Qualified Energy Conservation Bonds were authorized by The
Energy Improvement and Extension Act of 2008. H.R. 2847 - the
Hiring Incentives to Restore Employment Act (the HIRE Act), which
President Obama signed into law on March 18, 2010, expanded the
Qualified Energy Conservation Bond program by permitting these
bonds to be issued as taxable direct-payment subsidy bonds.
What changes did the HIRE Act make to Qualified Energy Conservation Bonds?
- The HIRE Act permits Qualified Energy Conservation Bonds to be issued as taxable bonds with direct-payment subsidies from the federal government. Such direct-payment subsidies are similar to the direct-payment subsidies received by political subdivisions issuing Build America Bonds.
What are Qualified Energy Conservation Bonds?
- Qualified Energy Conservation Bonds are direct-payment subsidy taxable bonds or tax credit bonds that may be issued by state and local governments that allow an issuer to borrow for "qualified conservation purposes" at rates that may be significantly lower than traditional tax-exempt rates.
What are the requirements for Qualified Energy Conservation Bonds?
- 100 percent of the available project proceeds of the bond issue are to be used for one or more "qualified conservation purposes",
- The bonds are issued by a state or local government, and
- The issuer designates the issue as Qualified Energy Conservation Bonds.
What are "qualified conservation purposes"?
- Capital expenditures incurred for:
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- purposes of reducing energy consumption in publicly owned buildings by at least 20 percent,
- implementing green community programs, or
- rural development involving the production of electricity from renewable energy resources.
- Expenditures with respect to facilities or grants that support types of research.
- Mass commuting facilities and related facilities that reduce the consumption of energy, including expenditures to reduce pollution from vehicles used for mass commuting.
- Demonstration projects designed to promote certain types of commercialization.
- Public education campaigns to promote energy efficiency.
How do the direct-payment subsidies work?
- The issuer issues taxable bonds and receives direct-payment subsidies corresponding with each interest payment date. Issuers of Qualified Energy Conservation Bonds receive direct payments equal to the lesser of (a) the interest paid by the issuer on each interest payment date or (b) 70 percent of the amount of tax-credit rate that the holder would have received if the issuer issued the bonds as tax-credit bonds.
What is the maximum maturity of Qualified Energy Conservation Bonds?
- The maximum maturity of Qualified Energy Conservations Bonds is determined by the maximum maturity set by the U.S. Treasury (link to https://www.treasurydirect.gov/GA-SL/SLGS/selectQTCDate.htm) on the sale date of the issue.
What was the allocation of Qualified Energy Conservation Bonds?
- Internal Revenue Service Notice 2009-29 (link to http://www.irs.gov/pub/irs-drop/n-09-29.pdf) provided the 2009 allocations of Qualified Energy Conservation Bonds.
- The 2010 allocations have not yet been determined.
Additional Information
The Benesch Public Finance group has discussed Qualified Energy Conservation Bonds and other provisions of the American Recovery and Reinvestment Tax Act of 2009 with dozens of state and local government officials and are ready to assist with Qualified Energy Conservation Bond issues. If you are interested in learning more about Qualified Energy Conservation Bonds or the Benesch Public Finance group can be of any further service, please to contact any of the following:
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.