Recent Developments in the Receipt and Distribution of Federal Stimulus Funds in Illinois

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1 Government Contracts Client Alert September 2009 Recent Developments in the Receipt and Distribution of Federal Stimulus Funds in Illinois By Anita Ponder and Cynthia Park President Barack Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA) on February 17, 2009, requiring $787 billion of stimulus funds to be allocated to jumpstart the U.S. economy and save or create millions of jobs. The state of Illinois anticipates receiving approximately $8.3 billion in stimulus funds by the end of fiscal year As of September 2009, the federal government had announced $10.6 billion of stimulus funds to be distributed to the state of Illinois, made $8.6 billion available for state of Illinois projects and paid out $4.3 billion to the state. The state of Illinois is investing approximately $935 million of stimulus funds in roads, highways and bridges, and as of August 2009, it had spent $170.6 million in highway stimulus funds, the most in the country and more than double the expenditures of the next highest state, Iowa. Illinois also ranked third in the nation overall for the speed at which it spent stimulus funds, based on the dollars spent as a percentage of dollars available to states. The federal government estimates ARRA will create and save 148,000 jobs in Illinois over the next two years. As of July 2009, Illinois had created or sustained 15,388 jobs in infrastructure as a result of ARRA, more than any other state. Drinker Biddle has extensively reviewed, monitored and evaluated several provisions of ARRA. The firm s Government and Regulatory Affairs Group and its Government Contracts Team has been tracking the receipt and distribution in Illinois of stimulus funds, and has been making regular presentations to clients regarding these stimulus developments during the Government Contracts Team s meetings of the Government Contractors Business Forum. This Client Alert outlines some of the stimulus developments in Illinois since May 2009 in the areas of transportation and infrastructure, environment and energy-efficiency, and small businesses. Recovery Report: 100 Days, 100 Projects The ARRA turned 100 days old on May 28, To mark the occasion, Vice President Joe Biden released a report titled Recovery Report: 100 Days, 100 Projects, on the

2 results of the $787 billion piece of legislation. The administration said that $112 billion from ARRA had been obligated to programs and projects so far, and that ARRA had already created or saved 150,000 jobs. The Republican National Committee argued that after 100 days, the stimulus has produced waste and fraud, but no jobs. Several Illinois projects were highlighted in this report: > In May 2009, Illinois Department of Transportation (IDOT) began its first ARRA-funded project, a new $8 million repair project for pothole-plagued Interstate 74 in Peoria County. > Amtrak was spending $1.5 million to replace wood ties on tracks in various states including Illinois, Michigan, Louisiana and Florida. > Shawnee Health Service and Franklin-Williamson Human Services in Williamson County, Illinois received two Community Facility Loans totaling $2.78 million to construct two new medical buildings. > Five Illinois universities and a hospital would divide $2.5 million in federal stimulus funding for biomedical research and training. The Second Federal Stimulus Report: Road to Recovery Vice President Biden released a second report, called Road to Recovery, in which he revealed the commitments made by the federal agencies to accelerate the implementation of the Recovery Act in the next 100 days. The administration said that ARRA would create or save more than 600,000 jobs in the second 100 days. House Republicans argued that while Democrats said ARRA would immediately create jobs, nearly 4 months later unemployment has continued to climb and none of their rosy predictions have come true. The following are federal agency commitments in connection with Illinois: > U.S. Department of Health and Human Services: Stimulus funds will enable 1,129 health centers in 50 states to provide expanded service to 300,000 patients by increasing grants to support health care centers. > U.S. Department of Transportation: Stimulus funds will assist with the construction of additional airport runways to increase capacity as well as repaving roads to increase travel efficiency. > U.S. Department of Agriculture (USDA): The Rural Development Water and Waste Disposal loan and grant program will use stimulus funds to build drinking water, sanitary sewer, solid waste and storm drainage facilities in rural communities of 10,000 or fewer people. > U.S. Department of Veterans Affairs: Stimulus funds will be used for upgrades and improvements at 90 Veterans Affairs Medical Centers across 38 states, including Illinois. Projects will be dedicated to improving the Medical Centers renewable energy systems, as well as modernizing and replacing care facilities and infrastructure systems. > U.S. Environmental Protection Agency (EPA): Stimulus funding will begin or accelerate ongoing cleanup activities or initiate new construction projects at 20 Superfund sites, including one in Illinois. 2

3 > U.S. Department of Defense: Stimulus funding will be used to make building safety improvements, repair and improve personnel living quarters and begin solar energy projects at over 350 military installations including in Illinois. Transportation and Infrastructure > At the end of May 2009, the Chicago Transit Authority (CTA) received $88 million of stimulus funds that were used to replace rails, but still had approximately $6.5 billion of unfunded infrastructure repairs and capital plans. > As of early May 2009, Peoria Airport will have received $6.3 million from ARRA to help build a new terminal. The terminal project, which began last fall with concrete apron work, continues with footings being poured for the building. The new terminal is scheduled to be completed by October 2010 and will replace the current terminal building, which is nearly 60 years old. > At the end of May 2009, Sen. Dick Durbin (D-Ill.) announced that nine Illinois National Guard readiness centers would receive stimulus funds earmarked for defense department facilities, including $625,000 for the Elgin Armory, to be used to renovate the 71-year-old facility. The work includes a revamp of the building s basic structure, as well as repairs and updates to its exterior walls and interior heating, cooling and water systems. > In June 2009, the U.S. Treasury Department allocated $25 billion of Recovery Zone Bonds for states, counties and large municipalities that may be issued within each state before January 1, Recovery Zone Bonds provide tax incentives for state and local governmental borrowing at lower borrowing costs to promote job creation and economic recovery that is targeted to areas particularly affected by employment declines. There are two types of recovery zone bonds provided for in ARRA: $10 billion of Recovery Zone Economic Development Bonds (RZEDBs) and $15 billion of Recovery Zone Facility Bonds (RZFBs). RZEDBs may be used to finance certain qualified economic development purposes, including (1) capital expenditures paid or incurred with respect to property located in the recovery zone, (2) expenditures for public infrastructure and construction of public facilities, and (3) expenditures for job training and educational programs. RZFBs function similarly to exempt facility private activity bonds, but must be used to finance recovery zone property in recovery zones. A recovery zone is defined as any area designated by the issuer as having significant poverty, unemployment, rate of home foreclosures or general distress; economic distress because of the closing or realignment of a military installation; or designated as an empowerment zone or renewal community before ARRA was signed into law. The RZFBs must be used for recovery zone property, defined as property that was constructed, reconstructed, renovated or acquired by purchase after it was deemed in a recovery zone; property first used in a recovery zone by the taxpayer; and substantially all the property is located in the recovery zone and is being 3

4 used as a qualified business. A qualified business is any trade or business except residential rental property or certain businesses such as private golf courses, massage parlors, gambling facilities or liquor stores. Illinois is expected to receive a total of approximately $670 million in RZEDBs and $1 billion in RZFBs. > Illinois is using its funding for shovel-ready projects that largely involve road paving. More than 70 percent of Illinois funds that had been obligated as of June 25, 2009, were for pavement improvement projects totaling approximately $496 million. For example, $3.1 million has been obligated for resurfacing of 11 miles of IL Route 47 in Grundy County. > As of early June 2009, nearly $40 million has been programmed to date for transportation improvements in Lake County, including more than 19 miles of roads and one bridge deck resurfacing. > The ARRA has set aside $8 billion for high-speed rail and 10 major corridors are competing to receive some of these funds. In June 2009, Karen Rae, Deputy Administrator of the Federal Railroad Administration, praised the California corridor for approving $10 billion in state bonds to build highspeed rail and the Midwestern corridor for achieving multi-state cooperation. The Midwestern corridor comprises rail across eight Midwestern states: Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio and Wisconsin. The Federal Railroad Administration plans to release the first of two rounds of grants by mid-september. In addition, the U.S. House s Committee on Transportation and Infrastructure prepared a highway and transit reauthorization proposal that proposes spending an additional $50 billion on high-speed rail. > In June 2009, the Obama administration announced that every state has committed at least half of its highway stimulus funds, so none will lose any of its allocation. The Federal Highway Administration had approved a total of $15.8 billion for more than 4,800 projects as of June 25. States, however, had spent less than $190 million as of June 19, according to federal data. While some states had yet to claim any funds, Illinois has spent the most, claiming more than $47.6 million of the $664 million allocated as of June > As of June 2009, Metra, northeast Illinois commuter rail agency, had received $140.9 million in stimulus funds. It had awarded a $68.6 million contract to Progress Rail Services to remanufacture 40 additional F40PH locomotives. Metra also awarded a $1.4 million contract to Fiber-Tel to provide the telecommunications component of a fiber-optic network to be installed on the agency s Chicago-to-Aurora commuter-rail line. > Some Illinois road and bridge construction firms have landed stimulus transportation contracts in Wisconsin that are worth several millions of dollars. For example, as of early June 2009, Walsh Construction Co. from Chicago had secured two contracts worth $82.78 million. Era Valdivia Contractors, Inc. from Chicago had secured four contracts worth $3.84 million and Merryman Excavators from Woodstock, Illinois, had secured one contract worth $923,000. 4

5 > Illinois is utilizing stimulus funds for a $9.3 million project to rebuild six dangerous center-access entrance ramps to the Kennedy Expressway. Work on this project began on July 20, > In July 2009, Gov. Pat Quinn signed the $31 billion Illinois capital bill that, among other provisions, provides $400 million for high-speed rail, $150 million for Amtrak-related improvements and $300 million for the Chicago Region Environmental and Transportation Efficiency program, or CREATE, addressing many of the bottlenecks in the Chicago area that have plagued freight and passenger trains nationwide. This legislation is deemed by some as increasing the state s chances of receiving a portion of the $8 billion of high-speed rail ARRA funds. > As of August 2009, the DuPage County Division of Transportation is expected to receive $3.6 million in stimulus funds through the DuPage County Mayors and Managers Conference, the organization designated to select and program local transportation projects in the DuPage County region to be funded by ARRA, for projects that are not expected to begin until > As of August 2009, according to the Federal Highway Administration, Illinois had spent the most amount of ARRA highway funds, totaling approximately $170 million, more than double the expenditure of Iowa, the next highest state. It had also initiated 239 of its 409 projects, the most highway projects in the nation, and completed 45 of them. > In August 2009, the Regional Transportation Authority received $33 million to purchase up to 59 fixed-route buses and up to 190 paratransit vehicles. > Pace and the Illinois State Toll Highway Authority plan to apply for $200 million in stimulus funds by mid-september 2009, for express buses and high-occupancy toll roads on the Tri-State Tollway, which could be opened in early > A study released by Chicago Public Radio in September 2009, showed that, based on information from IDOT, if the state of Illinois disadvantaged business enterprise (DBE) goals for individual projects were met and never exceeded, the percent of stimulus work going to DBEs would be 8 percent, which appears to indicate that Illinois is setting individual project goals too low to meet its target overall DBE goal of percent. Environmental and Energy-Efficiency > In June 2009, Sen. Durbin announced that a combined $6 million in stimulus funds will go toward restoring floodplains in eight Illinois counties, including buying easements to land that has been damaged by flooding. The USDA would then fund conservation work that restores the land to its natural state. > In June 2009, Gov. Pat Quinn s office and the Illinois Environmental Protection Agency (IEPA) announced that Wauconda in Lake County will receive $1.5 million in stimulus funds for a water project, including a new well and water treatment plant. > In June 2009, the U.S. Department of Energy pledged about $1.1 billion of the total $2.4 billion it is expected to cost to build a clean coal plant in Mattoon, Illinois. 5

6 > The city of Chicago s Multi-Family Energy Retrofit Program introduced a model for retrofit delivery that relies on private sector financing and energy service companies. The Program applies the model of private energy service companies (ESCOs), to the affordable, multi-family housing market. ESCOs conduct assessments of building energy performance, identify and oversee implementation of cost-effective retrofit measures and guarantee energy savings to use as a source of loan repayment. As of July 2009, four large ESCOs had agreed to partner with the program, and four banks, in the process of drafting program-specific contracts, are arranging a total of $5 million in loans. > In July 2009, the Brookings Institution, a nonprofit public policy organization based in Washington, D.C., issued a series of policy briefs and Design Snapshots of various local and regional recovery programs intended to implement ARRA. Among the Chicago-based programs featured was the Center for Neighborhood Technology (CNT), a Chicago-area nonprofit organization promoting urban sustainability, working to implement a centrally-coordinated initiative to manage the financing, marketing, performance monitoring and certification, information provision, supply chain development and customer assistance required for the delivery of retrofit services for buildings in the Chicago region. > As of July 2009, the IEPA had received $7.4 million in stimulus funds to help pay for the removal of leaking underground tanks, piping and contaminated soil at 28 locations in Illinois. The IEPA is expected to use the stimulus funds to clean up orphan sites, for which no responsible parties are available to pay for the cleanup. > As of August 2009, the Building Owners and Managers Association of Chicago was applying for more than $90 million in stimulus funds to retrofit downtown Chicago buildings with high-tech electric meters. The Association is expected to be one of few organizations to apply to receive a portion of the $3.7 billion of stimulus funds designated for smart meter upgrades, most of which will likely be awarded to utility companies that are upgrading their meter systems. > In August 2009, the U.S. Department of Energy approved the state s application for $101 million to fund Illinois State Energy Plan, to promote energy savings, the creation or retention of jobs, increasing use of renewable energy and reduction of carbon pollution. Illinois will receive $40.5 million for energy-efficiency grants and $50 million to fully fund the program after demonstrating its performance, plus administrative expenses. Applications for grants are available at: > In September 2009, the Illinois Institute of Technology announced a $120 million statewide initiative to speed the adoption of a Smart Grid in Illinois. It is leading the Illinois Smart Grid Collaboration with the University of Illinois at Urbana-Champaign, state of Illinois, city of Chicago, Oak Park, Galvin Electricity Initiative and more than 50 companies to make Illinois a hub for Smart Grid technology. The Illinois Smart Grid Collaboration is applying 6

7 for $60 million in federal stimulus funds out of the $615 million set aside for regional demonstration projects that can quantify Smart Grid costs, demonstrate the benefits of large-scale adoption, verify technology viability and examine new business models. > As of September 2009, Illinois will receive more than $21.8 million in stimulus funds for programs that lower energy use, reduce carbon pollution and create green jobs. The Illinois Association of Regional Councils will administer the funds for initiatives such as energy efficiency upgrades and renewable energy projects. Financial assistance will be made available to state fleets of vehicles to purchase hybrid, electric or alternative-fueled cars. Small Businesses > In May 2009, Illinois State Treasurer Alexi Giannoulias said that under ARRA, small business owners may benefit from fee waivers, percent loan guarantees and deferred loan payments. > According to the U.S. Small Business Administration (SBA), as of early June 2009, the volume of loans being issued to small businesses with SBA help is up 30 percent since ARRA was signed into law. > As of the beginning of June 2009, the SBA has supported more than $178 million in stimulus-related loans in Illinois. > At the end of June 2009, U.S. Treasury Secretary Timothy Geithner unveiled $90 million in financial assistance awards for community development organizations in 26 states, including Illinois, and Puerto Rico. The awards will help generate capital for small businesses, mortgage loans for homeowners, and funding for affordable housing projects and other facilities in communities across the country. > As of August 2009, according to the SBA, 860 Illinois small businesses had received financial assistance since the passage of ARRA, which sets aside $733 million for SBA loan incentives and waives borrowers fees. > From February to August 2009, Illinois borrowers had saved $4.8 million in fees on 861 loans totaling $351.3 million, counting all types of SBA loans. The Government Contracts Team and the Government Contractors Business Forum is led by partner Anita Ponder in our Chicago office. Cynthia Park is a lawyer on the Government Contracts Team and coordinator of the Government Contractors Business Forum. If you have questions regarding the Government Contractors Business Forum, or receipt and distribution of stimulus funds in Illinois, particularly with respect to transportation and infrastructure, environment and energy-efficiency, and small businesses, please contact Anita Ponder at Anita.Ponder@dbr.com or (312) , Cynthia Park at Cynthia.Park@dbr.com or (312) , or your regular Drinker Biddle Government Contracts contact Drinker Biddle & Reath LLP. All rights reserved. A Delaware limited liability partnership Jonathan I. Epstein and Edward A. Gramigna, Jr., Partners in Charge of the Princeton and Florham Park, N.J., offices, respectively. This Drinker Biddle & Reath LLP communication is intended to inform our clients and friends of developments in the law and to provide information of general interest. It is not intended to constitute advice regarding any client s legal problems and should not be relied upon as such. CALIFORNIA DELAWARE ILLINOIS NEW JERSEY NEW YORK PENNSYLVANIA WASHINGTON DC WISCONSIN 7