On 17 February, US President Barack Obama signed into law the American Recovery and Reinvestment Act (ARRA) of 2009. The stimulus legislation is set to have a profound impact on all aspects of the US economy, from infrastructure development and financial services reform to areas such as education and health care.
Careful analysis of this legislation, and of the planned implementation of its mandates by federal agencies and state and local governments in the US, reveals unique investment opportunities. The following are some industries presenting immediate options for both foreign and US investors.
Aviation: The stimulus legislation injects significant funds into the Federal Aviation Administration’s Airport Improvement Program (AIP), making grants available for projects to enhance airport safety, capacity and security, and to meet environmental concerns. The AIP will cover most airfield capital improvements and repairs. The stimulus legislation will make AIP grants available to large and small airports that have “shovel-ready” projects, and will not require recipients to obtain matching state funds, enabling airports to immediately commence improvement works.
Energy and climate change: The Department of Energy (DOE) has been awarded new mandates to quickly issue loan guarantees and grants to the energy industry. These will amount to billions of dollars for research and implementation in areas including renewable energy, energy efficiency, electricity transmission, smart grid projects, biofuels and clean coal. Investors seeking opportunities in the stimulus-qualified projects now on the DOE’s front burner will need to take into account the necessary regulatory requirements, such as Federal Energy Regulatory Commission or state utility commission approvals, federal lands or environmental permit requirements and National Environmental Policy Act compliance obligations.
Environment: With the stimulus package providing some US$3.4 billion in funding for low-carbon fossil fuel research and development, investment opportunities are waiting in areas such as carbon capture, carbon sequestration, and the advanced air pollution control technology that is needed to make these energy production techniques commercially viable. The stimulus package will support the construction of wastewater treatment and drinking water projects, as well as watershed development and flood prevention projects.
Higher education: Numerous provisions aiming to support and improve higher education infrastructure and provision are included in the stimulus plan. It establishes a US$53.6 billion state fiscal stabilization fund, in part to help public colleges and universities reduce budget shortfalls, and to help both public and independent colleges and universities renovate and modernize their facilities.
The plan apportions billions of dollars to the National Science Foundation, the National Institute of Health, the National Institute of Standards and Technology and other government agencies to make research and research-related grants, including grants to build or renovate research facilities. The legislation also includes several favourable provisions which enable tax-exempt bond financing.
International trade: Section 1605 of the ARRA imposes potentially sweeping “buy American” restrictions requiring “all of the iron, steel, and manufactured goods” used in an ARRA-funded project to be “produced in the United States”. This requirement is subject to limited exceptions, based on “public interest”, the unavailability of domestically produced articles in sufficient quantity or quality, or where the use of domestically produced articles would increase the cost of the overall project by more than 25%.
The legislation states that the buy American provision is to be “applied in a manner consistent with the United States’ obligations under international agreements”. This has been interpreted to mean that countries currently enjoying preferential access to US government procurement under the WTO Government Procurement Agreement, or under various free trade agreements, will continue to maintain such access notwithstanding the buy American provision.
Countries not covered by such agreements – including India, China and Brazil – will be subject to the restrictions. The White House is currently coordinating efforts across relevant agencies to determine and advise on how the restriction will be applied (possibly issuing an interim regulation), and to address critical questions such as how the terms “manufactured goods” and “produced in the United States” will be defined.
Surface transportation: The ARRA provides billions of dollars for eligible rail and surface transportation projects, including US$8 billion for intercity high speed rail services, US$1.5 billion in discretionary transportation grants for passenger rail, freight rail, and other significant surface transportation projects, and US$6.9 billion for transit capital assistance grants for light rail and other rail systems.
These and other areas such as financial services assets will continue to offer significant investment opportunities. Smart investors who can navigate the US regulatory thicket stand to realize returns unexpected in this global environment.
Waajid Siddiqui is a partner at New York-based law firm Hogan & Hartson. The firm has 1,100 lawyers in 27 global offices.
875 Third Avenue,
Tel: +1 212 918 3000
Fax: +1 212 918 3100
555 Thirteenth Street,
Tel: +1 202 637 5600
Fax: +1 202 637 5910