February 25, 2009
The Gibson, Dunn & Crutcher Financial Markets Crisis Group is closely tracking government responses to the turmoil that has catalyzed a dramatic and rapid reshaping of our capital and credit markets.
We are providing updates on key regulatory and legislative issues, as well as information on legal issues that we believe could prove useful as firms and other entities navigate these challenging times.
This update focuses on provisions of the American Recovery and Reinvestment Act of 2009 (the "Stimulus Act") that are designed to build and improve infrastructure in various sectors of our economy and in a variety of forms.
The Stimulus Act was signed into law by President Obama on February 17, 2009 and includes a number of provisions that focus on building and improving infrastructure. Some of the most important provisions regarding infrastructure spending are summarized below. Where relevant, we attempt to provide context from the bill text and statement of managers on how the funds are to be spent, including any conditions on the spending or appropriations set-asides.
The update will cover infrastructure spending in the following areas:
The Stimulus Act includes $48 billion for the Department of Transportation and its component agencies.
$27.5 billion is allocated to the Federal Highway Administration to fund highway, bridge and road projects. Of the $27.5 billion allocation, $310 million is reserved for Indian reservation roads, $170 million for park roads, $20 million for highway surface transportation and technology training, and $20 million for bonding assistance to disadvantaged business enterprises. The Act specifies that priority be given to projects that are part of state or metropolitan plans, can be completed within two years, and are located in economically-distressed areas. 50 percent of the funds made available under this heading shall be apportioned to States using the formula set forth in the Surface Transportation Program, and the remaining funds shall be apportioned to States in the same ratio as the obligation limitation for fiscal year 2008.
In addition, the bill provides $1.1 billion in discretionary grants for projects at airports to be administered by the Federal Aviation Administration as part of the Airport Improvement Program.
The Act appropriates $8.4 billion for the Federal Transit Administration to improve mass transit infrastructure. In addition, it provides $6.9 billion in transit capital assistance grants, specifying that $5.4 billion be reserved for urban areas and $600 million for rural areas.
The Act also appropriates funding for rail infrastructure, including
(1) $1.3 billion to Amtrak for capital projects, and of which $450,000,000 shall be used for capital security grants. Priority will be given to projects for the repair or upgrade of railroad infrastructure and capital projects that expand passenger rail capacity. None of the funds can be used to subsidize the operating losses of Amtrak and only 60 percent of the funds can be used for capital projects along the Northeast Corridor.
(2) $8 billion to the Federal Railroad Administration Capital Assistance for Intercity Passenger Rail Service to administer grants to states for the capital costs of intercity rail. The Act requires that preference be given to projects for high-speed services. The Secretary of Transportation shall provide 80 percent of the funds as urbanized area formula grants. 10 percent of the funds will be distributed in accordance with high density states formula factors. The remaining 10 percent will be distributed outside of urban areas. $100,000,000 will be distributed as discretionary grants to public transit agencies for capital investments that will reduce their energy consumption or greenhouse gas emissions. In addition, the Act changes the standard for qualifying for a high speed rail bond. Prior to the Act, intercity rail facilities qualified for a facility bond if they were reasonably expected to operate in excess of 150 miles per hour between scheduled stops. Under the Act, it is only necessary that the high-speed intercity rail facilities reasonably expect to reach a top speed of greater than 150 miles per hour. We understand that this language was meant to accommodate a particular project.
The bill provides $11 billion for electrical grid projects, including $4.5 billion for putting into operation "smart grid" technologies that provide real-time analysis and event prediction.
Much of the Stimulus Act’s energy-related spending focuses on energy efficiency and renewable energy. The measure provides $6 billion for the Renewable Energy and Electric Power Transmission Loan Guarantee Program, which enables private entities to fund alternative energy research.
The Stimulus Act provides $16.8 billion to the Department of Energy for its energy efficiency programs, including:
(1) $3.2 billion for the Energy Efficiency Block Grant Program, which provides grants to state and local governments to fund installation of energy efficient technologies and materials in public facilities. $2.8 billion will be available through the formula in subtitle E of title V of the Energy Independence and Security Act of 2007. The remaining $400,000,000 shall be awarded on a competitive basis; (2) $3.1 billion to fund state government energy technology R&D programs; and
(3) $2.5 billion to fund research and implementation of projects focusing on energy efficiency and renewable energy.
The Stimulus Act also provides a number of energy-related tax provisions, including:
(1) A 30% investment tax credit for manufacturing advanced energy property (up to $2.3 billion in credits) for projects certified by the Treasury Secretary in consultation with the Energy Secretary;
(2) Owners of facilities that produce renewable energy may elect to claim an investment tax credit rather than a production tax credit;
(3) Taxpayers who produce electricity from certain renewable energy facilities may receive a grant from the Treasury Department for 30% of the cost of the facility rather than claim a production or investment tax credit;
(4) An additional $1.6 billion is allocated to clean renewable energy bonds to finance facilities that generate electricity from certain renewable sources.
(5) $2.4 billion is provided for qualified energy conservation bonds to finance state and local programs designed to reduce the emissions of greenhouse gases.
The Stimulus Bill provides $7.2 billion to the Environmental Protection Agency. This includes
(1) $4 billion in grants to states for wastewater treatment projects, to be administered by the Clean Water State Revolving Fund;
(2) $2 billion in grants to states for drinking water infrastructure projects of the Drinking Water State Revolving Fund;
(3) $500 million to the Bureau of Reclamation for rural drinking water projects; and
(4) $800 million for the Environmental Protection Agency’s environmental restoration projects.
The Stimulus Bill includes infrastructure-related spending for the Department of Interior as well. This includes:
(1) $1 billion to the Bureau of Reclamation for water projects, with an emphasis on drinking water projects in drought-prone areas of western states.
a. At least $126,000,000 shall be used for water reclamation and reuse projects.
b. $50,000,000 of the funds may be transferred to the Department of the Interior for programs authorized by the Central Utah Project Completion Act;
c. $50,000,000 may be used for activities authorized by the California Bay-Delta Restoration Act.
d. At least $60,000,000 shall be used for rural water projects, primarily for water intake and treatment facilities.
e. At least $10 million shall be used for a bureau-wide inspection of canals program in urbanized areas.
f. All funds appropriated to the Bureau must be used for projects that can be completed with the given funding and will not create budgetary obligations in future fiscal years;
(2) $750 million for the completion of work on roads, bridges, and other facilities by the Park Service;
(3) $450 million for infrastructure projects conducted by the Bureau of Indian Affairs;
(4) $280 million for resource management and construction projects of the U.S. Fish and Wildlife Service;
(5) $180 million for the Bureau of Land Management’s road repair and decommissioning projects; and
(6) $140 million for facility repair projects of the U.S. Geological Survey.
In addition, the Stimulus Act provides the Army Corps of Engineers with $4.6 billion for projects related to flood control, navigation infrastructure, and environmental restoration. At least $200 million of these funds are reserved for water-related environmental infrastructure assistance. In addition, $375 million is reserved for projects related to the Mississippi Rives and tributaries that have already been funded.
Much of spending allocated to housing is geared toward improving the energy efficiency of the housing stock. The Stimulus Act appropriates $2.3 billion for the Department of Housing and Urban Development to fund energy-efficient renovations to units falling under Section 202, Section 811, and Section 8. In addition, the agreement allocates $4 billion to the Public Housing Capital Fund to improve the energy efficiency of housing projects and increase the amount of available affordable housing. $1 billion will be distributed competitively, with priority given investments that leverage private sector funding or financing for renovations and energy conservation retrofit investments. Public housing agencies are instructed to give priority to projects intended to rehabilitate vacant rental units and capital projects that are already underway or included in the 5-year capital fund plans required by the United States Housing Act of 1937.
In addition, the measure grants $1.5 billion to the Neighborhood Stabilization Program to provide funds to local and state governments to purchase and rehabilitate vacant housing in areas with high levels of foreclosures.
The Stimulus Act adds qualified school construction bonds as a new category of qualified tax credit bonds. Qualifying bonds must be issued by a state or local government, and all proceeds of the bonds must be used for public school construction or repairs. The Act authorizes up to $11 billion in spending per year for 2009 and 2010. The Stimulus Act also includes $1.4 billion in issuing authority for the qualified zone academy bond program for 2009 and 2010. These bonds, to be issued by state and local governments, can be used to finance renovations at any public school below college level that is located in an empowerment zone or enterprise community and designed to cooperate with businesses to enhance its curriculum.
In addition, $100 million is appropriated for Impact Aid for the construction of schools that educate federally-connected students or possess federally-owned land.
The Stimulus Act allocates $19 billion to improving health IT infrastructure, with the aspiration of encouraging health care professionals to electronically exchange patients’ health information. The Act establishes the Health Information Technology Committee, which shall recommend a policy framework for the development and adoption of a nationwide health information technology infrastructure that permits the electronic exchange and use of health information.
Science R&D Infrastructure
The Stimulus Act contains the following appropriations to improve scientific research and development infrastructure:
(1) $300 million to National Science Foundation, including $400 million for the construction of research facilities;
(2) $780 million to the National Institute for Standards and Technology under the Commerce Department, including $360 million for constructing R&D facilities;
(3) $1.3 billion to the National Center for Research Resources, including $1 billion for the renovation of university facilities; and
(4) $500 million for the repair, construction, and improvement of intramural research facilities at the National Institutes of Health.
National Security Infrastructure
The Stimulus Act provides $2.75 billion to the Department of Homeland Security. This includes:
(1) $420 million to U.S. Customs & Border Protection to repair and construct inspection facilities at land border points of entry;
(2) $1 billion to the Transportation Security Administration to install explosive detection systems and emerging checkpoint technologies at airport terminals; and
(3) $240 million to the Coast Guard to alter or remove obstructive bridges.
The Stimulus Bill appropriates $7.2 billion for grants to deploy broadband in areas which are currently underserved. $4.7 billion is allocated to the National Telecommunications and Information Administration, of which at least $4.3 billion must be expended under the new Broadband Technologies Opportunities Program. This program will be established by the Assistant Secretary of Commerce for Communications and Information, in consultation with the Federal Communications Commission. The program is intended to provide and improve access to broadband service in underserved areas, and stimulate the demand for broadband, economic growth, and job creation. Of the $4.3 billion dollars allocated to the Broadband Technologies Opportunities Program:
(1) At least $200 million is reserved for competitive grants for expanding public computer center capacity;
(2) At least $250 million available for competitive grants for innovative programs to encourage sustainable adoption of broadband service; and
(3) $10 million shall be transferred to the Office of Inspector General of the Department of Commerce for the purpose of audits and oversight of funds.
$2.5 billion is allocated to the Rural Utilities Service within the Department of Agriculture. In addition, the Stimulus Act provides $650 million for construction and maintenance projects administered by the Department of Agriculture.
Gibson Dunn has assembled a team of experts who are prepared to meet client needs as they arise in conjunction with the issues discussed above. Please contact Michael Bopp (202-955-8256, firstname.lastname@example.org) in the firm’s Washington, D.C. office or any of the following members of the Financial Markets Crisis Group:
Public Policy Expertise
Mel Levine – Century City (310-557-8098, email@example.com)
John F. Olson – Washington, D.C. (202-955-8522, firstname.lastname@example.org)
Amy L. Goodman – Washington, D.C. (202-955-8653, email@example.com)
Alan Platt – Washington, D.C. (202- 887-3660, firstname.lastname@example.org)
Michael Bopp – Washington, D.C. (202-955-8256, email@example.com)
Securities Law and Corporate Governance Expertise
Ronald O. Mueller – Washington, D.C. (202-955-8671, firstname.lastname@example.org)
K. Susan Grafton – Washington, D.C. (202- 887-3554, email@example.com)
Brian Lane – Washington, D.C. (202-887-3646, firstname.lastname@example.org)
Lewis Ferguson – Washington, D.C. (202- 955-8249, email@example.com)
Barry Goldsmith – Washington, D.C. (202- 955-8580, firstname.lastname@example.org)
John H. Sturc – Washington, D.C. (202-955-8243, email@example.com)
Dorothee Fischer-Appelt – London (+44 20 7071 4224, firstname.lastname@example.org)
Alan Bannister – New York (212-351-2310, email@example.com)
Adam H. Offenhartz – New York (212-351-3808, firstname.lastname@example.org)
Mark K. Schonfeld – New York (212-351-2433, email@example.com)
Financial Institutions Law Expertise
Chuck Muckenfuss – Washington, D.C. (202- 955-8514, firstname.lastname@example.org)
Christopher Bellini – Washington, D.C. (202- 887-3693, email@example.com)
Amy Rudnick – Washington, D.C. (202-955-8210, firstname.lastname@example.org)
Rachel Couter – London (+44 20 7071 4217, email@example.com)
Howard Adler – Washington, D.C. (202- 955-8589, firstname.lastname@example.org)
Richard Russo – Denver (303- 298-5715, email@example.com)
Dennis Friedman – New York (212- 351-3900, firstname.lastname@example.org)
Stephanie Tsacoumis – Washington, D.C. (202-955-8277, email@example.com)
Robert Cunningham – New York (212-351-2308, firstname.lastname@example.org)
Joerg Esdorn – New York (212-351-3851, email@example.com)
Wayne P.J. McArdle – London (+44 20 7071 4237, firstname.lastname@example.org)
Stewart McDowell – San Francisco (415-393-8322, email@example.com)
C. William Thomas, Jr. – Washington, D.C. (202-887-3735, firstname.lastname@example.org)
Real Estate Expertise
Jesse Sharf – Century City (310-552-8512, email@example.com)
Alan Samson – London (+44 20 7071 4222, firstname.lastname@example.org)
Andrew Levy – New York (212-351-4037, email@example.com)
Fred Pillon – San Francisco (415-393-8241, firstname.lastname@example.org)
Dennis Arnold – Los Angeles (213-229-7864, email@example.com)
Michael F. Sfregola – Los Angeles (213-229-7558, firstname.lastname@example.org)
Andrew Lance – New York (212-351-3871, email@example.com)
Eric M. Feuerstein – New York (212-351-2323, firstname.lastname@example.org)
David J. Furman – New York (212-351-3992, email@example.com)
Bankruptcy Law Expertise
Michael Rosenthal – New York (212-351-3969, firstname.lastname@example.org)
David M. Feldman – New York (212-351-2366, email@example.com)
Oscar Garza – Orange County (949-451-3849, firstname.lastname@example.org)
Craig H. Millet – Orange County (949-451-3986, email@example.com)
Thomas M. Budd – London (+44 20 7071 4234, firstname.lastname@example.org)
Gregory A. Campbell – London (+44 20 7071 4236, email@example.com)
Janet M. Weiss – New York (212-351-3988, firstname.lastname@example.org)
Matthew J. Williams – New York (212-351-2322, email@example.com)
J. Eric Wise – New York (212-351-2620, firstname.lastname@example.org)
Executive and Incentive Compensation Expertise
Stephen W. Fackler – Palo Alto (650-849-5385, email@example.com)
Charles F. Feldman – New York (212-351-3908, firstname.lastname@example.org)
Michael J. Collins – Washington, D.C. (202-887-3551, email@example.com)
Sean C. Feller – Los Angeles (213-229-7579, firstname.lastname@example.org)
Amber Busuttil Mullen – Los Angeles (213-229-7023, email@example.com)
© 2009 Gibson, Dunn & Crutcher LLP
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