The impact of the Inflation Reduction Act on local government

This past summer saw the passing of the ambitious Inflation Reduction Act (IRA) – a slimmed down version of the proposed “Build Back Better Act” originally introduced in 2021. As is the nature of legislation, much will be disputed and opinions will vary, but it will, no doubt, affect Americans both personally and professionally. The lofty goals of the IRA are to curb inflation by reducing the deficit, lower prescription drug prices, and invest in domestic energy production while promoting clean energy. Through these objectives, the impact of the Inflation Reduction Act on local government will be far-reaching.

The historic investment into combating climate change has been getting the most attention. It’s the first of this size and the tentacles from this measure will affect everything from jobs and apprenticeships to manufacturing and consumer purchases.

As a result, grants, funding, tax credits and rebates will be available for families, nonprofits, energy- and climate-related programs and businesses, and rural communities as well. These opportunities will be available mainly through the Environmental Protection Agency, the Internal Revenue Service, the Department of Labor and the U.S. Department of Agriculture.

Let’s take a closer look at some of the other impacts on local government from this legislation.

Healthcare Reform

To start, the Inflation Reduction Act healthcare reform aims to lower costs for Americans, including:

• Prescription drug price reform means Medicare can now negotiate the price of certain prescription drugs, bringing down the price beneficiaries will pay for their medications.
• Medicare recipients will have a $2,000 cap on annual out-of-pocket prescription drug costs, starting in 2025, and a $35 cap for a month’s supply of insulin.
• The Affordable Care Act subsidy will be extended. These subsidies (scheduled to expire at the end of 2022) will be extended through 2025.

Energy and Climate-Related Programs

A historic $369 billion in incentives for energy and climate-related programs, including tax rebates and credits for American households to lower energy costs, will affect manufacturing, infrastructure and consumers.

• The bill offers tax credits for households for energy-efficient technologies, and 10 years of consumer tax credits for the use of heat pumps, rooftop solar, and high-efficiency electric heating, ventilation, air conditioning and water heating.
• A $7,500 tax credit is available for the purchase of new electric vehicles and a $4,000 tax credit for the purchase of used electric vehicles.
• The legislation provides tax credits, research loans, and grants for domestic manufacturing of wind turbines, solar panels, batteries, and other essential components of clean energy production and storage.
• It includes tax credits aimed at reducing carbon emissions and programs that reduce the environmental impact of agriculture.

• And, $3 billion has been allocated to electrify the USPS fleet.

Agriculture, Forestry and Rural Areas

The Inflation Reduction Act’s impact on local government will extend to environmental infrastructure in agriculture, forestry and rural areas as well.

• The law makes $5 billion in additional funding available to the Forest Service for fuels and forest health treatments to protect communities from wildfire; for competitive grants to non-federal forest landowners; for the agency’s State and Private Forestry programs; and $100 million for administrative costs to implement the law’s provisions.
• Additional measures include $32 billion for investments in rural economies, racial justice in farming, forestlands, and coastal habitats, with another $3 billion in tax incentives for installing carbon capture and storage at existing power plants.
• $3 billion is available to reconnect neighborhoods harmed by infrastructure, including investments in sustainable aviation fuel, grants for high-voltage electric power transmission, and decarbonization of port equipment, garbage trucks, school buses and local government fleets.
• The bill also allocates $3 billion to aid disadvantaged communities with transportation issues, including reconnecting communities separated by infrastructure thereby improving transit-oriented development, connectivity, walkability, and biking projects.
• In addition, grants and incentives will be available for the reduction of air pollution with an emphasis on reaching disadvantaged populations.

Finally, the Inflation Reduction Act includes a 15% corporate minimum tax rate for corporations with at least $1 billion in income. This new tax is expected to raise some $313 billion over 10 years. Since the bill is projected to raise more in taxes than it spends, a reduction in the federal deficit is anticipated.

The Inflation Reduction Act will not raise taxes on families or small businesses that make less than $400,000 a year.

Timing of the Inflation Reduction Act’s Impacts

Timing regarding the IRA is broad. Since it is a 10-year plan, most changes won't happen immediately.

On the other hand, there are some already in effect. For example, the Department of Labor’s Wage and Hour Division and Office of Apprenticeship will support the IRA’s prevailing wage and apprenticeship provisions. Those provisions go into effect on January 29. In October, the USDA announced that distressed borrowers with qualifying USDA farm loans have already received nearly $800 million in assistance – part of the assistance for distressed farm loan borrowers provided through the IRA. Buying a new electric vehicle in 2023 will provide a tax credit for consumers next year. But, the tax credit for buying a used electric vehicle may not be available until 2025.

Bottom line: Local government leaders as well as industry suppliers, nonprofits and community organizations should be on the lookout for funding opportunities to participate in the coming months … and the coming years.

There’s a lot to see and a lot to unpack in the bill - find the full text here.