President Trump on July 4 signed into law H.R. 1, budget reconciliation legislation that does not alter the tax treatment of municipal bonds and does not change the ability of public power utilities to claim tax credits through elective payment.
At the same time, the new law repeals energy tax credits extended and expanded under the Inflation Reduction Act of 2022 and cuts federal spending – primarily Medicaid – to partly offset the revenue loss from extending expiring tax cuts from President Donald Trump’s first administration.
The House passed the bill by a vote of 218 to 214 on July 3.
Of note, conservative Republicans initially opposed to the bill emerged from talks last with the White House saying that the administration would strictly enforce, and possibly change, the rules for determining when a developer could claim it had “begun construction” for purposes of qualifying for energy tax credits.
For purposes of the effective date of new foreign entity of concern provisions, H.R. 1 requires Treasury to use the current IRS definition of “beginning of construction.” However, H.R. 1 does not appear to require Treasury to stick with the current definition of “beginning of construction” for purposes of the phaseout of energy tax credits themselves.
In relation to the phaseout for the commercial vehicle tax credit, H.R. 1 provides that the credit is not available for vehicles acquired after September 30, 2025.
However, in an exchange on the House floor Thursday morning with Rep. Darrin LaHood (R-IL), House Ways and Means Committee Chairman Jason Smith (R-MO) said “it is the legislative intent that vehicles … be treated as ‘acquired’ as of the date on which a written binding contract is entered into for their acquisition and a payment has been made.”
Deficits, Debt, and PAYGO Sequestration
Overall, the new law is expected to increase federal deficits over the next decade by roughly $4 trillion – including increased interest expenses as a result of those deficits.
Federal borrowing, then, will roughly double from $28 trillion today to roughly $56 trillion by 2035. To avoid defaulting on the debt, the law would also increase the current limit on the federal debt by $5 trillion, which is expected to provide enough borrowing authority to last through the 2026 mid-term federal elections.
What is unclear is how the law will be scored for purposes of the Statutory Pay-As-You-Go Act (PAYGO) purposes. Under PAYGO, the deficit effect of tax and entitlement spending changes must be offset with across-the-board spending cuts (sequestration) to entitlement spending. This would affect federal payments for direct payment bonds and energy tax credit elective payments.
APPA said it will begin discussions with the House and Senate Budget to determine whether PAYGO will be triggered by H.R. 1, and, if so, to begin to make the case for a waiver of PAYGO to protect direct payment bonds and elective pay tax credits.
A summary of other provisions of interest to public power follows:
6 GHz
The new law gives the Federal Communications Commission the authority to auction off federally owned spectrum, including the 6 gigahertz (GHz) band, where many public power utilities and critical infrastructure operators communicate mission-critical information that ensures safety for workers maintaining or restoring electric infrastructure.
The original House passed bill exempted the 6 GHz band from the FCC’s auction authority but the Senate-passed version, which the House approved on July 3, did not.
APPA is suggesting that member utilities operating in the 6 GHz band be prepared to draft a letter to the FCC should spectrum in the band be identified for reallocation and proposed for auction.
NEPA
The law includes a new fee-based streamlined review process for permitting applications under the National Environmental Policy Act (NEPA).
The proposal initially included a provision exempting fee-paying applicants from judicial and administrative review of their application. The Senate parliamentarian declared that part of the proposal violated the Byrd Rule, and it was removed.
The remaining provisions were deemed to qualify, including:
• A requirement for the Council on Environmental Quality to provide the relevant lead agency for review and the fee amount to a fee-paying applicant within 15 days.
• A requirement for a project sponsor to declare if they will prepare an Environmental Assessment (EA) or Environmental Impact Statement (EIS) with agency supervision under NEPA Section 107(f).
• Fees of 125 percent of the anticipated cost to prepare an EA or EIS.
• Deadlines of 180 days for an EA and one year for an EIS.
Energy and Environment
The new law’s energy and environment sections repeal unobligated funding authorized by the IRA for programs at the Department of Energy (DOE) and the Environmental Protection Agency (EPA), including DOE programs that fund electric transmission and offshore wind, as well as EPA programs that fund greenhouse gas reduction and environmental justice.
It would also change eligibility under an IRA created a loan program at DOE’s Loan Program Office, previously authorized to provide loans to finance projects that retool, repower, repurpose, or replace energy infrastructure that has ceased operations or enable operating energy infrastructure to avoid, reduce, utilize or sequester air pollutants or greenhouse gas emissions.
The law removes the second option and makes the program available to energy resources regardless of generation type. Unlike earlier drafts, the law does not prohibit federal entities from participating in the loan program.
