Publications

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Today, President Barack Obama signs into law a landmark bill entitled the American Recovery and Reinvestment Act of 2009 (ARRA). With 65 percent spending provisions and 35 percent tax benefits, it is intended to devote $787 billion in an attempt to stimulate the economy and create jobs.

The legislation allocates funds for a wide range of projects, including agriculture, energy, infrastructure, Medicaid, health and transportation programs. Furthermore, the package provides tax cuts for 95 percent of American workers as well as many tax credits for a multitude of business sectors.

Congress has insisted on provisions to prioritize the allocation of funding for what are being called “shovel-ready projects.” Many of the programs in the legislation have strict “use-it-or-lose-it” requirements that will necessitate rapid action by grantees. Additionally, grantees will have to comply with numerous contracting and transparency requirements.

The key components of the stimulus legislation include the following. Please click on the links to read more about each component.

• Infrastructure. The stimulus legislation contains more than $120 billion for infrastructure projects, including funding for highway construction, public transit, state water projects, federal buildings and Department of Defense and military construction. There are also several tax provisions that could help facilitate investments in infrastructure projects.
• Energy. Also in the legislation are billions of dollars for energy grants and loan guarantee provisions that are intended to enhance renewable energy as well as energy efficiency. The legislation also includes substantial funds to modernize the electric grid and support R&D for renewable energy technologies.
• Renewable energy tax provisions: There are also a number of tax provisions that aim to enhance the viability of renewable energy projects, such as solar, wind, biomass and geothermal.
• Health Information Technology. ARRA includes $19 billion to accelerate the adoption of health information technology by physicians and hospitals.
• Executive compensation. ARRA contains executive compensation provisions applicable to institutions participating in the Troubled Asset Relief Program under the Emergency Economic Stabilization Act of 2008 which generally expand on the new restrictions announced on February 4, 2009 by President Barack Obama and Treasury Secretary Timothy Geithner.
• Tax benefits. ARRA includes extensive tax provisions under the name of the American Recovery and Reinvestment Tax Act of 2009 (the Act). These should be beneficial to a wide range of businesses.

To read the press release summarizing the ARRA Conference Report, please click here.  To find the House Committee on Rules Conference Report, please click here.

INFRASTRUCTURE PROGRAMS AND RELATED TAX PROVISIONS

The final economic stimulus legislation includes over $120 billion in spending for infrastructure projects, including public transit, high-speed rail, state water projects, broadband development and foreclosure assistance. Here we summarize selected key infrastructure provisions in the final stimulus package. We have also included relevant language from the House and/or Senate Committee Reports that provide useful details on the types of projects that could be funded in a given program. Additionally, the stimulus legislation contains several tax measures designed to help states and local governments finance infrastructure projects. Please see the Infrastructure Tax Measures section below for a summary of these key tax measures.

Please note that, in an effort to ensure that infrastructure funding goes to “shovel-ready” projects, many spending provisions in the economic stimulus package contain a “use-it-or-lose-it” provision: if state and local governments do not enter into contracts to use (or obligate) the funding within a certain number of days, the federal agency administering the program must reallocate the funds to other state and local governments that are able to meet the timeline. The original House bill contained a 90-day timeline for states to use 50 percent of the awarded transportation funding, while the original Senate bill had a 180-day timeline. The final bill contains requirements that funds must be obligated within a 120-day timeline for highway funding and a 180-day timeline for transit funding (see below). Other stimulus provisions contain alternate use-it-or-lose-it provisions.

Transportation

Highway Infrastructure Investment ($27.5 billion)

House: $30 billion; Senate: $27 billion; Final bill: $27.5 billion

• Funds will be distributed to states through existing formulas for the restoration, repair and construction of highways and for passenger and freight rail transportation and port infrastructure projects. Priority will be given to projects that are “projected for completion within a 3-year time frame, and are located in economically distressed areas.” States must obligate 50 percent of the funds within 120 days, or lose that funding. The remaining funds must be obligated within one year, although the Secretary of Transportation can extend this timeline in certain circumstances. However, 30 percent of state funds must be suballocated to local areas, and these funds are not subject to the use-it-or-lose-it provisions.
• Conference Committee Report: “Funds are distributed by formula, with a portion of the funds within each State being suballocated by population areas. Set asides are also provided for: management and oversight; Indian reservation roads; park roads and parkways; forest highways; refuge roads; ferry boats; programs focused on minorities, women, and the socially and economically disadvantaged; a bonding assistance program for minority and, disadvantaged businesses; Puerto Rico and the territories; and environmentally friendly transportation enhancements.”
• Senate Report: “The apportioned funds may be used for capital projects eligible for funding under the Surface Transportation Program. Such projects include, but are not limited to, highway rehabilitation and restoration, bridge repair, infrastructure investments that improve highway safety, highway resurfacing, and seismic retrofit projects for bridges. The legislation also authorizes grant recipients to use this funding to invest in projects that address stormwater runoff, passenger and freight rail transportation, and port infrastructure.”

Public Transit ($8.4 billion)

House: $12 billion; Senate: $8.4 billion; Final bill: $8.4 billion

• Funds will be distributed to states and local areas through existing formulas for capital investments in public transportation systems. Funding includes $6.9 billion for Transit Capital Assistance Grants and $750 million for Fixed Guideway Infrastructure Investments. States and local areas must use 50 percent of these funds within 180 days or lose the funding; the remaining funds must be obligated within one year, although the Secretary of Transportation can extend this timeline in certain circumstances. Funding also includes $750 million for Capital Investment Grants.
• Conference Committee Report: “Within the total amount [for capital transit assistance grants], 80 percent of the funds shall be provided through the Federal Transit Administration’s (FTA) urbanized formula; 10 percent shall be provided through FTA’s rural formula, and, 10 percent shall be provided through FTA’s growing states and high density formula….. [The Fixed Guideway Infrastructure funds] will be distributed through an existing authorized formula for capital projects to modernize or improve existing fixed guideway systems, including purchase and rehabilitation of rolling stock, track, equipment and facilities…. [The Capital Investment Grants] will be distributed on a discretionary basis for New Starts and Small Starts projects that are already in construction or are nearly ready to begin construction.”
• House Report: “These funds will be used to purchase buses and equipment needed to provide additional public transportation service and to make improvements to intermodal and transit facilities.”
• Senate Report: “The apportioned funds may be used for capital projects that include, but are not limited to, purchasing or rehabilitating a bus, overhauling rail rolling stock, conducting preventative maintenance, acquiring real property, conducting demolition work, and constructing or improving stations and terminals.”

Competitive Transportation Grants ($1.5 billion)

House: $0; Senate: $5.5 billion; Final bill: $1.5 billion

• Competitive grants will go to state and local governments to fund a range of transportation projects, including highway, transit, rail and port infrastructure.
• Conference Committee Report: “Funds will be used to award grants on a competitive basis for projects across all surface transportation modes that will have a significant impact on the Nation, a metropolitan area or a region. Provisions require the Secretary to ensure an equitable geographic distribution of funds and an appropriate balance in addressing the needs of urban and rural communities.”
• Senate Report: “The Secretary of Transportation must award these grants solely on a competitive basis, and select projects that will make a significant impact on the Nation, a metropolitan area, or a region. In order to ensure that these grants will produce jobs quickly, the bill directs the Secretary to give priority to projects that can be completed within 3 years. The Secretary must also give priority to projects that require this additional share of Federal funds in order to fill gaps in an overall financing plan…. The bill allows the funds provided for these competitive grants to be used on a wide variety of transportation investments. Eligible projects include investments in highways and bridges, including but not limited to interstate rehabilitation, improvements to the rural collector road system, the reconstruction of overpasses and interchanges, bridge replacements, seismic retrofit projects for bridges, and road realignments. Eligible projects also include public transportation investments, including contributions to projects participating in the New Starts or Small Starts programs if the funds will expedite the completion of the project and its entry into revenue service. Finally, eligible projects include investments in passenger and freight rail transportation and port infrastructure, including projects that connect different modes of transportation and improve the efficiency of freight movement.”

Transportation Funding Chart

	House bill	Senate bill	Final Conference bill
Highway infrastructure	$30 billion	$27 billion	$27.5 billion
Public transit	$12 billion	$8.4 billion	$8.4 billion · Transit Capital Assistance grants ($6.9 billion) · Fixed Guideway Infrastructure Investment ($750 million) · Capital Investment Grants ($750 million)
Rail	$1.1 billion	$3.1 billion	$9.3 billion · Investments in High-Speed Rail Corridors and Intercity Passenger Rail Service Grants ($8 billion)* · Amtrak ($1.3 billion; includes $450 million for capital security grants)
Airports	$3 billion	$1.3 billion	$1.3 billion
Maritime Transportation	$0	$100 million	$100 million
Competitive transportation grants	N/A	$5.5 billion	$1.5 billion

^{*Added by the Conference Committee}

Environmental Infrastructure

State Water Projects ($7.4 billion)

House: $9.5 billion; Senate: $7.4 billion; Final bill: $7.4 billion

• These funds include grants to the Clean Water State Revolving Fund ($4 billion), the Drinking Water State Revolving Fund ($2 billion) and the Rural Water and Waste Disposal Program ($1.4 billion). These funds will be distributed to states by existing formulas for grants, loans, and other forms of assistance for community water projects.
• Conference Committee Report: “To ensure that the funds appropriated herein for the Revolving Funds are used expeditiously to create jobs…. The Administrator is directed to reallocate Revolving Fund monies where projects are not under contract or construction within 12 months of the date of enactment. Second, bill language directs priority funding to projects on State priority lists that are ready to proceed to construction within 12 months of enactment. The bill includes language to require that not less than 50 percent of the capitalization grants each State receives be used to provide assistance for additional subsidization in the form of forgiveness of principal, negative interest loans, or grants, or any combination of these. This provision provides relief to communities by requiring a greater Federal share for local clean and drinking water projects and provides flexibility for States to reach communities that would otherwise not have the resources to repay a loan with interest.”
• House Report: “The rural water and waste grant and loan programs, which serve rural areas with populations of 10,000 or less, continue to have high demands for funding from all over America. These programs help communities fund drinking water and wastewater treatment infrastructure, with priority given to smaller and poorer communities….. The Clean Water State Revolving Fund provides grants, distributed by statutory formula, to states and territories to capitalize their revolving loan funds which then finance publically owned wastewater infrastructure improvements…. The Drinking Water State Revolving Fund (SRF) provides grants, distributed by formula, to states to capitalize their revolving loan funds which then finance drinking water infrastructure improvements.”
• Senate Report: “The Committee has included language that allows States to provide more comprehensive financial assistance through principal forgiveness or negative interest rate loans. States are strongly encouraged to maximize the use of these provisions to allow wide distribution of funds, particularly for projects located in disadvantaged communities.”

Environmental Infrastructure Funding Chart

	House bill	Senate bill	Final Conference bill
State water projects	$9.5 billion	$7.4 billion	$7.4 billion
Bureau of Reclamation	$500 million	$1.4 billion	$1 billion
Army Corps of Engineers	$4.5 billion	$4.6 billion	$4.6 billion
Environmental Cleanup	$2.3 billion	$7.8 billion	$6.9 billion · Defense Environmental Cleanup ($5.13 billion) · Non-Defense Environmental Cleanup ($483 million)

Federal Buildings and Facilities

GSA Federal Buildings ($5.55 billion)

House: $7.7 billion; Senate: $7 billion; Final bill: $5.55 billion

• This funding includes $4.5 billion for projects to increase the energy efficiency of federal buildings, $750 million for the construction of courthouses and federal buildings (including $450 million for the Department of Homeland Security headquarters) and $300 million for border stations and land points of entry.
• House Report: “Increases in energy efficiency and conservation will be achieved through projects which employ technology such as: an integrated solar roof, which would produce up to 500kw of solar energy; lighting systems with daylight controls and occupancy sensors, which will reduce electricity consumption by up to 50 percent; mechanical system upgrades; and added roof insulation to reduce energy consumption by 20 percent.”
• Senate Report: “The plan shall address the highest priorities of the administration in the areas of Federal buildings and United States courthouses, border stations, and ‘green’ buildings.”

Federal Buildings and Facilities Funding Chart

	House bill	Senate bill	Final Conference bill
GSA Federal Buildings	$7.7 billion	$7 billion	$5.55 billion · Conversion of GSA facilities to High-Performance Green Buildings ($4.5 billion) · Federal buildings and courthouses ($750 million, including $450 million for DHS headquarters) · Border stations and land ports of entry ($300 million)
Public lands construction	$3.1 billion	$3.4 billion	$3.1 billion · Fish and Wildlife Construction ($115 million) · National Park Service Construction ($589 million) · Bureau of Indian Affairs Construction ($450 million)
VA facilities	$1 billion	$3.9 billion	$1.4 billion · Veterans’ Health Administration ($1 billion)
National Institute of Health, National Center for Research Resources	$1.5 billion	$300 million	$1.3 billion · Construction of extramural research facilities ($1 billion)
Department of Homeland Security construction	$650 million	$2 billion	$1.52 billion · TSA explosive detection systems and checkpoints ($1 billion) · Construction of land ports of entry ($420 million) · Border security fencing, infrastructure, and technology ($100 million)

Defense, Coast Guard and Public Housing Infrastructure

DoD/Military Construction ($7.12 billion)

House: $10.85 billion; Senate: $5.6 billion; Final bill: $7.12 billion

• This provision includes $4.24 billion for Department of Defense “Sustainment, Renovation, and Modernization” to invest in energy efficiency projects and to repair and modernize Department of Defense facilities. The legislation also provides $1.45 billion for department-wide construction, including $1.33 billion for the construction of hospitals. Funds are also provided for National Guard readiness centers, troop and family housing, child development centers, and Warrior Transition Complexes.
• Conference Committee Report: “The conferees note that the Associated General Contractors of America estimates that each $1,000,000,000 in non-residential construction spending will create or sustain 28,500 jobs. Based on this estimate and data provided by the Department of Defense and the Department of Veterans Affairs, the conferees estimate that the construction funds and other programs in this will create or sustain 97,200 jobs.”
• House Report: “Funding is provided in this title to develop infrastructure for the benefit of currently serving members of the military and their families, as well as veterans, while promoting employment in the construction sector. Many of the facilities built with funds in this title will also provide additional employment opportunities upon completion.”
• Senate Report: “In an effort to achieve a speedy and broad-based economic impact, the Committee focused on funding projects that can be initiated in fiscal year 2009, that have the potential to touch a large number of communities throughout the country, and that could be absorbed into the current workload of the Army Corps of Engineers and Naval Facilities Engineering Command. In particular, the Committee sought out quality of life and family friendly projects, including child development centers, health and dental clinics, family housing, warrior transition complexes, barracks and dormitories, and National Guard community facilities. The Committee recommendation also includes energy conservation and alternative energy projects.”

Defense, Coast Guard and Public Housing Infrastructure Funding Chart

	House bill	Senate bill	Final Conference bill
DoD/Military construction	$10.85 billion	$5.6 billion	$7.12 billion · DoD Sustainment, Renovation and Modernization ($4.24 billion) · Department-wide construction ($1.45 billion, including $1.33 billion for the construction of hospitals) · Construction by service: o Army ($180 million) o Navy and Marine Corps ($280 million) o Air Force ($180 million) · National Guard Construction ($100 million) · Family Housing Construction ($135 million)
Coast Guard	$150 million	$690 million	$240 million
HUD Public Housing Capital Fund	$5 billion	$5 billion	$4 billion

Infrastructure Tax Measures

The stimulus legislation contains several tax measures designed to help states and local governments finance infrastructure projects, through both the expansion of existing tax credit bond programs and the creation of several new programs. In addition, the legislation eases some provisions relating to the Alternative Minimum Tax applicable to financial institutions in order to improve the marketability of tax exempt bonds.

Measures to Help Governments Finance Infrastructure Projects

• Tax Credit Bond Option for State and Local Governments ("Build America Bonds"). The federal government provides significant financial support to state and local governments through the federal tax exemption for interest on municipal bonds. Both tax credit bonds and tax-exempt bonds provide a subsidy to state and local governments by reducing the cash interest payments that a state or local government must make on its debt. Tax credit bonds differ from tax-exempt bonds in two principal ways: (1) interest paid on tax credit bonds is taxable; and (2) a portion of the interest paid on tax credit bonds takes the form of a federal tax credit. The federal tax credit offsets a portion of the cash interest payment that the state or local government would otherwise need to make on the borrowing. For 2009 and 2010, the legislation provides state and local governments with the option of issuing a tax credit bond instead of a tax-exempt governmental obligation bond. Because the market for tax credits is currently small given current economic conditions, the legislation allows the state or local government to elect to receive a direct payment from the federal government equal to the subsidy that would have otherwise been delivered through the federal tax credit for bonds.
• Recovery Zone Bonds. The legislation creates a new category of tax credit bonds for investment in economic recovery zones. It authorizes $10 billion in recovery zone economic development bonds and $15 billion in recovery zone facility bonds. These bonds could be issued during 2009 and 2010. Each state would receive a share of the national allocation based on that state's job losses in 2008 as a percentage of national job losses in 2008 (each state will receive a minimum allocation of these bonds). These allocations would be sub-allocated to local municipalities. Municipalities receiving an allocation of these bonds would be permitted to use these bonds to invest in infrastructure, job training, education and economic development in areas within the boundaries of the state, city or county (as the case may be) that has significant poverty, unemployment or home foreclosures. Workers must be paid prevailing wages on projects financed with these bonds under the Davis Bacon Act.
• Tribal Economic Development Bonds. Under current law, tribal governments are limited in their ability to issue tax-exempt bonds. Projects funded by bonds issued by tribal governments must satisfy an "essential governmental function" requirement. This requirement is not imposed on projects funded by bonds issued by state and local governments, and the requirement can limit the ability of tribal governments to use tax-exempt bonds for economic development. ARRA temporarily allows tribal governments to issue $2 billion in tax-exempt bonds for projects without this restriction in order to spur economic development on tribal lands, and would require the Secretary of the Treasury to study whether this restriction should be repealed on a permanent basis. 
• Modify Speed Requirement for High-Speed Rail Exempt Facility Bonds. Under current law, states are allowed to issue private activity bonds for high-speed rail facilities. A high-speed rail facility is a facility for the transportation of passengers between metropolitan areas using vehicles that are reasonably expected to operate at speeds in excess of 150 miles per hour between scheduled stops. ARRA allows these bonds to be used to develop rail facilities that are used by trains that are capable of attaining speeds in excess of 150 miles per hour.
• Industrial Development Bonds. Under current law, certain manufacturing facilities are eligible for tax-exempt bond financing. Section 144(a)(12)(C) specifically limits the definition of a manufacturing facility for the purposes of such financing to facilities that are used in the manufacturing or production of tangible personal property. The proposal amends the definition of manufacturing facility to any facility used in the manufacturing, creation, or production of tangible or intangible property (which includes any patent, copyright, formula, process, design, pattern, knowhow, format or other similar item).
• Qualified School Construction Bonds. ARRA creates a new category of tax credit bonds for the construction, rehabilitation or repair of public school facilities or for the acquisition of land on which a public school facility will be constructed. There is a national limitation on the amount of qualified school construction bonds that may be issued by state and local governments of $22 billion ($11 billion allocated initially in 2009 and the remainder allocated in 2010). There is an additional national limitation on the amount of qualified school construction bonds that may be issued by Indian tribal governments. Workers must be paid prevailing wages on projects financed with these bonds under the Davis Bacon Act.
• Extension and Increase in Authorization for Qualified Zone Academy Bonds (QZABs). ARRA allows an additional $1.4 billion of QZAB issuing authority to state and local governments in 2009 and 2010, which can be used to finance eligible costs at a qualified zone academy. In general, a qualified zone academy is any public school (or academic program within a public school) below college level that is located in an empowerment zone or enterprise community and is designed to cooperate with businesses to enhance the academic curriculum and increase graduation and employment rates. QZABs are a form of tax credit bonds which offer the holder a federal tax credit instead of interest. Workers must be paid prevailing wages on projects financed with these bonds under the Davis Bacon Act.
• Increase in the Amount of New Clean Energy Bonds. The national limitation on the aggregate amount of bonds that may be designated by the Secretary as "new clean renewable energy" bonds is increased from $800 million to $2.4 billion. The Davis-Bacon labor standards are imposed on projects funded with these New Clean Energy Bonds.
• Increase in the Amount of Energy Conservation Bonds. The national limitation on the aggregate amount of bonds that may be designated by the Secretary as "qualified energy conservation" bonds is increased from $800 million to $3.12 billion. Bonds to implement green community initiatives shall not be treated as private activity bonds, subject to the existing allocation limitation. The Davis-Bacon labor standards are imposed on projects funded with these Energy Conservation Bonds.

Measures to Improve the Tax-Exempt Bond Market

• Modification to the Rules for Tax-Exempt Interest Expense Relating to Financial Institutions. Under current law, financial institutions are not allowed to take a deduction for the portion of their interest expense that is allocable to such institution's investments in tax-exempt municipal bonds. To increase the marketability of tax-exempt bonds, the Act changes the determination of the portion of interest expense that is allocable to investments in tax-exempt municipal bonds by excluding investments in tax-exempt municipal bonds issued during 2009 and 2010 to the extent that these investments constitute less than two percent (2 percent) of the average adjusted bases of all the assets of the financial institution. In addition, the Act increases the so called “bank qualified” small issuer exception (under which certain tax-exempt obligations are excluded from the calculation) to $30 million, from $10 million, and applies the $30 million calculation at the ultimate borrower level if the ultimate borrower would separately qualify for the exception. Thus, the Act permits pooled financings to be evaluated separately at the borrower level and permits small governmental units to both benefit from the “bank qualified” exception for its bonds but also to issue “bank qualified debt” on behalf of qualifying 501(c)(3) organizations.
• Eliminate Costs Imposed on State and Local Governments by the Alternative Minimum Tax. The alternative minimum tax (AMT) can increase the costs of issuing tax-exempt private activity bonds imposed on state and local governments. Under current law, interest on tax-exempt private activity bonds is generally subject to the AMT. This limits the marketability of these bonds and, therefore, forces state and local governments to issue these bonds at higher interest rates. ARRA excludes private activity bonds from the AMT if the bond is issued in 2009 or 2010. It also allows AMT relief for current refunding of private activity bonds issued after 2003 and refunded during 2009 and 2010.

For more information about the infrastructure provisions of the stimulus package, please contact Steven Phillips, and Nicole Carelli; for more information about the infrastructure tax and bond provisions, please contact Kristin Franceschi.

ENERGY GRANT AND FUNDING PROVISIONS

The American Recovery and Reinvestment Act (H.R. 1) provides $37.7 billion in energy investments, including over $30 billion in energy infrastructure initiatives. The legislation supports a host of renewable energy programs and provides funding for the modernization of the electric grid as well as additional funding to support state energy priorities.

The Department of Energy has indicated that it plans to spend about half of the money it receives for renewable energy within a year. Outlined below is information on the key energy provisions contained in the legislation. We have also included relevant language from the House and/or Senate Committee Reports that provide useful details as to the types of projects that could be funded in a given program.

H.R. 1 includes $16.8 billion for the Energy Department’s Energy Efficiency and Renewable Energy programs. Energy Efficiency and Renewable Energy activities include:

Energy Efficiency and Renewable Energy Research, Development, Demonstration and Deployment

House: $2 billion; Senate: $2.648 billion; Conference: $2.5 billion

This funding is intended to spur energy efficiency and renewable energy research and development.

• House Report: This funding supports activities which related to US energy security, environmental quality, and economic vitality. Of the $2 billion appropriated, $800 million is designated for projects related to biomass and $400 million for geothermal activities and projects. The remaining $800 million will be used for base program activities, such as research and demonstrations for additional renewable energy technologies, including water power and solar energy, and energy efficiency demonstrations for industrial and commercial practices, such as combined heat and power projects. These funds may also be used to accelerate research and development for advanced batteries necessary for the conversion to electric vehicles and storage of energy to increase the effectiveness of renewable energy projects.
• Senate Report: The Senate Report includes $2.648 billion for funding for expenses necessary for energy efficiency and renewable energy research, development, demonstration and deployment activities to accelerate the development of technologies that will diversify the Nation’s energy portfolio and contribute to a reliable domestic supply.
• Conference Agreement: The Conference Agreement includes $2.5 billion for applied research, development, demonstration and deployment activities to include $800 million for projects related to biomass and $400 million for geothermal activities.

Energy Efficiency and Conservation Block Grants (EECBG)

House: $3.5 billion; Senate: $4.2 billion; Conference: $3.2 billion

The Energy Efficiency & Conservation Block Grant Program assists states, local governments and Indian tribes in implementing strategies to reduce fossil fuel emissions created as a result of activities within the jurisdictions of the eligible entities and reduce the total energy use. Activities eligible to receive funding include: conducting residential and commercial building energy audits; establishing financial incentives programs for energy efficiency improvements; grants to nonprofit organizations to perform energy efficiency retrofits; developing/implementing programs to conserve energy used in transportation; developing and implementing building codes and inspections services to promote building energy efficiency; installing light-emitting diodes (LEDs); and developing, implementing and installing on or in any government building onsite renewable energy technology that generates electricity from renewable sources.

• Conference Agreement:Of the funds provided for the EECBG program, $400 million shall be awarded on a competitive basis to grant applicants.

Weatherization Assistance Program

House: $6.2 billion; Senate: $2.9 billion; Conference: $5 billion

The Weatherization Assistance Program helps low-income families reduce their energy bills by making their homes more energy efficient.

State Energy Program

House: $3.4 billion; Senate: $500 million; Conference: $3.1 billion

The State Energy Program provides grants to states and directs funding to state energy offices to address their energy priorities and program funding to adopt emerging renewable energy and energy efficiency technologies. This funding will provide resources for activities in state energy offices, including key initiatives such as residential, commercial and governmental building energy efficiency retrofits.

Advanced Battery Manufacturing

House: $1 billion; Senate: $2 billion; Conference: $2 billion

This funding supports the manufacturing of advanced vehicle batteries and components.

The Conference Agreement also funds Department of Energy programs in Electricity Delivery and Energy Reliability; Fossil Energy Research and Development; and the Innovative Technology Loan Guarantee Program.

Electricity Delivery and Energy Reliability (Smart Grid)

House: $4.5 billion; Senate: $4.5 billion; Conference: $4.5 billion

These funds will enhance electricity systems through the Smart Grid Investment Program to modernize the electricity grid and make it more efficient and reliable.

• House Report: A smart grid is an approach to operating the nation’s electricity transmission and distribution system using advanced digital technology to save energy and cost, and to allow demand response, use of storage technologies (including plug-in hybrid batteries), integration of dispersed renewable and distributed generators, enhanced reliability and quicker repair of outages, and improved power quality. The Smart Grid Investment Program includes regional demonstration projects. The results of these projects can quantify costs and benefits, verify technology viability, and validate new business models at a scale that can then be replicated throughout the country. Also included is a matching grant program which would provide grants for qualifying smart grid investments.
• Senate Report: Provides $4.5 billion for expenses necessary for electricity delivery and energy reliability activities to modernize the electric grid, enhance security and reliability of the energy infrastructure, energy storage research, development, demonstration and deployment, and facilitate recovery from disruptions to the energy supply. 
• Conference Agreement: The conferees provide $4.5 billion for the Electricity Delivery and Energy Reliability program. Within these funds, $100 million is provided for worker training. The conference agreement includes language enabling the Secretary to use funds for transmission improvements in any subsequent Act and also accelerates the hiring of personnel for the Electricity Delivery and Energy Reliability program.

Innovative Technology Loan Guarantee Program

House: $8 billion; Senate: $9.5 billion; Conference: $6 billion

The Energy Policy Act of 2005 authorized the Department of Energy to issue loan guarantees to eligible projects that "avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases" and "employ new or significantly improved technologies as compared to technologies in service in the United States at the time the guarantee is issued". This program allows DOE to guarantee loans that support early commercial use of advanced technologies, if "there is reasonable prospect of repayment of the principal and interest on the obligation by the borrower." This tool is targeted at early commercial use only, not energy research, development, and demonstration programs.

• House Report: This new loan program would provide loan guarantees for proven renewable technologies and transmission technologies. The temporary program is designed to address the current economic conditions of the nation for renewable and transmission projects and will allow the subsidy cost of the loans to be made through appropriations. The provision sunsets September 30, 2011. 
• Senate Report: This program provides loan guarantees to standard renewable projects such as wind or solar projects and for electricity transmission projects. The Secretary may temporarily make loans for renewable and transmission projects that are based on commercially available technology. Note: Apart from the funding listed above, the Senate also included $50 billion in loan authority to support the deployment of eligible technologies under Section 1702(b)(2) of EPACT. 
• Conference Agreement: The conference agreement includes $6 billion for the cost of guaranteed loans authorized by section 1705 of the Energy Policy Act of 2005, instead of $8 billion as proposed by the House and $9.5 as proposed by the Senate. This new loan program would provide loan guarantees for renewable technologies and transmission technologies.

• Section 1705 is amended by this Act to guarantee projects in the following three categories: renewable energy systems, including incremental hydropower, that generate electricity or thermal energy, and facilities that manufacture related components; electric power transmission systems; and leading edge biofuel projects that will use technologies that are likely to become commercial technologies and will produce transportation fuels that substantially reduce lifecycle greenhouse gas emissions compared to other transportation fuels. This provision sunsets September 30, 2011, as proposed by the House. 
• The $6 billion in appropriated funds is expected to support more than $60 billion in loans for these projects. Funds under this heading include $10 million for administrative expenses to support the Advanced Technology Vehicles Manufacturing Loan program. The House bill and the Senate bill included no similar provision. The conference agreement does not include a provision proposed by the Senate providing $50 billion in additional loan authority for commitments to guarantee loans under section 1702(b)(2) of the Energy Policy Act of 2005. The House bill contained no similar provision.

Fossil Energy Research and Development

House: $2.4 billion; Senate: $4.6 billion; Conference: $3.4 billion

DOE's Office of Fossil Energy supports such projects as pollution-free coal plants, more productive oil and gas fields and the readiness of federal emergency oil stockpiles.

• House Report: New technologies to reduce the emissions through the capture of carbon is necessary. This funding will provide for the demonstration of carbon capture and sequestration (CCS) technology demonstration projects. These projects will provide valuable information necessary to dramatically reduce the amount of carbon dioxide emitted into the atmosphere from industrial facilities or from electricity generated by fossil fuel power plants. Industry has shown great interest in a pending CCS solicitation; the Department of Energy is well positioned to move quickly on implementation of these demonstration projects.
• Senate Report: $4.6 billion will be available for projects awarded by September 30, 2010. Of the amounts appropriated, $2 billion is available for one or more near-zero emissions power plant(s) designed to capture and sequester a high percentage of carbon dioxide. Furthermore, $1 billion will be available for selections under the Department’s Clean Coal Power Initiative Found III Funding Opportunity Announcement; $1.520 billion will be available for projects that demonstrate carbon capture from industrial sources; $50 million is available to conduct site characterization for a minimum of 10 candidate geologic sequestration formations; $20 million is available to carry out the geologic sequestration training and research grant program; and $10 million is available for program direction funding. 
• Conference Agreement: The conference agreement provides $3.4 billion for the Fossil Energy Research and Development program. Funds under this heading include $1 billion for fossil energy research and development programs; $800 million for additional amounts for the Clean Coal Power Initiative Round III Funding Opportunity Announcement; $1.52 billion for a competitive solicitation for a range of industrial carbon capture and energy efficiency improvement projects, including a small allocation for innovative concepts for beneficial CO₂ reuse; $50 million for a competitive solicitation for site characterization activities in geologic formations; $20 million for geologic sequestration training and research grants; and $10 million for program direction funding.

Please note that the Conference agreement does not include funding to make grants to the Institutional Entities for Energy Sustainability and Efficiency program. This program provides funding to institutions of higher education, public school districts, local governments, and municipal utilities to identify, design and implement sustainable ,energy infrastructure projects and grants for energy efficiency innovative technologies projects on grounds and facilities of institutions. The House had proposed $1 billion for this program, while the Senate had proposed $1.6 billion.

For more information about the energy provisions of the stimulus package, please contact Steven Phillips, Gary Klein and Kristen Leanderson Abrams.

HEALTH INFORMATION TECHNOLOGY

ARRA includes $19 billion to accelerate the adoption of health information technology (health IT or HIT) by physicians and hospitals. Political momentum has been building steadily for this initiative over the course of the past few years. During the previous Congress, congressional champions of health IT attempted (albeit unsuccessfully) to authorize a range of health IT funding programs, with bipartisan health IT bills introduced in both the House and Senate. During the presidential campaign, Barack Obama repeatedly declared that as president he would “move the US health care system to broad adoption of standards-based electronic health information systems, including electronic health records.” Health IT, he noted, would create new jobs and save billions in health care costs.

With the support of the President, members of Congress from both parties and the health care industry, it was not surprising that health IT funding was included in the stimulus package. The House and Senate versions of the legislation each included similar health IT provisions and funding levels, although the compromise language reached by Senate moderates removed $2 billion of the health IT funding available to critical access hospitals. Debate over the health IT funding focused largely on including certain provisions designed to strengthen federal privacy and security law in order to protect personally identifiable health information from abuse.

Of the $19 billion in health IT funding included in the conference agreement, $2 billion will be available for health IT grants and loans and $17 billion is allocated to provide Medicare and Medicaid payment incentives to certain doctors and hospitals that are “meaningful” users of electronic health records. Providers must use certified electronic health records technology (“qualified electronic health records”), including e-prescribing, that provides for the “electronic exchange of health information to improve the quality of health care.” Certain Medicare Advantage HMOs may also qualify for similar incentive payments if their physicians and/or hospitals are meaningful electronic health records users.

The Congressional Budget Office estimates that the implementation of the health IT provisions will achieve a certified electronic health records adoption rate of 90 percent for physicians and 70 percent for hospitals. These enhanced rates are estimated to generate government savings of more than $12 billion, plus additional savings throughout health care sector through improvements in quality of care and care coordination and reductions in medical errors and duplicative care.

Here is a summary of the various health IT provisions included in the economic stimulus package:

Standards Adoption, Grants and Privacy Protections

• Codifies the Office of the National Coordinator for Health Information Technology (ONCHIT) and establishes an open and transparent process led by the National Coordinator to develop standards by 2010 that allow for secure nationwide electronic exchange of health information.
• Provides $2 billion in immediate funding for health information technology infrastructure, training, dissemination of best practices, telemedicine, inclusion of health information technology in clinical education and state grants to promote health information technology.
• Improves and expands current federal privacy and security protections for health information, such as requiring that individuals be notified if there is an unauthorized disclosure or use of their health information and requiring patients’ permission to use their personal health information for marketing purposes.

Medicare and Medicaid HIT provisions

• Invests in the adoption and use of health IT, such as electronic health records, by providers who serve Medicare and Medicaid patients.
• Provides temporary bonus payments for physicians and hospitals that meaningfully use electronic health records. (Sources have estimated these payments will range from $44,000 to $64,000 for individual physicians and up to $11 million for individual hospitals.)
• Supports Medicare and Medicaid incentive payments for critical access hospitals, federally qualified health centers, rural health clinics, children’s hospitals and other facilities.
• Phases in Medicare payment penalties for those physicians and hospitals not using electronic health records by 2014.

For more information about the Health Information Technology measures, please contact:

Andrew Eskin

Meghan Barron

EXECUTIVE COMPENSATION PROVISIONS

ARRA contains a number of executive compensation provisions applicable to institutions participating in the Troubled Asset Relief Program (TARP) under the Emergency Economic Stabilization Act of 2008 (EESA). These provisions generally expand on the new restrictions announced on February 4, 2009 by President Barack Obama and Treasury Secretary Timothy Geithner. Click here to read our February 11, 2009 Alert discussing the original restrictions.

Essentially, the legislation amends the executive compensation requirements of Section 111 of EESA to provide that the Secretary of the Treasury (the Secretary) shall require each “TARP recipient” (defined as any entity that has received or will receive financial assistance under TARP) to:

• Limit compensation to exclude incentives for senior executive officers (defined as the top five most highly paid executives) to take unnecessary and excessive risks that threaten the value of the institution.
• Provide for the recovery of any bonus, retention award or incentive compensation paid to a senior executive officer and any of the next 20 most highly compensated employees based on criteria later found to be materially inaccurate.
• Prohibit golden parachute payments (defined under the legislation as any payment “for departure from a company for any reason, except for payments for services performed or benefits accrued”) to senior executive officers or any of the next 5 most highly compensated employees while the financial institution has outstanding TARP obligations.
• Prohibit the payment or accrual of any bonus, retention award or incentive compensation, except long-term restricted stock, provided that the restricted stock does not (1) fully vest during the period in which TARP obligations remain outstanding; and (2) have a total value greater than one-third of the total amount of annual compensation of the employee. The restricted stock may also be subject to other terms and conditions, as determined by the Secretary.¹

The number of executives subject to this limitation depends on the level of financial assistance received by the institution, as follows:

The new legislation also requires TARP participants to:

• Prohibit any compensation plan that would encourage the manipulation of reported earnings to enhance the compensation of any employee.
• Establish a Board Compensation Committee composed of independent directors to review employee compensation and assess the risk to the institution posed by compensation plans; the Committee must meet at least semi-annually. For non-public institutions receiving less than $25 million, the board of directors shall carry out this function.
• Certify in writing compliance with the requirements of Section 111 of EESA. This certification is to be provided by the chief executive officer and the chief financial officer of the TARP recipient. Publicly traded institutions must provide certification to the Securities and Exchange Commission; non-public institutions must provide certification to the Secretary.
• Establish a company-wide policy limiting excessive luxury expenditures, which may include entertainment or events, office or facility renovations, aviation or other transportation services, and other activities or events not conducted in the normal course of business.
• Provide for a non-binding separate shareholder vote to approve executive compensation in any proxy as long as TARP obligations remain outstanding. The SEC has one year to issue guidance on required disclosure to shareholders.

One provision in the final bill not addressed previously is a requirement that the Secretary review bonuses, retention awards and other compensation paid to the senior executive officers and the next 20 most highly-compensated employees of each entity receiving TARP assistance prior to the date of enactment to determine whether those payments are inconsistent with the purposes of the new law or are otherwise “contrary to the public interest.” Once the Secretary makes that determination, Treasury is required to negotiate “appropriate reimbursements to the federal government.”

ARRA makes it easier for entities receiving TARP funds to repay these amounts without the requirement of raising private capital, thereby avoiding the executive compensation requirements set forth in such legislation.

For more information about the executive compensation rules in the stimulus package, please contact Mark Muedeking or Annmarie Boyd. 

THE AMERICAN RECOVERY AND REINVESTMENT TAX ACT OF 2009

ARRA includes a series of tax provisions under the name of the American Recovery and Reinvestment Tax Act of 2009 (the Act). Set forth below is an executive summary of some of the more significant provisions of the Act.

Relief for Distressed Businesses, Capital Formation Incentives and Other Business Tax Provisions

Deferral of cancellation of debt income. Current law requires taxpayers realizing cancellation of debt income (CODI) to recognize the CODI as ordinary income in the year of the discharge, subject to certain exceptions.

The Act allows taxpayers to elect to recognize certain CODI ratably over five years, beginning five years after the CODI is realized for CODI realized in 2009 or beginning four years after the CODI is realized for CODI realized in 2010.

The deferral election is available only with respect to CODI arising from a debt instrument issued by a C corporation or any other person in connection with the conduct of a trade or business by that person. The election applies to CODI arising from an acquisition of a debt instrument by the obligor or a related party, including an acquisition for cash, in exchange for another debt instrument (including a modification treated as an exchange), in exchange for corporate stock or a partnership interest, or as a contribution to capital. The election also applies to a complete forgiveness of indebtedness.

If a taxpayer elects to defer the recognition of CODI under this provision, then the exclusion of CODI under the statutory exceptions for bankruptcy, insolvency, qualified farm indebtedness and qualified real property business indebtedness do not apply to the discharge of that indebtedness for the current year or any subsequent year.

If a new debt instrument is issued in exchange for an existing debt instrument and the debtor elects to defer the recognition of CODI under the new law described above, then all, or a portion, of the debtor’s deduction for any original issue discount (OID) that accrues under the new debt instrument before the CODI is first recognized (Pre-Recognition OID) is deferred. Pre-Recognition OID, up to the amount of CODI resulting from the exchange, is deductible ratably over the five years in which the CODI is recognized. If Pre-Recognition OID exceeds the amount of CODI, then the excess is deductible under normal OID accounting rules. For this purpose, if an issuer issues a new debt instrument and the proceeds of the new instrument are used to acquire an existing debt instrument, then the new instrument is treated as issued in exchange for the instrument acquired, and the deduction of any resulting OID is subject to this deferral.

Reduced recognition period for built‑in gains tax. Under current law, if a C corporation elects to become an S corporation, the S corporation must pay corporate income tax on any built‑in gains at the time the S election is effective that are recognized during the ten‑year period following the effective date of the S election. The same rule applies to C corporations that become RICs or REITs.

The Act provides that, in the case of built‑in gains that are recognized in any tax year beginning in 2009 or 2010, the tax on built‑in gains will not be imposed if seven years have expired since the S election became effective.

The Act amends these rules contained in Subchapter S of the Internal Revenue Code (the Code), but it appears that the change would apply equally to REITs and RICs since the built‑in gains tax is applied to these entities by reference to the Subchapter S provisions.

Suspension of AHYDO limitations. Current law limits the deduction by corporations of interest accruing as original issue discount on certain high-yield debt obligations called AHYDOs.

The Act suspends these limitations for new debt obligations issued from September 1, 2008, through December 31, 2009, if the new obligation is issued in exchange for an obligation that is not an AHYDO and that has the same issuer or obligor as the new obligation. For this purpose, exchanges include modifications of debt instruments that are treated as exchanges for income tax purposes.

Five-year carryback of net operating losses for small businesses. Under current law, taxpayers can generally carry a net operating loss (NOL) back two years and forward 20 years to offset taxable income in those years. NOLs must be applied to taxable years in the chronological order of the taxable years to which they may be carried, unless the taxpayer elects to waive the carryback.

The Act allows small businesses to elect to carry back NOLs arising in taxable years ending in 2008 for up to five years. Eligible taxpayers may elect to apply this provision to tax years beginning (instead of ending) in 2008. Eligible taxpayers can elect to carry back these NOLs to any of the third, fourth or fifth preceding taxable year.

Corporations, partnerships and sole proprietorships are eligible for the election if the entity’s annual gross receipts do not exceed $15 million.

Reduced 2009 estimated taxes for small businesses. Current law requires individuals to pay estimated taxes of at least the lesser of (i) 90 percent of the tax due for the current year or (ii) 110 percent of the tax owed for the preceding year. In the case of individuals whose adjusted gross income for the preceding year was not more than $150,000, 100 percent is substituted for 110 percent in clause (ii) above.

For 2009, the Act reduces to 90 percent the percentage of tax owed for the preceding year in the case of “qualified individuals.” An individual is a qualified individual if the individual’s adjusted gross income for the preceding year is less than $500,000 and more than 50 percent of the individual’s gross income for the preceding year was from a small business. For this purpose, a small business is any business that had fewer than 500 employees for the preceding year.

Exceptions to NOL limits after ownership change under federal financing. Code Section 382 limits the ability of a corporation to deduct losses if there has been a change in its ownership of more than 50 percent.

The Act provides that this limitation will not apply to an ownership change pursuant to a restructuring plan that is required under a loan agreement or a commitment for a line of credit entered into with the Department of the Treasury under the Emergency Economic Stabilization Act of 2008, that is intended to result in a rationalization of the costs, capitalization and capacity with respect to the manufacturing work force of, and suppliers to, the corporation.

This provision of the Act will not apply (and therefore the Section 382 limit will apply) if immediately after the ownership change any one person (together with related parties) owns 50 percent or more of the stock of the corporation.

Repeal of Notice 2008‑83. On September 30, 2008, the IRS issued Notice 2008‑83, which suspended the Section 382 limitation with respect to acquisitions of financial institutions. The Act repeals Notice 2008‑83, effective January 16, 2009. Ownership changes occurring on or before January 16, 2009 (or pursuant to a binding contract entered into on or before that date) are grandfathered.

Extension of bonus depreciation. The first-year bonus depreciation of 50 percent of the adjusted basis of qualified property that presently exists for property placed in service during 2008 is extended to apply to qualified property placed in service before January 1, 2010, or in the case of certain transportation property and property with a recovery period of 10 years or greater, before January 1, 2011. In lieu of the first-year bonus depreciation, the taxpayer may elect to claim additional research or minimum tax credits.

Extension of election to accelerate AMT and R&D credits in lieu of bonus depreciation. The existing election to increase the limitation on the use of R&D credits under Code Section 38(c) or minimum tax credits under Code Section 53(c) in lieu of the first year bonus depreciation under Code Section 168(k) is extended to property for which bonus depreciation was extended as described above. The amount of the increase in the credit limitation is the 20 percent of the bonus depreciation, but limited to the lesser of $30 million or 6 percent of the sum of the R&D credits carried over from and minimum credits allocable to the adjusted minimum tax imposed for taxable years beginning before January 1, 2006. The amount of the increase in allowable credits is refundable.

Temporary increase in limit on expensing depreciable property. Code Section 179 generally allows a taxpayer to treat the cost of depreciable property placed in service during the taxable year as a deductible expense up to an annual amount limitation which was $250,000 for 2008 but was scheduled fall to $125,000 in 2009 and thereafter. The Act extends the $250,000 limitation to taxable years beginning in 2009.

Energy Tax Incentives

Extension of the renewable energy production tax credit. The placed in service date for allowance of credit for wind facilities is extended through December 31, 2012 (from 2009). The placed in service date for open- and closed-loop biomass, geothermal or solar energy, landfill gas, trash, qualified hydropower, and marine and hydrokinetic renewable energy facilities is extended through December 31, 2013 (from 2010, or 2011 in the case of marine and hydrokinetic renewable energy facilities).

Election to take the Investment Tax Credit rather than the Production Tax Credit. The investment tax credit for energy property (section 48) is amended to permit the taxpayer to irrevocably elect to take the investment tax credit rather than the production tax credit (PTC) for a qualified investment credit facility placed in service between January 1, 2009 and December 31, 2013. In the case of wind facilities, the election is available to property placed in service between January 1, 2009 and December 31, 2012. The amount of the credit will be 30 percent of the property's basis. Property that qualifies for the election includes open- and closed-loop biomass, geothermal or solar energy, landfill gas, trash, qualified hydropower, and marine and hydrokinetic renewable energy facilities, for which no PTC has been taken under section 45. No PTC under section 45 shall be permitted in any year for property subject to the election.

Limitations on certain investment tax credit property repealed. The $4,000 investment tax credit limitation on qualified small wind energy property (section 48(c)(4)(B)) is repealed. The special rule (section 48(a)(4)) applicable to reduce the amount of the investment tax credit for property financed by subsidized energy financing and industrial development bonds is also repealed.

Grants provided for energy property in lieu of tax credits. In lieu of taking a credit pursuant to sections 45 or 48, a taxpayer may apply for a grant from the Secretary of Energy for specified energy property placed in service during 2009 or 2010, or prior to a credit termination date if construction commences during 2009 or 2010. The amount of the grant is 30 percent of the basis of energy property, with the exception of geothermal property, qualified microturbine property, combined heat and power systems, and geothermal heat pump property, each of which is available for a grant equal to 10 percent of its basis. Additionally, certain limitations apply to qualified fuel cell property, microturbine property, and combined heat and power system property. The credit termination date is January 1, 2013 for wind facilities, January 1, 2014 for open- and closed-loop biomass, geothermal or solar energy, landfill gas, trash, qualified hydropower, and marine and hydrokinetic renewable energy facilities, and January 1, 2017 for all energy property qualifying for the investment tax credit under section 48. The amount of the grant is not includible in gross income of the taxpayer, but is taken into account in determining the basis of the property to which it relates. The grant is not available to federal, state or local governments, organizations exempt from federal tax under section 501(c) or cooperative electric companies.

Increase in the amount of new Clean Energy Bonds. The national limitation on the aggregate amount of bonds that may be designated by the Secretary as "new clean renewable energy" bonds is increased from $800 million to $2.4 billion. The Davis-Bacon labor standards are imposed on projects funded with these New Clean Energy Bonds.

Increase in the amount of Energy Conservation Bonds. The national limitation on the aggregate amount of bonds that may be designated by the Secretary as "qualified energy conservation" bonds is increased from $800 million to $3.2 billion. Bonds to implement green community initiatives shall not be treated as private activity bonds, subject to the existing allocation limitation. The Davis-Bacon labor standards are imposed on projects funded with these Energy Conservation Bonds.

Modification and one-year extension of the Nonbusiness Energy Property Credit. The nonbusiness energy property credit for individuals is increased to provide a credit (section 25C) equal to 30 percent of the sum of the amount paid or incurred by the taxpayer during the taxable year for qualified energy efficient improvements and residential energy property expenditures. The aggregate amount of the credits allowed for taxable years beginning in 2009 and 2010 shall not exceed $1,500, replacing the individual limitations for different types of property. This limitation applies to taxable years beginning after December 31, 2008 and to property placed in service prior to December 31, 2010. The standards for certain energy efficient property are modified.

Modification of the Residential Energy Efficient Property Credit. Effective for tax years beginning after December 31, 2008, the dollar limitations on the 30 percent credit (section 25D) for residential qualified solar water heating property, small wind energy property, and geothermal heat pump property expenditures are removed. The $500 individual limitation ($1,667 aggregate for all individuals in the case of expenditures during a year for a dwelling unit occupied by two or more individuals) per half kilowatt of capacity for qualified fuel cell property is retained.

Increase in credit for alternative refueling property. The existing credit for qualified alternative fuel vehicle refueling property is increased from 30 percent to 50 percent of the cost of such property placed in service during 2009 and 2010. The limitation on the credit is also increased to $50,000 in the case of businesses and $2,000 in all other cases. An exception is provided for hydrogen related property, for which the credit remains 30 percent and is capped at $200,000.

Increased monitoring and verification of carbon capture and sequestration. The existing carbon dioxide sequestration credit (section 45Q) is amended to provide that carbon used by the taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas recovery project must be disposed of in secure geological storage. This subjects carbon qualifying for the $10 per metric ton credit to the same regulatory oversight currently applicable to $20 per metric ton credit.

New Qualified Plug-in Electric Drive Motor Vehicle Credit revised. The existing credit for "new qualified plug-in electric drive motor vehicles” is revised to provide a credit equal to $2,500 plus $417 for each kilowatt-hour of capacity in excess of 5 kilowatt-hours for such vehicles placed in service after December 31, 2009. The amount of credit is capped at $7,500, regardless of the weight class of the vehicle. The phase-out period is adjusted to begin in the second calendar quarter after the date when 200,000 vehicles have been sold in the United States by the particular manufacturer since December 31, 2009. The basis of the vehicle is reduced by the amount of the credit and the amount of credit or deduction permitted under any other section is reduced by the amount of the credit. The credit is allowed to businesses and individuals and is creditable against the alternative minimum tax.

New credit for certain plug-in electric vehicles. The existing electric vehicle credit in section 30 is replaced with a credit equal to 10 percent of the cost, up to $25,000, of two- or three-wheeled and low-speed motor vehicles. These new vehicles are generally subject to the existing requirements of "new qualified plug-in electric drive motor vehicles," except that two- or three-wheeled motor vehicles must draw power from a battery with at least 2.5 kilowatt-hours of capacity. The basis of the vehicle is reduced by the amount of the credit and the amount of credit or deduction permitted under any other section is reduced by the amount of the credit. The credit is permissible to businesses and individuals and is permitted against the alternative minimum tax.

Modification of the Alternative Motor Vehicle Credit. The Alternative Motor Vehicle Credit is amended by adding a credit equal to 10 percent of the cost of converting a motor vehicle to a qualified plug-in electric drive motor vehicle, as defined in section 30D. The credit for such conversions is capped at $4,000. This credit is also modified to be permissible as a personal credit against the alternative minimum tax.

New credit for investment in advanced energy property. A new investment tax credit is provided equal to 30 percent of the cost of property placed in service as part of a qualified advanced energy manufacturing project. Qualified advanced energy manufacturing projects re-equip, expand, or establish a manufacturing facility for the production of qualified advanced energy property, which, in addition to certain property listed in sections 45 and 48, includes facilities that manufacture new qualified plug-in electric drive motor vehicles and qualified plug-in electric vehicles and components, as well as other projects determined by the Treasury Secretary to reduce greenhouse gasses. The Secretary may allocate up to an aggregate of $2.3 billion in credits under a certification program for such projects. An application for certification must be submitted within two years from establishment of the program and projects must be placed in service within three years of certification. The basis of qualified property must be reduced by the amount of the credit received.

Increase in the monthly limit for certain qualified transportation fringe benefits. The monthly limit for commuter highway vehicle and transit pass fringe benefits is increased to the amount currently permitted for qualified parking. This provision applies to months beginning on or after enactment of this provision, through 2010.

Community Development Tax Incentives

New Markets Tax Credit. The Act increases the total amount of new markets tax credits (Section 45D) that may be allocated for 2008 and 2009 from $3.5 billion to $5.0 billion (an additional $1.5 billion for each year). Only community development entities that submitted applications for 2008 allocations are eligible to receive the increased allocations for 2008. New markets tax credits arising out of 2009 allocations will be allowable against alternative minimum tax.

Grants in lieu of Low-Income Housing Tax Credits. For 2009 only, the Act permits a state to exchange a portion of the low-income housing tax credits (LIHTCs) that the state would otherwise be authorized to allocate for a grant from the Treasury Department equal to 8.5 times the foregone LIHTCs (8.5 represents 85 percent of the LIHTCs that could have be claimed over 10 years). Generally, a state may exchange up to 40 percent of its 2009 LIHTC allocation ceiling for low-income housing grants. Low-income housing grants will be subawarded by electing states to finance the construction or acquisition and rehabilitation of low-income buildings, in lieu of allocating LIHTCs. Grants may only be made with respect to qualified low-income buildings that would otherwise qualify for LIHTCs, and generally would be made in combination with allocations of LIHTCs. Grant recipients will be subject to the same rent restrictions, use and compliance requirements as applicable to LIHTCs, and grants will be subject to recapture for failure to comply with LIHTC requirements under rules to be developed by the state housing credit agencies and the Treasury Department.

Miscellaneous Tax Provisions

Alternative Minimum Tax (AMT) Temporary Patch. Currently, a taxpayer receives an exemption amount which offsets AMT of $46,200 (individuals) and $69,950 (married filing jointly). Absent Congressional action, these amounts would revert to $45,000 and $33,750 this year. The Act increases the exemption amounts to $46,700 and $70,950, respectively, for 2009 only.

Homeownership Tax Credit. The Act extends the current first-time home buyer tax credit to purchases occurring before September 1, 2009, and waives the recapture requirements with respect to purchases occurring between December 31, 2008, and September 1, 2009.

Small business capital gains. The Act increases from 50 percent to 75 percent the gross income exclusion for individuals on the gain from the sale of certain small business stock held for more than five years. The increase applies to stock issued after the date of enactment and before January 1, 2011.

Modification to the rules for tax-exempt interest expense relating to financial institutions. Under current law, financial institutions are not allowed to take a deduction for the portion of their interest expense that is allocable to such institution's investments in tax-exempt municipal bonds. To increase the marketability of tax-exempt bonds, the Act changes the determination of the portion of interest expense that is allocable to investments in tax-exempt municipal bonds by excluding investments in tax-exempt municipal bonds issued during 2009 and 2010 to the extent that these investments constitute less than 2 percent of the average adjusted bases of all the assets of the financial institution. In addition, the Act increases the so called “bank qualified” small issuer exception (under which certain tax-exempt obligations are excluded from the calculation) to $30 million, from $10 million, and applies the $30 million calculation at the ultimate borrower level if the ultimate borrower would separately qualify for the exception. Thus, the Act permits pooled financings to be evaluated separately at the borrower level and permits small governmental units to both benefit from the “bank qualified” exception for its bonds but also to issue “bank qualified debt” on behalf of qualifying 501(c)(3) organizations.

For more information about the business tax provisions, please contact:

Bruce Wein, Nicholas Minear, Joseph Langhirt, Evan Migdail, Stephen Sharkey, or Frank Mugabi.

For more information about the energy tax and renewable energy tax provisions, please contact:

Bruce Wein, Joseph Langhirt or Drew Young.