Section 1603 cash grants have been something of a regulatory moving feast. When introduced by the ARRA in 2009 as an alternative to the crisis-KO’ed production tax credit (PTC) and investment tax credit (ITC), investors responded to the promise of king-lier than ever cash with a certain amount of faith that regulators would heed the stimulus spirit as flesh was put on the 1603 bones. For the most part, the DoE, Treasury and IRS have rewarded this faith; key guidance (e.g. relating to eligibility, transferability, construction start dates, etc.) generally reflecting the interest of those regulators in a fluid/pragmatic public-private partnership.

Recently, that apparent spirit of cooperation took a surprising blow when the Office of Management and Budget (OMB) included Section 1603 grants on its list of budget items subject to a “mandatory” 7.6% sequestration. What this appears to mean (Akin Gump’s “Renewable Energy Treasury Grant Program Included in Fiscal Cliff Sequestration” notes the absence of any explicit knife-wielding methodology) is that unless sequestration is replaced or extended by year end, Section 1603 grants will be reduced by 7.6% across-the-board. One can imagine the frustration/anger of grant recipients that the key term of the deal (i.e. the size of the cash grant) would suddenly and unilaterally be changed; especially given that any grant slashed in 2013 would be in respect of projects commenced between 2009 and 2011 (and in most cases largely completed).

potential haircuts may lead to a rush of applications this fall to try to receive grants before any haircuts apply.” – Chadbourne & Parke

Akin Gump writes that “weeks before the OMB report, Treasury officials had informally indicated that they did not believe that the Treasury grant was within the scope of sequestration, and none of the grant guidance published on the Treasury’s webpage indicated that sequestration was in the offing.” Hardly a comfortable place for Treasury, which looks to have either been caught off-guard by OMB, or worse from a reputational standpoint, less than forthright with its guidance. Does this inter-agency dissonance suggest that the sector may have a lever or two to pull in the weeks ahead? Maybe. Akin Gump continues “in terms of the Treasury grant program receiving some relief from the application of sequestration, OMB has authority with respect to how sequestration will take effect; however, it is not clear yet to what extent it will defer to Treasury with respect to the grant program. Thus, both agencies should be consulted on these matters.”

Chadbourne & Parke’s “Section 1603 Payments May Face Haircut” pins the hopes of Section 1603 grantees on an extension of the sequestration deadline. Predictably, your chances of a reprieve depend on who you ask. Chadbourne reports “Rep. Chris van Hollen, a Democratic spokesman on budget issues, said last week that the issue is not whether, but how sequestration will be averted. However, House Speaker John Boehner said last week that he is pessimistic a deal can be worked out.” Want to do more than sit back and rely on Congress? Get your project in service if at all possible. Chadbourne counsels “potential haircuts may lead to a rush of applications this fall to try to receive grants before any haircuts apply. However, final grant applications cannot be submitted until projects are in service.”