Requiring American-made materials to be used in federally funded infrastructure projects is a commendable goal, but it’s also a complicated one.
“The devil is in the details on the application and the implementation,” says Georgi Banna, a senior attorney at Ballard Spahr and among those keeping tabs on what the Build America, Buy America Act (BABA) will mean for affordable housing projects.
Enacted as part of the Infrastructure Investment and Jobs Act in 2021, BABA looks to maximize the use of U.S. products and materials in federally funded infrastructure projects. The domestic content procurement preference requires that all iron, steel, manufactured products, and construction materials used in covered infrastructure projects are produced in the United States.
As a result, BABA could have an impact on affordable housing developers, public housing authorities, and others that use a variety of Department of Housing and Urban Development (HUD) funds, including HOME, Community Development Block Grants, and the National Housing Trust Fund.
So far, HUD has issued several key waivers as it works through the process of implementing a “Buy America Preference” (BPA). On Feb. 16, the department released a new public interest phased implementation waiver, delaying the implementation of BABA for most programs until later this year or early next year, says Banna.
The latest notice comes just as an earlier waiver was set to expire Feb. 21, according to observers.
In 2022, HUD also issued an “exigent circumstances waiver” that excludes projects using federal financing to respond quickly to ensure resident health and safety. Another was the “de minimus” waiver, which would exclude small projects and for small grants of federal assistance that are less than $250,000.
For background, here’s what HUD says on its website: “Agencies may waive the domestic content procurement preference if (1) a waiver is in the public interest, (2) the types of iron, steel, manufactured products, or construction materials are not produced in the United States in sufficient and reasonably available quantities or satisfactory quality, or (3) the application of the domestic content preference would increase the cost of the overall project by more than 25%.”
The idea of an exemption related to increased costs has been raised but not issued, according to experts.
The recent legislation is cross-cutting, applying to every federal agency. As a result, the Office of Management and Budget (OMB) has provided some overall guidance that applies across the entire federal government, says Nathaniel Cushman, a partner at the Nixon Peabody law firm.
In its latest move, OMB has proposed standards to determine if construction materials for federally funded infrastructure projects are made in the United States.
At the same time, each agency is providing guidance for its own programs, says Cushman.
Low-income housing tax credit developments do not appear to fall under the BABA requirements unless they also have some HUD funding in them. Federal agencies were required to assemble a list of programs that needed further study, and the Internal Revenue Service did not include the tax credit programs, he says.
Cushman also notes that some groups have raised the idea that the way the act defines infrastructure shouldn’t affect housing because it’s people’s homes and private.
In January, several affordable housing organizations joined forces on a letter to HUD secretary Marcia Fudge, encouraging the department to exempt affordable housing programs from the procurement requirements. “This is needed since these requirements would add substantial cost and administrative burden to the production and preservation of affordable housing. Building materials are difficult to obtain and expensive given supply chain challenges and the current economic environment,” said the letter.
Cushman expects more answers to come from HUD in the near future.
And, as more becomes known about the BABA requirements, it will be important for developers to work with their finance partners to look at what dollars are available and go into a project, adds Banna. “That’s going to be more important than ever, and understanding that there may be some new rules,” he says.
