Ind. Mun. Power Agency v. United States
| Decision Date | 23 July 2021 |
| Docket Number | No. 20-2038C,20-2038C |
| Parties | INDIANA MUNICIPAL POWER AGENCY, et al., Plaintiffs, v. UNITED STATES, Defendant. |
| Court | Court of Federal Claims |
FOR PUBLICATION
Peggy A. Whipple, Healy Law Offices, LLC, Springfield, MO, for the plaintiffs.
Rebecca S. Kruser, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, Washington, D.C., for the defendant.
The plaintiffs are public-sector power providers. The plaintiffs all issued Direct Payment Build America Bonds ("BABs"), authorized by section 1531 of the American Recovery and Reinvestment Act of 2009 ("ARRA"), Pub. L. No. 111-5, 123 Stat. 115 (2009). Under the ARRA, issuers of Direct Payment BABs are entitled to a refund from the Internal Revenue Service ("IRS") of 35 percent of the interest payable under the BABs.
The defendant, the United States acting through the Treasury Department and the IRS, stopped making payments to the plaintiffs based on the ARRA's 35-percent rate in 2013. The plaintiffs argue that, since 2013, the defendant has been violating its statutory obligation to pay 35 percent of the interest payable under their Direct Payment BABs. The plaintiffs also allege that section 1531 created a contractual agreement with the defendant, and the defendant's failure to pay at the 35-percent rate has breached that contract.
The defendant has moved to dismiss the complaint for failure to state a claim under Rule 12(b)(6) of the Rules of the Court of Federal Claims ("RCFC").
Legislation enacted by Congress after the issuance of the Direct Payment BABs under the ARRA required sequestration of direct spending. "Direct spending" does not include budget authority provided by "appropriation Acts." See 2 U.S.C. § 900(c)(8)(A). If the tax refunds for Direct Payment BABs are direct spending, sequestration has the effect of reducing the amount payable by the IRS to bond issuers. The plaintiffs' statutory claims turn on whether interest payments for Direct Payment BABs are direct spending or reflect spending under an "appropriation Act."
The Court finds that the payments are direct spending. The subsequent legislation, therefore, modified the defendant's payment obligations, reducing the amount that the defendant is statutorily required to pay the plaintiffs.
The plaintiffs' contract claims also fail. The presumption is that a statute does not create contract rights. For a statute to obligate the government contractually, the statute must speak in contractual terms. Section 1531 of the ARRA does not include any such language. Thus, the plaintiffs have not pleaded facts sufficient to establish the defendant's intent to contract through the statute.
The plaintiffs therefore cannot recover on either their statutory or contract claims. Their complaint fails to state a claim upon which relief can be granted. The Court grants the defendant's motion to dismiss.
Following the 2008 financial crisis, the ARRA sought to promote economic recovery through, among other means, investment in infrastructure and stabilization of state and local government budgets. ARRA § 3(a), 123 Stat. 115, 115-16 (). Section 1531 authorized refundable credit or tax credits to state and local governments that issue BABs, which were subsidized to lower the cost of borrowing for state and local governments. Id. § 1531, 123 Stat. 115, 358-60.2 The BABs at issue here, Direct Payment BABs, were to be used for capital expenditures. Id.
The provisions relevant to BABs were codified at 26 U.S.C. §§ 54AA and 6431. Although those sections were removed from the Code in 2017, Congress limited the amendmentremoving the provisions to "apply [only] to bonds issued after December 31, 2017."3 Budget Fiscal Year 2018, Pub. L. No. 115-97, § 13404(a), (b) & (d), 131 Stat. 2054, 2138 (2017). The citations that follow are to those provisions as they appeared prior to their repeal.
Section 54AA(g) of Title 26 authorized issuers of Direct Payment BABs to receive a refundable credit in lieu of tax credits under section 6431 of the same title. 26 U.S.C. § 54AA(g). Section 6431 provided the payment scheme: "In the case of a qualified bond issued before January 1, 2011, the issuer of such bond shall be allowed a credit with respect to each interest payment under such bond which shall be payable by the Secretary," who "shall pay (contemporaneously with each interest payment date under such bond) to the issuer of such bond (or to any person who makes such interest payments on behalf of the issuer) 35 percent of the interest payable under such bond on such date." Id. § 6431(a)-(b).
The Treasury Department pays issuers of BABs annually upon receiving a timely Form 8038-CP (Return for Credit Payments to Issuers of Qualified Bonds) filed by the issuers. IRS Notice 2009-26, § 3.1. The "payments are treated as overpayments of tax." Id. § 3.3. As a refundable tax credit, the payments for the Direct Payment BABs are funded by the permanent, indefinite appropriation for refund of internal revenue collections. See 31 U.S.C. § 1324 ().
The plaintiffs are the following public power entities: Indiana Municipal Power Agency; Missouri Joint Municipal Electric Utility Commission; Northern Illinois Municipal Power Agency; American Municipal Power, Inc.; Illinois Municipal Electric Agency; and Kentucky Municipal Power Agency. (ECF 13, ¶¶ 3-8.) All the plaintiffs issued Direct Payment BABs to fund capital investments in projects that provide electric power to more than 300 municipalities in nine states. (Id. ¶ 31.)
The plaintiffs collectively issued $4,097,680,000 in Direct Payment BABs before January 1, 2011—within the timeframe for bonds to qualify under 26 U.S.C. § 6431 and before the 2017 cutoff created by Congress when it repealed § 6431. (Id. ¶¶ 30, 32.) The plaintiffs allege that their Direct Payment BABs comply with the requirements established by section 1531 of the ARRA. (Id. ¶¶ 32-34.) Indeed, the defendant paid the full 35 percent of the bonds' interest payments from January 2010 through the end of 2012. (Id. ¶ 36.)
Congress reinstated and amended the Budget and Emergency Deficit Control Act of 1985, Pub. L. No. 99-177, 99 Stat. 1037 (1985) (), through the Budget Control Act of 2011 ("Budget Control Act"), Pub. L. No. 112-25, 125 Stat. 240 (2011). The Budget Control Act requires automatic reductions of certain government spending through sequestration, which "refer[s] to or mean[s] the cancellation of budgetary resources provided by discretionary appropriations or direct spending law." 2 U.S.C. §§ 900(c)(2), 901a.
The term "budgetary resources" refers to "new budget authority, unobligated balances, direct spending authority, and obligation limitations." Id. § 900(c)(6). "Direct spending," in turn, refers to "budget authority provided by law other than appropriation Acts"; "entitlement authority"; and "the Supplemental Nutrition Assistance Program." Id. § 900(c)(8). Except for one exception not relevant here, sequestered budgetary resources are permanently cancelled. Id. § 906(k)(1).
The Budget Control Act requires reductions in discretionary appropriations and direct spending accounts in accordance with 2 U.S.C. § 901a, which directs the Office of Management and Budget ("OMB") to determine the amount of funds to be sequestered and the President to order sequestration. Id. § 901a. The only programs exempt from sequestration are listed in 2 U.S.C. § 905. Although "[p]ayments to individuals made pursuant to provisions of Title 26 establishing refundable tax credits" are exempt from reduction, payments to entities, such as the plaintiffs, are not exempt. Id. § 905(d). The lists of programs that are exempted likewise do not include the Direct Payment BABs payment program. See id. § 905.
At the beginning of 2013, the American Taxpayer Relief Act of 2012 ("Taxpayer Relief Act"), Pub. L. No. 112-240, 126 Stat. 2313 (2013), amended the statutes created by the Balanced Budget and Emergency Deficit Control Act of 1985. The Taxpayer Relief Act provided that "[n]otwithstanding any other provision of law, the fiscal year 2013 spending reductions required by . . . the Balanced Budget and Emergency Deficit Control Act of 1985 shall be evaluated and implemented on March 27, 2013." Taxpayer Relief Act § 901(b), 126 Stat. 2313, 2370.
Under the sequestration required by the Taxpayer Relief Act, in 2013 the defendant stopped making payments to issuers of Direct Payment BABs at the rate of 35 percent of the bonds' interest as provided under the ARRA. (See ECF 13, ¶ 37.) Although the BABs program remains in effect for bonds issued before January 1, 2018, the defendant has been paying issuers of BABs at rates reduced by the amount of funds determined by OMB to be covered by sequestration. (ECF 15 at 8-9.) In 2013, for example, payments were reduced from 35 percentto 8.7 percent, the fiscal year 2013 sequestration rate.4 Sequestration has been extended through 2030.5
On December 30, 2020, the plaintiffs filed their complaint (ECF 1), which was later amended (ECF 13). The amended complaint seeks damages for the defendant's failure to make direct cash payments to the plaintiffs equal to 35 percent of each interest payment made by the plaintiffs for their Direct Payment BABs. (See id., Prayer for Relief.) Counts I, III, and V allege that the defendant has violated (and continues to violate) section 1531 of the ARRA. (Id. ¶¶ 41-50, 57-66, 73-82.) Counts II, IV, and VI allege that the defendant has breached its contractual obligations created by section 1531. (Id. ¶¶ 51-56, 67-72, 83-88.)
The defendant moved to dismiss (ECF 15), and the matter was fully briefed. The Court heard oral...
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