Tax Year Issue is Currently Blocking Two-Thirds of Cities and Counties, Public Schools, and Every State Agency that Would Otherwise be Eligible for Imminent Tax Credits
Washington D.C. – Lawyers for Good Government (L4GG), a nationwide nonprofit organization that comprises a network of over 125,000 legal advocates in all 50 states working to expedite the equitable implementation of the Bipartisan Infrastructure Law (BIL) and the Inflation Reduction Act (IRA), urges the White House and Treasury Department to fix a critical issue related to the rollout of the inflation Reduction Act (IRA) that is blocking many tax-exempt and governmental entities (public sector entities) from receiving critical tax credit payments for 2023 clean energy projects.
In 2023, many public sector entities completed clean energy projects (such as buying electric school buses or EVs or constructing rooftop solar) with the expectation of reimbursement through the IRA’s Elective Pay Program, also known as ‘Direct Pay’. Direct Pay gives public sector entities and other tax-exempt entities the ability, for the first time, to receive a direct payment equal to the full value of tax credits for completing qualifying clean energy projects. Unfortunately, Treasury’s current guidance, which seems to contradict the text and intent of the IRA, deems hundreds of 2023 projects ineligible based solely on the fact that the applicant’s fiscal years do not match a calendar year.
Based on Treasury’s current informal guidance, these entities now believe their projects are ineligible and that they will not receive the projected financing, which can be between 30-50% of project costs. This would mean the loss of millions of dollars in projected revenue for small cities and school districts that were counting on these funds. The issue impacts approximately two-thirds of all cities and counties, every single state, and many school districts, universities, and nonprofits with eligible 2023 projects that all have Fiscal Years that do not match the calendar year. L4GG has identified hundreds of projects at the state and local level that may not receive Elective Pay as a result of this issue.
L4GG has identified a straightforward solution to the issue that would only require an informal announcement from the Treasury, but Treasury have indicated that they likely will wait until issuing final regulations to address the issue, which would be too late for entities facing a filing deadline of May 15th. L4GG recently sent a letter to the White House, documenting the issue and the solution, in partnership with the Government Finance Officers Association (GFOA) and signed by 48 entities, including 18 cities and counties from 13 states. On February 14, the letter was also endorsed and sent by the governors' offices of eight states of the U.S. Climate Alliance: Colorado, Maine, Massachusetts, Michigan, New Mexico, New York, North Carolina, and Washington.
“If these public-sector entities are kept from entering the process now, we anticipate that many of them will choose not to participate in this powerful new tool created under the IRA in subsequent years for fear of hidden pitfalls. Unless the Administration works to remove this early barrier to collecting earned IRA tax credits, risk-averse state and local actors may not feel comfortable relying on Elective Pay to finance clean energy projects in the future.”
The White House and the Treasury must act immediately to clarify that these 2023 projects are eligible to ensure public sector entities that completed projects in 2023 will receive the benefits created by the IRA and to ensure the successful rollout of this revolutionary new program. Without immediate action, the hundreds of public entities will lose out on critical funding for clean energy projects and likely will be unwilling to rely on Direct Pay in future years. The successful rollout of the IRA in its first year hinges on fixing these types of critical issues.
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Lawyers for Good Government (L4GG) coordinates large-scale pro bono programs and issue advocacy efforts to protect human rights, defend the environment, and ensure equal justice under the law, and has a network of 125,000+ lawyers to assist in its efforts. The Climate Change and Environmental Justice Program leverages its vast pro bono network to expedite the just, equitable, and fair transition to a green economy.