On February 17, 2009, President Obama signed into law H.R. 1, the "American Recovery and Reinvestment Act of 2009" ("Recovery Act") (Pub. Law 111-5). The Recovery Act is intended to spur economic activity and totals $787 billion, which includes $575 billion in new spending and, $212 billion in tax incentives. Some of the funding is designated to be spent by federal agencies however, the bulk of funding is intended to flow to the states for use on immediate, "shovel-ready" projects. The Reed Smith Public Policy & Infrastructure Practice, as well as other Reed Smith practices, such as the Energy and Tax Practices, has been monitoring progress of this legislation through the United States Senate and the House of Representatives, and provides this summary of the major spending programs and types of projects that the Recovery Act will fund, and what state, local government, nonprofits and private companies can do to seek funding for their worthy projects.
Please note, Reed Smith, through its Energy and Tax Practices, has published three related alerts on major tax provisions in the Recovery Act: (1) "Effect of the Recovery Act on Renewable Energy Projects;" (2) "The American Recovery and Reinvestment Act: Tax Incentives for Business"; and 3) "Temporary Federal Loan Guarantee Program for Rapid Deployment of Renewable Energy and Electric Power Transmission Projects."
General Spending Provisions and Restrictions
- Not a Christmas Tree. As noted in prior updates, this legislation contains no directed spending for specific projects, i.e., no "earmarks." This was done deliberately by the Democratic Majority in Congress and the Obama administration. Spending is set up by formula and competitive grant requirements, with specific rules on how funds are to be spent.
- Time is of the essence for completion of infrastructure projects. The Recovery Act provides that for all infrastructure projects, priority is given to those projects that can be completed as quickly as possible, i.e., "shovel-ready." For highway and bridge projects, for example, the Recovery Act notes "priority shall be given to projects that are completed within a 3 year time frame." (Section 2, Title XII, Page 92)
- "Shovel-ready" also means "use it or lose it." The deadlines for many infrastructure projects include a 120-day, "use it or lose it" requirement for a percentage of funds. For example, with highway and bridge funds, states must award contracts based on bids for at least one-half of the funding they receive within 120 days of receipt. Further, states must enter into contracts or other binding commitments not later than one year after the date of the enactment to make use of the remaining funds. Any funds not committed in this matter will be recovered, de-obligated and re-distributed. (Section 2, Title XII, Page 92)
- Transparency requirements. Each contract awarded or grant issued shall be posted on the Internet and linked to the website "Recovery.gov." (Section 1526)
- Accountability requirements. The Recovery Act also creates a "Recovery Act Accountability and Transparency Board" to "conduct oversight of covered funds to prevent waste, fraud, and abuse." (Section 1521).
- Whistleblower protections. The Recovery Act includes protections for state and local government and contractor whistleblowers. It provides that "an employee of any non-Federal employer receiving covered funds may not be discharged, demoted or otherwise discriminated against as a reprisal for [disclosing information] that the employee reasonably believes is related to (1) gross mismanagement of an agency contract or grant related to covered funds; (2) a gross waste of covered funds; (3) a substantial and specific to public health or safety related to the implementation or use of covered funds; (4) an abuse of authority related to the implementation or use of covered funds; and (5) a violation of law, rule, or regulation related to an agency contract...or grant, awarded or issued relating to covered funds" (Section 1553(a)). The Inspector General of the federal agency awarding the funds must investigate any whistleblower complaint within 180 days of receiving it in order to decide if it is not frivolous, and then forward the matter to the head of the federal agency for action (Section 1553(a)(2). Remedies available for the head of the agency when determining relief include reinstatement, back wages, and attorney's fees and expert witness costs (Section 1553(c)(2)).
- Special contracting provisions. The Recovery Act states that "[t]o the maximum extent possible, contracts funded under the Act shall be awarded as fixed-price contracts through the use of competitive procedures. A summary of any contract awarded with such funds that is not fixed price and not awarded under competitive procedures shall be posted in a special section of the website [Recovery.gov]." (Section 1554)
Major Spending Initiatives by Category
The Recovery Act funds a number of programs at both the federal and state and local level designed to promote efficiency, the production of renewable energy, and the reduction of emissions from conventional energy sources, including:
- $11 billion to the Department of Energy ("DOE") for research and development, pilot projects, and matching funds for the Smart Grid Investment Program for modernizing the electric grid.
- $6.3 billion in block grants for cities, counties, and states for projects that increase energy efficiency and reduce carbon emissions.
- $2 billion in grants to the DOE to fund the Advanced Battery Grants Program, to promote the domestic manufacture of batteries needed to power electric cars.
- $6 billion to finance an Innovative Energy Loan Guarantee Program at DOE, to promote renewable energy production and transmission.
- $5 billion to the Department of Housing and Urban Development ("HUD") to help low-income families weatherize their homes.
- $4 billion to HUD for repair and modernization of public housing units.
- $3.4 billion to DOE for carbon capture and sequestration technology demonstration projects to promote near-zero emissions at power plants, clean coal technology, and carbon capture.
- $300 million for grants at the state and local level for programs that reduce diesel emissions.
Key Infrastructure Provisions Affecting Highways and Bridges, Mass Transit, and Water Infrastructure Projects
- Highways and Bridges: $27.5 billion to states and local governments for highway and bridge construction projects.
- Mass Transit: $8.4 billion in funding broken down as follows: $750 million to the Federal Transit Administration, states and local governments for new commuter and light rail mass transit systems; $750 million to modernize existing mass transit systems; $6.9 billion to purchase buses and improve intermodal and transit facilities.
- Wastewater: $1.38 billion to the Environmental Protection Agency (EPA) support; $3.8 billion in grants and loans to help communities upgrade wastewater treatment facilities.
- Drinking Water: $2 billion to the EPA for loans for drinking water infrastructure.
- Restoration, Flood Protection and Navigation: $4.6 billion to the Army Corps of Engineers for environmental restoration, flood protection, hydropower and navigation infrastructure projects.
Health Care Provisions
States will receive about $90 billion for Medicaid to provide health insurance for those at or near the poverty level. In addition, the Recovery Act includes $17.2 billion in incentives to Medicaid and Medicare providers to adopt health information technology; $10 billion for the National Institutes of Health to disburse in research grants and spend improving research facilities; and $2 billion to fund renovations and technology upgrades at community health centers.
The Recovery Act includes $4 billion for the repair and modernization of public housing units; $2.4 billion to help state and local governments acquire and repair low-income housing; and $2 billion to redevelop abandoned and foreclosed homes.
Science and Research Provisions
The Recovery Act includes $3 billion for the National Science Foundation to use to fund finance research focusing on the environment and global competitiveness; $2.5 billion for renewable energy and energy efficiency research; $1.1 billion for research regarding the effectiveness of treatments offered under Medicare, Medicaid, and SCHIP; $1 billion for NASA to sponsor research related to environmentally responsible airplanes; and $830 million to fund National Oceanic and Atmospheric Administration projects related to habitat restoration, coastal charting, and climate research computer upgrades.
"Nuts and Bolts" of Funding Mechanisms
Virtually every federal program involving disbursements of money, whether in the form of grants, loans, or contracts, must be administered by particular agencies. The Executive Office of Management and Budget issued a guidance memorandum, dated Feb. 18, 2009, which is "the first installment of government-wide guidance for carrying out programs and activities enacted in the [Recovery Act]." The guidance is directed to "Heads of Departments and Agencies," and contains extensive instructions for agencies charged with implementing the Recovery Act. As agencies implement this initial guidance memorandum, and further guidance yet to come, companies can follow the five steps below to best position themselves to receive funding:
- Monitoring the Agency Process: The approach under the Recovery Act will be one of speed and flexibility, so interested parties will need to closely monitor new policies and procedures in all programs as they are being implemented (e.g., the use of "rolling appraisals of applications, streamlining of the application process, and the likely constant hiring of new staff)
- Briefing Congressional Delegation(s): It is most helpful to use the congressional delegations from affected states to: (a) support applications to agencies. (b) assist in obtaining meetings with key staff; and (c) advocate for suggested policy revisions and the like, including during any rulemaking. Reed Smith often works with clients in various aspects of obtaining funding or advancing legislation.
- Meeting with Agency Pepresentatives: At the appropriate time, it will be advisable to meet with agency representatives that have a direct link to the development of federal rules and policies, such as Energy, Transportation, and Housing and Urban Development. Meetings, at the current time, at the level of the internal regulatory "control group" that is developing the new policies and the like, will be difficult to get, which is certainly normal for new administrations. However, it is worthwhile to meet with a high staff level, such as the Chief of Staff, who will remember the company and what it is suggesting concerning its proposed approaches.
- Meeting with Congressional Staff: Reed Smith has represented individual companies on the Hill for a number of programs. One recommendation would be for Reed Smith to meet with senior policy or counsel to apprise them of concerns and suggestions regarding development of the program (and to secure appropriate loans and the like). One good example of staffers to meet with are those who belong to congressional committees that have jurisdiction over the Agency at issue (e.g., the Senate Banking, Housing, and Urban Affairs Committee has jurisdiction over the Department of Treasury, and has a strong oversight role over all related programs within the Department). We could provide other examples, if needed.
- Actively Participate in Rulemaking: It is recommended that all interested parties maintain a posture of support and constructive assistance to the agency involved in rulemaking. At the same time, Reed Smith can assist in developing and filing appropriate rulemaking and other comments to respond to the notices of these agencies under the Administrative Procedure Act, 5 U.S.C. § 551, et seq. Again, we would recommend doing so in a way that would be known to the agencies and would support their various positions (unless they were simply unsupportable, in which case we would respectfully suggest different approaches).
In addition, other funding opportunities are available, outside of those outlined in the Recovery Act, that can provide supplemental funding. For example, Congress each year appropriates funding under 12 different appropriations bills. In each bill, there is funding for directed projects, known as "earmarks." For example, in Fiscal Year 2008, Congress provided $114 million in earmark funding for energy projects under the "Energy Efficiency and Renewable Energy" program, and $135 million in earmark funding for wastewater projects under the "State and Tribal Assistance Grants" program ["STAG"] (Pub. Law 110-161). In addition, competitive loan and grant programs are available from every agency in the federal government. For example, Title XVII of the federal Energy Policy Act of 2005 (EPA Act 2005) authorized the U.S. Department of Energy to issue loan guarantees for projects that "avoid, reduce or sequester air pollutants or anthropogenic emissions of greenhouse gases; and employ new or significantly improved technologies as compared to commercial technologies in service in the United States at the time the guarantee is issued." The loan guarantee program has more than $10 billion in authority to issue loan guarantees for energy efficiency, renewable energy, and advanced transmission and distribution projects.