President Trump released his budget proposal (Proposal) for the 2018 fiscal year on May 23, 2017, and a budget blueprint (Blueprint) on March 13, 2017. The Blueprint provides details regarding discretionary funding proposals and the Proposal provides specific mandatory and tax proposals. The Proposal and Blueprint are collectively referred to herein as the “Budget Proposal.”
The Budget Proposal reiterates the President’s tax reform proposals to lower the business tax rate and to eliminate “most special interest tax breaks.” The proposal does not provide any further detail regarding which special interest tax breaks are targeted for elimination.
The Budget Proposal is silent regarding energy-related tax provisions such as the production tax credit (PTC) and the investment tax credit (ITC), as well as the New Markets Tax Credit (NMTC) program. Past proposals from the Obama Administration called for: (i) permanently extending the PTC and ITC; (ii) making the PTC refundable; (iii) allowing the PTC for solar facilities that qualify for the ITC and on which construction began after December 31, 2016; and (iv) enhancing and permanently extending the NMTC. For more information, see McDermott’s analysis of the 2017 proposed budget.
The PTC and ITC were extended by Congress in 2015, but are subject to phase outs. For wind facilities, the PTC and ITC are reduced by 20 percent for facilities the construction of which began in 2017. For wind facilities that begin construction in 2018, the PTC and ITC are reduced by 40 percent. For wind facilities that begin construction in 2019, the PTC and ITC are reduced by 60 percent. For solar facilities, the ITC is currently 30 percent. However, the ITC is reduced to 26 percent for projects that begin construction in 2020, and 22 percent for projects that begin construction in 2021. The ITC is reduced to 10 percent for solar projects where construction begins before 2022 but the project is not placed in service before 2024. We previously reported on the 2015 extension of the PTC and the ITC.
The NMTC was extended by Congress in 2015 through December 31, 2019.
The Budget Proposal contains several significant provisions regarding nuclear energy. The proposal would provide $120 million to the US Department of Energy (DOE) to restart licensing activities for the Yucca Mountain nuclear waste repository and initiate a robust interim storage program. The proposal also calls for the DOE to restart collection of the Nuclear Waste Fund fee in 2020, which is estimated to generate approximately $381 million to $382 million annually for the period 2018 to 2027.
Also affecting the DOE, the Budget Proposal would eliminate the Advanced Research Projects Agency-Energy, the Title 17 Innovative Technology Loan Guarantee Program, and the Advanced Technology Vehicle Manufacturing Program, and would significantly reduce the funding for the DOE’s four research and development program areas: the Energy Efficiency and Renewable Energy Office (EERE), the Office of Nuclear Energy, the Office of Electricity Delivery and Energy Reliability, and the Fossil Energy Research and Development Program. EERE, which manages programs for solar energy, wind energy, water power and geothermal technologies, would have its budget reduced by 70 percent to $636 million for the 2018 fiscal year.
The Budget Proposal would also eliminate funding for Community Development Financial Institutions (CDFI) Fund grants, with an estimated savings of approximately $210 million, and would reduce the funding for the CDFI Fund administration from $24 million in 2017 to $14 million in 2018. The CDFI Fund manages the NMTC program. On May 2, 2017, the CDFI Fund opened its 2017 allocation round with $3.5 billion in available tax credits. With the reduced administration funding for the CDFI Fund for 2018, there could be administrative delays surrounding certification, compliance monitoring and other questions in connection with the NMTC program.