The Inflation Reduction Act (IRA) is largely considered one of the most impactful pieces of legislation passed in America in recent memory, and the single largest investment in clean energy in the history of the nation.
The ramifications of the IRA are far-reaching in their long-term impacts on a variety of industries – not to mention the United States and the world as a whole. Of particular interest to organizations in the public sector are the ways that the IRA can support, benefit and provide financial support to public school districts.
What is the IRA?
Let’s start by discussing the basics of the IRA, which was signed into law on Aug. 16, 2022. The legislation provided $738 billion in funding and $499 billion in new spending and tax cuts as part of a 10-year plan to build a new, clean-energy economy, provide good-paying jobs, and cut pollution.
With the passage of the IRA (among other actions by the government and contributions by the population), the Department of Energy estimates the U.S. will be able to reduce economy-wide greenhouse gas emissions by 2030.
On a basic level, the IRA provides programs that encourage clean energy, clean vehicles, clean buildings, and clean manufacturing. This is accomplished by providing tax credits and deductions, grants and loans for qualifying projects.
Why is the IRA important to school districts?
The IRA provides school districts the ability to receive tax credits. Tax-exempt owners can receive a “direct payment” in the form of cash payment from the IRS. These include state and local governments, not-for-profits, tribes, and potentially schools. We won’t know if school districts are eligible for the direct pay provision for the IRA tax credits until guidance is issued on instrumentalities and whether or not they are eligible. In addition, school districts may have the ability to benefit from the Section 179D Energy Efficient Commercial Buildings Tax Deduction for their projects by working with their architects or engineers.
Assuming school districts will be included as eligible instrumentalities, they will be able to select from the two types of credits that have a clean energy focus – the investment credit, or the production credit. Investment credits can help with the upfront costs of installing a clean energy system, like solar or geothermal. Production credits are based on the projected amount of energy a system will produce.
Yet, what does all this mean for your school district? To determine that answer, we encourage you to ask yourself the following three questions. The discussion below assumes a “yes” answer to the initial question above – whether school districts are eligible to receive credit-based direct payments.