Capitol Hill is usually a hive of offices buzzing with action and deal-making, but the anxiety about the state of the economy was palpable when I was walking the halls of Congress in early March 2009. When I met with U.S. Representatives, Senators, and their senior staff members, nearly every conversation included discussion or debate about Washington’s recent attempt to stimulate the nation’s economy through passage of the American Recovery and Reinvestment Act of 2009 (“Stimulus Act”). Many policymakers wanted to focus on stimulating investment in new technology and increasing spending for existing technology products and services. As a result, the Stimulus Act contains many provisions affecting technology and technology companies.
Technology Spending and Incentives
The Stimulus Act is 402 pages long. Despite its length, it makes very general allocations of funds, while leaving the true details of such allocations to federal and state agencies. Many of the details related to technology spending and incentives have emerged over the last several weeks. Although there are many unsettled variables in play, an understanding of the opportunities that may be available to obtain much needed funding is essential in order for a technology company to benefit from the Stimulus Act.
What does the Stimulus Act actually do? It allocates $789.5 billion in an attempt to alleviate the ongoing economic crisis and save jobs. Of that $789.5 billion, approximately $288 billion is dedicated to tax cuts and credits (which will not be discussed in this article), while the remaining $501.5 billion is appropriated to the federal and state governments for spending (“appropriated funds”). Of the appropriated funds, $225 billion is allocated among the states based on existing formulas, and $276.5 billion is appropriated directly to various federal agencies to be spent on existing and future needs.
Digging deep into the details of the pot of appropriated funds reveals some interesting opportunities for technology companies:
- Department of Energy: $38.725 billion will be used on spending programs related to technology and energy, including $6 billion to promote biofuel alternatives, $3.4 billion for fossil fuel energy research, $4.5 million for improved electricity grid technology, and $3.2 billion for energy efficiency block grants to states. North Carolina is expected to receive approximately $266 million in Department of Energy stimulus funds for weatherization, the state energy program, and conservation block grants. This amount does not include individual and institutional grants awarded through national programs.
- Broadband Technology Opportunities Program: $4.2 billion will be used to provide rural and underserved areas with broadband access to the Internet. Funding can go toward research and development, implementation, education, training, and access, with an emphasis on program spending for schools, libraries, health care providers, community colleges, and other community support agencies.
- Health Information Technology (“HIT”): Up to $19 billion is designated for the development and implementation of a nationwide HIT system.
- National Institute of Standards and Technology: $240 million is designated for in-house research and development efforts, competitive grants, additional research fellowships, advanced research, and measurement equipment and supplies.
- Department of Defense, Office of Research, Development and Acquisition: $300 million will be used for research, development, testing, and evaluation projects for improvements in energy generation and efficiency.
- Homeland Security: $100 million will be used to award grants and government contracts for the expedited development and deployment of border security measures.
Don’t Overlook the Details and Conditions on Funding
While grabbing a share of the appropriated funds is an enticing prospect for technology companies, the funds don’t come without strings. The Stimulus Act imposes important regulations and conditions that have not been widely discussed:
- Every dollar of appropriated funds must be spent through a government program. The Stimulus Act does not allow the federal government to make direct grants or loans of appropriated funds to individuals or businesses. Although many will receive some tax cuts and credits, all actual spending for services and goods will be funneled through existing federal and state agencies.
- The appropriated funds are subject to the federal “prevailing wage” law. The federal law commonly called the Davis-Bacon Act requires government contractors and subcontractors to pay the “prevailing wage” to all workers employed on federally-funded projects. The “prevailing wage” is determined by the federal government and is highly regulated. Most state and local government projects funded by the Stimulus Act will be subject to the Davis-Bacon Act for the first time.
- A new federal agency, the Recovery Accountability and Transparency Board (“Board”), will monitor and oversee all Stimulus Act funding. The Board is charged with preventing fraud and waste, and it must report its findings to Congress. If the Board identifies any fraud, waste, or other violation of the Stimulus Act, it can conduct formal investigations, subpoena witnesses, and refer matters to the U.S. Department of Justice for criminal or civil prosecution. The Board’s investigative powers will extend to both general contractors and subcontractors on projects funded by the Stimulus Act. Even for businesses with significant government contracting experience, there will be a need to appreciate and understand this new oversight process.
- The Stimulus Act provides whistleblowers with additional protections. To assist in achieving the goal of reducing waste and fraud, the Stimulus Act imposes extensive and complicated procedures designed to encourage federal, state, and private employees to report possible wrongdoing. For purposes of the Stimulus Act, wrongdoing includes not only illegal acts, but also mere wasteful spending and danger to the public associated with the use of such funds. A reporting employee will be afforded additional protections from retaliation for whistleblowing. Because private contractors who work on Stimulus Act projects will be subject to this new provision, all such contractors should review the whistleblower provisions in their government-funded contracts carefully and ensure that their practices comply with the law. If not, a reporting employee could report such contractor, and have enhanced protections for doing so.
- New “Buy American” requirements are imposed. Although the Stimulus Act’s “Buy American” regulations are much less protectionist than earlier versions of the legislation and are designed not to violate existing United States international trade agreements, they do require recipients of Stimulus Act funding to keep track of the origin of raw materials and components. Each funding agency has its own variation of the “Buy American” rule, so contractors working for any agency must assess their particular situation carefully to see that their policies are in line with the rules of the funding agency.
Conclusion
The Stimulus Act presents many opportunities for businesses wanting to benefit directly from the increased federal spending in technology. Technology companies should identify those portions of the Stimulus Act of most interest to them and investigate the opportunities to benefit from the funding.
For further information regarding the issues described above, please contact James W. Norment.
