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.
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.
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:
Applying the provisions and definitions above, the gating questions for Broadband projects are the following:
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.
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.
Notably, an industrial carbon dioxide facility does not include any geological gas facility or any separation unit that:
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.
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.