The recently enacted Hiring Incentives to Restore Employment (HIRE) Act has authorized Ohio issuers of Qualified Energy Conservation Bonds (QECBs) to elect to receive a direct payment from the federal government rather than have holders of QECBs claim a tax credit in lieu of interest as was prior law. This new QECB authority is similar to the direct payment option issuers have been successfully electing under the Build America Bond program to lower bond financing costs. However, unlike Build America Bonds, an issuer of QECB must be allocated QECB volume cap prior to issuing QECBs. In Ohio, volume cap is allocated pursuant to federal law and rules established by the Ohio Air Quality Development Authority (OAQDA). The amount of QECB volume cap that has been awarded to Ohio was originally $119,160,000. The OAQDA has recently approved several projects for financing using QECBs and as a result Ohio QECB volume cap may be less.
If an Ohio issuer were allocated a portion of QECB volume cap that issuer would now be eligible to make an election to receive direct payments from the Federal Treasury and pursuant to the HIRE Act the Secretary of the Treasury would then pay to that issuer a payment equal to the lesser of the interest payable on the QECB on any interest payment date or 70% of the amount of interest which would have been payable on the QECB on an interest payment date if such interest were determined at the Applicable Federal Rate.
QECBs must be issued for a “qualified conservation purpose” which generally includes (A) capital expenditures incurred for purposes of: (i) reducing energy consumption in publicly owned buildings by at least 20%; (ii) implementing green community programs (including the use of loans, grants, or other repayment mechanisms to implement such programs); (iii) rural development involving the production of electricity from renewable energy sources; or (iv) wind, solar, biomass, geothermal, municipal solid waster, hydropower facilities; (B) expenditures with respect to facilities or grants that support research in the development of cellulosic ethanol or other nonfossil fuels, technologies for the capture and sequestration of carbon dioxide produced through the use of fossil fuels, increasing the efficiency of existing technologies for producing nonfossil fuels, automobile battery technologies and other technologies to reduce fossil fuel consumption in transportation, and technologies to reduce energy use in buildings; (C) mass commuting facilities and related facilities that reduce the consumption of energy, including expenditures to reduce pollution from vehicles used for mass commuting; or (D) demonstration projects designed to promote the commercialization of green building technology, conversion of agricultural waste for use in the production of fuel or otherwise, advanced battery manufacturing technologies, technologies to reduce peak use of electricity, and technologies for the capture and sequestration of carbon dioxide emitted from combusting fossil fuels in order to produce electricity; or (E) public education campaigns to promote energy efficiency.
Up to 29.9% of total QECB volume cap may be issued as private activity bonds, where proceeds of the QECBs are loaned to nongovernmental entities and used for qualified conservation improvements on privately owned property. Private activity bonds may however only be issued to finance capital expenditures. However, the statute states that bonds issued to provide loans, grants or other repayment mechanisms for capital expenditures to implement green community programs will not be treated as private activity bonds for purposes of the allocation provisions.