By Larry Jones
October 13, 2008

After the House voted down the original $700 billion economic stabilization/bailout package, three key provisions were added to the bill to make it more acceptable: the Securities and Exchange Commission’s mark to-market rules, the limit on federally backed bank insurance deposits was raised from $100,000 to $250,000 per account, and a bill that provides $150 billion in tax relief bill that extends many popular tax credits that are set to expire on December 31.

Adding these provisions made the measure attractive to enough members in both Houses to win final passage. The Senate approved the measure first by a vote of 74 to 25 on October 1 and the House followed by approving the bill on October 3 by a vote of 263 to 171.

A major component of the tax bill is the alternative minimum tax (AMT) exemption, which was raised to prevent 22 million taxpayers from having to pay higher taxes. This provision alone accounts for $64 billion over the next year.

The following is a summary of some of the key tax provisions of interest to local governments.

A total of $800 million is authorized for clean renewable energy bonds to finance facilities that generate electricity from wind and other alternative sources. One third of the $800 million would be available for qualifying projects of state and local governments, a third would be available for qualifying projects of public power providers, and a third would be available for qualifying projects of electric cooperatives.

The bill calls for the creation of a new category tax credit bonds to finance state and local government initiatives designed to reduce greenhouse emissions. A total of $800 million will be allocated to state and local governments for these initiatives.

Legislation granting individuals the option of taking an itemized deduction for state and local sales taxes instead of the itemized income tax deduction expired on December 31, 2007. The bill extends this provision through December 31, 2009 at an estimated cost of $3.304 billion over ten years.

This program permits taxpayers to receive a credit against federal income taxes for making qualified equity investments in designated community development entities (CDEs). Funds invested by taxpayers are used to create jobs and spur economic growth in low-income communities. This program was extended through 2009 and the estimated cost is $1.315 billion over the next ten years.

The bill extends a provision allowing for the expensing of costs associated with the clean up of contaminated sites. The provision expired on December 31, 2007. The bill extend the law through December 31, 2009 at an estimated cost of $357 million over the next ten years.

These bonds help school districts with low-income populations save on interest costs associated with public financing school renovations and repairs. While QZABs cannot be used for new construction, they can be used for renovating and repairing buildings, investing in equipment and up-to-date technology, developing challenging curricula, and training quality teachers. Those who invest in QZABs are given a tax credit instead of interest. An allocation of $400 million of issuing authority has been granted to state and local governments each year since 1998. The QZAB provision expired on December 31, 2007. The bill extends it through December 31, 2009.

The bill extends the research and development tax credit, which provides an incentive for research to spur innovation and economic growth, through December 31, 2009. It has provided the incentive for companies of all sizes to invest in research and development that help bring new, improved products and services to the market place.