The American Recovery and Reinvestment Act - Highlights of the 2009 Stimulus Bill
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 ("ARRA"), a $787 billion mixture of tax cuts, tax credits and spending provisions designed to stimulate the dismal American economy. Some of ARRA provides immediate stimulus, i.e., spending that increases 2009 consumer demand or creates jobs and stimulates additional increased demand or jobs (a multiplier effect). New road construction, tax credits, state grants for "green" jobs, Medicaid assistance and unemployment are immediate stimuli. However, much of the bill reflects the President's stated intention to promote longer term goals. Plans to promote renewable energy, build new transmission lines, create an electronic system for all medical records and expand the Pell education grant program will not have immediate effects.
ARRA comprises more than 400 pages and covers an abundance of subjects. It contains 24 separate titles that cover appropriations (seventeen separate titles), taxes, unemployment, support to states; limits on executive compensation and other subjects. Approximately $287 billion, or 36 percent of the total, represents tax reduction; 64 percent of ARRA covers spending measures. Among its provisions, $87 billion will go to the states to support FY 2009-10 Medicaid payments; $27 billion will be used for federal highway project restoration, repair and construction. $6.9 billion will go to public transportation projects and $8 billion to assist states with the capital costs of intercity passenger rail service. Much of the transportation funding must give priority to projects that can be funded within 120 days or completed within three years. Approximately $43 billion will be spent to fund grants, guarantee loans and give tax credits for clean and renewable energy and efficiency programs, including $11 billion to modernize and build transmission and "smart-grid" utility systems to deliver electricity throughout the nation more efficiently. The Bonneville Power Administration and the Western Area Power Administration ("WAPA") each received $3.25 billion of additional borrowing authority to improve their systems. WAPA specifically was directed to support remote solar and wind generation projects.
Of interest, ARRA set aside approximately $5 billion for defense weapons cleanup activities, including the Hanford Nuclear Reservation, but did not specifically fund nuclear energy research or development, nor did it dedicate funds specifically to revive the Future Gen zero emission coal project.
This bulletin highlights some important ARRA provisions that will affect our clients and friends. It is not comprehensive, nor does it try to address all the subjects. However, our business, tax, energy, cleantech and environmental practices are following ARRA and its programs as it is implemented and interpreted. In the coming months, you will receive additional in-depth bulletins on distinct issues, and we stand ready to answer your specific inquiries.
The update addresses the following sections:
Renewable Energy Tax Provisions
General Provisions: Coal/Fossil Fuel, Nuclear Power Plants, Clean Renewable Energy Bonds, Qualified Energy Conservation Bonds, Energy Efficiency
Infrastructure: Transmission Systems, Smart Grid, BPA Transmission, WAPA Transmission
Transportation Infrastructure: Highways, Rail Transit & Airports
Homes and Builder Incentives Wrap-Up
RENEWABLE ENERGY TAX PROVISIONS
Production Income Tax Credit. Much of ARRA's stimulus effect is in its tax provisions for renewable energy investments. ARRA extends the ten-year tax credit for Electricity Produced from Certain Renewable Resources. ARRA extends the time period for putting qualified wind facilities in service from December 31, 2009 to December 31, 2012. For closed-loop biomass, open-loop biomass, geothermal, solar, landfill gas, trash combustion, refined coal production and hydropower facilities, the placed in service date is extended from December 31, 2011 to December 31, 2013.
Investment Credit in Lieu of Production Credit. ARRA now allows taxpayers to forgo the production credit under IRC Section 45 and instead take an investment credit equal to 30 percent of depreciable or amortizable tangible personal property or other tangible property if such property is used as an integral part of the facility. This investment credit, which will now be available the year the project begins operation, is allowed on any wind facility placed in service in 2009 through 2012. For closed-loop biomass, open-loop biomass, geothermal, solar, landfill gas, trash combustion, refined coal production and hydropower facilities, the facility must have been placed in service in 2009 through 2013.
Repeal of Limitations on Credit for Renewable Energy Property. ARRA repeals the $4,000 cap on the energy credit for small wind energy property and relaxes the rules regarding property financed by subsidized energy financing (i.e., a federal, state or local program designed to provide subsidized financing for projects designed to conserve or produce energy).
Investment Tax Credit for "Green" Manufacturing Facilities. ARRA provides a 30% investment tax credit for manufacturing facilities making components used for renewable energy, such as solar cells and wind turbine blades.Solar Project Grants in Lieu of Tax Credits. Solar plant developers previously received tax credits worth 30% of construction costs, but ARRA now gives these developers an option of receiving the money up front as a grant.
Other Energy Generation Projects
Coal and Fossil Fuel. ARRA authorizes $3.4 billion for DOE sponsored fossil fuel research and development programs. The zero emission Future Gen project did not receive specific funding in ARRA. However, ARRA allocates $800 million to the "Clean Coal Initiative," which might be interpreted to include development of Future Gen.
Nuclear Power Plants or their development did not receive specific allocations in ARRA.
Clean Renewable Energy Bonds ("CREBs"). ARRA provides an additional $1.6 billion of CREBs for governmental bodies, not-for-profit electric utilities and clean renewable energy lenders to finance facilities that generate electricity from certain renewable sources, including wind, geothermal, biomass, solar and hydropower.
Qualified Energy Conservation Bonds. ARRA expands the present program and authorizes an additional $2.4 billion of qualified energy conservation bonds. The provision clarifies that capital expenditures incurred for implementing a green community program include grants, loans and other repayment mechanisms that may be used to support these programs.
Energy Efficiency. ARRA provides $3.25 billion for energy efficient retrofits for low-income housing, $2.25 billion for similar retrofits to community-based low income housing and $5 billion for weatherization assistance to increase energy efficiency in low income households.
Many of the transportation infrastructure provisions provide direct and fairly immediate stimulus effects. In some cases moneys must be committed within 120 days of enactment, and projects must be able to be completed within two or three years.
Transmission Systems. ARRA provides $10 billion in financial guarantees for electric power transmission system projects that will reach financial close before September 30, 2012. The bill appropriates $4.5 billion through Sept. 30, 2010 to modernize and enhance reliability of the electricity grid. Of this amount, $100 million will go toward worker training activities and $80 million for resource assessment and analysis of future demand and transmission requirements to facilitate the development of regional transmission plans.
Smart Grid. The $4.5 billion appropriation to modernize and enhance the grid also is available for smart-grid demonstration projects, and for up to 50 percent of the cost of investments in advanced grid technology. The federal government will also establish and maintain a clearinghouse for "open source" use and development of smart grid information.
BPA Transmission. ARRA includes an additional $3.25 billion in borrowing authority for the Bonneville Power Administration ("BPA") to finance the construction, acquisition and replacement of the BPA's transmission system. The increased borrowing authority will help BPA expand the Pacific Northwest's power grid and build infrastructure needed for renewable energy projects. This additional borrowing authority is not limited as is the Western Area Power Administration's new authority. (See below.)
WAPA Transmission. ARRA includes an additional $3.25 billion in borrowing authority for the Western Area Power Administration [defined on page 2] for constructing, planning, operating and maintaining new or upgraded transmission lines with at least one terminus in WAPA's 15-state service area. The money may also be used to deliver or facilitate the delivery of power from new renewable resources. WAPA may permit other entities to participate in the financing, construction and ownership of such projects. Borrowing in excess of $1.75 billion at one time is subject to congressional review. Revenue from operation of the projects is the only repayment source for the loans, and any loan balances remaining after the useful life of a project will be forgiven.
Federal Agencies. ARRA also addresses water and water related issues. Of particular note is ARRA funding to federal agencies tasked with water and water conservation. ARRA allocates funding for water related projects to the following agencies:
Natural Resources Conservation Service.
Watershed and flood prevention operations - $275 million
Watershed Rehabilitation Program - $65 million
Army Corps of Engineers - Civil. Funding for river and harbor, flood and storm damage reduction, shore protection, aquatic ecosystem restoration, and related needs.
Investigation - $25 million
Construction - $12 billion
Operation and maintenance - $1.9 billion
Army Corps of Engineers - Other.
Administration of laws for regulation of navigable waters and wetlands - $25 million
Pre-placement of materials for Flood Control and Coastal Emergencies - $50 million
Mississippi River flood damage reduction projects - $500 million
Bureau of Reclamation. Funds for management, development and restoration of water and related natural resources and for related activities, including operation, maintenance and rehabilitation of reclamation and other facilities.
Colorado River Dam Fund - $1.4 billion
Utah Project Completion Act - $50 million
California Bay-Delta Restoration Act - $50 million
Rural water projects (primarily water intake and treatment facilities) - $60 million
Inspection of urban canals - $10 million
Water reclamation and reuse projects - $110 million
ARRA allocates $1.375 billion additional funds to rural water utilities, $6 million to state revolving funds for clean and safe drinking water, and $125 million to the District of Columbia for continued implementation of Combined Sewer Overflow Long-Term Control Plan for the Columbia Water and Sewer Authority.
Rural Utilities Service (population under 10,000) - $1.375 billion for direct loans, loan guarantees, and grants for rural water, waste water, waste disposal, and solid waste management programs.
TRANSPORTATION INFRASTRUCTURE: HIGHWAYS, RAIL TRANSIT AND AIRPORTS
$1.5 billion in grants of more than $20 million, but not more than $300 million, for capital investments in surface transportation infrastructure, including highway and bridge projects, public transportation projects and passenger and freight rail projects. A priority is given to projects that can be completed within three years of enactment. States, local governments and transit agencies are eligible to receive the grants. A project should demonstrate a "significant impact" on the nation, a metropolitan area or region in order to be considered for the grant. The Department of Transportation must publish criteria for obtaining the grants within 90 days, and applications for funding must be submitted within 180 days of publication of the grant criteria.
Federal Highway Administration: $27.5 billion for the Federal Highway Administration to distribute for restoration, repair or construction of eligible highway projects, passenger and freight rail transportation and port infrastructure projects. The funds are available through September 30, 2010 and must be allocated within 21 days of enactment of ARRA. . A priority for use of the funds must be given to projects that will be completed within three years and are located in economically distressed areas. States failing to use funds within one year are subject to a withdrawal of 50 percent of the funds awarded. The returned funds can then be redistributed to States that have had no funds withdrawn. States must set aside 3% percent of the funds for projects' transportation enhancement activities.
The amount of the $27.5 billion available for apportionment to the states includes the following specific grants:
$105 million for the Puerto Rico highway program
$45 million for the territorial highway program
$60 million for ferry boats and ferry terminals through competitive discretionary grants to states, with a priority given to projects that can be completed within two years of enactment
$550 million for transportation improvements on Indian reservations and federal lands. This fund allocates $310 million for the Indian Reservation Road program; $170 million for the Park Roads and Parkways program; $60 million for the Forest Highway Program; $10 million for the Refuge Roads program. After one year, the Secretary can redistribute the unobligated funds within the same program
$20 million for highway surface transportation and technology training
$20 million for disadvantaged business enterprises bonding assistance
Forest Service: $650 million for priority road, bridge and trail maintenance and decommissioning. Related watershed restoration and ecosystem enhancement projects, facilities improvement, maintenance and renovation may also use the funds. The funding also covers remediation of abandoned mine sites and support costs necessary to carry out this work.
Bureau of Land Management: $180 million for construction, reconstruction, decommissioning and repair of roads, bridges, trails, property and facilities. The funds may also be used for energy efficient retrofits of existing facilities.
National Park Service: $589 million for construction, repair and restoration of roads; construction of facilities including energy efficient retrofits of existing facilities; equipment replacement; preservation and repair of historical resources within the National Park System; cleanup of abandoned mine sites on park lands and other critical infrastructure projects.
Fish and Wildlife Service: $115 million for construction, reconstruction and repair of roads, bridges, property, and facilities. The funds may also be used for energy efficient retrofits of existing facilities.
Bureau of Indian Affairs: $450 million for repair and restoration of roads, replacement school construction, school improvements and repairs.
RAILROADS AND TRANSIT
Federal Railroad Administration:
ARRA provides $8 billion through September 20, 2012, for state intercity rail projects. Priority is given to projects that support development of high speed intercity rail service. Projects using these funds must use iron, steel and manufactured goods manufactured in the United States. The Secretary, however, is authorized to waive that requirement.
ARRA also allocates $1.3 billion to Amtrak for repair, rehabilitation or upgrade of railroad assets or infrastructure and for capital project that expand passenger rail capacity.
Federal Transit Administration:
ARRA provides a total of $8.4 billion for transit related projects in three separate funds.
$6.9 billion through September 30, 2010 or transit capital assistance grants. Funds must be allocated within twenty-one days of enactment.
The funds are allocated as follows: $5.52 billion for urban planning, transit enhancements and operating costs in urban areas; $690 million for growing and high-density states and $690 million for non-urban grants. $100 million is required to be distributed as discretionary grants to public transit agencies for capital investments that assist in reducing energy consumption or greenhouse gas emissions of public transportation systems.
$750 million is provided for capital expenditures for fixed guideway transportation systems. These funds are available through September 30, 2010 but must be apportioned within 21 days.
$750 million for discretionary "capital investment grants." These funds are available through September 30, 2010. Priority will go to projects that are currently in construction or able to obligate funds within 150 days of enactment.
Federal Aviation Administration:
ARRA provides $1.1 billion in grants to airports for improvements to maintain a safe and efficient nationwide system of public use airports that meets the present and future needs of civil aeronautics and for noise abatement projects These funds remain available until September 30, 2010 and are not subject to the usual apportionment requirements imposed on traditional funding. Priority goes to projects that can be completed within two years of enactment and serve to supplement, not replace, planned expenditures from airport generated revenues or from other state or local sources of funding. ARRA requires Transportation to award 50 percent of the funds within 120 days of enactment and the remaining funds within one year.
HOMES & BUILDER INCENTIVES
First-Time Homebuyer Credit. ARRA- extends the First-Time Homebuyer 10 percent Credit (capped at $8,000) for a first-time homebuyers for principal residences purchased from June 30, 2009 to November 30, 2009. The credit begins to phase out for joint returns with modified adjusted gross income over $150,000 ($75,000 for non-joint returns) and is eliminated at modified adjusted gross incomes of $170,000 ($95,000 for non-joint returns). A first-time homebuyer is any individual who had no present ownership interest in a principal residence for a three-year period ending on the date of the purchase of the principal residence in question. If the individual is married, this time period is measured by treating such individual as owning any home owned by his or her spouse during such three-year period. This credit is recaptured on a straight-line basis over 15 years, i.e., the tax credit is repaid to the government by having increased taxable income equal to six and two-thirds of the credit each year for 15 years. The credit recapture is accelerated if the home is sold during the 15-year recapture period. Under ARRA, recapture of the credit is waived for principal residences purchased after December 31, 2008 and prior to December 1, 2009, and the acceleration of the recapture is waived if the home is not sold during the first 36 months of ownership. For a purchase prior to July 1, 2009, the taxpayer can elect to treat the home as purchased in 2008.
Our lawyers have closely followed the new administration and Congress as they deal with the economy, including ARRA inception. Now that the law is in effect, it remains to be seen how the various federal agencies will decide to apportion and distribute the grants, funds and programs ARRA has created. Our clients should be vigilant as they anticipate ARRA benefits or when they might be received. We will continue to follow the law and report periodically to our clients and friends as it is implemented. If you are reading this bulletin it is almost certain you or your business activities will be affected by the new law. We stand ready to advise you on how ARRA will affect you and your industry and how you can comply with and benefit from the new legislation most effectively.