Disposal of Land Acquired with Noise Discretionary Funds AAAE 6th Annual Airport Noise Mitigation Symposium Boston, MA October 2, 2006 Rick Etter, Airport Acquisition Specialist (202) 267-8773, rick.etter@faa.gov Nancy Williams, National Resource/Expert AIP Legislation & Policy (202) 267-8822, nancy.s.williams@faa.gov

Topics / Objectives Disposal / Retention of Noise Land Noise Land Disposal Effort (OIG Audit) Excess Land Inventory – FAA Concurrence Fair Market Value Standard for Land Disposal Retained Property Rights on Sale/Lease of Excess Land Eligible Sales Expense Credits Against Proceeds Eligible Use of Net Proceeds Where to Get More Information?

Noise Land Disposal Effort (OIG Audit) Disposal / Retention of Noise Land Noise Land Disposal Effort (OIG Audit) Audit Report is On-line at http://www.oig.dot.gov/StreamFile?file=/data/pdfdocs/Final9-30.pdf “Management of Land Acquired Under Airport Noise Compatibility Programs” Audit Covered 11 Airport Noise Programs Bellingham International Airport Charlotte/Douglas International Airport Cincinnati/Northern Kentucky International Airport Detroit Metro Wayne County International Airport Las Vegas McCarren International Airport Palm Beach International Airport Phoenix Sky Harbor International Airport Reno-Tahoe International Airport Seattle-Tacoma International Airport Toledo Express Airport Tucson International Airport

Noise Land Disposal Effort (OIG Audit) Disposal / Retention of Noise Land Noise Land Disposal Effort (OIG Audit) Overall FAA Concurs in Program Improvements To Inventory and Dispose of Excess Land Better oversight to ensure compliance to Grant Assurance (Assurance #31) Didn’t Agree that Land Value or Land to Retain Was Known. Memo to Regions Issued by APP 500 (& APP 400 Support) Procedural Guidance to be Issued (End of CY 2006 or earlier)

Noise Land Disposal Effort (OIG Audit) Disposal / Retention of Noise Land Noise Land Disposal Effort (OIG Audit) OIG Recommendation 1. Ensure that sponsors (a) implement written, FAA-approved plans for disposing of AIP-funded noise land that is no longer needed for noise compatibility programs or for airport development, and (b) either return the proceeds from any dispositions to the Trust Fund or reinvest them in other FAA-approved noise mitigation projects at the airports. FAA Agrees! New Grant Condition Disposal Plan Part of Exhibit A. Plan Required before Grant Close-out. Status Indicated on Exhibit A.

Noise Land Disposal Effort (OIG Audit) Disposal / Retention of Noise Land Noise Land Disposal Effort (OIG Audit) Recommendation 2. Improve program oversight by making disposal of unneeded noise land a high priority; by maintaining sustained surveillance of noise land; and by ensuring that basic information (such as airport master plans and land inventory maps) needed for effective program oversight is current, accurate, and complete. FAA Agrees! Airport sponsors are already required to keep an updated Exhibit A, which shows the airport’s property interests including noise land. As a supplement (part of the plan), an inventory map will be maintained to include status of disposition and use of funds from disposition.

Noise Land Disposal Effort (OIG Audit) Disposal / Retention of Noise Land Noise Land Disposal Effort (OIG Audit) Recommendation 3. Provide a program of continuing education to enhance FAA staffs’ and airport sponsors’ understanding of grant requirements and their impact. FAA Agrees! We agreed that providing better educational material and direct training to FAA staff and airport sponsors (and consultants) will improve the program. We will offer sponsor and consultant training at the regional Airports’ conferences, AAAE Meetings (e.g. Airport Noise Mitigation Symposium) and the Public Real Estate Conference, cosponsored by the FAA (as well as the other Federal Agencies) and International Right-of-Way Association, beginning in FY 2006.

Noise Land Disposal Effort (OIG Audit) Disposal / Retention of Noise Land Noise Land Disposal Effort (OIG Audit) Recommendation 4. Provide airport sponsors with guidance on using leases and reserve bonds to recover the Federal share of disposal proceeds. FAA Agrees! We will develop and issue guidance on leasing, both as a handout in training sessions and as program guidance by the end of CY 2006.

Noise Land Disposal Effort (OIG Audit) Disposal / Retention of Noise Land Noise Land Disposal Effort (OIG Audit) Recommendation 5 & 6. For the 11 airports included in the audit, we recommend that the Federal Aviation Administrator direct airport sponsors to develop and implement plans to:   Recover FAA’s share (estimated at $160.6 million) from the disposition of 3,608 unneeded noise land acres. Recover FAA’s share (estimated at $81.7 million) of the affected land’s fair market value from airports that are misusing noise land disposition proceeds.

Noise Land Disposal Effort (OIG Audit) Disposal / Retention of Noise Land Noise Land Disposal Effort (OIG Audit) FAA Agrees, w Comment! Preparing the land inventory will be the first step to meeting these recommendations. The land inventory will identify unneeded land as well as land to be retained. The excess land will be appraised at its current value as Raw Land for Redevelopment to the Highest and Best Use of Land (compatible land use w restrictions). As described in the FAA response to the OIG report, the OIG estimate ($160.6 million) is not considered a reliable value. When released for disposal, an acceptable appraisal will confirm the current fair market value of an excess land parcel.

Land Inventory – General Steps Disposal / Retention of Noise Land Land Inventory – General Steps 1. Review Noise Land for Retention Within 75 dB DNL Contour? Noise buffer? Use for Airport/Aeronautical Purposes? Noise land that is AIP eligible as aeronautical use may be added to the airport and shown on the Exhibit A. Airport Development Land? (See AIP Handbook @ par. 824) 2. Secure FAA Concurrence on Excess Land Inventory Mapping: Change ALP / Exhibit A? Environmental Approvals? Disposal Plan Submitted to FAA. Timing, Appraisal Specifications, Eligible Sales Expenses, Re-use of Proceeds, etc; as Necessary for Grant Compliance.

Sale or Lease of the Excess Land Must be at FMV $$$ Disposal / Retention of Noise Land Fair Market Value Standard for Land Disposal Sale or Lease of the Excess Land Must be at FMV $$$ Statutory Requirement, per Assurance 31: The airport sponsor will dispose of land that was purchased under a grant for airport noise compatibility purposes, when the land is no longer needed for such purposes (or eligible airport purposes*), at fair market value, at the earliest practicable time. *Procedural Guidance will Clarify Land Retention Eligibility 9. You may want to mention that there are different delivery methods being used in the industry. Most of the programs are using a ‘bulk bidding’ method where groups of homes are assembled into bid packages for contractors to bid on. There are a few programs that are utilizing a ‘single parcel method’ where each home is bid separately (often with the homeowner selecting contractors to prepare bids from a pre-approved list). In each of these cases, the airport sponsor holds the contract with the construction contractor. An emerging delivery method is a type of design build where the sponsor’s consultant holds the construction contracts (San Antonio International is utilizing this method). Tulsa was also using this method, but had encountered several issues including a very costly program, limited control over the program, and communication issues with their consultant. We were recently selected there to replace the prior consultant and have converted the program to a more traditional program where the sponsor will hold the contracts. I think this could prompt an interesting dialogue from the FAA staff in attendance about the pros and cons they see in the delivery methods used around the country.

Note Again: Land may be retained for Higher Value Aeronautical Use Disposal / Retention of Noise Land Fair Market Value Standard for Land Disposal What is the FMV for Redevelopment? Market Value = Sale to the Highest Bidder What is the Highest and Best Use? “As Is” for Development ? Raw Land is Appraised Based On Demand by Developers to Develop It (If Any?). To Appraise Raw Land A Qualified Appraiser Will: Determine and Support Potential Development Entitlements for the Land per Local/State Land Development Law Find and Analyze Comparable Sales of Raw Land (Same Potential in a Comparable Market) Include the “Development Approach”? (If “New Land” creates a market) Net Present Value – What Developer Can Afford to Pay for Land Capitalization Rate = Market Rate of Return On and Of Investment Comparable Sales – What Developers Have Paid Appraisal Scope of Work Must Fit Problem – Will Develop Sample For Redevelopment Note Again: Land may be retained for Higher Value Aeronautical Use 9. You may want to mention that there are different delivery methods being used in the industry. Most of the programs are using a ‘bulk bidding’ method where groups of homes are assembled into bid packages for contractors to bid on. There are a few programs that are utilizing a ‘single parcel method’ where each home is bid separately (often with the homeowner selecting contractors to prepare bids from a pre-approved list). In each of these cases, the airport sponsor holds the contract with the construction contractor. An emerging delivery method is a type of design build where the sponsor’s consultant holds the construction contracts (San Antonio International is utilizing this method). Tulsa was also using this method, but had encountered several issues including a very costly program, limited control over the program, and communication issues with their consultant. We were recently selected there to replace the prior consultant and have converted the program to a more traditional program where the sponsor will hold the contracts. I think this could prompt an interesting dialogue from the FAA staff in attendance about the pros and cons they see in the delivery methods used around the country.

FMV Needed for ALL Ground Leases. Disposal / Retention of Noise Land Fair Market Value Standard for Land Disposal Short term lease is interim use, rent is airport revenue. Long-term Lease is Disposal (say 30 to 50 year term) Reserve Bond Issued to Compensate FMV of Land Rent Payments Applied to Bond Payments FMV Needed for ALL Ground Leases. Leased Value of the Land Should Equal Its Fee Value (For Sale Value) Fee Value = Leased Fee + Leasehold Leased Fee = PV Rent Payments + PV Property Reversion If Leased Fee less than Fee Value, Property Value is Lost Rent @ Market with Consideration of Reversion Will Preserve Value Commercial Ground Lease Practices are the Standard for Appraisal 9. You may want to mention that there are different delivery methods being used in the industry. Most of the programs are using a ‘bulk bidding’ method where groups of homes are assembled into bid packages for contractors to bid on. There are a few programs that are utilizing a ‘single parcel method’ where each home is bid separately (often with the homeowner selecting contractors to prepare bids from a pre-approved list). In each of these cases, the airport sponsor holds the contract with the construction contractor. An emerging delivery method is a type of design build where the sponsor’s consultant holds the construction contracts (San Antonio International is utilizing this method). Tulsa was also using this method, but had encountered several issues including a very costly program, limited control over the program, and communication issues with their consultant. We were recently selected there to replace the prior consultant and have converted the program to a more traditional program where the sponsor will hold the contracts. I think this could prompt an interesting dialogue from the FAA staff in attendance about the pros and cons they see in the delivery methods used around the country.

Disposal / Retention of Noise Land Retained Restrictions: Protect Airport and Prevent Incompatible Land use Airport must retain adequate property rights and restrictions on the use and development of the land: Enforceable Easement and/or Deed Restriction Must be Recorded With or Prior to any Sale or Lease of Excess Noise Land. Land is Appraised Subject to Retained Rights & Development Restrictions. 9. You may want to mention that there are different delivery methods being used in the industry. Most of the programs are using a ‘bulk bidding’ method where groups of homes are assembled into bid packages for contractors to bid on. There are a few programs that are utilizing a ‘single parcel method’ where each home is bid separately (often with the homeowner selecting contractors to prepare bids from a pre-approved list). In each of these cases, the airport sponsor holds the contract with the construction contractor. An emerging delivery method is a type of design build where the sponsor’s consultant holds the construction contracts (San Antonio International is utilizing this method). Tulsa was also using this method, but had encountered several issues including a very costly program, limited control over the program, and communication issues with their consultant. We were recently selected there to replace the prior consultant and have converted the program to a more traditional program where the sponsor will hold the contracts. I think this could prompt an interesting dialogue from the FAA staff in attendance about the pros and cons they see in the delivery methods used around the country.

Disposal / Retention of Noise Land Eligible Sale Expenses – Per AIP Handbook / Guidance Paragraph 811 a. (3) Costs attributable to preparing land for resale may be deducted from the proceeds of disposal, but are not allowable costs under a grant. Such costs may include, but are not limited to, rezoning, replatting and upgrading of utilities and services (infrastructure cost acceptable only to the extent that it may be shown to be cost effective, e.g. up to the increase in land value). (4) Costs associated with holding land are not allowable under a grant, nor may they be deducted from the proceeds of resale. Such holding costs may include, but are not limited to, property taxes assessed against the sponsor during the period of ownership, charges for utilities and public services, insurance, financing charges, and assessments. 9. You may want to mention that there are different delivery methods being used in the industry. Most of the programs are using a ‘bulk bidding’ method where groups of homes are assembled into bid packages for contractors to bid on. There are a few programs that are utilizing a ‘single parcel method’ where each home is bid separately (often with the homeowner selecting contractors to prepare bids from a pre-approved list). In each of these cases, the airport sponsor holds the contract with the construction contractor. An emerging delivery method is a type of design build where the sponsor’s consultant holds the construction contracts (San Antonio International is utilizing this method). Tulsa was also using this method, but had encountered several issues including a very costly program, limited control over the program, and communication issues with their consultant. We were recently selected there to replace the prior consultant and have converted the program to a more traditional program where the sponsor will hold the contracts. I think this could prompt an interesting dialogue from the FAA staff in attendance about the pros and cons they see in the delivery methods used around the country.

Section 2. NOISE COMPATIBILITY PROJECTS Disposal / Retention of Noise Land Use of Sale Proceeds – Per AIP Handbook / Guidance Section 2. NOISE COMPATIBILITY PROJECTS 810. GENERAL. a. Eligible noise compatibility projects generally fall into the following categories: land acquisition (including relocation assistance), noise insulation, runway and taxiway construction (including associated land acquisition, lighting and NAVAIDs), noise monitoring equipment, noise barriers and other Part 150 approved noise abatement/compatibility measures. Sponsors may from time to time propose ….. b. Noise compatibility projects usually are located in areas where aircraft noise exposure is significant, as measured in day-night average sound level (DNL) of 65 decibels (dB) or greater. However, projects may ….also be approved and made eligible in areas of less noise exposure. … 9. You may want to mention that there are different delivery methods being used in the industry. Most of the programs are using a ‘bulk bidding’ method where groups of homes are assembled into bid packages for contractors to bid on. There are a few programs that are utilizing a ‘single parcel method’ where each home is bid separately (often with the homeowner selecting contractors to prepare bids from a pre-approved list). In each of these cases, the airport sponsor holds the contract with the construction contractor. An emerging delivery method is a type of design build where the sponsor’s consultant holds the construction contracts (San Antonio International is utilizing this method). Tulsa was also using this method, but had encountered several issues including a very costly program, limited control over the program, and communication issues with their consultant. We were recently selected there to replace the prior consultant and have converted the program to a more traditional program where the sponsor will hold the contracts. I think this could prompt an interesting dialogue from the FAA staff in attendance about the pros and cons they see in the delivery methods used around the country.

Where to Get More Information? Disposal / Retention of Noise Land Where to Get More Information? Guidance Needs? Upcoming Procedural Guidance will be on FAA Airports Website? AIP Handbook Chapter 8 Specific Questions? Discuss with your FAA project manager? Comments? Send to : Rick.Etter@FAA.gov Nancy.S.Williams@FAA.gov Uncertain and volatile funding create a real challenge to have any sort of reliable plan for a program that stretches over many years. A program needs to be funded at a steady and predictable rate. With reliable budgets, the sponsor can plan their finances better, the construction contractors can level their work force and have confidence that packages of homes will be coming out on a regular basis. The community will see consistent progress in the program. To avoid funding fluctuations, Regional and ADO staff should work closely with sponsors to develop realistic ACIPs that FAA can support, then I think it makes for better more cost effective programs all around. there is limited guidance available to help ensure consistency of programs nationwide. It has been our experience that homeowners can be very savvy in their research of what other programs are doing and then use that as leverage against an airport sponsor. While you probably don’t want to have a ‘one size fits all’ approach, perhaps there is a way to create a more standardized process. This would also help FAA effectively compare the costs of various programs. Given all of the variables that exist today, I don’t believe you can really compare one program to another and have any clarity