The Let Inflation Rip Act – Expanding the Reach of the Davis-Bacon Act Under the Guise of Clean Energy Incentives
“That helps like jumping helps get you closer to the sun.”
--unknown.
It is hard to see how the so-called Inflation Reduction Act (“IRA”) of 2022 will reduce inflation by requiring Davis-Bacon Act (“DBA”) wages and benefits be paid on private construction projects in order for the project owner to be eligible for federal tax breaks. And in what has been the most grossly government stimulated economy ever, it doesn’t make much sense here at the tail end, after inflation hits over 9% at one point, to further stimulate the economy by offering even more clean energy tax breaks in return for employer’s paying even higher wages. Last time I looked, higher wages were inflationary. It is enough to make one feel sorry for the corner the Federal Reserve has been backed into. And, as for the name of the law, this is perhaps the most cynical statutory name ever. Be that as it may, Congress in its wisdom has spoken, and the Department of Labor must obey.
On August 16, 2022, President Biden signed Public Law 117-369, 136 Stat. 1818, also known as the Inflation Reduction Act (“IRA”) of 2022, into law. The IRA is focused on investment in clean energy. It pairs twin goals – green climate investment with the support of union set wages. The IRA fights a two-front war involving somewhat inconsistent goals, making progress on the climate crisis while trying to boost job quality, pay and opportunities in clean energy industries of the future.
To meet these divergent goals, the IRA offers enhanced tax benefits for a range of energy projects when taxpayers pay DBA prevailing wages and benefits as well as utilize registered apprentices in performing the work. Those projects include tax benefits for:
· Alternative Fuel Refueling Property Credit
· Production Tax Credit
· Credit for Carbon Oxide Sequestration
· Credit for Production of Clean Hydrogen
· Clean Fuel Credit
· Investment Tax Credit
· Advanced Energy Project Credit
· Energy Efficient Commercial Buildings Deduction
· New Energy Efficient Home Credit
· Zero-Emission Nuclear Power Production Credits
It is notable that not all these projects are “clean energy”. The IRA is basically an all hands on deck tax break scramble for every kind of energy. It is also notable that the new Energy Efficient Home Credit presumably can furnish a tax break to individual homeowners if they were able to navigate the twists of the Davis-Bacon Act.
On November 30, 2022, the U.S. Department of Treasury and the Internal Revenue Service published guidance on the IRA's prevailing wage and apprenticeship requirements. The publication of this guidance means that in order to receive increased incentives, taxpayers must meet the prevailing wage and apprenticeship requirements for facilities where construction begins on or after January 29, 2023.
The U.S. Department of Labor also recently gave some online educational webinars on the labor standards provisions contained in the Inflation Reduction Act and Treasury Guidance. Those webinars basically told energy project owners and contractors that they needed to do both the contracting agency’s job and the contractor’s job when it comes to wage and hour compliance. And they said nothing substantive about what the Wage and Hour Division (“WHD”) intended to do contractors who proved to be noncompliant. Will they owe back wages and fringe benefits for their noncompliance? Can they be debarred? How will their tax benefits be clawed back for noncompliance? No doubt the answers will be yes, yes, and most swiftly.
Of course, if project owners are willing to forgo the tax breaks, then they can dodge the Davis-Bacon Act compliance issues and costs. You only have to comply if you want the tax break. But if you can’t resist the tax carrot being dangled, then get your self some compliance advice and go to www.dol.gov/general/inflation-reduction-act-tax-credit for additional resources and guidance.