Please read posting# 4 - it states why this behavior is by design. As a college instructor, option 2 makes no sense to me (or my students) and it is inconsistent with the behavior of other tools. For example, when I export from ArcMap to a feature dataset, I can ONLY export in the coordinate system of the feature dataset. Most other tools seem to abide by the idea that if I want put output into a feature dataset, I understand that it will be in the coordinate system of the feature dataset because feature datasets by definition, have defined coordinate systems. We tell them that if a geographic/datum transformation is required, they need to use the Project or Batch Project tools and it is frustrating that those tools deal with feature datasets differently. For example, I have an exercise where students download base data for the Olympic National Park. The data is all in NAD_1927_UTM_Zone10N but the coordinate systems is not defined on any of the shapefiles. There are about 25 shapefiles, so they import them into a feature dataset to define the coordinate system. Then they can use the Project or Batch project tool to import the features to a new feature dataset, but it doesn�??t appear that they can project them into an existing feature dataset. Instead, they Project them into scratch geodatabase and then export them into the existing feature dataset. It seems like you should be able to Project or Batch Project into existing feature datasets with the understanding that the coordinate system is set by the choice of destination, the feature dataset.
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