After more than a year of discussions on Build Back Better proposals, Congress passed the Inflation Reduction Act (IRA) in August of 2022. The large domestic policy package invests approximately $400 billion in healthcare, energy security, and climate change mitigation; and aims to reduce the deficit by about $300 billion over the next decade.

Background

Members of the Congress and the Biden Administration deliberated for a year and a half on a historically large domestic policy agenda known as the Build Back Better plan. Initial proposals called for more than $3 trillion in new federal investment but were subsequently scaled down to secure a sufficient number of votes. These discussions culminated in the proposal and passage of IRA.

Why We Care

IRA was one of the most significant legislative achievements of the 117^th Congress. In addition to introducing historic amounts of new federal investment in health, energy, and climate, the proposal also included a number of provisions that may directly and indirectly impact the municipal market.

• Certain Energy Tax Credits Made Refundable: State and local issuers have long been unable to use certain tax credits for clean energy projects due to their lack of a tax liability to offset. IRA allows state and local issuers to elect to receive certain clean energy tax incentives as refundable credits against deemed tax liability, potentially opening a new market for investment in publicly owned clean and renewable energy facilities.
• Tweaking Carbon Capture Bonds: While the package does not expand new categories of tax-exempt bond financing, it does relax restrictions governing the value of certain tax credits when used alongside tax-exempt bonds. Previously, the value of these credits was reduced by a proportion up to 50 percent when used in conjunction with tax-exempt bonds. IRA reduces this maximum “haircut” to 15 percent, possibly increasing the attractiveness of layering tax-exempt bonds with tax credits to finance qualifying projects. 
• Return of the Corporate AMT: IRA included a new corporate alternative minimum tax of 15%, effective for tax years after December 31, 2022, imposed on “adjusted financial statement income” of corporations that have a 3-year average adjusted book income over $1 billion. The new statute prompted some participants to review language pertaining to alternative minimum tax treatments in official statements for certain transactions still in the underwriting period.

NABL Stance

NABL did not take a position on IRA but continues to monitor direct and indirect legal impacts of the legislation to the municipal market.

Formal Comments on IRA

NABL has submitted multiple letters to Congress and in response to agency requests for comments on implementation of various aspects of IRA.