SPI Insights

Many federal funding programs have new mandated rules

The federal government is changing the rules for some very significant funding programs. Many of the changes relate to how federal agencies will distribute funding to state and local governments and the types of projects the funding will support. Rules emphasizing cybersecurity, clean energy, resilience, environmental justice and equity (among other priorities) are already impacting the course of billions of dollars in federal grants, loans and incentives.

Many federal programs are being retooled to support long-term initiatives. The changes will cover funding from a wide array of sources including (but not limited to) the 2023 Consolidated Appropriations Act, the Inflation Reduction Act, the CHIPS and Science Act and the Infrastructure Investment and Jobs Act.

The Environmental Protection Agency (EPA) has introduced new federal regulations for “forever plastics” – toxic contaminants that have been identified in drinking water supplies throughout the U.S. The EPA has proposed legally enforceable national standards to ensure the six different microplastics are kept below allowable limits. With the new limits in place, water utilities will have to constantly monitor supplies to make sure those contaminant limits are not exceeded. If water purity ever exceeds safe and acceptable standards, the utility will be required to alert customers immediately and actively work to reduce contamination levels. The requirements will create a demand for new kinds of monitoring technology and alert systems within water districts. The EPA will soon hold a public hearing about the rule which is expected to be finalized by the end of 2023.

The new federal budget proposed for 2024 allocates $170 million to the EPA to help cover some of the costs associated with monitoring for and reducing forever plastics. The funding will be granted to plan and acquire necessary technology for testing and reporting on water quality.

The White House Council on Environmental Quality (CEQ) will sharpen the focus on climate and clean energy funding programs and identify communities of greatest need. A screening tool that standardizes criteria for identifying disadvantaged communities has been scoped by the CEQ and it will be used to ensure that funding is allocated to communities with contaminated water sources.

The Inflation Reduction Act (IRA) authorized new grant funding programs linked to the support of environmental justice. Disbursements of the resulting $3 billion total for new EPA environmental justice grants will begin this year. Community organizations are now eligible to apply for the first $100 million in planning grants. In the months ahead, even larger grants will be eligible for planned projects that involve green infrastructure, marginalized communities, urban forestry and/or pollution mitigation.

The Department of Treasury is also set to play a major role in financing clean energy investments. The IRA created the Advanced Manufacturing Production Tax Credits to encourage U.S.-based manufacturing of equipment for clean energy. The IRA allocated funding to the agency with a mandate to invest in clean energy manufacturing facilities. The energy subsidies program has $10 billion in investment tax credits to award for up to 30% of qualifying projects. The objective is to attract private investment in wind and solar projects. The new tax credits being offered can also be combined with other tax incentives from other federal programs.

Last month, the Internal Revenue Service (IRS) issued a notice detailing eligibility guidelines for “advanced energy projects.” The guidelines must be followed to be eligible for tax enrichments tied to projects that deliver facilities that produce or recycle equipment associated with renewable energy, energy conservation, grid modernization and carbon sequestration. These additional tax credits can also be leveraged to finance refineries for “critical minerals” and equipment that supports greenhouse gas reductions at manufacturing facilities. The new IRS guidance also stipulates that $4 billion in tax credits is reserved for projects in specified “energy communities,” which are defined by their proximity to old coal mines and coal-fired energy plants that are now closed.

The Department of Housing and Urban Development (HUD) will oversee another expanding tax credit program—one that is already the federal government’s most significant financing lever for affordable housing projects. The federal budget proposed for 2024 includes a $28 billion investment in Low-Income Housing Tax Credits (LIHTCs). This will result in a permanent increase in credits allocated to each state. Other changes include lowering the threshold for private activity bond financing from 50% to 25%. The objective is to attract more private investment in the delivery of affordable housing.

A recent security standard amendment was handed down to the Transportation Security Administration (TSA) and it is scoped to accelerate investment in cybersecurity upgrades for airports. According to the recent directive, airports and aircraft operators are required to develop plans for bolstering their cybersecurity resilience. This new mandate marks one of the earliest developments under the banner of the new national cybersecurity strategy released early in March of this year. TSA will collaborate with other federal agencies to oversee this significant upgrade of airport cybersecurity.

The FCC awarded $66 million to a new multi-billion-dollar Affordable Connectivity Outreach Grant Program. This program will allocate funding to support equitable broadband access projects. Funding from the program will also be used to devise a new and simple application process so underserved communities will face significantly fewer barriers to the $14 billion in IIJA funding from the FCC’s broader Affordable Connectivity Program.

Yet another budget item in this current year’s spending plan provides an additional $800 million to an existing transportation funding program. The new funding will come through the RAISE program which supports large transportation projects. The supplementary allocation does not include any statute about deadlines, but transportation officials have indicated plans to hold all awardees to timing deadlines for applying and using the funding.

Public officials at many jurisdictional levels of government were somewhat overwhelmed by the abundant availability of funding, and now they must adhere to many new rules. This creates significant stress for smaller governmental entities without dedicated staff to oversee funding applications and compliance. However, many private sector firms are stepping up to provide grant writing assistance and compliance oversight. States, where assistance is available, will benefit from federal funds that are available now for all types of critical infrastructure projects.