House Democrats Release Details of ARRP Legislation

Government Relations Update - Economic Stimulus January 16, 2009

House Democrats Release Details of ARRP Legislation

After dominating the congressional agenda and being the subject of much rumor on Capitol Hill, House Democrats released the details of the economic stimulus legislation known as the American Recovery and Reinvestment Plan (ARRP) on January 15. The legislation, which totals approximately $825 billion, intends to spur job creation and revive the national economy through a combination of $550 billion in domestic spending and $275 billion in tax cuts. The Senate will introduce its own version of the legislation shortly and while it is likely to be similar, differences are expected. House committees will begin marking up the bill next week and, though Republican members of Congress have expressed some reservations about the size of the tax cuts, the leadership of both parties remains committed to clearing the bill for the president’s signature by mid-February.

Domestic Spending

The proposal provides $90 billion for infrastructure, $54 billion in energy spending, $16 billion for science and technology-related programs, $141.6 billion for education programs, $124.1 billion for health care programs, $102 billion in worker assistance, and $87 billion in Medicaid aid to the states. Earlier in the week the Obama team released a report entitled “The Job Impact of the American Recovery and Reinvestment Plan” which articulated the incoming administration’s intention to create between three and four million jobs by the end of 2010. This plan largely reflects the job creation focus, although it also contains a significant amount of funding for “safety net” programs.

The House leadership made it clear no earmarks will be allowed in this legislation. With regard to funds made available in the legislation for infrastructure investment, preference will be given to recipients who can begin and complete projects expeditiously, including a goal of using at least 50% of the funds for activities that can be initiated not later than 120 days after enactment. Formula grants will be awarded within 30 days of enactment and competitive grants will be awarded within 90 days of enactment. The legislation includes a “use it or lose it” requirement for grantees which demands that the grantee enter into contracts no later than one year after enactment or nine months after the award is made and make use of 50% of the funds awarded. The requirement also stipulates that grantees shall not enter into contracts later than 2 years after enactment or 21 months after the grant is awarded. The legislation authorizes the head of the appropriate federal department or agency to redistribute the funds to other states should the grantee fail to adhere to the “use it or lose it” requirements.

Additional details of the domestic spending component appear below. It should be noted that the following is not a comprehensive listing of every funding provision included in the legislation.

Infrastructure Construction

To create jobs, promote mass transit and a greener transportation network, and repair crumbling infrastructure, the ARRP invests:

$30 billion for highway and bridge projects that could begin construction within 180 days of enactment.
$9 billion for public transportation, including:
- $2 billion to modernize transit systems (“rail mod”).
- $6 billion to purchase buses and equipment needed to increase public transportation and improve intermodal and transit facilities.
- $1 billion for transit new starts.
$1.1 billion in Amtrak and intercity passenger rail construction grants.
$1.1 billion in airport improvement grants.
$9.5 billion for water infrastructure including:
- $6 billion for the State Revolving Fund to support wastewater treatment facility construction
- $2 billion for the safe drinking water program
- $1.5 billion for rural water and waste disposal program

Energy

The summary released by House Democrats touts the ARRP’s goal of doubling renewable energy production and increasing energy efficiency in public buildings. The bill devotes a total of $51.85 billion dollars to its goal of promoting “Clean, Efficient, American Energy” and invests:

$11 billion to modernize the electricity grid through funding the Smart Grid Investment Program.
$8 billion in loan guarantees for renewable energy production and transmission.
$6.7 billion for renovations to federal buildings designed to increase energy efficiency.
$6.9 billion for the local government energy efficiency block grant program.
$2.5 billion for the Department of Housing and Urban Development to competitively award to projects promoting energy efficiency for low-income housing.
$2 billion for energy efficiency and renewable energy research.
$2 billion in loan guarantees to support advanced battery projects.
$1.5 billion in energy efficiency loans to school districts, institutes of higher education, local governments and municipal utilities.
$6.2 billion to help low-income families weatherize their homes.
$300 million in rebates to consumers who buy Energy Star products to replace older appliances.
$600 million to replace federal government vehicles with alternative fuel models.
$200 million for grants to promote the development of electric cars.
$2.4 billion carbon capture and sequestration demonstration projects.
$350 million for the Department of Defense to research powering major weapon systems with renewable energy.
$400 million to help local and state governments purchase alternative fuel powered buses and trucks.
$500 million for energy efficient manufacturing demonstration projects.
$300 million for grants and loans to states and local governments for diesel emissions reduction programs.

Science and Technology

In order to develop cutting edge technologies and create jobs, the ARRP invests:

$6 billion in grants to expand broadband and wireless technology to underserved areas.
$3 billion for the National Science Foundation, including $2 billion for expanding employment opportunities in fundamental science and engineering fields to meet environmental challenges and improve global competitiveness and $900 million to build and modernize facilities at higher education institutions. $100 million is included to improve match, science, and engineering instruction.
$400 million for NASA to employ more scientists to research climate change and $150 million to study aviation safety.

Defense and Veterans Affairs

Approximately $4 billion for the construction of new medical facilities.
$2.1 billion for military facility renovation.
$1.3 billion for troop housing construction and renovation.
$950 million for veterans medical facilities.

Education

To improve and modernize school facilities and train more teachers, the ARRP invests:

$20 billion for school construction and modernization, of which $14 billion is devoted to K-12 and $6 billion for higher education.
$1 billion for school computer and science labs and teacher training.
$15.6 billion to increase the maximum Pell Grant from $4,850 to $5,350.
$2 billion for child care development block grants.
$2.1 billion for Head Start.

Healthcare

House Democrats also revealed that bill provides funding for a number of healthcare projects, including:

$20 billion to promote the implementation of health information technology.
$3 billion for fighting preventable diseases.
$1.1 billion for research to compare the effectiveness of various medical treatments funded by Medicare, Medicaid and SCHIP.
$1.5 billion aimed at upgrading community health centers.
$600 million to train primary care providers and prepare the country for universal health care.
$550 million for Indian health care facilities.

Worker Assistance

In order to address the rise in unemployment, the ARRP invests:

$4 billion for job training services.
$500 million for vocational rehabilitation state grants.
$500 million in employment services grants.
$27 billion to continue the unemployment benefit insurance program through the end of 2009.
$9 billion to increase the current average unemployment insurance benefit from $300 per week to $325 per week.
$30.3 billion to extend COBRA healthcare for the unemployed.

Saving Public Sector Jobs and Protect Vital Services

To provide relief to the states the ARRP invests:

$87 billion in Medicaid aid to the states.
$120 billion to states and school districts to stabilize budgets and prevent tax increases.
$2.5 billion for block grants designed to provide temporary assistance to needy families.
$4 billion to support state and local law enforcement, including $3 billion for Byrne Justice Assistance formula grants and $1 billion for the COPS hiring grant program.

Tax Cuts

In order to obtain Republican support for the legislation and provide short term economic relief, President-elect Obama originally proposed a $300 billion tax cut and personally attended Tuesday’s Senate Democratic lunch to defend his plan. Though congressional Democrats did reduce the overall amount to $275 billion over the next two years, the ARRP’s tax package retained several key Obama priorities, including individual tax credits of $500 per worker and $1,000 per working couple, along with a bevy of tax incentives to expand the use of clean and renewable energy.

House Ways and Means Committee tax writers scrapped, however, one of Obama’s original tax proposals that would offer a $3,000 tax credit for each new employee businesses hire over the next two years. This comes after lawmakers on both sides of the aisle cited strong concerns related to the proposal’s high cost and overall effectiveness in combating high unemployment.

Another key omission included a one-year “patch” of the Alternative Minimum Tax (AMT), a $70 billion provision that would prevent 25 million additional taxpayers from being exposed to the AMT. Despite the House’s exclusion of the one-year patch, the Senate Finance Committee may push for its inclusion following markups beginning next week, potentially raising the ARRP total to around $900 billion.

Below is a list of key tax provisions that were included in the ARRP:

Business—Five-year carry back of net operating losses, applicable to companies that did not receive TARP benefits; extended increase of small business expensing; prospective repeal of Treasury Section 382 ruling.
Energy—Renewable energy production tax credit extension; expansion of energy efficiency and conservation tax incentives, research and development (R+D) tax credits for smart energy conservation, energy efficiency, and renewable energy. The House Ways and Means Committee has not provided information regarding the cost of these provisions.
Education —$2,500 tax credit for the first four years of higher education expenses.
Housing—Exempts repayment of $7,500 first-time home buyer credit for homes purchased after 2008 and before credit termination on June 30, 2009.
State and Local Governments—Repeal of AMT limits on new private activity bonds; one year deferral of withholding tax for government contractors.
Distressed Areas—Tax exempt bonds and tax credit bonds to “recovery zones,” or any area within a State, city or county that “exhibit high unemployment, foreclosures or poverty.”

Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This alert should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel