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November 24, 2021

Tax-Exempt Bond Provisions Included in the Infrastructure Investment and Jobs Act

On November 15, 2021, President Biden signed into law the Infrastructure Investment and Jobs Act (Public Law 117-58), which is also known as the Bipartisan Infrastructure Framework (BIF). 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 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.” 

Qualified Broadband Projects
The act allows governmental entities and instrumentalities to issue qualified private activity bonds specifically to finance projects in rural areas where a majority of households do not have access to broadband. The term “qualified broadband project” means any project which: 

  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:

i.    Did not provide service or 
ii.    Did not provide service meeting the minimum speed requirements described in 1 above

The qualified private activity bonds will be subject to a state volume cap with a 75 percent exemption for private projects. The cap will not apply to government-owned projects. The act applies to obligations issued after December 31, 2021.

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 term “qualified carbon dioxide capture facility” means:

  1. The eligible components of an industrial carbon dioxide facility and 
  2. A direct air capture facility (as defined in section 45Q(e)(1) of the code)

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 any of the following processes:

  • Fuel combustion
  • Gasification
  • Bioindustrial processes
  • Fermentation 
  • Any manufacturing industry related to chemicals, fertilizers, glass, steel, petroleum residues, forest products, agriculture (including feedlots and daily operations) and transportation grade liquid fuels

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.

The qualified private activity bonds will be subject to a state volume cap with a 75 percent exemption for private projects. The sale of carbon dioxide produced by a qualified carbon dioxide capture facility that is owned by a governmental unit does not constitute private use. The act applies to obligations issued after December 31, 2021.

Qualified Highway or Surface Freight Transfer Facilities
The act increased the current aggregate nationwide cap of tax-exempt highway or surface freight transfer facility bonds from $15 billion to $30 billion. Currently $14,989,529,000 of the $15 billion cap has been issued or allocated.

If you have any questions regarding the content of this alert, please contact Sharon Brown, Public Finance Practice Area Co-Chair, at slbrown@barclaydamon.com; Samantha Podlas, associate, at spodlas@barclaydamon.com; or another member of the firm’s Public Finance Practice Area. 
 

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