The Inflation Reduction Act (IRA) signed into law in August 2022 is a wide-ranging piece of legislation that will have long-term impacts on a variety of industries. The legislation provides $738 billion in funding and $499 billion in new spending and tax cuts as part of a 10-year plan to build a new, clean-energy economy, provide good-paying jobs, and cut pollution. Public sector organizations – including school districts – are also potential benefactors from the legislation, particularly for clean energy projects and vehicles.
On a basic level, the IRA provides programs that encourage clean energy, clean vehicles, clean buildings, and clean manufacturing investments. This is accomplished by providing tax credits and deductions, grants and loans for qualifying projects. School districts can access the IRA funds several ways, including clean energy projects, clean vehicles purchases, and pass through benefits from contractors.
For clean energy projects and vehicles, the IRA provides school districts the ability to receive tax credits as a “direct payment” in the form of cash payment from the IRS. Clean energy projects can include a range of types of projects, including solar, wind, and geothermal, among others. The potential tax credit includes several components, including a 30% base credit of eligible project costs with additional credit potential depending on project type and other key requirements. Larger projects (projects generating over 1 megawatt) require additional consideration in filing for the credit, such as prevailing wage, apprenticeship, and domestic content requirements, that can be quite complex to review.
Keep in mind that the credit from the IRS for eligible project costs will be provided only after the project is placed in service and filing/approval of the required IRS forms. Care should be taken as to how these projects are funded with this longer window for receipt of the IRS credit. Also, if tax exempt debt is used to finance the clean energy project, a penalty of 15% will be applied to the credit.
The clean energy vehicle portion of the IRA credits also has potential benefits for school districts. As with the clean energy projects, the credit is up to 30% of qualified commercial clean vehicles – with a limit of $7,500 for vehicles with a gross weight of less than 14,000 pounds (maintenance or technology vehicles) and a $40,000 limit for vehicles heavier than that (school buses).
Leveraging IRA credits is a great potential resource for school districts but requires care and consideration in planning and pursuit. Again, IRA resources will be available for a number of years, which school districts should keep in mind as they plan their future capital needs. Additionally, district administration needs to consider how IRA eligible projects align with the district’s long-term strategy and community needs.
In addition, school districts may have the ability to benefit from the Section 179D Energy Efficient Commercial Buildings Tax Deduction, which were expanded by the IRA legislation, for their projects by working with their architects or engineers.
For more information on how your school district can leverage the Inflation Reduction Act, please click here – https://www.bakertilly.com/insights/inflation-reduction-act-for-public-sector.
MASA members can contact Ryan Fetters (ryan.fetters@bakertilly.com) at 651-223-3005.
