SSTI Examines Details of the FY16 Spending Omnibus and Tax Legislation

As recently reported in the SSTI Digest, Congressional leaders were able to reach an agreement on federal spending that averted a government shutdown. The FY16 omnibus appropriations legislation and an accompanying bill related to tax provisions were signed by President Obama on December 18. After several years of sequestration spending caps and mostly flat funding for TBED-related programs, the new agreement will bolster funding for many science and economic development initiatives, as well as extend a number of tax credits for small and high-tech businesses. In this article, SSTI takes a closer look at the changes for research and entrepreneurship funding delivered by the deal.

Summary
Appropriations within the 12 bills approved under the omnibus package will fund the government at $1.15 trillion in discretionary funds through the end of the 2016 fiscal year, September 30, 2016. Separate legislation, the Protecting Americans for Tax Hikes Act of 2015 (PATH), makes permanent over 20 key tax provisions, while extending and enhancing many others. The sections below outline funding levels by agency within the omnibus and tax provisions in the PATH Act related to tech-based economic development.

Department of Agriculture
The U.S. Department of Agriculture’s (USDA) agriculture programs will receive $23.2 billion in combined discretionary and mandatory funds (23.9 percent decrease), while Rural Development will receive $2.8 billion (6.9 percent increase). USDA research programs are appropriated $2.94 billion, including $350 million for the Agriculture and Food Research initiative for competitive agricultural research grants.

Department of Commerce
The U.S. Department of Commerce will receive $9.2 billion under the FY16 appropriations legislation, a 9.3 percent increase over the FY15 enacted level.

Economic Development Administration
Under the FY16 appropriations, the Economic Development Administration (EDA) will receive $261 million, including $222 for EDA Assistance Programs (EDAP).  EDAP funding includes $15 million for the Regional Innovation Program, an increase of $5 million over the previous year. The Regional Innovation Program is SSTI's highest legislative priority because of the flexible funding it provides for regional innovation activities. Other EDAP program funding levels include:

• Public Works - $100 million
• Economic Adjustment Assistance - $35 million
• Partnership Planning - $32 million
• Assistance to Coal Communities - $15 million
• Trade Adjustment Assistance - $13 million
• Technical Assistance - $10.5 million
• Research and Evaluation - $1.5 million

National Institute of Standards and Technology
The appropriations act includes $964 million for the National Institute of Standards and Technology (NIST), including $690 million for Scientific and Technical Research and Services (STRS) and $155 million for Industrial Technology Services (ITS). The remaining funds will support the construction of research facilities. Agency funding under the act is 13.9 percent lower than President Obama’s request for FY16, but 11.6 percent higher than enacted levels for FY15. While STRS will receive a modest 2.1 percent bump from FY15 levels, both ITS and construction will benefit from larger increases, 12.2 percent and 136.6 percent, respectively.

ITS’s $155 million includes $130 million for the Hollings Manufacturing Extension Partnership (MEP) and $25 million to support the National Network for Manufacturing Innovation (NNMI). NNMI funding would support center establishment and up to $5 million for coordination. The agreement also merges the activities of the Advanced Manufacturing Technology Consortia (AMTech) into NNMI.  Up to $5 million is provided under STRS to address challenges to high-volume, metals-based additive manufacturing.

Department of Defense
The bill covering Defense appropriations provides $514.1 billion in discretionary funds for FY16, a 4.9 percent increase over FY15. Support for Research, Development, Testing and Evaluation totals $69.8 billion, a 9.5 percent increase.

Department of Energy
The Department of Energy is appropriated $29.7 billion for FY16 (6.9 percent increase from FY15), including $11 billion for energy programs. Funding for DOE’s Office of Science totals $5.4 billion, a 5.6 percent increase over FY15, including increases for Biological and Environmental Research, High Energy Physics and Nuclear Physics. The largest increase will bolster Advanced Scientific Computing Research funding by 14.8 percent, while Fusion Energy Research funding falls by 6.3 percent. The Advanced Research Projects Agency – Energy (ARPA-E) is allotted $291 million, a 3.9 percent increase from FY15 as enacted.

Department of Health and Human Services
The Department of Health and Human Services’ National Institutes of Health (NIH) receives a $2 billion increase under the agreement. NIH is allocated $31.3 billion (6.6 percent increase), with specific increases for Alzheimer’s disease research, the BRAIN Initiative, antimicrobial resistance research and the Precision Medicine Initiative.

Department of Labor
Department of Labor Training and Employment national programs authorized under the Workforce Innovation and Opportunity Act (WIOA), including Apprenticeship and Women in Apprenticeship programs, the Workforce Data Quality Initiative and Technical Assistance,  are funded at $625.6 million (34.9 percent increase). Grants to states for Adult Training, Youth Training and Dislocated Worker Assistance are allotted $2.7 million (8.1 percent increase). The legislation also changes to amount set aside for statewide workforce investment activities from 10 percent to 15 percent.

Department of the Treasury
The Department of the Treasury is appropriated $706.6 million in FY16 (22.5 percent increase), including $233.5 million for the Community Development Financial Institutions (CDFI) program. Of the CDFI funding, $153.4 million is allocated for financial and technical assistance grants. Of this amount, $23.6 million is available for the administrative expenses of CDFI fund programs and the New Markets Tax Credit Program. Treasury is instructed to consider the needs of non-metropolitan and rural area when designing and administering programs, and not less than $1 million of CDFI funds are to be dedicated to underserved rural areas. The total loan principal for the Bond Guarantee program is capped at $750 million.

National Aeronautics and Space Agency
NASA is appropriated $19.3 billion in FY16, an increase of about 7.2 percent over FY15. The largest increases within the NASA budget would benefit Space Operations (31.4 percent increase) and Space Technology (15.2 percent increase). The agency’s Science division would receive $5.6 billion (6.6 percent increase).

National Science Foundation

Under the spending bill, the National Science Foundation (NSF) will receive a modest 1.6 percent increase, with $7.5 billion available in FY16. The American Institute of Physics notes that the small increase for NSF is significantly lower than the overall increase in federal discretionary spending and the increases received by other federal science agencies. NSF’s Research and Related Activities are allocated $6 billion, a 1.7 percent increase.

No less than $160 million is to be provided to the Experimental Program to Stimulate Competitive Research (EPSCoR) and $62.5 million will be available for the Advanced Informal STEM Learning program.

Small Business Administration
The Small Business Administration is appropriated $871 million for FY16, a 1.9 decrease from the FY15 enacted level. Despite the overall decrease, SBA’s Entrepreneurial Development Programs will receive a 5 percent increase to $231.1 million. Funding for entrepreneurial development programs includes:

• Small Business Development Centers (SBDCs) - $117 million
• Microloan Technical Assistance - $25 million
• State Trade & Export Promotion (STEP) - $18 million
• Women’s Business Centers (WBC) - $17 million
• Veterans Outreach - $12.3 million
• SCORE - $10.5 million
• Entrepreneurship Education - $10 million
• Regional Innovation Clusters - $6 million
• PRIME Technical Assistance - $5 million
• HUBZone Program - $3 million
• 7(j) Technical Assistance Program - $2.8 million
• Native American Outreach - $2 million
• National Women’s Business Council - $1.5 million
• Growth Accelerators - $1 million

The Growth Accelerators program, which fosters entrepreneurial ecosystems outside of traditional startup hubs, would require a match of $4 for every $1 awarded through the program.

PATH Act Tax Provisions

Research and Development Tax Credit
The PATH Act finally makes the federal R&D tax credit permanent. In addition, businesses with $50 million or less in gross receipts may claim the credit against alternative minimum tax liability. Certain businesses with $5 million or less in gross receipts will be able to apply the credit against their payroll taxes. The changes are intended to benefit smaller businesses and startups, which had been unable to take advantage of the credit in the past.

The credit was originally introduced in 1981, and has been extended many times since its original expiration date in 1985. It last expired on December 31, 2014. The extension applies to any R&D costs incurred after that date, but the changes for smaller businesses and startups only apply to costs after December 3, 2015.

Exclusion of Gains on Qualified Small Business Stock
The legislation extends the 100 percent exclusion of capital gains on certain small business stock by two years, through the end of 2016. Qualified Small Business Stock must be purchased by individuals or partnerships from C corporations with less than $50 million in assets and must be held for five years.  Certain industries, including hospitality, restaurant, service, mining, finance and extraction, are not eligible, but the exclusion is intended to generate angel and early stage investment in other types of startups.  This category of stock was introduced in 1993, but the amount of the exclusion has varied over the years. For example, a 50 percent exclusion is available for stock purchased in 2014. The 100 percent exclusion applies to stock purchased from January 1, 2015 to December 31, 2016.

The extension and exclusion adjustment were previously included in the proposed StartUp Act from earlier in 2015, however it was reincorporated, along with other provisions into the PATH Act. The Act also permanent extends the rule that eliminates these gains as an AMT preference item, which was also a provision of the StartUp Act. Other portions of that previous bill were incorporated into the R&D tax extension.

New Markets Tax Credit
The PATH Act authorizes the allocation of $3.5 billion in New Markets Tax Credits each year from 2015 to 2019.

Medical Device Excise Tax Moratorium
A two-year moratorium has been put in place on the 2.3 percent excise tax for sales of medical devices.

Deduction for Charitable Contributions to Agricultural Research
Agricultural research organizations will be treated as public charities for tax purposes over the next five years, meaning that charitable contributions will be deductible. The deduction is generally equal to 50 percent of the taxpayer’s contribution base.

Energy-Related Tax Credits
A list of energy-related credits, deductions and incentives have been extended and enhanced under the PATH Act, particularly for renewable and alternative energy production. Highlights include:

• Extension of biodiesel and renewable diesel incentives - $1 per gallon tax credit for biodiesel, biodiesel mixtures and diesel fuel from biomass extended through 2016;
• Extension of second generation biofuel producer credit – credit for cellulosic biofuels producers extended through 2016; and,
• Extension of excise tax credits related to alternative fuels – $0.50 per gallon alternative fuel tax credit and alternative fuel mixture tax credit extended though 2016.