Loi sur l'investissement dans les infrastructures et l'emploi : Le 1er janvier 2022 offre des opportunités avec deux types d'obligations exonérées d'impôts et l'expansion du programme

Executive Summary

On November 15, 2021, President Biden signed into law the Infrastructure Investment and Jobs Act (Public Law 117-58) (the “Act”).  The Act provides for more than $550 billion in new infrastructure spending, coupled with reauthorizations of existing programs, for a total of $1.2 trillion in federal infrastructure investment over the next eight years.

The Act is available here.

Specific to tax-exempt bonds, the Act modifies section 142(a) of the Internal Revenue Code (the “Code”) by adding two new categories of qualified private activity bonds:  “qualified broadband projects” and “qualified carbon dioxide capture facilities.”  The Act also increases the aggregate nationwide cap for qualified private activity bonds issued to finance “qualified highway or surface freight transfer facilities.”

The Act applies to obligations issued after December 31, 2021.

Under the Act, the determination of whether a project satisfies the requirements of the Act is based on facts and circumstances, which will be applied by bond counsel.  For this reason, if you are interested in financing a project on a tax-exempt basis under the Act, you should contact counsel early in the development process to review the legal analysis.

Qualified Broadband Projects

Pursuant to the Act, governmental entities and instrumentalities may issue tax-exempt qualified private activity bonds to finance projects in certain rural areas.  The main requirement is that the location of the project must be in an area where a majority of households do not have access to broadband.  The Act includes requirements for the issuer to notify each broadband service provider providing services within the eligible area of the project and the scope of the project. The notice must include a request for information from such service providers regarding the provider’s ability to deploy, manage and maintain a broadband network capable of providing internet access to the eligible area meeting the required results. Each broadband service provider must have at least 90 days to respond to the notice and request.

Specifically, the term “qualified broadband project” means any project that: 

1. Is designed to provide broadband service solely to one or more “census block” groups in which more than 50 percent of residential households do not have access to fixed, terrestrial broadband service that delivers at least 25 megabits per second downstream and at least 3 megabits service upstream; and
   
   
2. Results in internet access to residential locations, commercial locations, or a combination of residential and commercial locations, at speeds not less than 100 megabits per second for downloads and 20 megabits per second for uploads, but only if at least 90 percent of the locations provided this access under the project are locations where, before the project, a broadband service provider either did not provide service at all or did not provide service that met the minimum speed requirements described in (1) above.

Applying the provisions and definitions above, the gating questions for Broadband projects are the following:

• Do the targeted census block groups qualify (is the 50% test met)?  
• Does the project propose to provide service only in those census block groups?
• Does the project result in sufficiently fast internet access (the 100/20 Mbps test)?
• Did a sufficient percentage of locations previously not have adequate broadband providers?
• Did the project receive sufficient volume cap?

For privately owned projects, the bonds are subject to a state volume cap, although the amount of volume cap required is only 25% of the par amount of the bonds issued under the Act.

Qualified Carbon Dioxide Capture Facilities

The Act allows governmental entities and instrumentalities to issue qualified private activity bonds to finance qualified carbon dioxide capture facilities.  Carbon capture technology removes carbon dioxide from an emissions stream at a power plant or industrial facility, reducing emissions from energy-intensive industries.  The Act provides technical definitions of the following:  qualified carbon dioxide capture facility; eligible component; and industrial carbon dioxide facility. 

• The term “qualified carbon dioxide capture facility” means:

1. The eligible components of an industrial carbon dioxide facility; and 
2. A direct air capture facility.

• The term “eligible component” is defined as any equipment that is installed in an industrial carbon dioxide facility that satisfies the capture and storage percentage (as discussed below) and which is:

1. Used for the purpose of capture, treatment and purification, compression, transportation, or on-site storage of carbon dioxide produced by the industrial carbon dioxide facility; or
2. Integral or functionally related and subordinate to a process that converts a solid or liquid product from coal, petroleum residue, biomass, or other materials that are recovered for their energy or feedstock value into synthesis gas composed primarily of carbon dioxide and hydrogen for direct use or subsequent chemical or physical conversion.

• An “industrial carbon dioxide facility” is a facility that emits carbon dioxide (including from any fugitive emissions source) that is created as a result of one of several processes.
• The term “direct air capture facility” is defined in section 45Q(e)(1) of the Code and means any facility which uses carbon capture equipment to capture carbon dioxide directly from the ambient air.

Notably, an industrial carbon dioxide facility does not include any geological gas facility or any separation unit that: 

1. Does not qualify as gasification equipment; or 
   
   
2. Is not a necessary component of an oxy-fuel combustion process.

The eligible components of an industrial carbon dioxide facility are required to have a capture and storage efficiency percentage equal to or greater than 65 percent.  In the case of an industrial carbon dioxide facility designed with a capture and storage efficiency percentage of less than 65 percent, the percentage of the cost of the eligible components installed in that facility may not be greater than the capture and storage efficiency percentage.

For privately owned projects only, the bonds are subject to a state volume cap, although the amount of volume cap required is only 25% of the par amount of the bonds issued under the Act.

Qualified Highway or Surface Freight Transfer Facilities

The Act increased the current aggregate nationwide cap for private activity bonds that finance highway or surface freight transfer facilities from $15 billion to $30 billion.