Non-Regulatory Supplement - Federal-Aid Policy Guide, Transmittal 35

INTRODUCTION

Sign and site valuation formulas and schedules for use in the highway beautification program are intended to minimize administrative and legal expenses necessarily involved in determining just compensation by individual appraisals and litigation, facilitate acquisition, and simplify program procedures.

This guide provides suggested procedures for the development of schedules and valuation techniques for the following:

1. Standard Poster Panels
2. Painted Bulletins
3. Miscellaneous Signs
4. Depreciation
5. Gross Rent Multiplier
6. Site Valuation
7. Leasehold Value

The content of this guide was developed by State and Federal representatives with the assistance of the outdoor advertising industry and is subject to modification as additional valuation information becomes available.

METHOD OF DEVELOPING SIGN PAYMENT SCHEDULES

1. By contact with the industry and observation in the field, locate a suitable number of newly constructed signs.

2. Contact the companies that have constructed signs recently and obtain from them the direct and indirect costs of the specific sign construction. At the same time, request authority to audit the company's records to determine the validity of the data acquired. This initial study and data is crucial to the development of the valuation techniques set forth herein.

3. Field check each sign to determine whether it was built according to the company's plans to determine the specific type of construction, including such things as wood or metal construction, illumination, one face, two face, and the area of the advertising face or faces.

4. Correlate the data obtained from the field and the verified construction data.

5. When adequate sign cost data has been collected from a sufficient number of signs, analyze the data to determine the cost of variable such as height, lighting, addition of a second face, reflectorization, quality and type of construction, and the appropriate form for schedules.

6. The data acquired should then be broken down into various categories and analyzed to determine the appropriate costs and depreciation rates which can be used as a basis for the schedules.

7. In lieu of the above steps, a State may adopt another State's FHWA approved schedules after test auditing necessary adjustments as may be necessary to reflect local conditions due to labor costs, material costs, typical height above ground level, local ordinances and codes requiring special fire and wind protection, safety requirements during construction, and other appropriate items affecting the cost of signs. A State may adopt another State's schedule after full consideration has been given to the above items to determine comparability of conditions and construction cost of signs.

8. Obtain and evaluate industry's position concerning the payment schedule concept and the resultant formula based on the analysis in paragraph 5 above.

PART I SCHEDULE 1: STANDARD POSTER PANELS

DEFINITION

An outdoor advertising device built on two or more posts imbedded into the ground or attached to the wall or roof of a building which is designed to support a flat surface of approximately 300 square feet upon which printed advertising or other messages are affixed by posting.

1. Direct Costs.

   1. Material, labor, etc.                                     Price Per Square Foot ($/S.F.) of Display Area

      1. Construction material
      2. Material handling
      3. Construction labor
      4. Engineering
      5. Permits
      6. Equipment costs for sign construction
      7. Other sign erection/installation costs

2. Indirect Costs (overhead or burden) attributable to construction.

   1. Items to be considered:                               $/S.F. of Display Area

      1. Shop overhead
      2. Insurance
      3. Salaries
      4. General office expense
      5. Utilities (not including sign illumination)
      6. Taxes
      7. Business licenses
      8. Site procurement
      9. Management
      10. Bad debts, interest and other expenses normal to sign construction
      11. Profit (A sign fabricator or builder's profit is an appropriate item reflected in the cost of a sign and, therefore, should be included in the development of sign cost schedules. The level of profit should be determined on an individual State basis. The profit factor selected by the State must be based on valid statistical data or other reliable sources. Profit should not be added, however, to sign costs developed from complete audits because such audits contain all costs including profit--whether it is shown as profit per se or taken out in salaries and bonuses. So long as the audit includes all costs appropriate to sign construction, no separate addition of profit is necessary. The audit itself determines the level of profit. On the other hand, audits that disclose only partial costs (such as hourly wage rates and material costs) provide only part of the necessary information and should have other direct and indirect costs, including profit, added to them to complete the schedules. In the absence of support for profit as a separate element, one figure may be used to include both profit and overhead if such figure is available. Because a cost estimate should include both overhead and profit, a single figure may be even more useful than the single element of profit.)

3. Adjustments

   1. Illumination, including power run-in
   2. Steel support
   3. Height
   4. Multiple face
   5. Other appropriate adjustments

PART II SCHEDULE 2: PAINTED BULLETINS

DEFINITION

An outdoor advertising device built on one or more posts imbedded into the ground or attached to the wall or roof of a building which is designed to support one or more flat surfaces upon which at least one advertisement or other message is painted in whole or substantial part.

1. Direct Costs                                            CUT OUT            MODULAR

   1. Material, Labor, etc.                        $/S.F. of            $/S.F. of
                                                           Display Area      Display Area

      1. Construction material
      2. Material handling
      3. Construction labor
      4. Engineering
      5. Permits
      6. Equipment costs for sign construction
      7. Other sign erection/installation costs

   2. Art and Display                               $/S.F. of            $/S.F. of
                                                           Display Area      Display Area

2. Indirect Costs (overhead or burden) attributable to construction.

   1. Items to be considered:

      1. Shop overhead
      2. Insurance
      3. Salaries
      4. General office expense
      5. Utilities (not including sign illumination)
      6. Taxes
      7. Business licenses
      8. Site procurement (not including payment to landowner)
      9. Management
      10. Bad debts, interest and other expenses normal to sign construction
      11. Profit

3. Adjustments                                               $/S.F. of Display Area

   1. Illumination, including power run-in
   2. Steel support
   3. Height
   4. Reflectorization
   5. Multiple face
   6. Other appropriate adjustments

PART III SCHEDULE 3: MISCELLANEOUS SIGNS

DEFINITION

Factory-made signs produced for mass distribution, or small inexpensive signs characterized by "do-it-yourself" workmanship, that do not fit into the standard 300-square foot poster panel or painted bulletin categories.

1. Direct Costs                                               CUT OUT           MODULAR

   1. Material, Labor, etc.

      1. Construction material
      2. Material handling
      3. Construction labor
      4. Engineering
      5. Permits
      6. Equipment costs for sign construction
      7. Other sign erection/installation costs

   2. Art and Display                                  $/S.F. of            $/S.F. of
                                                              Display Area      Display Area

2. Indirect Costs (overhead or burden) attributable to construction.

   In those instances where these costs are applicable, use the appropriate costs under "Painted Bulletins."

3. Adjustments                                                $/S.F. of Display Area

   1. Illumination
   2. Steel Support
   3. Height
   4. Reflectorization
   5. Back to Back
   6. Other appropriate adjustments

4. Quantity Survey Method

   As an alternative to the above, miscellaneous signs may also be estimated through use of a simplified quantity survey. Such methods should be supported with a table of current material costs developed through study of supplier's prices. A standard form should be used to list the basic components as line items and show their quantities, costs, and extended amounts. The list of basic components could include suppliers' prices for typically used sizes of dimensioned lumber, dur-a-ply or its equal, plywood, pipe, angle iron, I-beams, sheet metal, pressure treated poles and posts, fasteners, and other appropriate items.

   Labor and overhead should be added to the material cost. These figures may be obtained from sign contractors or through audit of sign companies.

   A list of adjustments should also be provided, such as in C above. They may be computed on an individual basis and include both direct and indirect costs. In addition to the adjustments in C above, this list could include adjustments for transportation, excavation and erection, and light or heavy copy.

NOTE: A lump-sum schedule may be developed when appropriate.

PART IV: DEPRECIATION

Depreciation schedules should be established to reflect the depreciation of signs of similar type, size, and physical condition. These schedules should include levels of depreciation reflecting the condition of the signs, their maintenance, and other appropriate factors.

The age-life method of estimating depreciation may be used. The estimator should be aware of the typical economic life of the sign. Consideration should be given to past maintenance, quality of construction, type of materials, etc. A remaining economic life should be estimated and applied to each sign if the age-life method of estimating depreciation is used.

In the appraisal process depreciation may also reflect functional, economic, legal and other matters, such as zoning, deed restrictions, visibility, compatibility with future use, and traffic conditions.

PART V: GROSS RENT MULTIPLIER

A gross rent multiplier based on reliable and current sales of rented signs may be useful in valuing some signs. Sales of signs or groups of signs are preferred to sales of entire companies, but both types may be considered. The usual conditions of a fair market sale should be present, and all nonsign values (items not normally considered in eminent domain) should be deducted from the sales prices. The signs should have similar expense and revenue producing characteristics. If sufficient sales become available and this technique proves feasible, multipliers may be prepared for consideration. Any proposed gross rent multipliers should be submitted to FHWA for approval prior to use.

PART VI: SITE VALUATION

The valuation process outlined in Part V of this directive would lend itself to the adoption of a formula permitting annual income to be multiplied by a present worth factor to determine the amount of payment to the site owner. Selection of the appropriate multiplier would depend upon the judgment of the appraiser or site valuator and reflect the following considerations:

1. The maximum duration of the income stream may not exceed the remaining economic life of the sign on the site.

2. Existing or proposed local ordinances.

3. Neighborhood quality and trends.

4. The effect of the existing sign(s) on the dominant use of the property.

5. Any potential change in use of the property.

6. Potential development of adjacent property which might block the view of existing sign(s).

7. Present and future traffic flow.

8. Existing zoning and potential rezoning.

9. Deed restrictions.

10. The effect of cancellation clauses and/or renewal options in the lease.

11. The ability of the tenant to pay.

In developing a payment schedule or formula, it should be recognized that the risk rate may increase on those sites having a relatively long remaining economic life. Sites producing substantial income and having long remaining economic lives should be valued using accepted appraisal procedure.

In applying developed schedule multiples to site income, the average rental for the preceding 2 years should be utilized.

PART VII: LEASEHOLD VALUE

If it is established that economic site rent exceeds contract site rent, the bonus value may be computed in accordance with applicable State law and accepted appraisal technique. This amount may be added to the sign owner's compensation.