The American Recovery and Reinvestment Act Sections 1602 and 1603: Providing Federal Support for Energy and Housing through Direct Cash Payments in Lieu of Tax Credits

Abstract

The cash payment programs for renewable energy and low-income housing investments that the Department of Treasury (Treasury) enacted in the American Recovery and Reinvestment Act (the Recovery Act or ARRA) were a creative response to the economic downturn of 2008. They served as tools to help create a lifeline for two important industries in order to achieve the policy outcomes of sustaining and creating jobs, ensuring housing for low-income residents, and furthering the United States’ energy goals. These programs were similar in concept: Both replaced existing tax credits with direct payments. However, the programs differed greatly at the implementation level. To implement the programs, important decisions had to be made about the structure of the delivery systems, the technical details of converting tax credits to cash, and how necessary skills and expertise would be found.

Readers should note that Treasury faced two unique challenges in implementing its cash payment programs. First, this was a new type of endeavor. The agency historically operated only a few relatively small grant programs through the Internal Revenue Service and Community Development Financial Institutions Fund (CDFI). The Recovery Act called for much greater sums of money to be distributed and the reality of its requirements meant that two entirely new delivery systems would have to be established. Second, the passage of the Recovery Act occurred during the lowest point of the recession that began in December 2007. The Obama Administration was committed to addressing a still weakening economy and high unemployment. Further, these decisions had to be made while considering the unprecedented demands for implementation speed and transparency while still avoiding fraud, waste, and abuse.

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