State and Local Governments: Stimulus Legislation Provides Project Funding

February 6, 2009

Before Monday, the United States Senate is expected to vote on a sweeping stimulus legislation package. Last week, the House of Representatives passed a similar stimulus bill. Congress is on pace to present a compromise version of the bill for President Obama’s signature by February 15. If enacted, the legislation would provide state and local governments with funding for a wide range of projects, including the following:

Transportation

  • Roads and Bridges: Road and bridge repair and construction
  • Rail and Transit: Light rail, transit, and fixed guideway infrastructure
  • Air: Airport construction and repair

Schools

  • School Construction and Repair: Public school (including charter schools) construction, modernization, renovation, and repair
  • School Operations: Funds for school operating costs
  • Programs for Disadvantaged Students: Programs for disadvantaged, special education, and homeless students

Water and Sewer, Environment, and Energy Efficiency

  • Water and Sewer: Drinking water and wastewater system construction and improvement
  • Environment: Flood prevention, dams, and brownfield recovery projects
  • Energy Efficiency: Projects to make government buildings and equipment more energy efficient

Housing

  • Public Housing Agencies: Funding for capital and management activities for public housing agencies
  • Affordable Housing Retrofits: Grants or loans to owners of affordable housing to accomplish energy retrofit investments
  • Neighborhood stabilization: Grants for programs in high foreclosure areas
  • Homeless Shelters: Funds for homeless assistance

Economic Development and Public Safety

  • Economic Development: Funding for broadband infrastructure, research science buildings, and economic development assistance programs
  • Worker Training: Adult and youth worker training programs, including training in high growth and emerging industry sectors, such as renewable energy and healthcare
  • Public Safety: Grants for state and local law enforcement

In addition to the grant and loan programs for state and local government projects described above, the stimulus legislation provides state and local governments with greater flexibility in financing their projects with tax-exempt, tax credit, and subsidized bond options.

Tax-Exempt Bonds and Bond-Related Items

  • Bank Qualification: The annual limit for small issuers of tax-exempt obligations is increased from $10M to $30M
  • Tax Credit Bonds: Creation of new tax credit bonds to finance public school construction and investments in economic recovery zones
  • Subsidized Taxable Bonds: A governmental issuer would receive a federal cash subsidy for issuing ‘taxable governmental bonds’ in lieu of tax-exempt bonds
  • Alternative Minimum Tax: For bonds issued in 2009-10, tax-exempt interest on private activity bonds will no longer be a preference item for the AMT, so the interest would not count as taxable income to the bondholder

Although some changes are likely as Congress works toward a compromise bill next week, the items in this update are likely to be in the final bill, as they are substantially unchanged between the House and Senate versions of the bill. The full text of the House stimulus bill can be found at the Library of Congress THOMAS site.

If you have any questions regarding the stimulus legislation and its effects on state and local governments, please contact one of the attorneys listed below.

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