On Tues., Feb. 17, President Obama signed a $787.2 billion economic stimulus package. Under this package, $311 billion in new funding is provided, including $27.5 billion for highway and bridge construction, $8.4 billion for mass transit and public transportation, $8 billion for high-speed rail, $4.6 billion for water infrastructure projects undertaken by the U.S. Army Corps of Engineers, $1.5 billion for a discretionary program for large multi-modal and intermodal projects in the form of competitive grants to state and local governments for transportation investments—including highway, rail, transit or port infrastructure, $1.3 billion for aviation and $100 million for the Maritime Administration.

It is important to note that highway funds can be used for wide array of activities, including highway and bridge improvements, transit capital projects, freight and intercity passenger rail, port infrastructure and environmental mitigation. As such, the final use of these highway funds will be determined at the state and local level.

State-by-State Breakdown

Below is a breakdown of the funds for key metalcasting states:

State 

Alabama - $603,871,807
Illinois - $1,579,965,373
Indiana - $836,483,568
Michigan - $1,150,282,308
Ohio - $1,335,600,553
Pennsylvania - $1,525,011,979
Texas - $2,803,249,599
Wisconsin - $716,457,120

The following is a summary of some of the major provisions in the economic stimulus package of interest to the metalcasting industry:

Tax Provisions
 
Sales Tax Deduction for Vehicle Purchases - provides all taxpayers with a deduction for State and local sales and excise taxes paid on the purchase of new cars, light truck, recreational vehicles, and motorcycles through 2009. This deduction is subject to a phase-out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return);

Extension of Bonus Depreciation - Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Last year, Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write-off fifty percent of the cost of depreciable property (e.g., equipment, tractors, wind turbines, solar panels, and computers) acquired in 2008 for use in the U.S. The stimulus package would extend this temporary benefit for capital expenditures incurred in 2009;

Extension of Enhanced Small Business Expensing - In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write-off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Until the end of 2010, small business taxpayers are allowed to write-off up to $125,000 (indexed for inflation) of capital expenditures subject to a phase-out once capital expenditures exceed $500,000 (indexed for inflation). Last year, Congress temporarily increased the amount that small businesses could write-off for capital expenditures incurred in 2008 to $250,000 and increased the phase-out threshold for 2008 to $800,000. The bill would extend these temporary increases for capital expenditures incurred in 2009;

5-Year Carryback of Net Operating Losses for Small Businesses - Under current law, net operating losses (“NOLs”) may be carried back to the two taxable years before the year that the loss arises (the “NOL carryback period”) and carried forward to each of the succeeding twenty taxable years after the year that the loss arises. For 2008, the bill would extend the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less;

Election to Accelerate Recognition of Historic AMT/R&D Credits. Last year, Congress temporarily allowed businesses to accelerate the recognition of a portion of their historic AMT or research and development (R&D) credits in lieu of bonus depreciation. The amount that taxpayers may accelerate is calculated based on the amount that each taxpayer invests in property that would otherwise qualify for bonus depreciation. This amount is capped at the lesser of six percent (6%) of historic AMT and R&D credits or $30 million. The new law would extend this temporary benefit through 2009;

Delayed Recognition of Certain Cancellation of Debt Income. Under current law, a taxpayer generally has income where the taxpayer cancels or repurchases its debt for an amount less than its adjusted issue price. The amount of cancellation of debt income (“CODI”) is the excess of the old debt’s adjusted issue price over the repurchase price. Certain businesses will be allowed to recognize CODI over 10 years (defer tax on CODI for the first four or five years and recognize this income ratably over the following five taxable years) for specified types of business debt repurchased by the business after Dec. 31, 2008 and before Jan. 1, 2011;

Small Business Capital Gains. Under current law, Section 1202 provides a fifty percent (50%) exclusion for the gain from the sale of certain small business stock held for more than five years. The amount of gain eligible for the exclusion is limited to the greater of 10 times the taxpayer’s basis in the stock, or $10 million gain from stock in that small business corporation. This provision is limited to individual investments and not the investments of a corporation. The non-excluded portion of section 1202 gain is taxed at the lesser of ordinary income rates or 28 percent, instead of the lower capital gains rates for individuals. The provision allows a seventy-five percent (75%) exclusion for individuals on the gain from the sale of certain small business stock held for more than five years. This change is for stock issued after the date of enactment and before Jan. 1, 2011;

Temporary Small Business Estimated Tax Payment Relief. Reduces the 2009 required estimated tax payments for certain small businesses;

Temporary Reduction of S Corporation Built-In Gains Holding Period from 10 Years to 7 Years. Under current law, if a taxable corporation converts into an S corporation, the conversion is not a taxable event. However, following such a conversion, an S corporation must hold its assets for ten years in order to avoid a tax on any built-in gains that existed at the time of the conversion. The stimulus package would temporarily reduce this holding period from ten years to seven years for sales occurring in 2009 and 2010;

Repeal of Treasury Section 382 Notice. Last year, the Treasury Department issued Notice 2008-83, which liberalized rules in the tax code that are intended to prevent taxpayers that acquire companies from claiming losses that were incurred by the acquired company prior to the taxpayer’s ownership of the company. The bill would repeal this Notice prospectively;

Extension of AMT relief for 2009. Provides more than 26 million families with tax relief in 2009 by extending AMT relief for nonrefundable personal credits and increasing the AMT exemption amount by $70,950 for joint filers and $46,700 for individuals;

Incentives to Hire Unemployed Veterans and Disconnected Youth. Under current law, businesses are allowed to claim a work opportunity tax credit equal to 40 percent of the first $6,000 of wages paid to employees of one of nine targeted groups. The bill would create two new targeted groups of prospective employees: (1) unemployed veterans; and (2) disconnected youth. An individual qualifies as a disconnected youth if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past 6 months.  

Transportation Provisions
 
$29 billion for modernizing roads and bridges (requires states to obligate at least half of the highway/bridge funding within 120 days);

$8.4 billion for investments in transit and $8 billion for investment in high-speed rail corridors. The high-speed rail total was a large increase, since the House version had included no funds and the Senate had included $2 billion;

AMTRAK is to receive an additional $1.3 billion (more than 50% greater than had been included in either the U.S. House or U.S. Senate versions of the stimulus package).

Note:  The funds are intended for new construction of commuter and light rail, modernizing existing transit systems, and purchasing buses and equipment to needed to increase public transportation and improve intermodal and transit facilities.

Energy Provisions

$30 billion for such initiatives as a new, smart power grid ($11 billion), advanced battery technology and energy efficiency measures;

$20 billion in tax incentives for renewable energy and energy efficiency over the next 10 years;

3-year extension of the production tax credit (PTC) for electricity derived from wind (through 2012) and for electricity derived from biomass, geothermal, hydropower, landfill gas, waste-to-energy, and marine facilities (through 2013);

grants of up to 30 percent of the cost of building a new renewable energy facility to address current renewable energy credit market concerns;

extends and expands energy-efficiency tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors or insulation;

tax credit for families that purchase plug-in hybrid vehicles of up to $7,500.

Buy American Provisions
 
None of the funds appropriated or otherwise made available by the new law may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States;

Note: This condition shall not apply in any case or category of cases in which the head of the federal department or agency involved finds that

applying this condition would be inconsistent with the public interest;

iron, steel, and the relevant manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality; 

inclusion of iron, steel, and manufactured goods produced in the United States will increase the cost of the overall project by more than 25 percent.

If the head of a federal department or agency determines that it is necessary to waive the application of the condition because of the exceptions, the head of the department or agency shall publish in the Federal register a detailed written justification as to why the provision is being waived.

Furthermore, the Buy American requirement shall be applied in a manner consistent with United States obligations under international agreements.  The conference report says Congress anticipates that the Administration will comply with U.S. obligations under the WTO Agreement on Government Procurement and under U.S. free trade agreements and so that the Buy American requirement will not apply to least developed countries.  China, India, and Brazil—which do not have trade pacts with the United States—are not considered least developed countries by the World Trade Organization.
 
Water Projects

Funding for water infrastructure in the economic stimulus bill will jump-start projects to repair and replace aging drinking water and wastewater systems, but utility and state officials say it is not enough to meet the country's needs.  The law includes the following appropriations:

$18 billion for clean water, flood control, and environmental restoration investments, including $1 billion for the Bureau of Reclamation to provide clean, reliable drinking water to rural areas and to ensure adequate water supply to western localities impacted by drought;

$6 billion for local clean and drinking water infrastructure improvements; and,

$1.28 billion to support $3.8 billion in loans and grants for needed water and waste disposal facilities in rural areas. 

Additional Provisions  

Homeland Security

$2.75 billion for the Department of Homeland Security to secure the homeland and promote economic activity, including $1 billion for airport baggage and checkpoint security; 

$430 million for construction of border points of entry;

$210 million for construction of fire stations;

$300 million for port, transit, and rail security;

$280 million for border security technology and communication;

$240 million for the Coast Guard.

Corps of Army Engineers

$4.6 billion in total added funding for the Corps of Engineers.

Science, Research and Development

$3 billion for the National Science Foundation, for basic research in fundamental science and engineering;

$1.6 billion for the Department of Energy’s Office of Science, which funds research in such areas as climate science, biofuels, high-energy physics, nuclear physics and fusion energy sciences;

$400 million for the Advanced Research Project Agency-Energy (ARPA-E) to support high-risk, high-payoff research into energy sources and energy efficiency in collaboration with industry;

provides $1 billion for NASA, including $400 million to put more scientists to work doing climate change research.

Health Care

$19 billion to accelerate adoption of Health Information Technology (HIT) systems by doctors and hospitals, in order to modernize the health care system;

$1 billion for a new Prevention and Wellness Fund;

65% subsidy for the Consolidated Omnibus Budget Reconciliation Act (COBRA) premiums for up to 9 months.

COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates by paying their employer the premium plus some administrative costs.  Employers would take a credit against their payroll taxes for the amount of the subsidy.  The employee would pay the employer the lowered 35 percent of premium.  No additional federal money changes hands (unless the total subsidies exceed the employer’s payroll taxes) between the former employee, employer, and the government.

State Funding and Education

$53.6 billion that comprise the State Fiscal Stabilization Fund, includes $40.6 billion to fund local school districts using existing funding formulas, which can be used for preventing cutbacks and layoffs, school modernization, or other purposes; and,

$3 billion for School Improvement Grants. (The school improvement total is considerably more than had been included in either the House or Senate versions or the boost perhaps intends to compensate slightly for the elimination of school construction monies that the House had proposed.)

Housing and Communities

$2 billion for the Neighborhood Stabilization Program to help communities purchase and rehabilitate foreclosed, vacant properties;

$1 billion for the Community Development Block Grant program for community and economic development projects including housing and services for those hit hard by tough economic times.

Job Training

$4 billion for job training including formula grants for adult job training, dislocated worker job training, and youth services (including funding for summer jobs for young people).

Trade