Summary of Recovery Act Funding

The American Recovery and Reinvestment Act of 2009 (Recovery Act) was signed by the President on February 17, 2009. The new law is divided into a Division A regarding stimulus funding amounts and requirements, and a Division B primarily regarding tax issues. 

Division A

Recovery Act Funding Types and Projects

There are two general types of Recovery Act funding: contracts for federal procurement of goods or services (contracts), and grants, cooperative agreements and loans for projects that meet the basic requirements for funding (awards). Awards may be made through states that receive Recovery Act funding or directly from a federal funding agency.

The basic Recovery Act project requirements for awards are:

• Deliver results that serve the funding agency’s program requirements;
• Achieve economic stimulus by creating or retaining jobs;
• Achieve long term benefits in technology, health, quality of life, transportation, environmental protection, education and energy independence;
• Meet the accountability and transparency requirements of the Act.

 Where the Recovery Act Controls Are

Funding agencies, like the Department of Energy, will develop their specific funding requirements for each Funding Opportunity Announcement (FOA), but the Office of Management and Budget (OMB) will have overall control of the content, both to maintain uniformity throughout the Recovery Act process and to impose the Administration’s policies. OMB’s first Guidance for Recovery Act funding was issued on February 18. Its second Updated Guidance was issued April 3. The Updated Guidance includes a list of information that successful funding recipients must regularly report to the funding agency and the public. That list also effectively sets the baseline of award requirements for all funding agencies. A copy of that list is attached.

Recovery Act Status: Department of Energy

The Recovery Act provides approximately $40 Billion for Department of Energy non-loan projects. The loan piece is larger. The prescribed funding projects include energy efficiency and conservation, renewables, weatherization assistance, state energy programs, transmission, reliability, and fossil energy research.

DOE has begun to advertise for Recovery Act funding applications by listing announcements of FOAs on the federal website (See, e.g., NETL). DOE will issue FOAs for smart grid, transmission, energy efficiency, renewables, and carbon capture and sequestration projects. The application process will be competitive. While the Administration has said it wants to include a wide variety of funding recipients, DOE is likely to start by issuing awards to companies showing established skill, experience and strength in the particular type of project.

Potential Recovery Act Executive Compensation Limitations

The heated controversy about executive compensation for officials of AIG and other financial institutions manifests a volatile political issue, raising the question whether executive compensation limitations could cross over to Recovery Act recipients. With one narrow exception, that currently appears unlikely.

As the congressional legislation now stands, the only Recovery Act reference to limitations on executive compensation appears in a provision that amends the 2008 Economic Stabilization Act, from which TARP was developed. There is no Recovery Act provision imposing executive compensation limitations on entities receiving Recovery Act funding. Congress could have included such limitations, particularly as the issue of executive compensation was hot enough to require an amendment to TARP funding; but it did not.

There are other indications that energy companies receiving Recovery Act funding will not be subject to executive compensation limitations. In its April 3 Updated Guidance, OMB included a requirement for disclosure (but not limitation) of the compensation for the top 5 officials of a recipient, but only if the entity receives at least 80% of its annual gross income in federal awards and received at least $25 million in awards in the year. Since that category of dependents on federal funding would eliminate most or all electrical utilities, the risk that any would be required to disclose executive compensation is remote.

One possible caveat: Risk management, particularly under the Recovery Act accountability and transparency provisions, may suggest that all functions and personnel, as well as funds and accounting, should be organized in a separate corporate entity. If, for that reason or for other business reasons, a Recovery Act funding recipient is organized as a free-standing, separate corporate entity, and if that entity has officers and employees, the OMB executive compensation disclosure requirement, issued in its April 3 Updated Guidance, may require that that entity disclose the executive compensation of its own top five officers.

There is also a strong policy argument against imposing any executive compensation conditions on utilities whose rates are regulated by state commissions or FERC, as those companies continually submit their executive compensation expenses to regulatory review. A further level of review is unnecessary and arguably an intrusion into the regulatory process.

All this is not to say there cannot be a later rule on executive compensation of Recovery Act recipients from DOE; but it currently appears unlikely, considering the provisions of the legislation, OMB’s pronouncements and the structure of utility regulation.

Other Recovery Act Limitations

Two other limitations in the Recovery Act are worth noting.

The Buy American provision applies to construction materials for public buildings and public works, i.e. iron, steel and manufactured goods. If an application includes such construction, the Buy American limitations, as recently elaborated by OMB, will apply.

Davis-Bacon wage rate levels will apply to all laborers and mechanics who work for contractors or sub-contractors on Recovery Act funded projects.

Division B

Tax Incentives for Energy in the Recovery Act

In addition to providing various grants and other incentives, the Recovery Act also extends and enhances a number of tax benefits relating to renewable energy. It extends the placed-in-service date for the production tax credit (PTC) for three years – for wind facilities through December 31, 2012, and for certain other types of qualified facilities (Qualified Facilities) through December 31, 2013. It also allows owners of Qualified Facilities to elect to claim an investment tax credit (ITC) in lieu of the PTC and owners of Qualified Facilities and of certain other types of facilities (including solar facilities) to receive a grant from the Treasury Department in lieu of claiming either the PTC or the ITC.

The Recovery Act also provides other tax benefits:

• For 2009 and 2010, the Act increases the 30 percent alternative refueling property credit for businesses (capped at $30,000) to 50 percent (capped at $50,000). Hydrogen refueling pumps remain at a 30 percent credit percentage; however, the cap for hydrogen refueling pumps is increased to $200,000. In addition, the Act increases the 30 percent alternative refueling property credit for individuals (capped at $1,000) to 50 percent (capped at $2,000).
• The Act also establishes a new 30 percent ITC for facilities engaged in the manufacture of advanced energy property.
• The Act extends through facilities placed in service in 2009 (2010 in the case of certain longer-lived and transportation property) a provision temporarily allowing businesses to recover the costs of capital expenditures made in 2009 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write-off 50 percent of the certain property. 

Below is the Office of Management and Budget Updated Implementing Guidance for the American Recovery and Reinvestment Act of April 3, 2009 Funding Recipients’ Reporting Requirements

SUPPLEMENTARY INFORMATION:

I. BACKGROUND

A. Section 1512(c) of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5, hereafter referred to as “the Recovery Act” or “the Act”) requires, as a condition of receipt of funds, quarterly reporting on the use of funds. The data elements proposed for reporting the information described in Section 1512(c) were published in the Federal Register on April 1, 2009 [74 FR 14824]. An entity that receives assistance funding under the Recovery Act must report information including, but not limited to,

i. The total amount of recovery funds received from that agency;

ii. The amount of recovery funds received that were expended or obligated to projects or activities; and

iii. A detailed list of all projects or activities for which recovery funds were expended or obligated, including—

1. The name of the project or activity;

2. A description of the project or activity;

3. An evaluation of the completion status of the project or activity;

4. An estimate of the number of jobs created and the number of jobs retained by the project or activity; and

5. For infrastructure investments made by State and local governments, the purpose, total cost, and rationale of the agency for funding the infrastructure investment with funds made available under this Act, and name of the person to contact at the agency if there are concerns with the infrastructure investment.

iv. Detailed information on any subcontracts or sub-grants awarded by the recipient to include the data elements required to comply with the Federal Funding Accountability and Transparency Act of 2006, as amended (Public Law 109-282, hereafter referred to as “the Transparency Act”), allowing aggregate reporting on awards below $25,000 or to individuals, as prescribed by the Director of the Office of Management and Budget. The Transparency Act identifies specific data elements that the website (USAspending.gov) must include for each federal award and authorizes OMB to specify additional elements for other relevant information. A 2008 amendment to the Transparency Act called the “Government Funding Transparency Act of 2008” (Public Law 110-252) added a requirement to collect compensation information on certain chief executive officers (CEOs) of the recipient and sub-recipient entity. An entity that receives assistance funding under the Recovery Act must report information required under the Transparency Act including, but not limited to,

1. The name of the entity receiving the award;

2. The amount of the award;

3. The transaction type;

4. The funding agency;

5. The Catalog of Federal Domestic Assistance number;

6. The program source;

7. The location of the entity receiving the award, including four data elements for the city, State, Congressional district, and country;

8. The location of the primary place of performance under the award, including four data elements for the City, State, Congressional district, and country;

9. A unique identifier of the entity receiving the award;

10. A unique identifier of the parent entity of the recipient, should the recipient be owned by another entity; and

11. The name and total compensation of the five most highly compensated officers of the company if it received (1) 80% or more of its annual gross revenues in Federal awards; and (2) $25M or more in annual gross revenue from Federal awards.

B. Section 1512(h) of the Recovery Act requires recipients of Recovery Act funds, including those receiving funds directly from the Federal government to register in the Central Contractor Registration (CCR) database at www.ccr.gov. Because recipients must report information on their first-tier contract and awards, the proposed guidance also would establish a requirement for sub-recipient registration in the CCR as a way to help ensure consistent reporting of data about each entity and thereby make the data more useful to the public. Without the requirement, multiple recipients doing business with the same entity may use different variations of the entity’s name, address, or parent organization when they each report on their awards to the entity. It should be noted that in order to register in CCR, a valid Data Universal Numbering System (DUNS) Number is required.

C. Section 1605 of the Recovery Act requires that projects, funded by the Recovery Act, for the construction, alteration, maintenance, or repair of a public building or public work use American iron, steel, and manufactured goods in the project unless one of the specified exemptions applies. The Act provides that this requirement be applied in a manner consistent with U.S. obligations under international agreements. Definitions of “manufactured good,” “public building and public work,” and other terms as they pertain to the Buy American guidance in 2 CFR part 176 are found in 176.140 and 176.160.

D. Section 1606 of the Recovery Act requires the payment of Davis-Bacon Act (40 USC 31) wage rates to “laborers and mechanics employed by contractors and subcontractors on projects funded directly by or assisted in whole or in part by and through the Federal Government” pursuant to the proposed Recovery Act.

E. To maximize the transparency and accountability of funds authorized under the Recovery Act as required by Congress and in accordance with 2 CFR 215, sub-part ___. 21 “Uniform Administrative Requirements for Grants and Agreements With Institutions of Higher Education, Hospitals, and other Non-Profit Organizations” and OMB Circular A-102 Common Rules provisions, recipients agree to maintain records that identify adequately the source and application of Recovery Act funds. Guidance and an award term are provided in part 176 to help ensure that recipients understand their responsibilities with respect to tracking, accounting and reporting transactions during the award and in preparing audit documentation and reports in accordance with OMB Circular A-133, if applicable.