Opportunities Under Federal and N.J. State Stimulus Packages
Corporate & Finance Alert
February 3, 2009
As President Obama stressed in his Inaugural Address, these difficult economic times demand both extraordinary levels of governmental intervention and hard work from every American in order to remake a prosperous American economy. One key component of the federal government’s plan for recovery is a $819 billion dollar “stimulus package” of spending initiatives and tax breaks. Many states, including New Jersey, are following the federal government’s lead by proposing their own stimulus packages to boost their local economies. The federal and state stimulus packages may offer businesses a real opportunity to expand and grow. The government wants companies to seize the opportunities presented by the stimulus plans and to use the benefits afforded by the plans to hire new employees, invest in products and services and generally expand their businesses.
Because the 2009 federal stimulus plan has not been enacted into law, the exact economic incentives are not yet known. However, all parties agree that a plan has to be enacted quickly if it is to help prevent the U.S. economy from declining further. The House of Representatives passed a stimulus package, known as the American Recovery and Reinvestment Act, on January 28, 2009. The Senate’s plan was released by the Senate Appropriations committee on January 28th, and is expected to be voted on by the Senate shortly. President Obama has outlined his own stimulus plan, and additional announcements on the President’s position are expected. Moreover, the House’s package provides that New Jersey would receive approximately $4.3 billion in federal funds. On the New Jersey level, Governor Corzine proposed an Economic Assistance and Recovery Plan in October of 2008, and some of its elements have already been enacted by the New Jersey legislature. The Gibbons Distressed Situations Group will endeavor to release subsequent alerts as the stimulus packages continue to be defined.
Federal Stimulus Package
Even though details on the stimulus packages are not yet known, businesses can and should begin today to analyze potential opportunities presented by the proposed programs. Although representing a small percentage of the entire value of the stimulus package, there are a number of proposals under the current plans which are likely to be enacted which can help businesses, including the following:
- Both the President’s and the House’s proposals contemplate tax relief. Here are some of the tax proposals: The President’s plan could include provisions to increase business expense, by including provisions to extend the current $250,000 deduction on the acquisition of certain capital assets. Businesses receiving TARP assistance would be allowed a 5 year net operating loss carryback period. Restrictive provisions under the current tax code on built-in losses would be repealed.
- The House plan seeks to create opportunities for small businesses. The Small Business Administration would be given $430 million for new direct lending, and another $100 million for rural business grants and loans. The government would make $250 million available to create jobs in certain distressed urban areas, and would use $100 million to promote research and technology by small and mid-sized manufacturers.
- $6 billion in grants will be made available to give businesses and communities access to wireless and broadband services.
- $500 million would be made available to promote and develop energy efficient manufacturing.
The majority of the funds underlying the proposed stimulus package involves government spending. The plan as described is one that does not just create jobs but will purportedly add jobs in a manner which positions the country for continued economic prosperity by improving energy efficiency, infrastructure, education, and health care. The following is a sampling of the some of the proposed investment and spending provisions.
- Clean and efficient energy consumption is promoted through: $11 billion in spending to modernize the country’s electrical grid, $8 billion in loans for renewable energy power generation projects, and $2 billion in grants for energy research and development.
- Public buildings will be renovated to be made more energy efficient, through new insulation, windows, and energy efficient furnaces, including $6.7 billion on federal buildings, and $2.5 billion on HUD sponsored low-income housing.
- Contractors will be engaged to rebuild the country’s infrastructure, including $30 billion for highway and bridge construction, $10 billion for new construction, repairs and capital expenditures on transit and rail systems, $3 billion for airport improvement projects and $1.15 billion for port facilities.
- In addition to education grants and programs, educational facilities will be constructed, including $21 billion in school construction and classroom outfitting.
- $20 billion will be used to computerize health records and $550 million will go to modernize hospitals and clinics.
- $9.5 billion will be spent to upgrade wastewater treatment plants, and improve drinking water infrastructure.
New Jersey Stimulus Package
Similar to the Federal government’s plan, Governor Corzine’s stimulus package for the State of New Jersey focuses creating available credit, creating tax breaks for its resident individuals and businesses, and creating jobs while putting in place the critical infrastructure to sustain long-term economic growth.
With respect to spending on infrastructure, the New Jersey Economic Assistance and Recovery Plan proposes $1.8 billion for school construction and $3.3 billion for transportation spending. The New Jersey plan also mirrors the federal plans by focusing on green initiatives. The plans call for the construction of an off-shore wind farm and the creation of a fund to advance renewable energy technologies.
New Jersey will try to ease the credit crisis by stimulating New Jersey banks. The Governor has proposed that $500 million in State managed funds be invested in New Jersey banks in order to encourage those banks to make additional loans to New Jersey businesses. The Governor also wants legislation which would enable the New Jersey Division of Investments to invest in bonds issued by New Jersey municipalities and counties. Although details of these programs have not been released, it is hoped that the influx of funds would quickly benefit local businesses and municipalities.
The New Jersey package contains other elements which should provide opportunities or benefits to New Jersey businesses. Several of those beneficial elements have already been enacted into law, including the following:
- A $3,000 grant or tax credit will be available to any company that creates a job and retains that employee for a year. (Enacted December 9, 2008)
- A company is now permitted to carry forward its net operating losses for any tax period ending after June 30, 2009 for twenty (20) years following the year of the loss. Previously, New Jersey’s law only allowed corporations seven (7) tax years over which to carry and deduct a loss. (Enacted November 24, 2008)
- A law was enacted to repeal a provision of the New Jersey tax code whereby New Jersey taxed the out-of-state income of its corporate taxpayers in a situation where no other state taxes it, known as the “throw-out” rule. (Enacted December 9, 2008)
The House of Representatives’ proposed plan includes an approximately $4.3 billion in funds for New Jersey, which would certainly help subsidize New Jersey’s stimulus initiatives. It appears that most of the funds will be used to increase social programs and entitlements that will do little to increase private sector jobs. However, the funds targeted towards infrastructure improvements should create opportunities for businesses, particularly those in the construction industry. Below is a breakdown of the various programs and dollar amounts that New Jersey could expect to receive.
1 Proposed funding for New Jersey
|State budget stabilization aid (includes some school funding)||$1.7 billion|
|Highways and bridge projects||$777 million|
|Mass transit projects||$500 million|
|Public schools modernization, renovation and repair||$289.9 million|
|Modernization, renovation and repair of college buildings||$129.7 million|
|Employment and training programs||$64 million|
|Educational technology grants||$18.2 million|
|Individuals with Disabilities Act||$397 million|
|Funding for poor children, special education||$252 million|
|Upgrade law enforcement drug courts and gang prevention||$52.3 million|
|Low-income home energy assistance||$37.8 million|
|Child care and development block grants||$27 million|
|Head start programs for preschool children||$12.5 million|
|Preventive health services||$9 million|
|Elderly nutrition services||$5.2 million|
Although the recession is adversely effecting the vast majority of companies, there is still business to be done and opportunities to pursue. The stimulus packages being presented and pursued by the federal and state governments represent such an opportunity for many companies. Regulations are being enacted and proposed which can reduce a company’s taxable income, offer funds to pursue new research or technological renovations, or offer new work on infrastructure projects. An informed company can take advantage of these opportunities to help make it through the financial crisis and emerge a more profitable entity.
1Source: House Appropriation Committee as published in The Star Ledger, February 1, 2009, at 6.