Public school administrators and board of education members across the country face tough decisions when it comes to addressing how to pay for the repair or replacement of aging equipment, vehicles, and infrastructure.
According to a report issued by the National Center for Education Statistics in February, the average age of the main instructional building among U.S. public schools that responded to the group’s inquiry is 49 years, with 38% built before 1970.
The direct pay provision in the Inflation Reduction Act (IRA) enables schools and other tax-exempt groups looking to fund projects or purchase equipment that improves energy efficiency and saves money to recoup a percentage of the cost.
Under direct pay, these organizations are eligible for cash payments that are equivalent to the tax savings they would have received if they were not tax-exempt and could be thought of as a tax refund. Eligible projects must have been put into service after Jan. 1, 2023.
Entities can receive up to 30% of a clean energy project's cost, with the possibility of additional credits closer to a 50% reimbursement. Bonuses are based on the project’s location, and for materials sourced in the U.S. Payments are issued when the project is completed and operational.
In Nebraska, Hastings Public Schools applied for the direct pay credit after installing a geothermal closed-loop heating and cooling system. The project cost was about $3.6 million, with an estimated $1.1 million eligible for direct pay.
“This is a great program that schools can use to upgrade facilities,” said Trent Kelly, director of technology and operations. “We are very happy with the process and have already talked to some schools about the process and savings.”
Kelly anticipates the geothermal system will save Hastings Public Schools between $75,000 and $100,000 annually.
School districts can also seek partial reimbursement for the installation of rooftop solar panels and the purchase of electric buses or other clean energy vehicles.
State and local governments, tribal and native entities, rural energy cooperatives, water districts, economic development agencies, certain public universities and hospitals, and other tax-exempt organizations are also eligible for direct pay. Qualifying projects include solar, wind, electric vehicle charging stations, battery storage, and community solar that bring clean energy to neighborhood families.
Click here for more information on the direct pay program. Additional guidance from the Internal Revenue Service can be found here.
