agree 
with the single commenter that increasing the permissible range would 
give rise to significant concern about the EAV of eligible Federal 
property derived on that basis.
    With respect to whether prior approval for the use of more distant 
taxable properties is required, Sec.  222.23(e)(1)(iii) of the 
regulations provides that the exception permitting the use of more 
distant properties applies only if the Secretary determines that 
extremely rare circumstances exist. Accordingly, LEAs whose local 
officials cannot locate taxable properties within the two-mile range 
should not unilaterally use more distant taxable properties, but should 
instead contact the Impact Aid Program for assistance. In addition, the 
Impact Aid Program will provide all applicants with regular updates on 
the implementation of these new regulatory requirements.
    Changes: We have revised the definition of adjacent in Sec.  
222.23(e)(1)(iii) to provide that the Secretary considers the term to 
mean properties more than two miles from the perimeter of eligible 
Federal property or outside of the LEA only in extremely rare 
circumstances determined by the Secretary. We have also added examples 
of extremely rare circumstances, including a description of the process 
for obtaining approval for an exception.

Definition of ``highest and best use'' (Sec.  222.23(e)(2)(i))

    Comment: One commenter supported the provision that, in considering 
the highest and best use of adjacent taxable property, the local 
official may consider the most developed and profitable use for which 
it is adaptable if that use is legally permissible and financially 
feasible and for which there is a need or demand in the near future. 
However, the commenter contrasted this language in proposed Sec.  
222.23(e)(2)(i) with the language in proposed Sec.  
222.23(e)(2)(ii)(B), which states that the local official must consider 
the extent to which the eligible Federal property is physically 
adaptable to the expected uses and there is a need for those uses. The 
commenter suggested that there be a uniform standard with respect to 
these two provisions and expressed a preference that both provisions 
should be mandatory.
    The same commenter queried whether, subject to the limitation on 
the use of adjacent taxable properties that are recent sales, given the 
emphasis in the law on highest and best use, the local official should 
select only the highest economically developed adjacent taxable 
properties, provided that they are physically adaptable, legally 
permissible and financially feasible.
    Discussion: The highest and best use of the adjacent taxable 
properties is the basis for categorizing and allocating the expected 
uses of eligible Federal property. The definition in the regulations of 
the term highest and best use seeks to ensure the reasonableness of the 
expected uses of eligible Federal property in two ways. First, it 
places certain limitations on the local official's selection of 
adjacent taxable parcels. Second, it requires the local official to 
examine the reasonableness of the expected uses the official allocates 
to the eligible Federal property.
    The latter requirement (Sec.  222.23(e)(2)(ii)(C)) is expressed as 
a ``must''; that is, the local official must consider the extent to 
which the eligible Federal property is physically adaptable to the 
expected uses and there is a need for those uses. The former 
requirement (Sec.  222.23(e)(2)(i)(A)), which is applicable to adjacent 
taxable properties, is expressed as a ``may'' because it only applies 
in those cases where a local official elects to consider the most 
developed and profitable use for which an adjacent property is 
physically adaptable. However, the intent of the proposal was that if 
the local official elects to consider the most developed and profitable 
use for which it is adaptable, the local official may only do so if 
that use is legally permissible and financially feasible and there is a 
need or demand for that use in the near future. We have revised the 
regulations in Sec.  222.23(e)(2)(i)(A) to clarify this point.
    All of the limitations contained in the definition of highest and 
best use are mandatory. Any categorization and allocation of expected 
uses of eligible property that are based on uses of adjacent property 
that are unlawful, financially infeasible, or not in demand, fail to 
conform to the definition of highest and best use and do not comply 
with the regulations. Any categorization and allocation of expected 
uses of eligible property that are based on uses of adjacent property 
that are speculative or remote likewise fail to conform to the 
definition of highest and best use and do not comply with the 
regulations. Any categorization and allocation of expected uses of 
eligible Federal property for which the Federal property is not 
physically adaptable or for which there is no demand in the near future 
are not in accord with the regulations.
    Accordingly, with respect to the second comment, the local official 
must do more than assure that the uses of the adjacent taxable 
properties are physically adaptable, legally permissible, and 
financially feasible. He or she must assure that the potential uses 
considered are not speculative or remote. He or she must also consider, 
under Sec.  222.23(e)(2)(ii)(B), whether the

[[Page 70574]]

eligible Federal property is physically adaptable for the expected uses 
and whether there is a need for those uses. Moreover, as noted in 
Example 8, the local official should strive to use a range of 
properties generally representative of what surrounds the eligible 
Federal property (e.g., small properties, large properties, improved 
properties broadly representative of the housing, industrial, or 
agricultural building market, and unimproved properties in those 
categories).
    In light of those principles, it likely would not be reasonable, 
for example, for a local official to base the valuation of a 100,000-
acre military installation on ten half-acre residential properties with 
$500,000 houses on them. Among other things, the immediate demand in 
the area for another 200,000 properties of that type would be 
considered speculative and remote.
    Changes: Section Sec.  222.23(e)(2)(i) has been revised to provide 
that, in considering the highest and best use of adjacent taxable 
property, the local official may consider the most developed and 
profitable use for which it is adaptable only if that use is legally 
permissible and financially feasible and there is a need or demand for 
it in the near future.

Executive Order 12866

    Under Executive Order 12866, the Secretary must determine whether 
this regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive order and review by OMB. Section 3(f) of 
Executive Order 12866 defines a ``significant regulatory action'' as an 
action likely to result in a rule that may (1) have an annual effect on 
the economy of $100 million or more, or adversely affect a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments, or communities 
in a material way (also referred to as an ``economically significant'' 
rule); (2) create serious inconsistency or otherwise interfere with an 
action taken or planned by another agency; (3) materially alter the 
budgetary impacts of entitlement grants, user fees, or loan programs or 
the rights and obligations of recipients thereof; or (4) create novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive order. The 
Secretary has determined that this regulatory action is not significant 
under the Executive order.
    We have reviewed these final regulations in accordance with 
Executive Order 12866. Under the terms of the order we have assessed 
the potential costs and benefits of this regulatory action.
    The potential costs associated with the final regulations are those 
resulting from statutory requirements and those we have determined to 
be necessary for administering this program effectively and 
efficiently. In assessing the potential costs and benefits--both 
quantitative and qualitative--of these final regulations, we have 
determined that the benefits of the regulations justify the costs. We 
have also determined that this regulatory action does not unduly 
interfere with State, local, and tribal governments in the exercise of 
their governmental functions.

Summary of Potential Costs and Benefits

    In general, the final regulations will provide more specificity 
with respect to local officials' selection of adjacent parcels upon 
which they base their valuation of the Federal property. These more 
specific rules generally will reduce burden by eliminating the need for 
lengthy consultations with Department staff, multiple revisions to 
valuation submissions, and application amendments. Although one of the 
regulatory changes would require local officials to select a minimum 
number (generally 10) of properties on which to base the valuation of 
the Federal property and, therefore, may require some local officials 
to add more properties than they currently are using, any resulting 
increase in the local official's time for this task is offset by the 
accompanying regulatory change to reduce the selection cycle from every 
year to once every three years.
    These final regulations will provide the following benefits for 
section 8002 applicants: Greater uniformity in how local officials 
value the eligible Federal property in each of their jurisdictions; 
elimination of inequitable inflation in the value of the eligible 
Federal property; and greater reliability and consistency in the 
valuation process nationwide.

Paperwork Reduction Act of 1995

    Section 222.23 contains information collection requirements related 
to the submission of an applicant's section 8002 application. The 
section 8002 application form and the regulations that require it (34 
CFR 222.3) are approved under OMB number 1810-0036, with an expiration 
date of January 31, 2009. Table 1 of that approved application (Tax 
Assessor's Valuation of Section 8002-eligible Federal Property) 
requires each applicant LEA's tax assessment official (local official) 
to certify the accuracy and completeness of certain information about 
the eligible section 8002 property, including its aggregate EAV as 
required by section 8002(b)(3) of the ESEA, and summary information 
upon which that value was derived. We anticipate OMB approval of a 
revised collection reflecting these requirements following the 
publication of the final regulations.
    Section 222.23 makes several changes to the information that the 
local official must obtain and use in determining the aggregate EAV of 
the Federal property. However, for the reasons explained below, the 
Secretary believes that these changes do not result in an increase in 
the paperwork collection burden.
    Sections 222.23(a)(3) and (c)(1) require local officials to 
identify the taxable use portions of the eligible Federal property by 
excluding a proportion of each expected use category that the local 
official would allocate to accommodate anticipated non-assessed or tax-
exempt uses. We proposed this change to avoid overstating the aggregate 
EAV of the eligible Federal property upon which section 8002 payments 
are based, which otherwise might occur if a portion of the property is 
included that likely would remain exempt from real property taxation if 
no longer federally owned.
    In addition, Section 222.23(c)(2)(i) requires local officials to 
obtain a minimum sample size of 10 adjacent properties for each type of 
property, rather than using a lesser number of properties. We proposed 
this change to standardize the minimum sample size and provide greater 
consistency and reliability in payments. Federal property valuations 
must be established as consistently as possible to achieve equity in 
LEAs' payments, which are based in part upon those valuations and are 
mutually dependent upon one another due to lack of full funding for the 
program.
    Although the change in the minimum sample size may increase the 
burden for some LEAs, it will reduce or have no effect on the 
collection burden of others that currently obtain a higher number of 
sample properties. In any event, the Secretary believes that both of 
these changes will be offset by the following simultaneous burden 
reductions: (1) In Sec.  222.23(d)(1), moving from an annual to a 
three-year sample selection cycle; and (2) in Sec.  222.23(d)(2), 
limiting the number of recent sales that a local official may select in 
each base selection year, which will take far less time than searching 
for all new, appropriate, recent sales every year.

[[Page 70575]]

Assessment of Educational Impact

    In the NPRM, and in accordance with section 411 of the General 
Education Provisions Act, 20 U.S.C. 1221e-4, we requested comments on 
whether the proposed regulations would require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.
    Based on the response to the NPRM and on our review, we have 
determined that these final regulations do not require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.

Electronic Access to This Document

    You may view this document, as well as all other Department of 
Education documents published in the Federal Register, in text or Adobe 
Portable Document Format (PDF) on the Internet at the following site: 
http://www.ed.gov/legislation/FedRegister.
    To use PDF, you must have Adobe Acrobat Reader, which is available 
free at this site. If you have questions about using PDF, call the U.S. 
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in 
the Washington, DC, area at (202) 512-1530.
    You may also view this document in text or PDF at the following 
site:  http://www.ed.gov/programs/8002/legislation.html.

     Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at: http://www.access.gpo.gov/nara/index.html.

(Catalog of Federal Domestic Assistance Number 84.041, Impact Aid-
Maintenance and Operations)

List of Subjects in 34 CFR Part 222

    Education, Education of children with disabilities, Educational 
facilities, Elementary and secondary education, Federally affected 
areas, Grant programs--education, Indians--education, Public housing, 
Reports and recordkeeping requirements, School construction, Schools.

    Dated: November 13, 2008.
Kerri L. Briggs,
Assistant Secretary for Elementary and Secondary Education.

0
For the reasons discussed in the preamble, the Secretary amends part 
222 of title 34 of the Code of Federal Regulations as follows:

PART 222--IMPACT AID PROGRAMS

0
1. The authority citation for part 222 continues to read as follows:

    Authority: 20 U.S.C. 7701-7714, unless otherwise noted.


0
2. Section 222.21 is amended by revising the introductory text in 
paragraph (a), and revising paragraphs (d)(1) and (e) to read as 
follows:


Sec.  222.21  What requirements must a local educational agency meet 
concerning Federal acquisition of real property within the local 
educational agency?

    (a) For an LEA with an otherwise approvable application to be 
eligible to receive financial assistance under section 8002 of the Act, 
the LEA must meet the requirements in subpart A of this part and Sec.  
222.22. In addition, unless otherwise provided by statute as meeting 
the requirements in section 8002(a)(1)(C), the LEA must document--
* * * * *
    (d) * * *
    (1) For a new section 8002 applicant or newly acquired eligible 
Federal property, only upon--
    (i) Original records as of the time(s) of Federal acquisition of 
real property, prepared by a legally authorized official, documenting 
the assessed value of that real property;
    (ii) Facsimiles, such as microfilm, or other reproductions of those 
records; or
    (iii) If the documents specified in paragraphs (d)(1)(i) and (ii) 
are unavailable, other records that the Secretary determines to be 
appropriate and reliable for establishing eligibility under section 
8002(a)(1) of the Act, such as Federal agency records or local 
historical records.
* * * * *
    (e) The Secretary does not base the determination or 
redetermination of an LEA's eligibility under this section upon 
secondary documentation that is in the nature of an opinion, such as 
estimates, certifications, or appraisals.
* * * * *


0
3. Section 222.23 is revised to read as follows:


Sec.  222.23  How does a local educational agency determine the 
aggregate assessed value of its eligible Federal property for its 
section 8002 payment?

    (a) General. A local educational agency (LEA) determines the 
aggregate assessed value of its eligible Federal property for its 
section 8002 payment as follows:
    (1) A local official who is responsible for assessing the value of 
real property located in the jurisdiction of the LEA in order to levy a 
property tax makes the determination of the section 8002 aggregate 
assessed value, based on estimated assessed values (EAVs) for the 
eligible Federal property in the jurisdiction.
    (2) The local official first categorizes the types of expected uses 
of the eligible Federal property in each Federal installation or area 
(e.g., Federal forest) based on the highest and best uses of taxable 
properties adjacent to the eligible Federal property (adjacent 
properties), and allocates a portion of the acres of the eligible 
Federal property to each of those expected uses, in accordance with 
paragraph (b) of this section.
    (3) For each category of expected use of the eligible Federal 
property identified in accordance with paragraph (a)(2) of this section 
for each Federal installation or area, the local official then 
determines a base value in accordance with paragraphs (c) and (d) of 
this section.
    (4) The local official next determines a section 8002 EAV for each 
category of expected use of the eligible Federal property in each 
Federal installation or area. The official determines that EAV by 
adjusting the base value for that category established in accordance 
with paragraph (a)(3) of this section, by any percentage, ratio, index, 
or other factor that the official would use to determine the assessed 
value (as defined in Sec.  222.20) of the eligible Federal property to 
generate local real property tax revenues for current expenditures if 
that eligible Federal property were taxable. (This process is 
illustrated in Example 8 and Table 8-2 at the end of this section.)
    (5) The local official then determines a total section 8002 EAV for 
each Federal installation or area in the LEA by adding together the 
assessed values determined pursuant to paragraph (a)(4) of this section 
for all property use categories of eligible Federal property in that 
Federal installation or area.
    (6) The local official determines a section 8002 aggregate assessed 
value for the LEA as follows:
    (i) If the LEA contains a single Federal installation or area with 
eligible Federal property, the total section 8002 EAV determined 
pursuant to paragraph (a)(5) of this section constitutes the section 
8002 aggregate assessed value for the LEA.
    (ii) If the LEA contains more than one Federal installation or area 
with eligible Federal property, the local official calculates the 
section 8002 aggregate assessed value for all of the eligible Federal 
property in the LEA by adding together the section 8002 total EAVs 
determined pursuant to paragraph (a)(5) of this section for all Federal 
installations and areas containing eligible Federal property within the 
LEA. (This process is illustrated in

[[Page 70576]]

Example 8 and Table 8-2 at the end of this section.)
    (b) Categorizing expected uses. (1) The local official categorizes 
the expected uses of the eligible Federal property, in accordance with 
paragraph (a)(2) of this section, by--
    (i) Identifying the tax assessment classifications that represent 
the highest and best uses of the taxable adjacent property (e.g., 
residential, commercial, agricultural); and
    (ii) Determining the relative proportions of taxable adjacent 
properties, based on acreage, that are devoted to each of those tax 
assessment classifications that represent the highest and best uses of 
the taxable adjacent property (e.g., agricultural--50 percent; 
residential--40 percent; commercial--10 percent).
    (2) The local official then determines the allocation of each of 
those expected uses to the eligible Federal property acres by 
multiplying each of the proportions determined under paragraph 
(b)(1)(ii) of this section by the total acres of the eligible Federal 
property in that Federal installation or area.
    (c) Determining the base value for expected use categories. The 
local official determines a base value for each category of expected 
use of the eligible Federal property in accordance with paragraph 
(a)(3) of this section as follows:
    (1) The local official first identifies the taxable-use portion of 
the eligible Federal property acres in each expected use category as 
follows:
    (i) The local official allocates a proportion (percentage) of the 
eligible Federal property acres identified for each expected use 
category under paragraph (b)(2) of this section to expected non-
assessed or tax-exempt uses, such as public open space, schools, 
churches, and roads. The local official bases these proportions on the 
actual non-assessed or tax-exempt uses for each category of taxable 
property in the entire tax jurisdiction(s) where the selected taxable 
adjacent properties are located.
    (ii) The local official then determines the number of acres 
attributable to non-assessed or tax-exempt uses for each expected use 
category by multiplying the non-assessed or tax-exempt proportions 
identified in paragraph (c)(1)(i) of this section by the number of 
acres in each expected-use category determined pursuant to paragraph 
(b)(2) of this section.

    Example 1 (Allocation of Proportion of Eligible Federal Property 
to Non-Assessed or Tax-exempt Uses): The eligible Federal property 
(1,000 acres) is surrounded by properties that are classified for 
tax purposes according to their highest and best uses as residential 
(40 percent) and agricultural (60 percent) property. For the 
residential category (400 acres), the local official determines that 
approximately 20 percent would be devoted to non-assessed or tax-
exempt uses, such as roads, parks, churches, and schools. The local 
official multiplies that proportion (.20) by the number of eligible 
Federal acres allocated to the residential category (400 acres) to 
determine the number of eligible Federal acres (80 acres) that 
likely would not be assessed for taxation or would be tax-exempt if 
the Federal Government no longer owned that property, as illustrated 
in the chart at the end of this example (Table 1-1). The local 
official follows a similar process for the proportion of the 
eligible Federal property the official allocated to agricultural 
use.

 Table 1-1--Proportion of Residential Category of Section 8002 Eligible
      Federal Property Allocated to Non-Assessed or Tax-exempt Uses
------------------------------------------------------------------------
                                                        Eligible Federal
                                                        acres allocated
                                        Allocated       to expected use
                                        proportion      category (Col. 2
                                        (percent)          x acres in
                                                          expected use
                                                           category)
(1)                                               (2)                (3)
------------------------------------------------------------------------
      Residential portion of eligible Federal property (400 acres)
------------------------------------------------------------------------
Allocated by local official for                    20                 80
 non-assessed or tax-exempt uses..
Allocated for taxable residential                  80                320
 use..............................
                                   -------------------------------------
    Total.........................                100                400
------------------------------------------------------------------------

    (iii) The local official then calculates the number of acres 
attributable to taxable use for each expected use category by 
subtracting the number of acres attributable to non-assessed or tax-
exempt uses determined under paragraph (c)(1)(ii) of this section 
from the total number of acres of eligible Federal property in that 
use category identified in paragraph (b)(2) of this section.
    (2) For the taxable use portion determined under paragraph 
(c)(1)(iii) of this section for each expected use category, the 
local official then calculates a base value as follows:
    (i) The local official selects from each expected use category 
identified pursuant to paragraph (b)(1)(i) of this section a minimum 
sample size of 10 taxable adjacent properties that represent the 
highest and best uses of the taxable adjacent properties. The 
official identifies the value that is recorded on the assessment 
records for each selected taxable adjacent property before any 
adjustment, ratio, percentage, or other factor is applied to 
establish a taxable (assessed) value. If at least three but fewer 
than 10 taxable adjacent properties are selected in an identified 
use category, the local official calculates a per acre value for 
each adjacent property and then identifies which of those properties 
has the lowest per-acre value. The official replicates that adjacent 
property's value and acreage as many times as needed until the 
combination of actual and replicated adjacent properties reaches ten 
in number. In extremely rare circumstances, the Secretary may permit 
the local official to select fewer than three parcels in a tax 
classification if doing so is determined by the Secretary to be 
necessary and reasonable and there is an insufficient number of 
adjacent taxable properties to replicate. In those extremely rare 
circumstances, the local official establishes the base value of the 
eligible Federal property using the average per acre value of the 
selected adjacent property or properties.
    Example 2a (Minimum Sample Size of Adjacent Properties): The 
eligible Federal property is surrounded by properties that are 
classified for tax purposes as residential, commercial, and 
agricultural property. The local official selects at least 10 
taxable adjacent parcels from each of the residential and 
agricultural property classifications as the basis for valuing the 
eligible Federal property.
    In the commercial classification, however, only six taxable 
adjacent properties are selected. The lowest per-acre-valued parcel, 
Parcel A, is valued at $6,000 per acre. As illustrated in Table 2-1, 
the local official selects all six of the commercial taxable 
adjacent properties, and then replicates Parcel A's value and 
acreage four more times to reach the minimum number of ten 
properties for that classification.

[[Page 70577]]

    Example 2b (Use of Fewer Than Three Adjacent Taxable Properties 
in Extremely Rare Circumstances): There are three golf courses in an 
LEA, one on eligible Federal property and the other two on taxable 
property adjacent to the eligible Federal property. Under the local 
tax classification scheme, there is a separate tax category for golf 
courses. Since there are only two adjacent taxable properties in 
that tax classification in the taxing jurisdiction, the LEA seeks 
permission to establish the base value for the golf course on the 
eligible Federal property using the average per-acre value of the 
two adjacent taxable golf courses. After verifying the facts, the 
Secretary determines that extremely rare circumstances exist within 
the meaning of Sec.  222.23(c)(2)(i) and grants the LEA's request.
    (ii) The local official then calculates an average per-acre 
value for the taxable portion of each expected use category by 
totaling the values (following application of any adjustment 
factors, if relevant) and acres of the actual and any replicated 
adjacent properties and then dividing the total value by the total 
number of acres in those properties, as illustrated in the following 
chart (Table 2-1).

                 Table 2-1--Average Per-Acre Value of Minimum Sample Size of Adjacent Properties
----------------------------------------------------------------------------------------------------------------
                              Selected adjacent properties--                                         Value per
                                commercial classification              Value           Acres           acre
                         (1)....................................             (2)          (3)                (4)
----------------------------------------------------------------------------------------------------------------
1......................  Parcel A...............................        $150,000           25             $6,000
2......................  Parcel B...............................       1,200,000           30             40,000
3......................  Parcel C...............................         750,000             .25       3,000,000
4......................  Parcel D...............................       1,000,000           40             25,000
5......................  Parcel E...............................         500,000            5            100,000
6......................  Parcel F...............................         250,000             .5          500,000
7......................  Replicated Parcel A....................         150,000           25              6,000
8......................  Replicated Parcel A....................         150,000           25              6,000
9......................  Replicated Parcel A....................         150,000           25              6,000
10.....................  Replicated Parcel A....................         150,000           25              6,000
                        ----------------------------------------------------------------------------------------
                            Total...............................       4,450,000          200.75              NA
                        ----------------------------------------------------------------------------------------
                                                    Average value/acre
                                               (TOTAL Col. 2/TOTAL Col. 3)                             22,166.87
----------------------------------------------------------------------------------------------------------------

    (iii) The local official then multiplies the average per-acre 
value calculated under paragraph (c)(2)(ii) of this section by the 
number of acres of eligible Federal property in the taxable portion 
of that expected-use category, determined in accordance with 
paragraph (b)(2) of this section to calculate the base value for 
that category.
    (d) Additional procedures for determining base values. The local 
official applies the following additional procedures in determining 
a base value for each category of expected use of the eligible 
Federal property, in accordance with paragraph (a)(3) of this 
section:
    (1) The local official determines base values on a three-year 
cycle, as follows:
    (i) The local official allocates expected uses to the eligible 
Federal property in accordance with paragraph (b)(2) of this section 
and selects taxable adjacent properties in accordance with paragraph 
(c)(2)(i) of this section once every three years (base year).
    (ii) For each of the following two application years, the local 
official uses the same allocation of expected uses of the eligible 
Federal property and the same taxable adjacent parcels selected for 
the base year, but updates the values and acreages of the selected 
taxable adjacent parcels.
    (iii) If a previously selected taxable adjacent property becomes 
unsuitable for determining the base value for the expected-use 
category because that property has changed assessment 
classification, become tax-exempt, or undergone a change in 
character from the time that the property was selected for the base 
year, the local official substitutes a similar taxable adjacent 
property from the same expected-use category (assessment 
classification) in accordance with the requirements in paragraph 
(c)(2)(i) of this section.
    Example 3 (Three-Year Cycle for Selected Adjacent Properties): 
For the fiscal year (FY) 2010 section 8002 application, the local 
official selects 15 residential taxable adjacent properties to use 
as the basis for valuing a portion of the eligible Federal property, 
and provides the value and acreages of each of those properties for 
the previous year (2009). The local official must use those same 
properties for the following two application years (2011 and 2012), 
assuming that those properties retain the same assessment 
classification, remain taxable, and do not undergo a change in the 
original character upon which their selection was based. For each of 
those following two years, the local official updates the values and 
acreages of each selected residential taxable adjacent property 
based on the preceding year's tax data (2010 and 2011, 
respectively).
    However, during that two-year period, one of the residential 
taxable adjacent properties changes in character because the 
residential improvement is destroyed. That change to the original 
character makes the property unsuitable to include in the selected 
group of residential taxable adjacent properties for the remaining 
two years of the three-year period. Accordingly, the local official 
substitutes a residential taxable adjacent property that is similar 
to the originally selected property (i.e., an improved residential 
adjacent property of similar value and size) to retain the same 
number and variety of taxable adjacent properties in that expected-
use category as originally selected.
    (2)(i) When selecting taxable adjacent properties for the base year 
in accordance with paragraph (c)(2)(i) of this section, the local 
official may include taxable adjacent properties that are recent sales 
(as defined in paragraph (e)(3) of this section), among other taxable 
adjacent properties, up to the following proportion:
[GRAPHIC] [TIFF OMITTED] TR20NO08.006


[[Page 70578]]


    Example 4 (Proportion of Recent Sales in Assessment 
Classification): Beginning with the most recent year for which data 
are available (2007), the local official determines that 40 taxable 
agricultural properties sold or otherwise transferred ownership in 
that tax jurisdiction during the three most recent years for which 
data are available (2005 through 2007) and that there were 500 
taxable agricultural properties during 2007 (the most recent year 
for which data are available). (If a particular property sold more 
than once during the three most recent years for which data are 
available, the local official counts each sale.) The local official 
determines the proportion of sales for taxable agricultural property 
as follows:
[GRAPHIC] [TIFF OMITTED] TR20NO08.007

    (ii) The local official determines the number of recent sales 
the official may include with other selected taxable adjacent 
properties for that expected use category as follows:
[GRAPHIC] [TIFF OMITTED] TR20NO08.008

If the resulting number is a fraction, the local official rounds 
down to the next smaller whole number to determine the maximum 
number of recent sales that the official may include for that 
expected use category.
    Example 5 (Number of Recent Sales Local Official May Use To 
Determine the Base Value for Each Expected Use Category of Eligible 
Federal Property): The eligible section 8002 Federal property in the 
LEA is a federally owned forest. Based on the highest and best uses 
of taxable adjacent properties, three expected use categories 
(assessment classifications) of properties surround that forest: 
Residential, commercial, and agricultural. After identifying and 
excluding a non-assessed or tax-exempt proportion for each expected 
use category of the eligible Federal property, in accordance with 
paragraphs (a)(3) and (c)(1) of this section, the local official 
selects 10 taxable adjacent properties each for the residential and 
commercial use categories, and 20 taxable adjacent properties for 
the agricultural use category to determine the base value for the 
taxable portion of each expected use category of the eligible 
Federal property.
    During the three most recent years for which data are available, 
10 percent of the residential properties in the tax jurisdiction 
were sold, six percent of the commercial properties were sold, and 
eight percent of the agricultural properties were sold. As 
illustrated in the following chart, of the 10 residential adjacent 
properties selected, the local official may select only one recent 
sale (10 percent (.10) x 10 residential adjacent properties = one) 
to use in determining the base value for that expected use category 
of the eligible Federal property.
    For the commercial classification, six percent of the taxable 
properties in the tax jurisdiction were recent sales. As illustrated 
in the following chart, the local official may not select any recent 
sales for that expected-use category because six percent (.06) of 
the 10 selected commercial adjacent properties is less than one 
whole number, and rounding down therefore results in 0 (six percent 
(.06) x 10 commercial adjacent properties =.6 of a property).
    Finally, as illustrated in the following chart, for the 20 
selected agricultural adjacent properties, the local official may 
use one recent sale for that expected-use category, because eight 
percent (.08) of the 20 properties equals 1.6 properties (eight 
percent (.08) x 20 agricultural adjacent properties = 1.6) and 
rounding down to the nearest whole number results in one property.

   Table 5-1--Number of Recent Sales Local Official May Use To Determine the Base Value for Each Expected Use
                                      Category of Eligible Federal Property
----------------------------------------------------------------------------------------------------------------
                                                                    Residential     Commercial     Agricultural
----------------------------------------------------------------------------------------------------------------
1. Percent (proportion) of recent sales for expected use               10% (.10)        6% (.06)        8% (.08)
 category.......................................................
2. Total selected adjacent properties...........................              10              10              20
3. Row 1 x Row 2................................................             1.0              .6             1.6
4. Number of ``recent sales'' local official may include among                 1               0               1
 other taxable adjacent properties in determining a base value
 for the expected use category of the eligible Federal property.
----------------------------------------------------------------------------------------------------------------

    (e) Definitions. The following terms used in this section are 
defined as follows:
    (1) Adjacent means next to or close to the eligible Federal 
property as follows:
    (i) In most cases, the term adjacent means the closest taxable 
parcels within the LEA.
    (ii) The term adjacent means properties farther away from the 
eligible Federal property than described in paragraph (e)(1)(i) of 
this section only if the Secretary determines that it is necessary 
and reasonable to use those more distant properties to determine the 
EAV of eligible Federal property.
    (iii) The Secretary considers the term adjacent to mean 
properties farther than two miles from the perimeter of the eligible 
Federal property or outside the LEA only in extremely rare 
circumstances determined by the Secretary.
    Example 6 (Extremely Rare Circumstances): A very small LEA 
consists predominantly of non-taxable and tax-exempt property 
including eligible Federal property. The small taxable portion of 
the LEA is topographically dissimilar from the Federal property and 
classified for tax purposes differently than the eligible Federal 
property most likely would be if it were on the tax rolls, in the 
opinion of the local

[[Page 70579]]

official. Based on these facts, the LEA asserts that there are no 
suitable adjacent taxable properties and requests permission to use 
taxable properties in the adjoining LEA. After verifying the facts, 
the Secretary determines that extremely rare circumstances exist 
within the meaning of Sec.  222.23(e)(1)(iii) and grants the LEA's 
request.
    In an LEA bordering on the Pacific Ocean, the entire coastline 
is taken up by the eligible Federal property. Based on the absence 
of taxable oceanfront property in the LEA, the LEA seeks permission 
to use taxable oceanfront property in the adjoining LEA. After 
verifying the facts, the Secretary determines that extremely rare 
circumstances exist within the meaning of Sec.  222.23(e)(1)(iii) 
and grants the LEA's request.
    (2)(i) Highest and best use of adjacent property is determined 
based on a highest and best use standard in accordance with State or 
local law or guidelines of general applicability, if available, that 
is not used exclusively for the eligible Federal property and 
includes any improvements on that property to the extent consistent 
with those laws or guidelines. To the extent that State or local law 
or guidelines of general applicability are not available, highest 
and best use generally must be based on the current use of the 
taxable adjacent property (including any improvements).
    (ii) In determining the highest and best use, the local 
official--
    (A) Also may consider the most developed and profitable use for 
which the taxable adjacent property is physically adaptable, but 
only if that use is legally permissible and financially feasible, 
and for which there is a need or demand in the near future;
    (B) May not base the highest and best use of taxable adjacent 
property on potential uses that are speculative or remote; and
    (C) Must consider the extent to which the eligible Federal 
property is physically adaptable for those expected uses and the 
extent to which those uses would be needed if the property were not 
in Federal ownership.
    Example 7 (Determining the Highest and Best Use of Taxable 
Adjacent Properties as the Basis for EAV): If a Federal installation 
to be valued is bordered by residential and commercial/industrial 
properties, the local official takes into consideration those 
various highest and best uses (residential and commercial/
industrial) in determining the EAV of the eligible Federal property 
as described in paragraphs (a) and (c)(2)(i) of this section.
    Under that process, using acres, the local official first 
determines the relative proportions of adjacent properties devoted 
to each of those highest and best uses. For example, the local 
official determines that the highest and best uses of the adjacent 
properties are residential (60 percent) and commercial/industrial 
(40 percent). However, before allocating the acres of the eligible 
Federal property (1,000 acres) to those uses as described in 
paragraphs (a)(2) and (b) of this section, the local official must 
consider whether the Federal property is adaptable for and there is 
a need for those uses, in accordance with paragraph (e)(2)(ii)(B) of 
this section.
    For example, if the Federal property is hilly and rocky or 
contains a large area of marshland, it may not be practical for the 
property to be developed primarily as residential property. Using 
his or her professional judgment, the local official may decide that 
it would be more appropriate to designate 50 percent of the acres as 
vacant or woodland or some other taxable classification that would 
indicate that improvements would likely not be located on that 
property. This may also affect the proportion of the property that 
would be designated as commercial/industrial because some of those 
commercial/industrial uses would support the area designated for 
residential use. Thus, the local official designates the remaining 
50 percent of the acres as 20 percent residential and 30 percent 
commercial/industrial.
    After the local official determines the appropriate proportions 
of expected uses, the official then multiplies those proportions by 
the total number of eligible Federal acres (1,000) to determine the 
number of eligible Federal acres in each expected use category, 
resulting in the following: residential (20 percent or 200 acres), 
vacant (50 percent or 500 acres), and commercial/industrial (30 
percent or 300 acres). The local official then determines the base 
value for the taxable use portion of each expected use category 
under paragraph (c)(2) of this section, beginning by selecting a 
sample of properties that represents the highest and best uses of 
the taxable adjacent properties.
    In selecting the sample, the local official must consider 
whether the Federal property would support the same degree of 
development as the taxable adjacent properties selected (e.g., 
density, size, and improvements) and whether there would be a need 
for that type and degree of development in the near future. The 
local official then makes any necessary adjustments to the sample.
    (3) Recent sales or recently sold means taxable properties that 
have transferred ownership within the three most recent years for 
which data are available.
    Example 8 (Calculation of Section 8002 EAV for Eligible Federal 
Property): Two different Federal properties are located within an 
LEA--a Federal forest (100 eligible acres) and a naval facility 
(1,000 eligible acres). Based on the highest and best uses of 
taxable adjacent properties, and as described more specifically 
below, the local official establishes an EAV for the eligible 
Federal property in the LEA of $92,577,000 in the base year of a 
three-year cycle. That EAV is based on categorizing the Federal 
forest as 100 percent (100 acres) woodland expected use and the 
naval facility as 60 percent (600 acres) residential expected use 
and 40 percent (400 acres) commercial/industrial expected use.
    The taxing jurisdiction determines the assessed value for 
taxable property by multiplying the value of the property by a 
single assessment ratio applicable to the property's assessment 
category. In this case, the applicable assessment ratios are: 
Woodland property--30 percent of the property's value; residential 
property--60 percent of the property's value; and commercial/
industrial property--75 percent of the property's value.
    Federal forest (100 eligible Federal acres).
    The local official first determines the type of expected-use 
categories (assessment classifications) and respective proportions 
to use in valuing the eligible Federal property, based on the 
highest and best use of the taxable adjacent properties. In this 
case, the local official categorizes 100 percent of the Federal 
forest as being in the woodland use category (assessment 
classification) based on the highest and best use of taxable 
adjacent properties. The local official multiplies that proportion 
by the total number of eligible Federal acres (100), to determine 
the number of Federal acres attributable to the woodland use 
category (100 acres).
    The local official then determines a base value for each 
category of expected use of the eligible Federal property as 
described in paragraphs (a)(3), (c), and (d) of this section. The 
official first determines the taxable-use portion for each expected 
use category, as described in paragraph (c)(1) of this section, by 
excluding the proportion of the total area of each use category of 
the eligible Federal property that the official determines should be 
allocated to non-assessed or tax-exempt uses.
    Based on the general proportion of non-assessed or tax-exempt 
uses for woodland property, the local official allocates 10 percent 
of the woodland acres for non-assessed or tax-exempt purposes, and 
multiplies that proportion by the total number of acres of eligible 
Federal property categorized as woodland (100 acres), resulting in 
10 acres attributable to a non-assessed or tax-exempt proportion of 
woodland. The local official then subtracts that non-assessed or 
tax-exempt portion (10 acres) from the total acres of eligible 
Federal property in that expected-use category (100 acres), 
resulting in 90 acres attributable to the taxable portion of the 
woodland expected-use category.
    The local official then selects a sample of taxable adjacent 
properties from the expected use category (woodland), as described 
in paragraphs (c)(2) and (d) of this section, and uses that sample 
to establish a base value for that category. The sample includes the 
minimum required number of taxable adjacent properties (generally at 
least 10) from the woodland category. In addition, in selecting that 
sample of properties, the local official uses only the allowable 
proportion of recent sales, calculated as described in paragraph 
(d)(2) of this section. In selecting the specific taxable adjacent 
properties that make up that sample and that reflect the highest and 
best uses of the adjacent taxable properties in accordance with 
paragraph (c)(2)(i) of this section, the local official also 
considers whether the Federal property is adaptable for and whether 
there would be a need for those specific types of properties, such 
as in size and improvements, in accordance with paragraph 
(e)(2)(ii)(B) of this section.
    The local official calculates the average value per acre 
($1,000) of the selected sample of taxable adjacent woodland 
properties. The local official then multiplies the number of acres 
attributable to the taxable portion of the

[[Page 70580]]

woodland expected use category (90 acres) by the average value per 
acre ($1,000) of the selected taxable woodland adjacent properties, 
resulting in a base value for the woodland use category of the 
Federal forest of $90,000.
    The local official then determines the section 8002 EAV for the 
Federal forest as described in paragraph (a)(4) of this section by 
multiplying the base value established for the woodland portion of 
the property ($90,000) by 30 percent (the assessment ratio for 
woodland property), resulting in a section 8002 EAV of $27,000 for 
the Federal forest.
    Naval facility (1,000 total eligible Federal acres).
    The local official first determines the type of expected-use 
categories (assessment classifications) and respective proportions 
to use in valuing the eligible Federal property. For the naval 
facility, the local official determines that the relative mix of 
taxable adjacent properties, based on their highest and best uses, 
is 60 percent residential and 40 percent commercial/industrial. The 
local official multiplies those proportions by the total eligible 
Federal acres in the naval facility (1,000), resulting in 600 acres 
(60 percent x 1,000 acres = 600 acres) to be valued as residential 
expected use and 400 acres (40 percent x 1,000 acres = 400 acres) to 
be valued as commercial/industrial expected use.
    The local official then determines a base value for each of 
those expected use categories of the eligible Federal property. For 
the residential expected-use category, the local official allocates 
20 percent for non-assessed or tax-exempt uses, and multiplies that 
proportion by the number of eligible Federal acres allocated to that 
expected-use category (600 acres), resulting in 120 acres allocated 
to non-assessed or tax-exempt uses. The local official excludes 
those 120 acres by subtracting them from the total number of 
residential acres (600 acres), resulting in 480 acres allocated to 
taxable residential uses for the residential portion of the eligible 
Federal property in the naval facility.
    For the commercial/industrial expected-use category, the local 
official allocates 15 percent for non-assessed or tax-exempt uses, 
and multiplies that proportion by the number of eligible Federal 
acres allocated to that expected-use category (400 acres), resulting 
in 60 acres allocated to non-assessed or tax-exempt uses. The local 
official excludes those 60 acres by subtracting them from the total 
number of commercial/industrial acres (400 acres), resulting in 340 
acres allocated to taxable commercial/industrial uses for the 
commercial/industrial portion of the eligible Federal property in 
the naval facility.
    The local official then selects a sample of taxable adjacent 
properties from each identified use category, as described in 
paragraphs (c)(2) and (d) of this section, which the official uses 
to establish a base value for each of those expected-use categories. 
That sample includes the minimum required number of taxable adjacent 
properties (generally at least 10) for each expected use category. 
In addition, in selecting the sample of properties, the official 
uses only the allowable proportion of recent sales, calculated as 
described in paragraph (d)(2) of this section.
    In considering whether the specific group of taxable adjacent 
properties selected reflects the highest and best uses of the 
adjacent taxable properties in accordance with paragraph (c)(2)(i) 
of this section, the local official also considers whether the 
Federal property is adaptable for and whether there would be a need 
for those specific types of properties, in accordance with paragraph 
(e)(2)(ii)(B) of this section.
    For example, if the official selects 10 residential parcels that 
are all small, such as one quarter (.25) of an acre or less, and 
uses those parcels to determine an EAV for a large area of Federal 
property, the result may exaggerate what would likely happen to that 
property if it were available for development. If the official uses 
only these small parcels (e.g., .25 acres each) for the 480 acres 
allocated to taxable residential uses for the residential portion of 
the eligible Federal property, the official would be projecting that 
approximately 1,920 small residential lots would be developed on 
that Federal property (.25 x 480 = 1,920) if the property were no 
longer in Federal ownership. The Department believes that it would 
be extremely unlikely that 480 acres of the property would develop 
into this number of residential properties. This outcome would not 
reflect the local official's best judgment of the reasonable 
development of the property. To avoid this inappropriate result, the 
official would identify other taxable adjacent parcels of varying 
sizes to provide a more accurate picture of how the Federal property 
would be developed if it were on the tax rolls.
    Similarly, with respect to improvements, if the local official 
selected taxable adjacent properties that all were improved parcels, 
the official would be projecting that all of the 480 acres allocated 
to taxable residential uses for the residential portion of the 
eligible Federal property would be improved. If the residential 
taxable adjacent parcels are a mixture of improved and unimproved 
properties, that projection also may be speculative based on the 
number of improvements that reasonably would be needed for the 
current and any expected new population. If the assumption is not 
reasonable that the entire 480 acres would be improved, then the 
local official would make adjustments accordingly in the sample of 
taxable adjacent properties by adding some unimproved residential 
parcels to the sample.
    For the portion of the naval facility allocated to taxable 
residential use, the local official calculates the average per-acre 
value ($100,000) of the selected sample of residential adjacent 
properties as described in paragraph (c)(2)(ii) of this section. The 
local official then multiplies the number of acres allocated to the 
taxable residential portion (480 acres) by the average value per 
acre ($100,000) of the sample of residential adjacent properties to 
determine the base value ($48,000,000) for that portion of the 
eligible Federal property, as described in paragraph (c)(2)(iii) of 
this section. The local official determines a section 8002 EAV for 
that residential portion by multiplying the $48 million by 60 
percent (assessment ratio for residential property), resulting in 
$28,800,000 as described in paragraph (a)(4) of this section.
    Similarly, for the portion of the naval facility allocated to 
taxable commercial/industrial use, the local official calculates an 
aggregate per acre value ($250,000) of the selected sample of 
commercial/industrial taxable adjacent properties as described in 
paragraph (c)(2)(ii) of this section. The local official then 
multiplies the number of eligible Federal property acres allocated 
to the taxable commercial/industrial portion (340 acres) by the 
average value per acre of the selected commercial/industrial 
adjacent properties ($250,000) to determine the base value for that 
portion of the eligible Federal property ($85,000,000), as described 
in paragraph (c)(2)(iii) of this section. The local official 
determines a section 8002 EAV for that commercial/industrial portion 
by multiplying the $85,000,000 by 75 percent (the assessment ratio 
for commercial/industrial property), resulting in $63,750,000 as 
described in paragraph (a)(4) of this section.
    The local official then calculates the total section 8002 EAV 
for the entire naval facility as described in paragraph (a)(5) of 
this section by adding the figures for the residential portion 
($28,800,000) and the commercial/ industrial portion ($63,750,000), 
resulting in a total section 8002 EAV for the entire naval facility 
of $92,550,000.
    Total section 8002 property in the LEA. Finally, the local 
official determines the aggregate section 8002 assessed value for 
the LEA as described in paragraph (a)(6) of this section by adding 
the section 8002 EAV for the Federal forest ($27,000), and the total 
section 8002 EAV for the naval facility ($92,550,000), resulting in 
an aggregate assessed value of $92,577,000.
    This entire process is illustrated in Tables 8-1 and 8-2 below:

[[Page 70581]]



 Table 8-1--Allocation of Section 8002 Eligible Federal Property to Non-Taxable and Taxable Uses for Determining
                                                   Base Values
----------------------------------------------------------------------------------------------------------------
                                   Proportion of
                                     eligible       Total acres     Proportion         Acres           Acres
                                      Federal      allocated to    allocated to    allocated to    allocated to
 Tax classifications of adjacent     property      property use    non-assessed    non-assessed    taxable uses
 properties based on highest and   allocated to     categories     or tax-exempt   or tax-exempt    and used to
            best use               property use      (Col. 2 x         uses       uses (Col. 4 x  determine base
                                    categories       eligible        (percent)        Col. 3)     values (Col. 3
                                     (percent)        acres)                                        -  Col. 5)
(1)                                          (2)             (3)             (4)             (5)             (6)
----------------------------------------------------------------------------------------------------------------
                                       Federal Forest (100 eligible acres)
----------------------------------------------------------------------------------------------------------------
Woodland........................             100             100              10              10              90
                                 -------------------------------------------------------------------------------
    Subtotal....................  ..............             100  ..............              10              90
----------------------------------------------------------------------------------------------------------------
                                      Naval Facility (1,000 eligible acres)
----------------------------------------------------------------------------------------------------------------
Residential.....................              60             600              20             120             480
Commercial/industrial...........              40             400              15              60             340
                                 -------------------------------------------------------------------------------
    Subtotal....................             100           1,000  ..............             180             820
                                 -------------------------------------------------------------------------------
        Total...................  ..............           1,100  ..............             190             910
----------------------------------------------------------------------------------------------------------------


Table 8-2--Calculation of Section 8002 Base Values, Section 8002 Estimated Assessed Values (EAVs), and Aggregate
                                                 Assessed Value
----------------------------------------------------------------------------------------------------------------
                                   Federal acres  Average value/   Base value of
                                   allocated for      acre of        eligible       Assessment     Section 8002
   Classification of adjacent       taxable use       taxable         Federal          ratio         EAVs and
             parcels                (Table 7-1,      adjacent     property (Col.     (percent)       aggregate
                                      Col. 6)         parcels      3 x  Col. 4)                   assessed value
(1)                                          (2)             (3)             (4)             (5)             (6)
----------------------------------------------------------------------------------------------------------------
             Federal Forest (90 eligible acres allocated for taxable use (see Table 7-1, column 6))
----------------------------------------------------------------------------------------------------------------
Woodland........................              90          $1,000         $90,000              30         $27,000
                                 -------------------------------------------------------------------------------
    Subtotal....................              90  ..............          90,000  ..............          27,000
----------------------------------------------------------------------------------------------------------------
         Naval Facility (820 eligible Federal acres allocated for taxable use (see Table 6-1, column 6))
----------------------------------------------------------------------------------------------------------------
Residential.....................             480         100,000      48,000,000              60      28,800,000
Commercial/Industrial...........             340         250,000      85,000,000              75      63,750,000
                                 -------------------------------------------------------------------------------
    Subtotal....................             820  ..............     133,000,000  ..............      92,550,000
                                 -------------------------------------------------------------------------------
        Total (Aggregate          ..............  ..............     133,090,000  ..............      92,577,000
         Assessed Value)........
----------------------------------------------------------------------------------------------------------------

(Authority: 20 U.S.C. 7702)

[FR Doc. E8-27462 Filed 11-19-08; 8:45 am]
BILLING CODE 4000-01-P