The American Recovery and Reinvestment Act of 2009 ("ARRA"), which was signed by President Obama on February 17, 2009, creates several new tax-exempt and tax-credit bond programs and expands and modifies existing tax-credit bond programs. ARRA also makes several changes to the tax treatment of certain tax-exempt bond provisions.

New Tax-Exempt Bond and Tax-Credit Bond Programs

Build America Bonds

ARRA authorizes the issuance of a new type of tax-credit bond known as "Build America Bonds" which are taxable government bonds that provide a tax credit to purchasers equal to 35% of the taxable interest on the bonds. These bonds pay investors taxable interest and a federal tax credit. The issuers of Build America Bonds may elect to receive a rebate from the federal government of 35% of the taxable interest paid on the bonds in lieu of the purchasers receiving the federal tax credit.

Build America Bonds may be issued only for those purposes for which tax-exempt governmental bonds may be issued under present law. These bonds are subject to the same arbitrage and private use rules that apply to tax-exempt governmental bonds. Build America Bonds for which an issuer has made the election to receive the 35% interest rebate option may only be used for capital expenditures, issuance costs and reserve funds and the 2% costs of issuance limitation is applicable to such bonds. These bonds may be issued by state and local governments through December 31, 2010.

Recovery Zone Economic Development Bonds

ARRA authorizes the issuance of up to $10,000,000,000 in a new category of taxable governmental bonds similar to Build America Bonds (described above) known as "Recovery Zone Economic Development Bonds" for use in areas designated as Recovery Zones (described below) Recovery Zone Economic Development Bonds are governmental bonds that provide for a direct payment from the federal government to the issuer equal to 45% of the interest on the bonds (as compared to 35% with Build America Bonds).

ARRA generally defines a "Recovery Zone" as an area designated by state and local governments as having significant poverty, unemployment or home-foreclosure rates. The $10,000,000,000 of issuance capacity will be allocated to the states based on relative unemployment decline in 2008 and further allocated within the state to counties and large municipalities on the same basis. The proceeds of Recovery Zone Economic Development Bonds must be used to promote economic development activity in a Recovery Zone. These bonds are subject to the same arbitrage and private use rules that apply to tax-exempt governmental bonds and must be issued before January 1, 2011. Under ARRA, the federal wage requirements under the Davis-Bacon Act apply to projects financed with Recovery Zone Economic Development Bonds.

Recovery Zone Facility Bonds

ARRA authorizes the issuance of up to $15,000,000,000 in a new category of tax-exempt private activity bonds known as "Recovery Zone Facilities Bonds" for use in areas designated as Recovery Zones (as described above). In general, property subject to the allowance for depreciation that is actively used in a trade or business may be financed with the proceeds of the Recovery Zone Facility Bonds, provided that the property is acquired after the date on which a Recovery Zone designation took effect. The $15,000,000,000 issuance capacity for Recovery Zone Facility Bonds will allocated to the states based on relative unemployment decline in 2008 and further allocated within the states to counties and large municipalities on the same basis. Recovery Zone Facility Bonds must be issued before January 1, 2011.

Qualified School Construction Bonds

ARRA creates a new category of tax-credit bonds to finance the construction, rehabilitation or repair of public school facilities known as "Qualified School Construction Bonds." The amount of the tax credit will be determined by the Secretary of the Treasury at a level that will permit issuance of the bonds without discount and interest costs to the issuer.

Nationally, $11,000,000,000 of Qualified School Construction Bonds are authorized each year for 2009 and 2010, with 60% of that authority allocated to the states in proportion to the respective amount of local educational grants received by each state under the Elementary and Secondary Education Act, with the remainder allocated among the largest local educational agencies in the nation (as determined by the Treasury in coordination with the Department of Commerce and Secretary of Education). Under ARRA, the federal wage requirements of the Davis-Bacon Act apply to projects financed with Qualified School Construction Bonds.

Tribal Economic Development Bonds

Prior to the enactment of ARRA, Indian tribal governments could only issue tax-exempt bonds if substantially all of the proceeds of such bonds were to be used for "essential governmental functions" or certain "manufacturing facilities." ARRA creates a new category of tax-exempt bonds known as "Tribal Economic Development Bonds" which may be issued for the same purposes as tax-exempt bonds issued by state and local governments. ARRA has imposed a $2,000,000,000 national limit on the issuance of such bonds with the allocation to be determined by the Treasury in consultation with the Department of the Interior. Tribal Economic Development Bonds must be used to finance projects located on an Indian reservation and the proceeds of such bonds may not be used to finance any property used in gaming or any portion of a building in which gaming occurs. ARRA would also permit tribal governments to issue tax-exempt private activity bonds.

Modifications to Existing Tax-Exempt and Tax-Credit Bond Provisions

Bank Deduction of Interests Related to Tax-Exempt Bonds

ARRA provides two key provisions which significantly increase the availability of "bank qualified" bonds, therefore allowing more favorable tax treatment to financial institutions which purchase and hold tax-exempt bonds. This in turn allows financial institutions to offer lower interest rates on such tax-exempt bonds than would otherwise be possible.

Two Percent (2%) Safe Harbor. For a limited time, financial institutions will be able to take advantage of the administrative safe harbor available to corporations which generally allows corporations to invest up to 2% of their assets in tax-exempt bonds without a portion of their interest expense deduction being disallowed under Section 265 of the Internal Revenue Code of 1986. The interest earned on such investments, however, will be considered a financial institution preference item and therefore result in the disallowance of 20% of the interest expense deduction allocable to the tax-exempt bonds. This provision applies to bonds issued in the remainder of 2009 and 2010. For purposes of this provision of ARRA, if refunding bonds are being issued, such refunding bonds are treated as issued on the issue date of the original bonds which are being refunded (and therefore, if issued prior to 2009, cannot qualify for the administrative safe harbor).

Small Issuer Exception under Section 265(b)(3) of the Code. Prior to the ARRA, in order to have tax-exempt bonds designated as "bank qualified" bonds the issuer of the bonds had to reasonably expect not to issue more than $10,000,000 of such obligations in the current calendar year. ARRA raises this $10,000,000 limitation to $30,000,000 and for 501(c)(3) conduit bond transactions, the 501(c)(3) organization itself is deemed to be the issuer for purposes of the qualification requirements. Therefore, every 501(c)(3) organization has its own $30,000,000 capacity and limitation. This also enables 501(c)(3) bonds issued by the State Authorities to be designated as "bank qualified" bonds as well as 501(c)(3) bonds issued by local issuers which issue more than $10,000,000 of such obligations during a single calendar year. This provision again applies to bonds issued in the remainder of 2009 and 2010. For purposes of this provision of ARRA, refunding bonds are eligible for such treatment if issued in 2009 and 2010.

Repeal of Alternative Minimum Tax (AMT) for Private Activity Bonds

For private activity bonds issued in 2009 and 2010, interest on such bonds (i) will no longer be treated as a preference item for purposes of the alternative minimum tax and (ii) will not be included in the current earnings adjustment under the corporate alternative minimum tax. This provision applies to refunding bonds only to the extent that the refunded bond was issued after December 31, 2003.

Qualified Small Issue Bonds - Expansion of Definition of Manufacturing Facility

Over the years, many borrowers owning and operating manufacturing facilities have been able to access the tax-exempt bond market through the issuance of private activity bonds known as "Qualified Small Issue Bonds." Having access to this market has enabled such borrowers to realize significant interest cost savings over utilizing conventional financing for capital projects. ARRA has, for a limited time, broadened the benefits available under such Qualified Small Issue Bonds by expanding (i) the definition of what facilities qualify as "manufacturing facilities" and (ii) what capital costs are able to be financed with the proceeds of the tax-exempt bonds. These provisions are outlined below.

The definition of "manufacturing facilities" will now be expanded to include facilities which create or manufacture intangible property (as opposed to tangible-property only). This will allow tax-exempt bonds to be issued to finance software companies as well as facilities which create such things as patents, copyrights, formulas, processes, designs, patterns, knowhow, formats, or other similar items.

Prior to adoption of the Act, only 25% of net bond proceeds could be used to finance property which was considered directly related and ancillary to the core manufacturing process. ARRA now provides that facilities that are functionally related and subordinate to a manufacturing facility are treated as a manufacturing facility and replaces the 25% of net bond proceeds restriction. This will allow more of the manufacturing process to be financed with bond proceeds. This provision again is only available for bonds issued in the remainder of 2009 and 2010.

Volume Limitation Increases for the Certain Existing Tax-Credit Bonds

Clean Renewable Energy Bonds

Clean renewable energy bonds ("CREBs"), used to finance renewable energy projects, are tax credit bonds which offer the holder a federal tax credit instead of interest. In 2008, CREBs were reauthorized with certain modifications and were referred to as "New CREBs". Prior to the enactment of ARRA, there was a national limit on the issuance of New CREBs equal to $800,000,000. ARRA increases this national limit to $2,400,000,000. This $2,400,000,000 will be subdivided into thirds with one-third being made available for qualifying projects of State/local/tribal governments, another one-third being made available for qualifying projects of public power providers and the final one-third being made available for qualifying projects of electric cooperatives. The Internal Revenue Service administers allocation of the CREBs volume cap limitation. Under ARRA, the federal wage requirements of the Davis-Bacon Act apply to projects financed with CREBs.

Qualified Energy Conservation Bonds

Qualified energy conversation bonds ("QECBs"), used to finance governmental programs and initiatives designed to reduce greenhouse gas emissions, are tax credit bonds which offer the holder a federal tax credit instead of interest. Prior to the enactment of ARRA, there was a national limit on the issuance of QECBs equal to $800,000,000. ARRA increases this national limit to $3,200,000,000. Allocations of QECBs are made to each state, according to their respective populations, with sub-allocations to large local governments. The sub-allocations to large local governments are taken into account in calculating the allocation made to each state. Under ARRA, the federal wage requirements of the Davis-Bacon Act apply to projects financed with QECBs.

Qualified Zone Academy Bonds

Qualified zone academy bonds ("QZABs"), used to finance renovations, equipment purchases, development of course material and training teachers and personnel at qualified zone academies, are tax credit bonds which offer the holder a federal tax credit instead of interest. Prior to the enactment of ARRA, a total of $400,000,000 of QZABs were authorized to be issued annually in 1998 through 2009. ARRA increases this national annual limit to $1,400,000,000 for 2009 and 2010. Allocations of QZABs are made to each state, according to their respective populations of individuals below the poverty line. Each state then allocates its share to the qualified zone academies within its boundaries. Under ARRA, the federal wage requirements of the Davis-Bacon Act apply to projects financed with QZABs.

On February 17, 2009, the President signed into law the American Recovery and Reinvestment Act of 2009 ("ARRA"). ARRA contains $19 billion and various provisions promoting the widespread use and implementation of health information technology ("HIT"), including payments to health care providers who adopt Electronic Health Records ("EHR") within a certain time frame and penalties for those who do not. The HIT funding appropriated under ARRA is designed to create a platform for future health care reform. It is believed that by investing in HIT infrastructure and the development of EHR now, health care spending in the future will be more efficient and less costly.

HIT, Generally

ARRA creates the Office of the National Coordinator of Health Information Technology (the "Office"), and appropriates $2 billion specifically for the Office's use in supporting the development of HIT, generally, and for efforts toward regional and sub-national health information exchange. ARRA specifically directs the Office to establish a HIT extension program, and also includes funding for the establishment of HIT regional extension centers. Of the HIT funding under ARRA, specific funding is allotted to the Secretary of HHS to be invested in the infrastructure needed to strengthen the electronic exchange and the use of HIT for each person in the US. These specific funds will be used by the Secretary of HHS and distributed to other relevant agencies. Additionally, in order to support the use of HIT, ARRA also provides funding in the form of grants to states and other non-profit entities for various purposes including providing broadband access to underserved areas, and broadband education, training, access and equipment to schools, health care providers, and other entities.

In conjunction with the HIT funding provisions, ARRA also creates the HIT Policy Committee, which is charged with, among other duties, making policy recommendations to the Office relating to the implementation of a nationwide HIT infrastructure. Additionally, there is created the HIT Standards Committee, which is required to recommend to the Office standards, implementation specifications, and certification criteria for the electronic exchange and use of health information. The standard, specifications, and criteria recommended by the HIT Standards Committee will be proposed to the Secretary of HHS, who will, in consultation with other Federal agencies, decide whether to adopt such standard, specifications, and criteria as Federal Regulations.

EHR Incentives and Penalties

ARRA contains provisions incentivizing Medicare and Medicaid providers to adopt certified EHR, as well as penalties for Medicare providers if they don't become "meaningful EHR users" within a specified time. The incentives and requirements are different depending on whether the provider is a Medicare-participating hospital, a Medicare non-hospital affiliated provider, or a Medicaid provider.

Medicare-Participating Hospitals

Under this provision, critical access hospitals and "subsection (d) hospitals," which include all hospitals except for psychiatric hospitals, children's hospitals, rehabilitation hospitals, long-term care hospitals, and certain other types of hospitals, are eligible to receive enhanced Medicare payments during years 2011-2014 if they are determined by the Secretary of HHS to be "meaningful EHR users" - a term which has largely yet to be defined by the Secretary of HHS. The payment is based on inpatient hospital Medicare claims data, and determined according to a formula, which varies based on discharges, among other variables. Most acute care inpatient hospitals are required to become meaningful EHR users by 2015, or will suffer decreases in the Medicare incentive market basket adjustment each year, until ultimately, for hospitals that are not meaningful EHR users by 2017, no increase in Medicare reimbursement rates will be received.

Medicare Non-Hospital-Based Providers

Under ARRA, certain non-hospital-based Medicare professionals are eligible to receive incentive payments if they are determined to be meaningful EHR users. Eligible professionals include: physicians, doctors of osteopathy, doctors of dental surgery or of dental medicine, certain doctors of podiatric medicine, and certain doctors of optometry. Providers who furnish substantially all of their covered services in a hospital setting are not eligible under this provision. Based on Medicare claims data, payment will be 75% of the Secretary of HHS' estimate of the allowed charges, but in no case may payments under this provision exceed $15,000 for the first year the provider receives payment under this provision, unless the provider's first year eligible under this provision is 2011 or 2012, then the limit is $18,000. For the second payment year, the limit is $12,000; for the third payment year, the limit is $8,000; for the fourth payment year, the limit is $4,000; for the fifth payment year, the limit is $2,000; and $0 limit for each subsequent year. Payment may be a single consolidated payment, or in installments, as specified by Secretary of HHS. If eligible professionals do not become meaningful EHR users by 2015, then, in that year, they will only be paid 99% of the Medicare fee schedule rate for covered services. Likewise, they will only be reimbursed 98% in 2016, and 97% in 2017 and each year thereafter if they do not demonstrate that they are meaningful EHR users.

Medicaid Providers

Under ARRA, States that can demonstrate to the satisfaction of the Secretary of HHS that they are: (1) effectively administering payments for the adoption of EHR; (2) providing oversight of adoption activities; and (3) pursuing initiatives to encourage EHR adoption, are eligible for 100% FFP for payments made to providers related to EHR adoption. Professionals eligible to receive payments under this provision include:

•Physicians, dentists, certified nurse mid-wives, nurse practitioners, and certain physician assistants who meet any of the following criteria:

•They are not hospital-based and 30% of their patient population is attributable to Medicaid beneficiaries;

•The are pediatricians and 20% of their patient population is Medicaid beneficiaries;

•They practice predominantly in a FQHC or a rural health clinic and 20% of their patient population is attributable to needy individuals;

•Children's hospitals; and

•Acute care hospitals, 10% of whose patient population is Medicaid enrollees.

Eligible providers can receive payments of up to eighty-five percent (85%) of their "average allowable costs" of adopting and implementing certified EHR technology. The term "average allowable costs" means, with respect to certified EHR technology, for the first year of payment with respect to such a provider, the average costs for the purchase and initial implementation or upgrade of such technology (and support services including training that is for, or is necessary for the adoption and initial operation of, such technology) for such providers, as determined by the Secretary of HHS based upon studies conducted under ARRA; and for a subsequent year of payment with respect to such a provider, the average costs not described in clause above relating to the operation, maintenance, and use of such technology for such providers, as determined by the Secretary of HHS based upon studies conducted under ARRA. The payments to Medicaid providers under this provision are not to exceed, per provider, $25,000 in the first year, or $10,000 in the subsequent years.

The funding provisions in ARRA for the adoption and use of EHR do not come without related privacy requirements with which health care providers must comply. ARRA also sets forth significant changes to the Health Information Portability and Accountability Act ("HIPAA"), including, among other requirements, heightened responsibility of business associates to safeguard protected health information, breach notification standards, and contracting requirements relating to certain business associate relationships. Please refer to the publications from our HIPAA Privacy and Security Amendments for Health Care Providers and Vendors ARRA Task Force Subcommittee, which more fully explain the HIPAA provisions of the ARRA.

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 ("ARRA") into law. Listed below are the significant provisions of ARRA generally relating to the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). Unless otherwise specified, the provisions listed below shall take effect twelve (12) months after the date of enactment of ARRA.

Business Associates Held to Higher Standard for Safeguarding Protected Health Information

Under the current provisions of HIPAA, business associates perform or assist a covered entity in the performance of a function or activity involving the use or disclosure of individually identifiable health information, such as claims processing, billing, or utilization review. Under current HIPAA requirements, covered entities may disclose protected health information ("PHI") to a business associate and may allow a business associate to create or receive PHI on its behalf if they obtain "satisfactory assurances" that the business associate will appropriately safeguard the information. This is achieved through a business associate agreement.

Under ARRA, business associates will be directly responsible for the following HIPAA security provisions in the same manner that such sections apply to a covered entity:

• Administrative Safeguards: A business associate will be required to implement policies and procedures to prevent, detect, contain, and correct security violations. This will require a business associate to conduct a risk analysis of the potential risks and vulnerabilities relative to the confidentiality and integrity of electronic PHI ("ePHI").

• Physical Safeguards: A business associate will be required to implement policies and procedures to limit physical access to its electronic information system and the facility in which it is housed, while ensuring that properly authorized access is allowed.

• Technical Safeguards: A business associate will be required to implement technical policies and procedures for electronic information systems that maintain ePHI to allow access only to those persons or software programs that have been granted certain access rights.

• Policies and Procedures and Documentation: A business associate will be required to implement reasonable and appropriate policies and procedures to comply with the standards, implementation specifications, and other requirements of the HIPAA security regulations.

Civil and criminal penalties that currently apply to a covered entity that violates the HIPAA security regulations will apply to business associates as well.

In addition to the security provisions provided above, ARRA tightens the requirements for business associate agreements and covered entities relating to obtaining or creating PHI. Further, ARRA provides that other HIPAA privacy requirements of covered entities now apply to business associates. Civil and criminal penalties that currently apply to a covered entity that violates the HIPAA privacy regulations will apply to business associates as well.

Notification in The Case of a Breach Involving PHI

Many states, including Indiana, currently have laws that require notification in the case of certain security breaches or incidents. ARRA places new federal notification requirements on covered entities and business associates in the event of a data breach involving unsecured PHI. "Unsecured PHI" means PHI that is not secured through the use of a technology or methodology, to be defined by the Department of Health and Human Services ("HHS"). In the event that such guidance is not timely rendered, unsecured PHI shall mean PHI that is not secured by a technology standard that renders PHI unusual, unreadable, or indecipherable to unauthorized individuals that is developed or endorsed by an American National Standards Institute ("ANSI") accredited standards developing organization.

A breach is defined as the "unauthorized acquisition, access, use, or disclosure of protected health information which compromises the security or privacy of such information, except where an unauthorized person to whom such information is disclosed would not reasonably have been able to retain such information." In the case of a breach of PHI, a covered entity that accesses, maintains, retains, modifies, records, stores, destroys, or otherwise holds, uses, or discloses unsecured PHI shall notify each individual whose unsecured PHI has been, or is reasonably believed by the covered entity to have been, accessed, acquired, or disclosed as a result of such breach. Similarly, a business associate of a covered entity must notify the covered entity of such breach. Such notice shall include the identification of each individual whose unsecured PHI has been, or is reasonably believed by the business associate to have been, accessed, acquired, or disclosed during such breach.

A breach shall be treated as discovered by a covered entity or by a business associate as of the first day on which such breach is known to the covered entity or business associate or should reasonably have been known to have occurred. Generally, all notifications required shall be made without unreasonable delay and in no case later than 60 calendar days after the discovery of a breach by the covered entity or business associate involved.

ARRA sets forth the acceptable methods of notice to individuals. In addition, for those known or reasonably believed breaches involving more than 500 residents of the state, notice shall be given to prominent media outlets. Covered entities are also required to make an annual report of all unsecured security breaches to HHS, who will post a list that identifies each covered entity involved in a breach in which unsecured PHI of more than 500 individuals is acquired or disclosed. The burden of proof for compliance with these requirements is on the covered entity or business associate.

In addition to the above-referenced requirements for covered entities and business associates, ARRA also sets forth temporary breach notification requirements for vendors of personal health records ("PHR") (an electronic record of individually identifiable health information that is provided by or on behalf of the individual; and that identifies the individual with respect to which there is a reasonable basis to believe that the information can be used to identify the individual). Under these provisions, such vendors are required to notify the Federal Trade Commission ("FTC"), as well as each individual whose unsecured PHR identifiable health information was acquired by an unauthorized person as a result of a breach of security obtained through a product or service provided by such entity. A violation of such requirements shall be treated as an unfair and deceptive act or practice in violation of the FTC Act.

Effective Date for the above-referenced provisions: HHS shall promulgate interim final regulations by no later than 180 days after enactment of ARRA. Provisions of this section shall apply to breaches that are discovered on or after 30 days after date of publication of such interim final regulations.

Business Associate Contracts Required for Certain Entities

Under ARRA, an organization that provides data transmission of PHI to a covered entity or its business associate that requires access to such PHI on a routine basis (e.g. a health information exchange organization or e-prescribing gateway), or each vendor that contracts with a covered entity to allow that covered entity to offer a personal health record to patients as part of its electronic health record, will be treated as a business associate of the covered entity and shall enter into a business associate agreement (that meets the requirements under HIPAA) with the covered entity or its business associate.

Increased Restrictions on Disclosures at Patient's Request

Under the current HIPAA regulations, an individual has the right to request that a covered entity restrict certain uses or disclosures of PHI pertaining to that individual; however, the covered entity is not required to agree to such requested restriction. Under ARRA, the covered entity must now comply with the requested restriction if: (i) except as otherwise required by law, the disclosure is to a health plan for purposes of carrying out payment or health care operations (and is not for purposes of carrying out treatment); and (ii) the PHI pertains solely to a health care item or service for which the health care provider involved has been paid out of pocket in full.

New Minimum Necessary Standard on The Horizon

Under the current HIPAA regulations, for most purposes (excluding treatment), covered entities must provide only the "minimum necessary" amount of PHI to accomplish the intended purpose of the use, disclosure, or request. ARRA requires that HHS issue guidance on what constitutes "minimum necessary" for such purposes no later than 18 months after the date of enactment of ARRA. In the interim, "to the extent practicable," the covered entity will be in compliance with the "minimum necessary" requirement if it limits such PHI to the "limited data set." The "limited data set" is PHI that excludes direct identifiers, such as names, addresses, and social security numbers, of the individual or of relatives, employers, or household members of the individual. This provision will sunset when HHS issues its required guidance on the "minimum necessary" standard.

New Accounting for Disclosures Requirements for EHRs

Under the current HIPAA regulations, an individual has a right to receive an accounting of disclosures of PHI made by a covered entity in the preceding 6 years, with certain exceptions, such as those disclosures for treatment, payment, and health care operations. Under ARRA, if a covered entity uses or maintains an electronic health record ("EHR") for PHI, it must, upon request, provide an individual with an accounting of disclosures of PHI from the EHR for treatment, payment, and health care operations made by the covered entity within the 3 years prior to the date of the request.

Effective date for the above-referenced provisions: For a covered entity that has already acquired an EHR system as of January 1, 2009, the effective date of this requirement is January 1, 2014. For those covered entities that acquire an EHR system after January 1, 2009, the effective date is the later of January 1, 2011, or the date that the covered entity acquires an EHR system.

Access to Certain EHR Information by Individuals

Under ARRA, if a covered entity uses or maintains an EHR with respect to PHI of an individual, the individual shall have a right to obtain a copy of such information in an electronic format, and any fee that the covered entity may incur for providing the individual with such information in electronic form shall not be greater than the entity's labor costs in responding to the request for the copy.

Changes to The Definition of Health Care Operations

No later than 18 months after the enactment of ARRA, HHS shall promulgate regulations to eliminate from the definition of "health care operations" under HIPAA, those activities that can reasonably and efficiently be conducted through the use of information that is "de-identified" in accordance with HIPAA, or that should require a valid authorization for use or disclosure. In such regulations, HHS shall specify the date on which such regulations shall apply to disclosures made by a covered entity, but in no case would such date be sooner than the date that is 24 months after the date of the enactment of this section.

Increased/"Improved" Enforcement

The ARRA provides for increased enforcement and associated penalties under HIPAA, as follows:

• Required Investigations of and Penalties for "Willful Neglect": If a preliminary investigation indicates a possible violation of HIPAA is due to "willful neglect," HHS shall formally investigate such possible violation. If a violation due to willful neglect is found, HHS is required to impose a civil monetary penalty for such violation.

Effective Date: Within 18 months of enactment of ARRA, HHS shall promulgate regulations to implement this section, and such penalties will go into effect on or after 24 months after the date of the enactment of ARRA.

• Revised and "Tiered Increase" in Civil Monetary Penalties: Currently, a violation of HIPAA can result in a civil monetary penalty ("CMP") of $100 per violation, with a cap of $25,000 for all violations of an identical requirement or prohibition during a calendar year. In addition, a penalty will not be imposed if: (i) the failure to comply was due to reasonable cause and not to willful neglect; and (ii) the failure to comply is corrected during the 30-day period beginning on the first date the person liable for the penalty knew, or should have known, that the failure to comply occurred.

Under ARRA, the current CMP structure and exceptions are more severe under a "tiered" penalty structure, ranging from $100 per violation up to $50,000 per violation, with a $1.5 million per-year maximum. HHS shall base such penalty determination on the nature and extent of the violation and the nature and extent of the harm resulting from such violation. It is important to note that the Office of Civil Rights ("OCR") maintains its discretion to use corrective action without a penalty in cases where the person did not know (and by exercising reasonable diligence would not have known) of the violation involved.

Effective Date: The above-referenced penalties are effective upon the passage of ARRA.

• Distribution of CMPs Collected: Under ARRA, CMPs or monetary settlements collected with respect to HIPAA shall be transferred to the OCR to be used for purposes of enforcing HIPAA. In addition, within 3 years after the date of the enactment of ARRA, HHS shall establish regulations that specify a methodology under which an individual who is harmed by an act that constitutes a HIPAA violation may receive a percentage of any CMP or monetary settlement collected with respect to such offense.

• Enforcement by State Attorneys General: Under ARRA, the Attorney General of a state may bring a civil action on behalf of resident of such state in federal district court against individuals reasonably believed to have violated HIPAA. Under this authority, the Attorney General will have the ability to enjoin further violations or to obtain damages on behalf of the resident(s) of up to $100 per violation, with an annual cap of $25,000 for all violations of identical requirement or prohibition

Effective Date: The above-referenced section is effective upon the passage of ARRA.

Criminal Penalties for Wrongful Disclosures

ARRA amends the criminal penalty provisions of HIPAA by clarifying that covered entities, as well as employees or other individuals that obtain or disclose such information without authorization, will be subject to potential criminal penalties for such wrongful disclosure.

Audits

HHS is required to provide for periodic audits to ensure that covered entities and business associates that are subject to HIPAA and the new requirements under ARRA comply with such requirements.

Sale of ePHI Prohibited

Except in limited circumstances, such as for research purposes and public health activities, ARRA prohibits a covered entity or business associate from directly or indirectly receiving remuneration in exchange for any ePHI of an individual unless the covered entity obtained a valid authorization from the individual that includes, in accordance with HIPAA, a specification of whether the ePHI can be further exchanged for remuneration by the entity receiving ePHI of that individual.

Effective date for the above-referenced provisions: HHS shall promulgate regulations by no later than 18 months after enactment of ARRA. Provisions of this section shall apply to exchanges occurring on or after the date that is 6 months after the date of the promulgation of final regulations implementing this section.

Restrictions on Use of PHI for Marketing/Fundraising

ARRA further restricts when a covered entity or business associate can use a communication about a product or services that encourages recipients of the communication to purchase or use the product or services. Such communications shall not be considered a "health care operation" under HIPAA, unless the communication is made for one of the following purposes: (i) to describe a health-related product or service (or payment for such product or service) that is provided by, or included in a plan of benefits of, the covered entity making the communication; (ii) for treatment of the individual; or (iii) for case management or care coordination for the individual, or to direct or recommend alternative treatments, therapies, providers, or settings of care to the individual. A covered entity or business associate may not receive direct or indirect payment in exchange for making any communication described above except: (i) a business associate may receive payment from a covered entity for making any such communication that is consistent with the business associate agreement between the parties; or (ii) a covered entity may receive payment in exchange for making any such communication if the entity obtains a valid authorization from the recipient of the communication to do so. In addition, HHS shall provide a rule that states that any written fundraising communication that is a "health care operation" under HIPAA shall, in a clear and conspicuous manner, provide an opportunity for the recipient to elect not to receive any further such communication.

Effective date for the above-referenced provisions: The above-described provisions shall apply to contracting occurring on or after the general one year effective date from the effective date of ARRA.

Education on Health Information Privacy

No later than 6 months after the date of enactment of ARRA, each regional office of HHS shall offer guidance to covered entities, business associates, and other related parties relative to federal privacy and security requirements for PHI. In addition, no later than 12 months after the date of enactment of ARRA, the Office for Civil Rights shall develop and maintain a multi-faceted and multi-lingual national education initiative to enhance public transparency regarding the uses of PHI, as well as the rights of individuals with respect to such uses.

Studies, Reports, Guidance

ARRA requires several follow-up studies, reports, and guidance, as follows: (i) annual reports by HHS regarding complaints under HIPAA, including the number of such complaints, actions taken, and plans for improved enforcement; (ii) a report by HHS regarding the impact of ARRA on entities that were not previously considered covered entities or business associates; (iii) guidance by HHS on how best to implement the requirements for de-identification of PHI under HIPAA; (iv) a report by the Government Accountability Office within 5 years regarding the impact of any of the provisions of ARRA on health insurance premiums, overall health care costs, adoption of electronic health records by providers, and reduction in medical errors and other quality improvements; and (v) a study by HHS of the definition of "psychotherapy notes" under HIPAA with regard to including certain test data, and who may, based on such study, issue regulations to revise such definition.

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 ("ARRA"). ARRA contains various provisions enhancing health care funding, including the following: an increase in the Medicaid Federal Medical Assistance Percentage ("FMAP"), an increase in Medicaid disproportionate share hospital ("DSH") allotments, either an extension of moratoria on various Medicaid rules or a "sense of Congress" that the Secretary of HHS should not promulgate as final various Medicaid rules; a moratorium on the phase-out of the Medicare indirect medical education ("IME") adjustment factor and technical corrections to Medicare long-term care payments. Also, ARRA includes appropriations for grants to States to enable them to carry out activities to implement healthcare-associated infection reduction strategies. ARRA also includes an appropriation which provides for loan repayments, scholarships and other funding aimed at reducing the shortage of primary care health care professionals. Grant funding for Federally Qualified Health Centers, Community Health Centers, and Migrant Health Centers is also provided.

The increased FMAP and DSH, the extension of moratoria on certain Medicaid rules, as well as funding to expand primary care services provide critical temporary Federal assistance to States that will result increased Federal involvement in State health care programs, but also allows the States to continue providing health care coverage to increasing numbers of uninsured people.

FMAP Increase

Each State has its own published FMAP, and the ARRA provides that each State's FMAP will increase by 6.2% for the period beginning on October 1, 2008, and ending on December 31, 2010. Additionally, certain States will qualify for a further increase to their FMAP if they meet certain higher unemployment thresholds. Indiana is one of the States that meets the required unemployment threshold, and therefore, Indiana will receive the additional increase. Currently, Indiana's FMAP rate is 64.26% for federal FY 2009, and 65.93% for federal FY 2010. With the across-the-board 6.2% increase, Indiana's FMAP would be 70.46% for federal FY 2009, and 72.13% for federal FY2010. However, with the additional unemployment relief, Indiana's FMAP rates will be increased further (approximately another 2.75%). This increase does not apply to the following payments:

• TANF block grants

• Child and family welfare services

• SCHIP

• Medicaid enhanced FMAP payments

• Inpatient hospital DSH payments

Only the across-the-board increase of 6.2% will apply to Foster Care and Adoption Service payments. In order to receive the FMAP increases under the Act, States must not make eligibility standards, methodologies, or procedures under the Medicaid state plan more restrictive than they are currently. Finally, in order to remain eligible for the increased FMAP, states must have paid 90% of claims submitted by providers within 30 days of receipt of such claims, and must have paid 99% of such claims within 90 days of receipt of claims.

DSH Allotment Increase

ARRA includes a published increase in Medicaid DSH allotments to States. Each year, each State has Federal Medicaid DSH allotment, which, under ARRA, will be increased by 2.5% for 2009 and 2010. Factoring in the 2.5% increase, Indiana's Medicaid DSH allotment for 2009 is $214,623,523 and $219,989,112 for 2010. However, Indiana's current waiver which allows it to administer the Healthy Indiana Plan ("HIP") caps Indiana's Federal Financial Participation in DSH spending at $151,183,400. Therefore, as State institutions for mental diseases ("IMDs") may take one-third of the total DSH allocation, without an amendment to the HIP waiver, State IMDs will take one-third of the $214 million and $219 million, while dollars to DSH qualifying hospitals would be "capped" resulting in receipt of less DSH dollars.

Extension of Moratoria on Medicaid Rules

Before ARRA was enacted, CMS had promulgated various controversial Medicaid proposed rules, some of which were effected by moratoria prohibiting the Secretary of HHS from finalizing such proposed Medicaid rules until April 1, 2009. Included in the original moratoria were rules which would have:

1. Limited the calculation of the private hospital Medicaid upper payment limit;

2. Eliminate Medicaid reimbursement for school-based administrative claiming and transportation;

3. Capped Medicaid supplemental payments to non-state governmental providers at their allowable Medicaid costs, and created a new definition of a public entity for purposes of the ability to make a permissible intergovernmental transfer or a certified public expenditure eligible for Medicaid FFP;

4. Placed further restrictions on permissible provider-related taxes;

5. Eliminated Medicaid reimbursement for graduate medical education ("GME");

6. Narrowed the definition of those rehabilitation and case management services eligible for Medicaid FFP.

Each of the proposed rules is controversial as they have a negative impact on Medicaid reimbursement to providers. ARRA also prevents the implementation of the outpatient services rule, a rule which limited what is included in the definition of a Medicaid outpatient service. ARRA also provides that it is "the sense of Congress" that the Secretary of HHS should not promulgate as final the proposed rules on GME, rehabilitation services, and the cost limits for certain governmental providers. Finally, ARRA extends the moratoria, until July 1, 2009, on the following rules: school-based administrative claiming and transportation, certain provisions of the provider-related tax rule, and Medicaid treatment of optional case management services.

Moratorium on Phase-Out of Medicare Indirect Medical Education ("IME") Adjustment

Currently, Federal regulations provide for the phase-out of a Medicare payment add-on for IME services. Specifically, a Federal regulation provides that during the period between October 1, 2008 and October 1, 2009, the payment add-on made to inpatient teaching hospitals that provide indirect medical education is to be reduced. However, ARRA prohibits this reduction by placing a moratorium on the Federal regulation. Unless further action is take in the future, under the Federal regulation, the IME adjustment will be phased-out entirely as of October 1, 20009.

Long-Term Care Technical Corrections

The Medicare, Medicaid and SCHIP Extension Act of 2007 made changes to the way in which long-term care hospitals were reimbursed by Medicare. ARRA makes technical corrections to those changes, which will cost Medicare an estimated $13 million, and result in increased Medicare payments to an estimated 75% of long-term care hospitals.

In addition to the critical enhanced funding provisions outlined herein, ARRA also includes substantial sums allocated to the development and adoption of Health Information Technology ("HIT") generally, as well as electronic health records ("EHR"). Closely related to the effort to increase the use of EHR, ARRA also sets forth significant changes to the Health Information Portability and Accountability Act ("HIPAA"), including, among other requirements, heightened responsibility of business associates to safeguard protected health information, breach notification standards, and contracting requirements relating to certain business associate relationships. Please refer to the publications from our HIPAA Privacy and Security Amendments for Health Care Providers and Vendors and Health Information Technology ARRA Task Force Subcommittees, which more fully explain the HIPAA, HIT, and EHR provisions of the ARRA.

The American Recovery and Reinvestment Act of 2009 ("ARRA"), which was signed by President Obama on February 17, 2009, requires prompt action by group health plans due to its broad changes to the continuation coverage requirements of COBRA, and due to its immediate effective date.  ARRA also requires employers to pay 65% of the COBRA premium but allows employers a tax credit to recover those premiums.

Current Rules

Under current COBRA rules, group health plans sponsored by employers with 20 or more employees must allow plan participants who experience a "qualifying event" to continue their health plan coverage. One such qualifying event is termination of employment. These participants and their dependents, called "qualified beneficiaries," must be allowed to continue their coverage under the group health plan for up to 18 months at their own expense. The group health plan may charge up to 100% of the cost of coverage, plus a 2% administrative fee, to qualified beneficiaries who elect COBRA continuation coverage.

Subsidy for Assistance Eligible Individuals

ARRA creates a special category of COBRA qualified beneficiaries called "Assistance Eligible Individuals" ("AEIs"). AEIs are plan participants who lose coverage under a group health plan between September 1, 2008 and December 31, 2009 as a result of an involuntary termination of employment, and who elect continuation coverage under a group health plan subject to COBRA, the Public Health Service Act, or a comparable state law. Under the new law, AEIs are entitled to a 65% reduction of the COBRA premium that they would otherwise be required to pay, for a period of up to nine months. The 65% reduction is paid by the employer, multiemployer plan, or insurer, and then recouped by them through a reduction in their payroll tax liability.

AEIs are eligible for this premium reduction effective the first COBRA coverage period following February 17, 2009. For most plans, this means the subsidy must be provided to AEIs beginning on March 1, 2009. AEIs who are eligible for the subsidy but pay 100% of the COBRA premium in March or April must receive credit for the subsidized amount in future months, or a refund of the excess payment if the credit cannot be applied within 180 days. Just as is required under standard COBRA rules, AEIs must be offered the same (or most similar) coverage option that they elected prior to their qualifying event. The plan may also choose to offer less expensive coverage to these individuals, but if new options are made available, AEIs must be allowed 90 days to make this election. If an individual believes he should be treated as an AEI eligible for the subsidy but the plan administrator determines otherwise, ARRA provides for an expedited appeal procedure to the appropriate government agency.

Special Notice and Election Periods

ARRA created special COBRA notice requirements and election procedures that must be followed by plan administrators in order to implement the subsidy. The special notice and election procedures are best understood by examining two groups of COBRA qualified beneficiaries: those qualified beneficiaries who experienced a termination of employment between September 1, 2008 and February 16, 2009, and all qualified beneficiaries who experience a COBRA qualifying event between February 17, 2009 and December 31, 2009.

AEIs Terminated Between 9/01/08 and 2/16/09. This category consists of qualified beneficiaries who were involuntarily terminated on or after September 1, 2008 and before February 17, 2009. These individuals may or may not have chosen to elect COBRA continuation coverage after their termination of employment. Any individual in this category must receive notice of the availability of the subsidy, and direction on how to receive it. Such notices must be issued on or before April 18, 2009. Any individual who did not elect COBRA coverage when initially eligible to do so must be given a second opportunity to elect COBRA continuation coverage on a prospective basis, effective March 1, 2009. This category of individuals includes all involuntary terminations, whether the termination was performance based or pursuant to a reduction in force.

AEIs Terminated Between 2/17/09 and 12/31/09. This category consists of qualified beneficiaries who experience a qualifying event between February 17, 2009 and December 31, 2009. These individuals must be notified of the availability and duration of the COBRA subsidy, as well as the procedure for determining whether they are eligible to receive it, in accordance with COBRA's current notification timeframes. Since this notice must go to all COBRA qualified beneficiaries, and not just AEIs, it should be provided as part of the standard COBRA general election notice for the duration of the subsidy period.

ARRA requires the Department of Labor to issue model notices on or before March 19, 2009.

Recoupment of the Premium Subsidy

ARRA provides that effective March 1, 2009, AEIs will only be required to pay 35% of the total COBRA premium they would otherwise be required to pay. For self-funded and insured plans subject to federal COBRA requirements, the remaining 65% of premium must be paid by the employer. For multiemployer plans, this obligation falls to the plan. For insured plans subject to state continuation laws, the subsidy must be paid by the insurer. The employer, plan or insurer will then recoup the 65% share by claiming a credit against their payroll tax liability on IRS Form 941. If payroll tax liability is insufficient to recoup the entire subsidy amount, a refund will be available. Employers, plans and insurers are required to report the credit amount on Form 941, and maintain records that include specific information about the individuals receiving the subsidy, the type of coverage received, and other information. An updated Form 941 and initial guidance regarding the payroll tax credit is available in the IRS website. This guidance makes clear that employers must carefully track all AEIs for which the payroll tax credit is claimed in order to substantiate the credit amount claimed.

Prompt Action Required

As we await further guidance from the DOL and Treasury Department, we recommend that employers, plan sponsors and insurers create a task list to begin tackling ARRA's near-immediate new COBRA requirements. At a minimum, this task list should include the following:

• A plan for identifying all COBRA qualified beneficiaries who are AEIs, as well as those who are eligible for a special notice and election period;
• A plan for resolving claims by former employees that their termination was involuntary;
• A plan for developing and issuing both the new and revised notices, working in conjunction with your COBRA administrator and legal counsel;
• A plan for determining whether optional new coverage options will be offered to AEIs;
• A plan for tracking which participants are eligible for the subsidy, and substantiating and reporting their eligibility in conjunction with the claim for payroll tax credit;

It is important to keep in mind that although the plan may delegate its COBRA administration tasks to a third-party administrator, the employer (as plan sponsor) is ultimately responsible for ensuring compliance with all aspects of these laws, and it is the employer who will be subject to statutory penalties for noncompliance. As is the case with all plan service providers, close oversight of the plan's third-party COBRA administrator is essential.

The various projects and recipients of ARRA funds within the environmental arena not only are subject to several key oversight initiatives as outlined below but most likely will still be required to comply with underlying environmental, health and safety laws. One of these laws is the National Environmental Policy Act ("NEPA"). Any recipient of federal dollars must comply with NEPA's requirements. Historically, NEPA has been a statute applied to federal and state agencies, but with the projected receipt of ARRA funds by local governmental entities, quasi private, and private entities, the ability to comply with NEPA very well may be a condition to receipt of funding. For "shovel ready" projects, this may result in having to "backtrack" the requirements under NEPA and a question of whether or not compliance can be achieved retroactively under this unique circumstance. NEPA's many requirements, including an environmental impact statement, applicable multi-agency review and approval processes, assessments of endangered and threatened species impact, archeological assessments and detailed alternative siting requirements, will require focused coordination and compliance management

A critical and practical aspect of ARRA funding within the environmental arena is the "shovel ready" project. The current interpretation of "shovel ready" is ready for construction in one (1) to three (3) months. As discussed below, the coordination of construction, funding and environmental compliance will be critical to both project and funding success.

Consistent with the NEPA requirement, the United States Environmental Protection Agency is preparing to allocate $7.2 billion of ARRA funds for various environmental projects around the country. However, the allocation oversight process will be among the strictest ever implemented at EPA. ARRA provides $20 million to the EPA's Office of Inspector General ("OIG") through September, 2012 to oversee the allocation, conduct regular performance and financial audits and root out fraud. The OIG will coordinate its efforts with those of the Recovery Accountability and Transparency Board - the federal panel set up to scrutinize stimulus spending. According to the EPA, the oversight objectives include whether:

• Funds are awarded and distributed in a prompt, fair and reasonable manner.

• The recipients and uses of all funds are transparent to the public, and the public benefits of these funds are reported clearly, accurately, and in a timely manner.

• Funds are used for authorized purposes and instances of fraud, waste, error, and abuse are mitigated.

• Projects funded under ARRA avoid unnecessary delays and cost overruns.

• Program goals are achieved, including specific program outcomes and improved results on broader economic indicators.

While much of the oversight focus is on the internal workings of EPA, the OIG will also be looking outside the agency. Performance audits will examine the process for awarding funds, particularly competitive awards, and whether those funds are being spent in a timely manner. Financial audits will examine ARRA fund recipients to determine whether costs incurred met federal requirements, whether funds were used as intended, and whether funds were free from fraud, waste, abuse and mismanagement. EPA investigators are also developing an outreach strategy to educate EPA employees, contractors, grant recipients, law enforcement agencies and the public about grant and contract fraud schemes and how to report potential fraud.

Key program opportunities under ARRA, include the following:

Wastewater and Drinking Water State Revolving Funds

In addition to the standard SRF Loan Program requirements, the following additional requirements will apply to those seeking funding:

• Participants must design, permit, bid and close financings by a schedule provided by the SRF Loan Program.

• Projects must have the ability to be under construction prior to December, 2009.

• Priority will be given to projects that include "green" infrastructure.

• Federal Davis-Bacon Wage Rates and Disadvantaged Business Enterprise rules apply.

• Projects must use American iron, steel and manufactured goods.

• Monthly progress reports will need to be filed with the SRF Loan Program.

Cities, towns, counties, regional sewer/water districts, conservancy districts are eligible for both Drinking Water and Wastewater SRF loans. These quasi-public organizations along with private and nonprofit facilities are eligible for Drinking Water SRF loans.

Eligible projects include: wastewater projects that include treatment plant and collection system improvements, drinking water projects that include treatment plant and distribution system improvements, and nonpoint source projects that include best management practices for agriculture and stormwater runoff.

Both fixed rate, twenty (20) year term loans and grants are available.

Applications had to be submitted to the SRF Loan Program on or before February 27, 2009 and communities are required to submit a Preliminary Engineering Report on or before March 13, 2009. Whether or not the deadline will be extended remains to be seen. However, IFA has already received in excess of 500 applications under the new SRF Program.

Brownfields Cleanup

ARRA will provide $100 million to the EPA Brownfields Program for clean up, revitalization, and sustainable reuse of contaminated properties. The funds will be awarded to eligible entities through job training, assessment, revolving loan fund and competitive cleanup grants. EPA may retain up to three percent (3%) of funds for management and oversight purposes and there are no cost sharing requirements. EPA may make awards for meritorious and quality proposals submitted under competitions that were initiated within the past eighteen (18) months. It is important to note that in the last year EPA was only able to fund thirty-seven percent (37%) of the eligible Brownfields projects. EPA will provide additional information on the assessment, revolving loan fund and cleanup grants resulting from ARRA in the near future.

Since 1998, EPA has offered a Brownfields Job Training Program to individuals living in a Brownfields Community. The program provides skilled environmental technicians needed to clean up brownfields, creating jobs and spurring local economic development. EPA plans to issue a request for applications for job training grants by March 19, 2009. Grants can be awarded to colleges, universities, community job training organizations, nonprofit training centers, states, counties, municipalities, federally recognized Indian Tribes, and U.S. territories.

Superfund

ARRA has provided an allocation of $600 million to clean up hazardous and toxic waste sites that threaten human health and the environment. EPA has 1255 sites on the National Priorities List, many of which are ready for construction but the funding does not exist for these projects to move forward. Clean-ups at sites currently being remediated will be accelerated and additional sites may move into the remediation phase. EPA may retain up to three percent (3%) of funds for oversight purposes.

Leaking Underground Storage Tank ("LUST") Trust Fund

ARRA has resulted in an allocation of $200 million for overseeing cleanup of LUSTs or direct pay opportunities for cleaning up leaks from federally regulated tanks where the responsible party is unknown, or is unwilling or unable to perform the cleanup, or the cleanup is an emergency response. The money is intended to create jobs related to cleanups, such as those necessary to perform site assessments and perform cleanup activities. While there are no cost sharing requirements, EPA may retain up to one and one-half percent (1.5%) of the funds for management and oversight purposes.

In anticipation of the final bill, the Indiana Brownfields Program has directed its current pool of environmental consultants that have been pre-qualified for its Petroleum Remediation Grant Program (PRG) incentive to canvas their assigned regions and develop a list of petroleum contaminated sites that may qualify for ARRA dollars. The Brownfields Program directed that the compilation of potential projects be completed by March 4, 2009. If it is discovered that any of the projects that have been submitted do not qualify for ARRA money, the Brownfields Program intends to utilize those projects for the purposes of future PRG funding. In fact, the Brownfields Program stressed that it would not be adding any sites to the potential project list for future PRG after March 4, 2009. Any potential project sites on an existing PRG waitlist were automatically included on the list for ARRA dollars.

Flood Control/Watershed Management

The U.S. Army Corps of Engineers received $4.6 billion for environmental restoration, flood control, hydropower and navigation infrastructure critical to the economy. Currently, the Corps has a backlog of $61 billion in construction projects and has yet to issue any guidance with regard to how these particular funds will be utilized. In addition, the Natural Resources Conservation Service received $340 million for watershed improvement projects to design and build flood protection and water quality projects, repair aging dams and purchase conservation easements in river flood zones. This funding and the ability to enter into private-public-agency funding and construction projects are still unclear under the Act. Given the many localized needs for such a tripartite project, the opportunity to accomplish a local goal with a federal program remains a possibility under ARRA.

Department of Justice Funding

The total amount announced in March 2009 by the White House as being available to Indiana from the Department of Justice for law enforcement activities is at least $35 million. The funding will be available through various programs described below, through the component offices of DOJ indicated in bold type below.

Office of Justice Programs

The Office of Justice Programs ("OJP") includes most of the major research and grant making agencies of DOJ. Those agencies include:

Bureau of Justice Assistance ("BJA")

Office of Juvenile Justice and Delinquency Prevention ("OJJDP")

Office for Victims of Crime ("OVW")

National Institute of Justice ("NIJ")

Bureau of Justice Statistics ("BJS")

Community Capacity Development Office ("CCDO") - includes Weed and Seed initiative

OJP, through its Bureau of Justice Assistance ("BJA"), will administer approximately $2.76 billion of the total of $4 billion committed to DOJ. These include the following:

The Edward Byrne Memorial Justice Assistance Grant Program -- $2 billion

The Edward Byrne Memorial Justice Assistance Grant ("JAG") Program ("Byrne/JAG") consists of a combination of two prior grant programs consolidated in 2004: the Edward Byrne Memorial Block Grant Program ("Byrne Block Grants"), which funded block grants to states, and the Local Law Enforcement Block Grants Program ("LLEBG"), which provided block grants directly to local law enforcement agencies through their local fiscal bodies. The division of funding between the two was approximately 60% Byrne Block Grants (to states) and 40% LLEBG (to local government). In addition, states were required to pass a portion of the Byrne Block Grants through to local communities.

This formula was preserved when the two funds were merged, so that 60% continues to flow to states and 40% to local government. In addition, the requirement that states pass through a portion of their funding to local entities was preserved. As of 2008, Indiana's required pass-through percentage was 59.29%.

ARRA committed a full $2 billion to Byrne/JAG. Some precautions:

• This funding does not automatically flow to either the states or local communities. Solicitations have been posted on the OJP web site at the following address: http://www.ojp.usdoj.gov/BJA/recoveract.html.

• The application timeframes are short: states must apply on line by April 9, 2009, and communities by May 18, 2009.

• Local governments that have failed to report at least 3 years of data (within the last 10 years for which data are available) on UCR Part I violent crimes to the FBI are ineligible for direct funding under ARRA's Byrne/JAG provisions.

• Eligibility for the local government solicitation is limited to qualifying units of local government (not police or sheriffs' departments, but political subdivisions), and not all political subdivisions are eligible. A listing of the cities, counties and towns in Indiana, and potential amounts available to them, is found in a link from the solicitation under "Eligibility." Krieg DeVault can also check eligibility and available funding for any entity that is interested.

• Applications must be made online; and at least a week prior to filing, the entity filing the application must have registered on the system and have obtained a Data Universal Number System ("DUNS") number issued by Dunn & Bradstreet. If the entity does not have a DUNS number, it must go to the Dunn & Bradstreet website at the following web site: http://fedbov.dnb.com/webform/displayHomePage.do. These two requirements are now applicable to all federal grants.

• Byrne/JAG ARRA funds are available for the same broad purposes as regularly appropriated Byrne/JAG grants (see below). However, because these are ARRA funds, specifically intended to fuel an economic recovery, it is essential that applying entities identify initiatives for funding that emphasize job creation and job retention, and make clear in what way they will do so.

• The application must be submitted for review to the governing body of the applying entity (normally this will be the City, Town, or County Council, though County Commissioners are also mentioned in the list of governing bodies) at least 30 days prior to submission. This does not mean that approval is required 30 days in advance; but it is essential that the proposal be submitted for approval at least 30 days prior to submission to DOJ.

• Byrne/JAG applications under ARRA provisions require a public comment period be completed before funds will be released, even if awarded. Public comment may take the form of web site and newspaper postings, city council presentations, or county commissioner presentations.

• There are requirements for certifications, reporting, and monitoring that are much more onerous than those in the normal Byrne/JAG process. Potential applicants will need to read the solicitations carefully and be prepared for significantly greater reporting requirements.

Good news includes:

• The broad uses to which the grants may be put. These include:
• Prosecution and court programs
• Prevention and education programs
• Corrections and community corrections programs
• Drug treatment and enforcement programs
• Planning, evaluation, and technology improvement programs
• Crime victim and witness programs (other than compensation)

• No local match is required.

• Local jurisdictions will have 4 years from March 1, 2009 to use the funds.

• Byrne/JAG grants are available for the same broad range of purposes normally associated with these block grants, supporting all components of the criminal justice system, from multijurisdictional drug and gang task forces to crime prevention and domestic violence programs, courts, corrections, treatment, and justice information sharing initiatives. The funds can be used for training, personnel, equipment, supplies, contractual support, planning and/or research and evaluation. However, even within these purpose areas, ARRA prohibits use of the funds for:

• Security enhancements or equipment to nongovernmental entities not engaged in criminal justice or public safety

• Vehicles, vessels or aircraft (excluding police cruisers, police boats and police helicopters

• Luxury items

• Real estate

• Construction projects, other than penal or correctional institutions

The Edward Byrne Competitive Grant Program -- $225 million

$225 million is made available by ARRA for competitive grants. Unlike the "Byrne Discretionary" funding contained in the annual appropriations acts, ARRA funds are not earmarked for specific projects and there will therefore be an opportunity to apply for funding in a competitive process. Applicants may include national, regional, state or local public and private entities, including for-profit and not-for-profit organizations, faith-based and community organizations, institutions of higher education, tribal jurisdictions, and units of local government that support the functioning of the criminal justice system.

As of March 9, 2009, information had not yet been posted regarding the method of applying for these grants. It will be available at http://www.ojp.usdoj.gov/recovery in the near future.

Assistance to Rural Law Enforcement to Combat Crime and Drugs -- $125 million

As of March 9, 2009, information had not yet been released with regard to the method of applying for these grants. The information will be available at the same website as above.

Grants for Victim Compensation and Assistance -- $100 million

A total of $100 million is provided for assistance to victims of crime. It will be administered by the Office for Victims of Crime within OJP, and is divided as follows:

• $47.5 million: formula funding for state crime victim compensation programs.

• $47.5 million: formula funding for state-administered crime victim assistance programs.

• $5 million: discretionary grant projects. These funds will be made available under an already-existing and open grant solicitation, the National Field-Generated Training, Technical Assistance and Demonstration Projects (NFG) competitive grant solicitation. However, the deadline for applications (recently extended) is March 24, 2009; so unless an eligible entity was already in the process of applying for funds under that solicitation, it will not have time to do so.

Grants for Internet Crimes Against Children Initiatives -- $50 million

These funds will be administered by the Office of Juvenile Justice and Delinquency Prevention ("OJJDP") within OJP. The Internet Crimes Against Children ("ICAC") Task Forces have been in existence for some years and have demonstrated significant success in combating child predators on the internet. There are now 59 ICAC task forces across the country. It is not yet clear whether the new funds will be made available to start new ICAC task forces or simply to support the existing ones. Further information will be made available shortly on the OJP website.

Office of Community Oriented Policing Services ("COPS")

The Office of Community Oriented Policing Services ("COPS") provides funding for staffing as well as technology specifically for police and sheriffs' departments.

COPS Hiring Recovery Program ("CHRP") -- $1 billion

The Office of Community Oriented Policing Services ("COPS") has been awarded approximately $1 billion in ARRA for the hiring and rehiring of additional career law enforcement officers. The funding will be awarded through a competitive grant program providing funds directly to law enforcement agencies that have primary law enforcement authority in a jurisdiction.

Specific issues to keep in mind:

• Unlike Byrne/JAG and other programs, this particular program will not require any further justification by the applicant making it clear why the funding will meet the requirements of ARRA. The act of hiring and rehiring, or retaining, officers on the job is squarely within the purposes of ARRA.

• There is no local match requirement. However, funding will be based only on current-day entry-level salary and benefits packages. Grantee agencies will need to make up any difference from other funds.

• CHRP grants will provide 100% funding for approved (entry-level) salaries and benefits for 3 years, for the following:

• Newly-hired, full-time sworn officer positions (including filling unfunded vacancies)

• Rehiring officers who have been laid off (but note limitation on amount of funds above)

• Retaining officers who are scheduled to be laid off as a result of local budget cuts (again, only entry-level salary/benefit packages will be funded)

• There is no cap on the specific number of positions that an agency may fill with this funding, subject to availability of funds.

• When the 3-year funding period concludes, grantees must retain all sworn officer positions awarded under the grant, and must add the funding for those positions to their local budget.

Office on Violence Against Women

The Office on Violence Against Women ("OVW") will receive a total of $225 million for use across 5 existing programs.

Services*Training*Officers*Prosecutors ("STOP") Formula Grant Program -- $140 million

$140 million is added to the amount available to be awarded to states and territories under the STOP program, for existing program purposes. The purpose of the program is to promote a coordinated, multidisciplinary approach to enhance services and advocacy to victims, improve the criminal justice system's response, and promote effective law enforcement, prosecution, and judicial strategies to address domestic violence, dating violence, sexual assault, and stalking. Individual state allocations are available at http://www.ovw.usdoj.gov/recovery-grants-awards.htm.

State Sexual Assault and Domestic Violence Coalitions -- $8.75 million

This funding will be disseminated to State sexual assault coalitions and state domestic violence coalitions, each of which is eligible to receive up to $78,125. Dual sexual assault/domestic violence coalitions will receive up to $156,250. To be eligible, a coalition must have been officially designated by the U.S. Department of Health and Human Services.

Transitional Housing Assistance Program -- $43 million

Transitional housing funding will be available to States, local units of government, Indian tribes, and other organizations with a documented history of effective work concerning domestic violence, dating violence, sexual assault, or stalking. This means the funding is not necessarily limited to units of government.

Tribal Sexual Assault and Domestic Violence Coalitions -- $2.8 million

This amount will provide funding to programs that assist American Indian and Alaska Native women; funding can be to tribal governments or tribal coalitions addressing these issues.

Training and Technical Assistance

A small additional portion of funding will be available to provide training and technical assistance for grantees.

Department of Homeland Security Funding

As indicated at the outset of this paper, most of the $3.5 billion included in ARRA for the Department of Homeland Security is restricted to use by the Department itself, to meet its primary goal of protecting the American people from terrorist attacks. However, there are certain provisions within the preparedness arena that will be administered by the Federal Emergency Management Agency ("FEMA"). Those of potential interest to Indiana and its local communities include:

Assistance to Firefighters Grant Program -- $210 million

ARRA includes $210 million for grants within FEMA's existing Assistance to Firefighters Grant ("AFG") Program. These are one-year grants that go directly to local fire departments and nonaffiliated emergency medical services ("EMS") organizations, to enhance their abilities with respect to fire and fire-related hazards. The AFG program seeks to assist such organizations that currently lack the tools and resources necessary to protect their communities with regard to fire and other hazards.

Port Security Grants -- $150 million

$150 million in additional funding above and beyond the FY09 appropriations has been made available by ARRA for port security. Generally, these funds tend to go to ports of entry, and the amount of additional funds available through ARRA is not large; but there may be some opportunity available for Indiana ports.

Staffing for Adequate Fire and Emergency Response ("SAFER") Grants

No additional funds were included beyond those in the FY09 appropriations act for SAFER grants, which permit hiring of firefighters and recruitment and retention of volunteer firefighters. However, ARRA provides that all non-federal matching requirements for these grants are waived for both FY09 and FY10.

Low-Income Housing Tax Credit Exchange Program

Under ARRA, State Housing Finance Agencies ("HFAs") can exchange a portion of their existing Low-Income Housing Tax Credit ("LIHTC") allocations for grant funds to be used to fill financing gaps in projects awarded LIHTC in 2007, 2008 or 2009 ("Credit Exchange"). In its utilization of the Credit Exchange, the HFA must determine that the use the Credit Exchange would increase funds available for the rehabilitation of affordable housing.

HFAs must use Credit Exchange funds to finance the construction, acquisition, or rehabilitation of a qualified low-income building. The HFA must distribute all such funds before January 1, 2011, and return any unused portion to the Secretary of the Treasury. While many HFAs are in flux as to how they will distribute Credit Exchange money, it will likely be invested in the LIHTC partnership as a soft loan to fill the funding gap and will require additional equity proceeds from the syndication of LIHTC. According to Treasury, any such funds received by the project owner under the Credit Exchange will not reduce the eligible or depreciable basis of the project. The grant is not included in the owner's gross income, and the owner's tax basis in the project is not reduced by the amount of the grant.

Any project receiving funds through a Credit Exchange is required to comply with the LIHTC provisions. Failure to satisfy the LIHTC rules during the 15-year compliance period will result in recapture of the funds under methods the Secretary of Treasury deems appropriate.

Additional HOME Funds for Gap Financing

An additional $2.25 billion in HOME funds are authorized under the Tax Credit Assistance Program ("TCAP") authorized by ARRA ("TCAP Funds") to be distributed according to the HOME program formula directly to the HFAs. The Indiana Housing and Community Development Authority ("IHCDA") will receive approximately $38,048,333 in TCAP Funds under this formula to be used to fill equity gaps in developments awarded LIHTC in federal fiscal years 2007, 2008, and 2009. Strict timelines have been set forth for the use of TCAP Funds:

• HFAs must commit 75 percent of the TCAP Funds to project owners not later than February 16, 2010;

• The project owner must expend 75 percent of the TCAP Funds prior to February 16, 2011; and

• The project owner must expend 100 percent of the TCAP Funds prior to February 16, 2012.

The HFAs shall distribute the funds competitively pursuant to the state qualified allocation plan to owners of projects that have received or simultaneously receive an allocation of LIHTCs in 2007, 2008, or 2009. The HFAs must give priority to projects that can be completed prior to February 16, 2012. Failure to meet these expenditure deadlines can result in the HFA and/or the Secretary of Treasury deciding to redistribute the funds to a more deserving project or to another state that has fully utilized their TCAP Funds. As with Credit Exchange, TCAP Funds awarded to an LIHTC project shall not be treated as a federal grant for purposes of establishing the "eligible basis" for the project.

Neighborhood Stabilization Funds

ARRA provides additional funding for the Neighborhood Stabilization Program ("NSP") administered by the U.S. Department of Housing and Urban Development ("HUD") to be distributed through a competitive process to states, localities, nonprofit organizations, and partnerships of the above for the purchase, rehabilitation, and redevelopment of abandoned and foreclosed housing and/or vacant properties to reduce neighborhood blight. NSP was originally included in the Housing and Economic Recovery Act of 2008 ("HERA"), which allocated funds to states and localities to address neighborhood destabilization created by foreclosed-upon homes and residential properties. ARRA includes an additional $2 billion in funding for the NSP program and makes changes to NSP as adopted in HERA.

The revisions and additions to NSP in ARRA include:

• A total of $2 billion is made available, to be allocated by competitive bid. Permitted uses are:
  • those contained in NSP under HERA (as amended by ARRA), except that (1) funding to be used for the redevelopment of demolished or vacant properties must be for use as housing, (2) funding may not be used to demolish any public housing, and (3) a grantee may not use more than 10 percent of its grant for demolition unless approved by the Secretary;
  • up to 10 percent of the funds may be used by the Secretary for capacity building and support for local communities receiving funding under NSP; and
  • up to 1 percent of the funds are available for HUD staffing, training, technical assistance, technology, monitoring, travel, enforcement, research, and evaluation activities.
• The Secretary is to publish criteria on which competition is to be based no later than 75 days after ARRA's enactment. Applications must be submitted to HUD within 150 days of ARRA's enactment.
• Eligible grantees are states, units of general local government, and nonprofit entities, which may submit proposals in partnership with for-profit entities.
• At least 50 percent of allocated funds must be spent within two years; all must be spent within three years.
• The Secretary has broad regulatory and statutory waiver authority to expedite the use of NSP funds, with the exception of requirements related to fair housing, nondiscrimination, labor standards, and the environment.
• Unless otherwise provided, the requirements of NSP as adopted by HERA apply to the additional funds.

ARRA also makes minor changes to the NSP as adopted in HERA, including expansion of permitted uses with respect to land banks to include operational costs (in addition to establishment costs) and residential properties (in addition to foreclosed homes), repeal of the five-year reinvestment period, and establishment of extensive tenant protections for tenant-occupied units acquired using NSP funds.

Public Housing Capital Fund

ARRA allocates $4 billion for the Public Housing Capital Fund ("Capital Fund") through September 30, 2011, specifically to address the existing shortfall by public housing agencies ("PHAs"). A total of $1 billion of the $4 billion shall be competitively bid out to PHAs. HUD is required to allocate the funds to projects that are "priority investments," including projects that leverage private sector funding or financing for renovations and energy conservation retrofit investments. HUD must commit these funds to PHAs by September 30, 2009.

For the $3 billion to be allocated by the Capital Fund formula, PHAs must give priority to (i) capital projects that can result in contracts based on bids within 120 days from the date the funds are available to the PHA, (ii) projects already underway or that are included in a PHA's five-year plan, and (iii) rehabilitation of vacant units. The Secretary may determine not to allocate funding to PHAs designated as troubled or to PHAs that elect not to accept funding. HUD is required to distribute these formula funds within 30 days of enactment of ARRA.

ARRA places a series of expenditure and recapture deadlines on ARRA funds. Housing authorities are required:

• to obligate 100 percent of the funds within one year of the date the funds become available to them

• expend at least 60 percent of the funds within two years of the date on which funds become available to them; and

• expend 100 percent of the funds within three years of the availability date.

If a housing authority fails to comply with the one-year obligation, two-year expenditure, or three-year expenditure requirement, HUD must recapture all remaining funds awarded to the housing authority and reallocate funds to agencies that are in compliance with the obligation and expenditure requirements.

Homelessness Prevention Grants and Resources

ARRA includes $1.5 billion for homelessness-prevention activities, of which $28,383,423 has been allocated to Indiana. Funds may be used for various activities, including short-term and medium-term rental assistance, housing-search assistance, mediation or outreach to property owners, credit-repair services, security or utility deposits, utility payments, and moving-costs assistance. Eligible grantees are those as defined by the McKinney-Vento Homeless Assistance Act. Grantees must expend at least 60 percent of the funds within two years of the date of the obligations of funds and 100 percent within three years. HUD may recapture any funds not expended within the two-year expenditure deadline and reallocate to grantees that are in compliance with expenditure requirements.

ARRA also includes other funding for homelessness prevention related activities, including:

• $70 million for Education for Homeless Children and Youth Program, which is operated by the Department of Education and aims to ensure that homeless children are able to enroll in, attend, and succeed in school, including funding for children's transportation, tutoring, school supplies, counseling, domestic violence services, and health referral services, or other emergency assistance needed to enable homeless children and youth to attend school.

• $100 million for the Emergency Food and Shelter Program
operated by the Federal Emergency Management Agency, which distributes federal funds to local communities for homelessness prevention by offering one-time monetary grants to families whose short-term crisis places them at risk of becoming homeless.

• $50 million for Transitional Housing Assistance Grants
operated by the Office of Violence Against Women to provide Transitional Housing Assistance Grants to help victims of domestic violence, dating violence, sexual assault, and stalking who are in need of transitional housing, short-term housing assistance, and related support services.

• $1 billion for Community Services Block Grants
under the direction of the Administration for Children and Families to alleviate the causes and conditions of poverty in communities by providing a range of services and activities to assist the needs of low-income individuals, including the homeless.

• Up to $5 billion for Temporary Assistance for Needy Families ("TANF") Emergency Contingency Fund. States will be eligible to receive up to 50 percent of their annual TANF allocation over the course of 2009 and 2010. The TANF Emergency Contingency Fund can be used to reimburse states for up to 80 percent of increased expenditures in the state TANF program due to more families requiring assistance because of the recession.

• $3.95 billion for Workforce Investment Act Programs, including $500 million for supportive services and needs-related payments for unemployed workers not eligible for unemployment insurance, $1.2 billion for jobs programs for youth, and $1.25 billion for jobs programs for "dislocated workers." The funding under the economic recovery act will be used to increase service levels and address immediate employment needs by targeting significant funding toward low-income, low-skilled Americans, including youth.

Community Development Block Grants ("CDBG")

ARRA includes an additional $1 billion for the CDBG program, of which Indiana has been allocated $18,547,039. The funds will be allocated by HUD to entitlement communities and state agencies using the FY 2008 funding formula. CDBG administrators must give priority to projects that can result in contracts based upon bids within 120 days from the date funds are made available to recipients.

ARRA CDBG funds are subject to the same rules and regulations as are annual CDBG allocations. The CDBG program works to ensure decent affordable housing, to provide services to the most vulnerable in our communities, and to create jobs through the expansion and retention of businesses. The annual CDBG appropriation is allocated between States and local jurisdictions called "non-entitlement" and "entitlement" communities respectively. Entitlement communities are comprised of central cities of Metropolitan Statistical Areas (MSAs); metropolitan cities with populations of at least 50,000; and qualified urban counties with a population of 200,000 or more (excluding the populations of entitlement cities). States distribute CDBG funds to non-entitlement localities not qualified as entitlement communities.

HUD determines the amount of each grant by using a formula comprised of several measures of community need, including the extent of poverty, population, housing overcrowding, age of housing, and population growth lag in relationship to other metropolitan areas.

Energy Retrofits for Elderly, Disabled, and Section 8 Assisted Housing

ARRA allocates $250 million for energy retrofit investments for existing Section 202, Section 811, and projects with Section 8 subsidies. Owners must have a "satisfactory" or higher management review rating. Owners must accept an additional affordability covenant of not less than 15 years. HUD may fund these retrofit investments with grants or loans.

Homebuyer Tax Credit

ARRA increases the current first-time home buyer credit from $7,500 to $8,000, extends its expiration date from July 1, 2009 to December 1, 2009, eliminates its repayment requirement, and lifts the prohibition against combining it with Mortgage Revenue Bonds. These provisions are effective for home purchases after December 31, 2008.

Assisted Housing Stability and Energy and Green Retrofit Investments Stimulus Program (Competitive)

ARRA provides $250 million for investment in energy efficient modernization and renovation of HUD-sponsored housing for low-income, elderly, and disabled persons. Grants and loans will be made available through HUD's Office of Affordable Housing Preservation (OAHP) for eligible property owners to make energy and green retrofit investments in the property, to ensure the maintenance and preservation of the property, the continued operation and maintenance of energy efficiency technologies, and the timely expenditure of funds. Physical and financial analyses of the properties will be conducted to determine the size of each grant and loan. Incentives will be made available to participating owners. The terms of the grants or loans will include continued affordability agreements. Grant and loan funds must be spent by the receiving property owner within two years. Full detail of how to apply, and grant and loan terms, will be published by April 17, 2009.

Project-Based Rental Assistance

ARRA provides for $2 billion to be invested in full 12-month funding for Section 8 project-based housing contracts. Indiana will receive $47,681,123. This funding will enable owners to undertake much-needed project improvements to maintain the quality of affordable housing. In line with Congressional directives, HUD will use the money provided to fund 6300 Section 8 contract renewals nationwide on a full twelve-month cycle.

Bonus Depreciation

The bonus depreciation is an extension of a provision enacted in 2008 that allows for immediate write-off of 50% of the cost of depreciable property, including qualified leasehold improvements, placed into service in 2008. This temporary benefit will be applied to capital expenditures incurred in 2009 as well.

Cancellation of Debt

The cancellation of debt provision enacted provides significant tax relief for businesses that reacquire, satisfy or otherwise discharge debt obligations at a discount in 2009 and 2010. The new law allows companies to defer any tax on 2009 and 2010 COD income until 2014. It then taxes that COD income ratably over the following five years (2014-2018). Before this change, COD income was recognized the same year it was claimed and based on the total amount of the discount.

Net Operation Loss Carryback

Finally, the NOL carryback provision allows companies to receive a tax refund by using current losses to offset taxes paid in prior years, but only for companies with gross annual receipts of less than $15 million in revenues. Current law only allows businesses to get refunds of taxes paid within two years. The initial proposal did not have the gross receipts limitation, which was unfortunately inserted during House-Senate conference negotiations.

Term Asset-Backed Securities Loan Facility

As a supplement, just before the ARRA was signed into law, the US Treasury Department expanded the TALF to include new commercial real estate securities, which would allow lending to holders of AAA backed securities backed by new and recently originated commercial real estate loans. This expansion should help ease the lending crisis facing the commercial real estate industry and help ease a more severe impact on the real estate sector from the economic downturn and limited credit capacity.

The American Recovery and Reinvestment Act of 2009 ("ARRA"), which was signed by President Obama on February 17, 2009 creates a variety of programs and incentives whose purpose is to facilitate economic development in communities across the country. The funding of these programs and incentives in ARRA includes grants of the states, direct federal expenditures and support for private sector investments to tax and other business incentives. Many of the programs to be funded under ARRA are already established and are being provided additional funding or are being revised to provide more expeditious application and use. Our summary of the incentives for community economic development and finance follows.

New Markets Tax Credits

For calendar years 2008 and 2009, ARRA increases the amount of New Markets Tax Credit ("NMTC") allocation by $1.5 billion per year (raised from the previous $3.5 billion to $5 billion). ARRA requires that the additional amount for 2008 be allocated to qualified CDEs that submitted an allocation application with respect to calendar year 2008 and either (1) did not receive an allocation for such calendar year or (2) received an allocation for such calendar year in an amount less than the amount requested in the allocation application.

The NMTC Program permits taxpayers to receive a credit against Federal income taxes for making qualified equity investments in designated Community Development Entities ("CDEs"). Substantially all of the qualified equity investment must in turn be used by the CDE to provide investments in low-income communities. The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year credit allowance period. In each of the first three years, the investor receives a credit equal to five percent of the total amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is six percent annually. Investors may not redeem their investments in CDEs prior to the conclusion of the seven-year period.

Community Development Block Grants

ARRA includes $1 billion for the CDBG program. The funds will be allocated by HUD using the FY 2008 funding formula. Localities must give priority to projects that can result in contracts based upon bids within 120 days from the date funds are made available to recipients. The HUD secretary may waive or specify alternative requirements by statute or regulation, except requirements related to fair housing, nondiscrimination, labor standards, and the environment.

Neighborhood Stabilization Program

ARRA authorizes $2 billion in new funds for the redevelopment of abandoned and foreclosed homes pursuant to the Neighborhood Stabilization Program (NSP) (passed under division B, title III of the Housing and Economic Recovery Act of 2008). These new funds are available to states, local governments and non-profit entities who may submit proposals in partnership with for-profit entities and will be available until September 30, 2010. Criteria for grantees must be published within 75 days of enactment and applications must be submitted to HUD within 150 days of enactment. The permitted uses for the $2 billion include those contained in NSP (as amended by ARRA), except that (1) funding to be used for the redevelopment of demolished or vacant properties must be for use as housing, (2) funding may not be used to demolish any public housing, and (3) a grantee may not use more than 10 percent of its grant for demolition unless approved by the Secretary. Once awarded, Grantees must expend at least 50 percent of their award within two years of receiving it, and all of the funds within three years. Eligible recipients are states, local governments, nonprofits standing alone, and nonprofits in partnership with for-profit entities. Funding priority will be given to those locations with the greatest number of foreclosed and abandoned homes.

In addition ARRA made the following changes to NSP: (i) the permitted use relating to land banks is amended to provide that NSP funds can be spent on the establishment and operation of land banks for foreclosed homes and residential properties; (ii) the section regarding the five-year reinvestment period is repealed; (iii) tenant protections for tenant-occupied units acquired using NSP funds are established.

Economic Development Assistance

ARRA provides $150 million to the Economic Development Administration within the U.S. Department of Commerce for economic development assistance programs, including $50 million for economic adjustment assistance and up to $50 million for federally authorized regional economic development commissions. These programs are designed to assist communities experiencing significant economic distress and job losses in developing programs and strategies for economic development and increased employment, and in leveraging private funds.

Recovery Zone Economic Development Bonds

ARRA authorizes the issuance of up to $10,000,000,000 in a new category of taxable governmental bonds similar to Build America Bonds known as "Recovery Zone Economic Development Bonds" for use in areas designated as Recovery Zones (described below) Recovery Zone Economic Development Bonds are governmental bonds that provide for a direct payment from the federal government to the issuer equal to 45% of the interest on the bonds (as compared to 35% with Build America Bonds).

ARRA generally defines a "Recovery Zone" as an area designated by state and local governments as having significant poverty, unemployment or home-foreclosure rates. The $10,000,000,000 of issuance capacity will be allocated to the states based on relative employment decline in 2008 and further allocated within the state to counties and large municipalities on the same basis. The proceeds of Recovery Zone Economic Development Bonds must be used to promote economic development activity in a Recovery Zone. These bonds are subject to the same arbitrage and private use rules that apply to tax-exempt governmental bonds and must be issued before January 1, 2011. Under ARRA, the federal wage requirements under the Davis-Bacon Act apply to projects financed with Recovery Zone Economic Development Bonds.

Recovery Zone Facility Bonds

ARRA authorizes the issuance of up to $15,000,000,000 in a new category of tax-exempt private activity bonds known as "Recovery Zone Facilities Bonds" for use in areas designated as Recovery Zones (as described above). In general, property subject to the allowance for depreciation that is actively used in a trade or business may be financed with the proceeds of the Recovery Zone Facility Bonds, provided that the property is acquired after the date on which a Recovery Zone designation took effect. The $15,000,000,000 issuance capacity for Recovery Zone Facility Bonds will allocated to the states based on relative employment decline in 2008 and further allocated within the states to counties and large municipalities on the same basis. Recovery Zone Facility Bonds must be issued before January 1, 2011.

Qualified Small Issue Bonds - Expansion of Definition of Manufacturing Facility

Over the years, many borrowers owning and operating manufacturing facilities have been able to access the tax-exempt bond market through the issuance of private activity bonds known as "Qualified Small Issue Bonds." Having access to this market has enabled such borrowers to realize significant interest cost savings over utilizing conventional financing for capital projects. ARRA has, for a limited time, broadened the benefits available under such Qualified Small Issue Bonds by expanding (i) the definition of what facilities qualify as "manufacturing facilities" and (ii) what capital costs are able to be financed with the proceeds of the tax-exempt bonds. These provisions are outlined below.

The definition of "manufacturing facilities" will now be expanded to include facilities which create or manufacture intangible property (as opposed to tangible-property only). This will allow tax-exempt bonds to be issued to finance software companies as well as facilities which create such things as patents, copyrights, formulas, processes, designs, patterns, knowhow, formats, or other similar items.

Prior to adoption of the Act, only 25% of net bond proceeds could be used to finance property which was considered directly related and ancillary to the core manufacturing process. ARRA now provides that facilities that are functionally related and subordinate to a manufacturing facility are treated as a manufacturing facility and replaces the 25% of net bond proceeds restriction. This will allow more of the manufacturing process to be financed with bond proceeds. This provision again is only available for bonds issued in the remainder of 2009 and 2010.