Article
Exploring the Inflation Reduction Act’s benefits for public school districts
Mar 06, 2023 · Authored by Jeremy Buskirk
The Inflation Reduction Act (IRA) is largely considered one of the most impactful pieces of legislation passed in America in recent memory, and the single largest investment in clean energy in the history of the nation.
The ramifications of the IRA are far-reaching in their long-term impacts on a variety of industries – not to mention the United States and the world as a whole. Of particular interest to organizations in the public sector are the ways that the IRA can support, benefit and provide financial support to public school districts.
What is the IRA?
Let’s start by discussing the basics of the IRA, which was signed into law on Aug. 16, 2022. The legislation provided $738 billion in funding and $499 billion in new spending and tax cuts as part of a 10-year plan to build a new, clean-energy economy, provide good-paying jobs, and cut pollution.
With the passage of the IRA (among other actions by the government and contributions by the population), the Department of Energy estimates the U.S. will be able to reduce economy-wide greenhouse gas emissions by 2030.
On a basic level, the IRA provides programs that encourage clean energy, clean vehicles, clean buildings, and clean manufacturing. This is accomplished by providing tax credits and deductions, grants and loans for qualifying projects.
Why is the IRA important to school districts?
The IRA provides school districts the ability to receive tax credits. Tax-exempt owners can receive a “direct payment” in the form of cash payment from the IRS. These include state and local governments, not-for-profits, tribes, and potentially schools. We won’t know if school districts are eligible for the direct pay provision for the IRA tax credits until guidance is issued on instrumentalities and whether or not they are eligible. In addition, school districts may have the ability to benefit from the Section 179D Energy Efficient Commercial Buildings Tax Deduction for their projects by working with their architects or engineers.
Assuming school districts will be included as eligible instrumentalities, they will be able to select from the two types of credits that have a clean energy focus – the investment credit, or the production credit. Investment credits can help with the upfront costs of installing a clean energy system, like solar or geothermal. Production credits are based on the projected amount of energy a system will produce.
Yet, what does all this mean for your school district? To determine that answer, we encourage you to ask yourself the following three questions. The discussion below assumes a “yes” answer to the initial question above – whether school districts are eligible to receive credit-based direct payments.
If the answer is yes, you may be eligible for tax credits to offset some of the cost of investments in clean energy systems.
The IRA offers tax credits for tax-exempt renewable energy projects. As a result, schools can issue bonds for renewable energy projects (solar, wind, hydropower, geothermal, biomass, solid waste, and marine/hydrokinetic) and still receive cash for credits.
School districts who pursue these options may expect to receive thirty to fifty percent credits toward the costs of the equipment and installation for qualifying clean energy projects. Funding capital projects with tax-exempt bonds does not preclude eligibility to receive tax credits but could cause the credits to be reduced. The IRA stipulates that if a project is financed 100% with tax-exempt debt, then the direct pay amount to the municipality will be reduced by the lesser of (a) 15% or (b) the portion of the qualifying project that has been financed with tax-exempt bonds.
If renewable energy projects are not the best option for your school district, you may be able to benefit indirectly from the Section 179D Energy Efficient Commercial Buildings Tax Deduction. The IRA states that schools cannot directly utilize the deduction, but contractors or other entities responsible for the design or upgrade can claim it. By asking the right questions and working with the contractors or engineers, schools may be able to share in the benefits of the deduction and, in turn, reduce the overall cost of non-renewable energy projects.
The types of projects that can qualify for this Section 179D deduction include:
- Equipment insulation
- Water heaters
- Lighting
- Lighting controls/sensors
- Chillers
- Furnaces
- Boilers
- Heat pumps
- Air conditioners
- Caulking/weather-stripping
- Duct/air sealing
- Building insulation
- Window
- Siding
- Roofs
- Comprehensive measures/whole building
- Other EE
- Tankless water heater
If yes, then you need to be aware of the Qualified Commercial Clean Vehicle Tax Credit, which offers tax credits for the purchase of clean commercial vehicles. This tax credit is available to tax-exempt entities for up to 30% of the cost of qualified commercial clean vehicles placed in service before 2033. There is a limit of $7,500 for vehicles with a gross weight of less than 14,000 pounds (food service, maintenance, or other district-owned vehicles) and a $40,000 limit for vehicles at or above that weight (school buses).
If yes, and your school district is located in a low-income or rural area, you may be able to utilize the Alternative Fuel Refueling Property Credit to offset up to 30% of the cost of each item of refueling property (i.e., each charger) for a maximum credit of $100,000. Having charging stations in your school parking lot could certainly benefit the overall community.
Additionally, the Greenhouse Gas Reduction Fund provides grants to help establish “Green Banks” across the country. There may be opportunities for school districts to partner with their state, a local municipality, or a not-for-profit organization to deploy new energy-efficient technologies within your community.
If you are in a disadvantaged community, the Environmental and Climate Justice Block Grants – which are available to community-based not-for-profits or organizations – may provide opportunities for these community organizations. The grants will allow them to implement initiatives toward monitoring, prevention and remediation, investments in low- and zero-emission and resilient technologies and related infrastructure and workforce development that help reduce greenhouse gas emissions and other air pollutants.
Baker Tilly can assist with maximizing IRA benefits
While finance professionals within school districts may be aware of some benefits included within the IRA, Baker Tilly takes pride in our years of experience with similar tax credits and being able to assist your school district with all IRA needs. Baker Tilly can assist school districts with understanding the IRA and prepare a tailored financing strategy that best meets the needs of your district’s energy and capital investments, as well as the communities you serve.
Some of the specific areas that Baker Tilly is positioned to assist with include but are not limited to:
- Estimating costs of clean energy installation,
- Preparing IRA bid document requirements
- Completing and submitting IRA tax credit forms
- Estimating tax-exempt versus taxable financing comparisons
- Providing financing alternatives and completing the bond issuance
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