The American Recovery and Reinvestment Act (ARRA) of 2009, includes changes to the health benefit provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly referred to as “COBRA.” Under the new law, employees who lose their jobs involuntarily between September 1, 2008, and December 21, 2009, and who were enrolled in their employer’s health plan at the time they lost their job will be required to pay only 35 percent of the cost of their COBRA coverage if they wish to participate in their former employer's health insurance plan for the first nine of 18 months for which they are COBRA eligible.
Employers, including cities, will be required to pay the remaining 65 percent of the premium, but will be entitled to a credit for that payment on their quarterly payroll tax return.
The Internal Revenue Service (IRS) has issued a number of documents designed to assist employers, including cities, with COBRA benefits for their involuntarily terminated employees. The IRS documents cover a range of issues and provide information to employers and employees alike and can be found at www.irs.gov.
The specific documents include:
- An extensive set of questions and answers for employers on the COBRA subsidy, the circumstances under which employees are eligible to receive this special COBRA benefit, and the ways in which employers receive a tax credit for paying 65 percent of the employees COBRA premium: http://www.irs.gov/newsroom/article/0,,id=204708,00.html.
- Information on Form 941, the Employer's Quarterly Federal Tax Return, that employers will use to claim credit for COBRA subsidies and instructions on how to complete Form 941 to receive the COBRA credit: http://www.irs.gov/pub/irs-pdf/i941.pdf.
- A PDF version of the new Form 941: http://www.irs.gov/pub/irs-pdf/f941.pdf.
These documents provide detailed information that cities will need to obtain the COBRA credit for employees who have to pay only 35 percent of their COBRA health insurance premiums and for which the city, as employer, will have to pay 65 percent.
The Department of Labor has also issued several documents that help explain how the new COBRA benefit should be implemented. You can find those documents at http://www.dol.gov/ebsa/cobra.html. Included are:
- COBRA Premium Reduction Fact Sheet: http://www.dol.gov/ebsa/newsroom/fsCOBRApremiumreduction.html.
- Job Loss Poster (11" x 17"): http://www.dol.gov/ebsa/pdf/joblossposter1.pdf.
- Flyers for Employers and Employees: http://www.dol.gov/ebsa/pdf/cobrastimulusflyer1.pdf and http://www.dol.gov/ebsa/pdf/cobrastimulusflyer2.pdf.
The National League of Cities will continue to monitor both the Department of Labor and Internal Revenue Service Web sites to ensure that cities are alerted to the most current and accurate information about implementing the COBRA benefit. Questions about implementing this benefit you should be directed to the local IRS office or Department of Labor regional office. Department of Labor regional office contact information is available at http://www.doleta.gov/regions/regoffices/.
Posted March 23, 2009: Government Contract Withholding: Section 511 of federal Tax Reconciliation Act (P.L. 109-222: H.R. 4297) mandates that federal, state, and local governments with annual expenditures of $100 million or more withhold three percent from payments for goods and services.
The ARRA delays by one year the implementation of the withholding requirement, with the new effective date being January 1, 2012.
In December of 2008, the Internal Revenue Service issued a proposed rule to implement the withholding requirement, and comments were due by March 5, 2009. See 73 FR 74082.
Posted March 23, 2009: Infrastructure Financing Tools - Tax Credit Bond Option for State and Local Governments (“Build America Bonds”): The federal government provides significant financial support to state and local governments through the federal tax exemption for interest on municipal bonds, which reduces the cash interest payments that a state or local government must make on its debt. Tax credit bonds differ from tax-exempt bonds in two principal ways: (1) interest paid on tax credit bonds is taxable; and (2) a portion of the interest paid on tax credit bonds takes the form of a Federal tax credit. The federal tax credit offsets a portion of the cash interest payment that the state or local government would otherwise need to make on the borrowing. For 2009 and 2010, the ARRA provides state and local governments with the option of issuing a tax credit bond instead of a tax-exempt governmental obligation bond. Because the market for tax credits is currently small given current economic conditions, the bill allows the state or local government to elect to receive a direct payment from the federal government equal to the subsidy that would have otherwise been delivered through the federal tax credit for bonds.
Posted April 6, 2009: A detailed fact sheet is available here: http://www.treas.gov/press/releases/docs/BuildAmericaandSchoolConstructionBondsFactsheetFinal.pdf
Posted March 23, 2009: Elimination of Costs Imposed on State and Local Governments by the Alternative Minimum Tax. The alternative minimum tax (AMT) can increase the costs of issuing tax-exempt private activity bonds imposed on state and local governments. Under previous law, interest on tax exempt private activity bonds is generally subject to the AMT. This limits the marketability of these bonds and, therefore, forces state and local governments to issue these bonds at higher interest rates. Last year, Congress excluded one category of private activity bonds (i.e., tax exempt housing bonds) from the AMT. The ARRA excludes the remaining categories of private activity bonds from the AMT if the bond is issued in 2009 or 2010. The ARRA also allows AMT relief for current refunding of private activity bonds issued after 2003 and refunded during 2009 and 2010.
Posted March 23, 2009: The U.S. Department of Commerce Economic Development Agency is accepting applications and grant proposals for stimulus projects as well as disaster rebuilding from the hurricanes: http://www.eda.gov/InvestmentsGrants/FFON.xml.
Posted April 20 (From the National League of Cities): Federal Davis-Bacon Wage Requirements Apply to ARRA Funds: According to the U.S. Department of Labor, Wage and Hour Division, any laborers or mechanics employed by contractors or subcontractors on projects that are funded in whole or in part with ARRA funds must be paid in accordance with prevailing wage requirements as determined by the Secretary of Labor in accordance with Subchapter IV of chapter 31 of Title 40 of the U.S. Code (commonly called “Davis-Bacon and Related Acts”). Contracts must include language that acknowledges that all contractors or subcontractors must pay wages that are not less than those established for the locality of the project (i.e., prevailing wage rates). 29 CFR 5.5. Most importantly, the exemption for projects costing less than $2,000 does not apply to ARRA projects. All projects, regardless of cost, are subject to Davis-Bacon under the ARRA.
The U.S. Department of Labor (DOL) determines and publishes prevailing wage rates for the various regions of the country. A city that needs information about the prevailing wages in its community should contact the DOL regional office serving its geographic location. A list of the regional offices with contact information is available here: http://www.dol.gov/esa/contacts/whd/america2.htm#content.
The DOL regional offices may also provide guidance as to where the required weekly payroll submissions referenced in the Davis-Bacon regulations (See 29 CFR 3.3 and 3.4) should be sent.
General information about the Davis-Bacon Act and other prevailing wage information is available here: http://www.dol.gov/esa/whd/programs/dbra/faqs.htm.
Posted May 11 (From the National League of Cities): USDA has released grant guidance for $13.4 million to expand broadband service to rural areas. Local governments are eligible to apply for grants from $50,000 to $1 million. Grant applicants must match 15 percent of the grant, either in cash or in kind. Applications will be accepted through June 19
Grants will be awarded on a competitive basis and can be used to: construct, acquire or lease broadband transmission services; improve, expand or lease community centers that provide free access to broadband for at least two years before, during and after normal work hours and on Saturdays and Sundays; purchase computer equipment; and provide broadband to all critical community facilities – first responders, police, etc. – within the proposed Service Area.
The application guide for this grant program can be found here: Broadband Grant Application Guide. It is also suggested you view the April 20 Federal Register announcement (page 17941), available here: [TEXT] [PDF]. The press release is available here: Agriculture Secretary Vilsack Seeks Applicants For Broadband Grants In Rural Areas.
Posted June 15 (From the National League of Cities): On June 12, 2009, the U.S. Treasury Department: (1) provided guidance on $25 billion in bond authority available under the Recovery Zone Bonds program; and (2) announced its allocation of the bonds to states, territories, counties and municipalities. Recovery Zone Bonds are targeted to areas particularly affected by job loss and will help local governments obtain financing for much needed economic development projects, such as public infrastructure development.
The Recovery Act included $25 billion for two new types of Recovery Zone Bonds – $10 billion for Recovery Zone Economic Development Bonds and $15 billion for Recovery Zone Facility Bonds. The bonds were allocated based on the increases in unemployment in the municipalities and counties compared to the national unemployment increase during 2008. However, every state is ensured of at least 0.9% of the national volume cap for both types of bonds.
Recovery Zone Economic Development Bonds are one type of taxable Build America Bond that allow state and local governments to obtain lower borrowing costs through a new direct federal payment subsidy, for 45 percent of the interest, to finance a broad range of qualified economic development projects, such as job training and educational programs.
Recovery Zone Facility Bonds are a type of traditional tax-exempt private activity bond that may be used by private businesses in designated recovery zones to finance a broad range of depreciable capital projects.
The Treasury has defined a Recovery Zone 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 instillation due to the Defense Base Closure and Realignment Act of 1990; or an employment zone or renewal community before the Recovery Act was signed into law on February 17. For allocation information, please visit: http://www.treas.gov/press/releases/docs/rzballocation-local_AR-ZS.pdf.