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Stimulus Compromise Reached – Quarles & Brady Stimulus Task Force Ready To Assist Clients

Addressing the Economic Crisis Update Jeff Peelen

After weeks of debate in Washington, House and Senate leaders have reached a compromise agreement on an approximately $787 billion economic stimulus plan, the American Recovery and Reinvestment Act of 2009 (the "Stimulus Legislation"). The Stimulus Legislation is expected to be approved shortly by Congress and then delivered to President Obama for his anticipated signature in the coming days.

In anticipation of our clients' needs and questions, Quarles & Brady has formed a Stimulus Legislation and Opportunities Task Force. The Task Force has been at work for over a month and is dedicated to assisting our clients in evaluating and taking advantage of the opportunities arising under the Stimulus Legislation.

Industry-Specific Updates to Follow

This update provides general information on the Stimulus Legislation as outlined in the compromise agreement. In the days ahead, Quarles & Brady will provide industry-specific updates discussing developments regarding the programs and projects funded by the final Stimulus Legislation. These updates will be practical, with a focus on providing information that our clients can use to identify opportunities within the industries most directly affected by the Stimulus Legislation. Those industries include:

Construction and Infrastructure

The Stimulus Legislation, as outlined in the compromise agreement, will allocate billions of dollars to promote economic activity and create jobs with respect to roads & highways, bridges, public transportation, railways, water and sewer utility and energy-efficiency / alternative energy projects. Funding for different projects will be provided differently - for example, highway funding will be distributed through the states (for allocation among state departments of transportation and local governments) while surface transportation and energy-efficiency project funding will be distributed through the federal Transportation and Energy Departments, respectively. The legislation will also provide significant funding for the Department of Energy's weatherization assistance program, which provides funds to insulate low-income residences. Contractors and construction companies will need to move quickly to take advantage of some of this funding: the Stimulus Legislation will require a large portion of funds to be apportioned to states and local governments almost immediately after passage of the final act and awarded for contracts with respect to "shovel-ready projects" within a matter of months.
For more information on construction and infrastructure projects and programs under the Stimulus Legislation, please contact Dawn Valdivia at 602-229-5291 / dvaldivi@quarles.com. For questions regarding specific state and local projects proposed for funding, please contact Cory Nettles (Wisconsin) at 414-277-5423 / cln@quarles.com, Kevin Slaughter (Illinois) at 312-715-5151 / kslaught@quarles.com or Kent Stevens (Arizona) at 602-229-5600 / kstevens@quarles.com.

Public Finance & Education

The Stimulus Legislation, as outlined in the compromise bill, will provide expanded flexibility, new financing tools and significant funding for states, local governments and school districts. The legislation will raise the "bank-qualified" limitation on tax-exempt bonds from $10 million to $30 million, will modify the application of the bank-qualified limitation issues benefiting 501(c)(3) organizations and will exempt all tax-exempt bonds issued in 2009 and 2010 from individual and corporate AMT. Also for 2009 and 2010, the legislation will expand industrial development bonds to include creation of intangible property and to eliminate the 25%-of-proceeds restriction for facilities functionally related and subordinate to a manufacturing facility. The legislation will provide significant additional issuance authority for Qualified Zone Academy Bonds ("QZABs"), Clean Renewable Energy Bonds ("CREBs") and Qualified Energy Conservation Bonds. It will also create several new categories of tax credit bonds: "Qualified School Construction Bonds" (for the construction or repair of public school facilities and related land acquisition); "Recovery Zone Bonds" (with authority allocated to the states, based on their comparative percentage of job losses in 2008); and a "Tax Credit Bond Option," which will allow states and local governments to issue tax credit bonds instead of tax-exempt bonds and elect to receive a direct payment from the federal government equal to the subsidy that would otherwise have been delivered through the federal tax credit. The legislation will also provide significant additional funding for the USDA Rural Development and Clean Water / Safe Drinking Water programs through which many municipalities borrow.

For more information on the public finance and education provisions of the Stimulus Legislation, please contact Jeff Peelen at 414-277-5773 / jdp@quarles.com or Mike Ostermeyer at 414-277-5521 / mjo@quarles.com.

Healthcare and Health Technology

The Stimulus Legislation, as outlined in the compromise agreement, will fund programs intended to modernize the health care system and induce health research. Notably, the legislation will provide for billions of dollars to accelerate the adoption of Health Information Technology systems by doctors and hospitals and to promote the electronic exchange and use of medical records and health information, consistent with the strategic plan outlined in the Office of the National Coordinator for health information technology. The legislation will also strengthen federal privacy laws to protect personally identifiable health information and will provide billions of dollars in federal matching funds to help states maintain Medicaid programs.

For more information regarding the health care and health technology-related aspects of the Stimulus Legislation, please contact Roger Morris at 602-229-5269 / rmorris@quarles.com.

Native American Tribes

The Stimulus Legislation will authorize tribal governments to issue $2 billion in tax-exempt economic development bonds, without regard to the "essential government function" restriction, which otherwise bars tribal governments from issuing a tax-exempt bonds unless substantially all bond proceeds are used for an "essential government function." The legislation also provides $450 million to the Bureau of Indian Affairs for tribal infrastructure projects, including roads, schools and prisons; and $500 million for rehabilitation and energy-efficiency upgrades for housing maintained by Native American Housing Programs. The legislation also includes $510 million for additional Native American Housing Assistance and Self Determination Act of 1996 ("NAHASDA") block grants, $500 million for Indian health services and facilities, $225 million for law enforcement assistance to tribes and additional funding for Community Development Financial Institutions ("CDFI") Native American programs.

For more information on the provisions of the Stimulus Legislation pertinent to Native American tribes and tribal governments, please contact Luis Ochoa at 520-770-2219 / lochoa@quarles.com or Mike Ostermeyer at 414-277-5521 / mjo@quarles.com.

Taxation

The Stimulus Legislation is intended to provide tax relief for individuals and businesses and to spur development of renewable energy and infrastructure projects. For businesses, the Stimulus Legislation will provide, among other things, an increase in the limit on the amount of certain purchases of business assets that may be immediately deducted; a 50% depreciation deduction in the first year of service for qualified property acquired in 2009; a lengthening of the "carryback" period, which allows certain businesses to claim a tax refund by using net operating losses generated in 2008 or 2009 to offset profits generated in prior years; a temporary shortening (from 10 to 7 years) of the period within which S corporations that converted from C corporation status may be subject to corporate tax on gains from dispositions of assets; a 75% exclusion for capital gains from the sale of certain small business stock that is acquired in 2009 or 2010 and held for more than five years; incentives under the Work Opportunity Tax Credit rules for employers to hire unemployed veterans and disconnected youth; a tax credit for investments in broadband Internet access for certain underserved areas; and authorization for increased allocations for the "new market tax credit" program. The Stimulus Legislation will also nullify (prospectively) favorable guidance that had been issued by the IRS to banks, regarding the computation of built-in losses which may be restricted following an ownership change.

The Stimulus Legislation will also provide numerous energy-related incentives. The Stimulus Legislation will, among other things, create a 20% credit for qualified expenses for energy research incurred in 2009 or 2010, modify the carbon dioxide sequestration credit, enhance the alternative fuel pump credit and temporarily increase the credit rate for non-hydrogen refueling property, extend the availability of the renewable electricity production credit, permit election of a 30% investment credit in lieu of production tax credits for certain alternative energy facilities, and modify the section 48 energy credit to remove the cap for qualified small wind energy property.

For more information on the tax-related provisions of the Stimulus Legislation, please contact Terry Stein, of the Tax Group, at 312-715-5029 / tstein@quarles.com.

Energy and Science

The Stimulus Legislation, as outlined in the compromise bill, will contain provisions intended to increase renewable energy production and facilitate energy efficiency improvements to public buildings. The legislation will provide billions of dollars for "smart" power grid development and modernization and also for advanced battery technology. It will provide significant additional research and development funding relating to climate science, biofuels and carbon sequestration / carbon capture technology. The legislation will contain significant funding for the Renewal Energy Electric Power Transmission Guarantee Program, which provides loan guarantees to private entities to fund alternative energy research. The legislation's science-related provisions include additional funding for research and projects administered by the National Science Foundation, the National Oceanic & Atmospheric Administration, the National Aeronautics & Space Administration and the National Institute for Standards & Technology.

For more information on the energy-related provisions of the Stimulus Legislation, please contact Larry Martin at 414-277-5135 / ljm@quarles.com.

Questions?

Please stay tuned for additional, industry-specific updates that will help identify opportunities under the Stimulus Legislation. In the meantime, please direct your questions to any of our Task Force contacts:

Q&B Stimulus Legislation and Opportunities Task Force Contacts:

Construction and Infrastructure   Dawn Valdivia  
Specific Projects Cory Nettles - Wisconsin
Kevin Slaughter - Illinois
Kent Stevens - Arizona
Public Finance & Education Jeff Peelen
Mike Ostermeyer  
Healthcare & Health Technology Roger Morris  
Native American Tribes   Luis Ochoa
Mike Ostermeyer  
Taxation  Terry Stein
Elaine Waterhouse Wilson  
Energy and Science   Larry Martin

Related Initiatives

Quarles & Brady has established several teams to help our clients keep pace with the various legislative changes adopted in response to the pending financial crisis. Our related initiatives include:

  • The Financial Services Task Force, whose mission is to help our clients understand the opportunities and restrictions accompanying the Emergency Economic Stabilization Act of 2008, and the Troubled Assets Relief Program, or TARP, established under that act.

  • The Lender Liability Task Force, whose mission is to advise the firm's financial institution clients on how to avoid and defend lender liability claims anywhere in the country.