The Stimulus Package and the Construction Industry

The American Recovery and Reinvestment Act of 2009 (the “Stimulus Act”), passed by Congress and signed into law by President Obama on February 17, 2009, includes a number of provisions specifically intended to revitalize the construction industry. The goal of this article is to summarize the provisions in the Stimulus Act that are most relevant to the construction industry.

Infrastructure

The Stimulus Act includes an approximately $150 billion investment in our nation’s infrastructure. Much of the $150 billion is channeled toward construction projects. For instance, approximately $40 billion will be allocated to repair and maintenance of roads, bridges, dams, ports, rail, airports, and water systems. Most of these funds will be distributed to state departments of transportation or to federal agencies who will decide how the money will be spent. Additional funds will be given to the Federal Railroad Administration to invest in high-speed rail projects. 

Improvements also will be made to Department of Homeland Security facilities, including construction of border points of entry and construction of fire stations; Department of Defense facilities, including family housing, hospitals and child-care centers; and VA hospital and medical facilities, including long-term care facilities for veterans.

Approximately $2.5 billion will be invested in infrastructure projects on federal lands, including improvements to visitor facilities and preservation of buildings of cultural and historic importance. Recipients of the funds include the National Park Service, the Bureau of Land Management, the National Wildlife Refuges and National Fish Hatcheries, and the Forest Service. 

Funds will also be made available to states for various projects, including modernization, renovation, and repairs of facilities at public schools and institutions of higher education.

Energy

The Stimulus Act includes numerous investments related to energy efficiency. For instance, the Stimulus Act allocates funds to make federal and local government buildings more energy efficient and establishes a program to competitively award funds to make energy efficient improvements (including upgrading insulation, windows and furnaces) to HUD sponsored housing. The Stimulus Act also provides $6.3 billion to state and local governments to make investments in energy efficiency.

In addition to direct investments in energy-related projects, the Stimulus Act includes tax incentives to make investments in energy efficiency. The tax provisions in the Stimulus Act include an expansion of the tax credit available to individuals who make qualified energy efficiency improvements like installing new energy efficient windows, doors, furnaces, and air conditioners. The Stimulus Act also extends the “production tax credit” for wind energy projects and creates a grant program that may enable wind energy developers to turn tax credits into cash.

Housing

There are a number of provisions in the Stimulus Act that are designed to give a boost to the real estate and housing industry. Direct investments will be made to upgrade public housing facilities and to help some of the communities that have been hit hardest by high foreclosure rates.

The Stimulus Act includes numerous other provisions designed to boost the slumping housing industry. For instance, the Stimulus Act increases and expands the tax credit for first-time homebuyers, and extends a previously-enacted law that increased loan limits for FHA, Fannie Mae and Freddie Mac mortgages.

In another effort to help the housing industry, President Obama proposed the Homeowner Affordability and Stability Plan (the “Plan”) on February 18, 2009. Although specific details about the Plan will not be announced until later, the Plan will be designed to prevent foreclosures by (i) allowing some borrowers with Fannie Mae or Freddie Mac mortgages to refinance their mortgages to obtain a lower interest rate, even though their homes have decreased in value and they would not typically have the equity required to refinance, and (ii) offering financial incentives to some lenders to modify the loans of certain at-risk borrowers, who are struggling to make their mortgage payments.

Tax Provisions

A number of tax provisions are included in the Stimulus Act that may also benefit the construction industry. These provisions include: (i) an extension through 2009 of the special bonus depreciation provision allowing one-half of the cost of eligible property placed in service; (ii) an extension through 2009 of the $250,000 limit for Section 179 expensing for new or used equipment placed in service during a particular tax year (in 2010, the Section 179 expensing limit will revert to $133,000); and (iii) for eligible business taxpayers with average gross receipts of less than $15 million over the three tax years prior to 2008, an extension of the two (2) year carryback of net operating losses (“NOL”) to five (5) years for losses generated from a tax year beginning or ending in 2008.

Takeaway

Although it is unclear at this time exactly how effective the Stimulus Act will be at reviving our national economy, it is apparent that many of the provisions in the Stimulus Act were designed to make an almost immediate impact on the construction industry.