Download: 3/5/13 Letter from U.S. Treasury to SEIA re: Cuts to 1603 Grants

1603 Treasury grant payments will be affected by the federal budget sequestration issued by the Obama Administration on March 1.

On Monday, March 4, Treasury posted on its website additional information clarifying how sequestration cuts are to be applied to the 1603 Treasury Program. In short, Treasury will apply an 8.7% grant reduction to applications that are issued a “Section 1603 Award Letter” dated between March 1, 2013 and September 30, 2013 – regardless of when the application was filed or when the project was placed in service. The complete text of the Treasury notice is reprinted below. Treasury confirmed the posting of the notice in a letter sent to SEIA by Fiscal Assistant Secretary Richard L. Gregg.

Background

Congress passed and the President signed the Budget Control of Act of 2011, which raised the federal debt limit and created a so-called “Super Committee” to identify $1.2 trillion in budget savings over the next 10 years. The legislation also provided for expedited consideration in Congress of the Super Committee’s recommendations. Ultimately, the Super Committee failed to craft a deficit reduction package for Congress to consider.  

As a backstop, the Budget Control Act provided for a budget sequestration in the instance where the Super Committee and Congress were unable to meet the identified deficit reduction targets. A budget sequestration is a mechanism that, in general, provides for an automatic, across-the-board spending reductions. In 2012, the White House Office of Management and Budget (“OMB”) released an initial report on the sequestration and its expected impacts on hundreds of federal activities, as required by the Sequestration Transparency Act of 2012. Among the programs listed in the sequestration report were grants awarded by the 1603 Treasury Program in Fiscal Year 2013.

“Fiscal Cliff” compromise legislation passed by Congress in late 2012 delayed the sequester’s original January 1 implementation for two months. During that time, SEIA staff undertook an extensive analysis of the sequestration legislation and sent a letter to OMB and Treasury advocating for the Administration to exempt the program from sequestration cuts.

Next Steps

Congress has the ability to pass legislation that would modify or further delay the sequestration. Importantly, members of Congress must soon vote on legislation to continue funding the government after March 27 for the remainder of Fiscal Year 2013. Though there is support in Congress for action to avoid sequestration cuts, a legislative change is far from certain. SEIA will continue working with the Administration and the Congress to minimize the impact of the sequestration on its members.  

SEIA will remain active investigating and providing updated information to members as it becomes available. If you have any questions in the meantime, please contact Joel Meister in SEIA’s Federal Affairs Department at 202-682-0556 or [email protected].

U.S. Treasury Message on Sequestration

As the Administration has stated many times, sequestration would require indiscriminate across-the board cuts and was never intended to be implemented. The Administration has proposed solutions to avoid the across-the-board spending cuts through balanced deficit reduction. The Department of the Treasury, along with the rest of the Administration, hopes Congress will act to avoid sequestration.

Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, payments issued under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 for specified energy property in lieu of tax credits, are subject to sequestration. This means that  every award* made to a Section 1603 applicant on or after March 1, 2013 through September 30, 2013 will be reduced by 8.7 percent, irrespective of when the application was received by Treasury. Awards  made prior to March 1, 2013 will not be affected. The sequestration reduction rate will be applied until  the end of the fiscal year (September 30, 2013), at which time the sequestration rate is subject to  change.

Treasury will continue to review applications and make determinations in accordance with current practice. Applicants are reminded that the amount of their Section 1603 claim must be calculated in accordance with the Section 1603 Program Guidance and the laws applicable to calculating basis for  federal tax purposes. Applicants may not adjust claims to account for the impact of sequestration.

*In this context “award” means the final decision by Treasury to pay a claim as evidenced by the “Section 1603 Award Letter” and effective the date of the letter.