The One Big Beautiful Bill Act (OBBBA) is big by any measure – clocking in around 900 pages long and impacting just about every area of public policy. As with any significant legislation, it takes time to understand all the changes and how they impact the work that government, nonprofit, and private sector leaders do every day. Some portions of the bill are effective immediately, while others do not take effect until 2027, with myriad other effective dates, deadlines, and program terminations between now and then.
We are breaking down some key changes that may impact local governments and their community partners. This newsletter is not inclusive of every change in this big bill. If you want to get into more detail about some of the OBBBA changes, we have developed this OBBBA Programmatic Detail Chart with additional information on housing, community development, infrastructure, and renewable energy components of the bill.
In the OBBBA, Opportunity Zones (OZs) and New Market Tax Credits (NMTCs) have been made permanent tax incentives, and the Low-Income Housing Tax Credit (LIHTC) has been enhanced. Collectively, changes to these programs are expected to generate new investment in affordable and mixed-income housing and spur greater neighborhood level development.
OBBBA’s LIHTC enhancements include a series of changes that increase the annual allocation by 12% and lower the Private Activity Bond threshold from 50% to 25%. Experts estimate this amounts to a $15 billion investment in the program over 10 years and will support the development of more than one million affordable units nationwide over the next decade.
The OBBBA made several changes to Opportunity Zones. The biggest change – making OZs permanent – gives cities and their private sector partners a longer runway to plan and attract investment for community development projects. The permanence and new OZs 2.0 rules also streamline the structure, ensuring all investors can receive the same tax benefit no matter when their investment occurs; this is in contrast to OZs 1.0, where earlier investment had a higher return in the end and created upfront pressure for local leaders to execute on OZs. New zones will become active on January 1, 2027.
Other key points to know about OZs 2.0:
The OBBBA requires a fresh round of census tract designations. Like OZs 1.0, the Governor of each state will make the designations (in 2026), with new tracts designated every ten years going forward. Local leaders should begin preparing now to work with their state counterparts on which tracts hold the highest promise to attract private capital from OZs.
The new law lowers the eligibility threshold for designation from 80% to 70% of area median income (AMI), which is expected to reduce the number of OZs by 20% to 30%. It also eliminates the provision that allowed non-qualifying tracts adjacent to eligible OZs to be designated, further narrowing the map to focus only on the areas most in need of investment. OZs 1.0 will stay in effect through their expiration in 2028 – meaning two unique sets of OZ designated tracts will exist concurrently for two years.
The new law significantly enhances the OZs 2.0 tax benefit for rural investments by establishing Qualified Rural Opportunity Funds through which investors can receive a 30% step-up (or reduction in the capital gains tax they owe on the deferred capital gains) after five years versus the 10% standard step-up.
OZs 2.0 will have new reporting requirements to increase transparency around where money is being invested. The Department of Treasury will issue annual reports that disclose details on investment sectors, the number of housing units created, employment impacts, and more.
OZs 2.0 has several key differences from the first round. Experts like Novogradac and Economic Innovation Group (EIG) both have resources detailing these key differences, like Novogradac’s Opportunity Zones Resource Center and the Economic Innovation Group’s opportunity zones analysis.
Making the vital economic development tool of NMTCs permanent provides another boost to local economic and community development leaders. The New Markets Tax Credit Coalition made the following projections of the 10-year impact of making the NMTC permanent:
$100 billion in capital will be delivered to underserved regions.
More than 4,000 businesses and projects will be provided local support.
Nearly 70,000 rural manufacturing jobs will be generated.
Healthcare choice will be expanded through more than 700 new or improved facilities.
Workers of tomorrow will be prepared through nearly $9 billion investments for training and education.
435,000 permanent full-time American jobs will be delivered.
Municipal bonds and Private Activity Bonds (PABs) are tax-exempt bonds used as tools for local governments to fund public projects and infrastructure development and to attract private funding for projects with public benefits. The OBBBA preserved the tax-exemption on both municipal bonds and PABs and, as mentioned previously, expanded the use of PABs by permanently lowering the financing threshold from 50% to 25%. PABs were further expanded under OBBBA; they can now be utilized for qualified broadband and carbon dioxide capture facilities, and the nationwide volume cap for PABs for certain highway or surface freight transportation facilities bonds was also doubled from $15 billion to $30 billion.
As the new law offers some good news for bonds and investments in housing and community development, it also reflects a significant shift in federal policy away from support for zero-emission technologies like rooftop solar, wind, and electric vehicles, and toward other emissions-reduction strategies focused on fuels and industrial technologies such as biofuels and carbon capture.
While the direct or elective pay mechanism remains intact, many of the clean energy tax credits it applies to are now being phased out faster or will become more difficult to access. Local governments can still file for direct pay on qualifying projects, but deadlines are approaching quickly.
Fleet vehicles: Commercial clean vehicle purchases must be made before September 30, 2025.
Solar and wind projects: Must commence construction before December 31, 2025, to maintain eligibility under current rules. This also preserves a four-year window to place the project in service.
EV charging stations: Must be placed in service by June 30, 2026, to qualify.
Projects completed in 2024 or early 2025 are still eligible under existing rules, and local governments should file as soon as possible. Local leaders should consult a qualified tax advisor to ensure compliance with supply chain and documentation requirements.
The Clean Commercial Vehicle Credit (§45W) – a key tool for cities transitioning away from diesel buses, garbage trucks, and municipal vehicles – will be repealed for all vehicles acquired after September 30, 2025. At the same time, unobligated funds from the EPA’s Clean Heavy-Duty Vehicle Program were rescinded. This dual hit means cities may no longer be able to rely on stacked tax credits and grants to offset the cost of zero-emission fleet upgrades. Local governments should move quickly to:
Purchase or place orders for eligible vehicles before the deadline;
Commence any necessary procurement or contract processes this year; and
Explore bridge funding from state or utility programs where possible.
Several clean energy tax credits for residents and small businesses used to support EV adoption, rooftop solar, and energy efficiency upgrades will expire far earlier than originally planned:
EV credits (new and used vehicles) expire September 30, 2025.
Home solar and battery credits (§25D) expire December 31, 2025.
Energy efficiency upgrades (§25C) (windows, insulation, HVAC) expire December 31, 2025.
Local governments should act now to inform residents and small businesses about these soon-to-expire opportunities and explore future partnerships and funding opportunities to sustain local momentum.
While many consumer and deployment-focused credits are sunsetting, OBBBA preserves support for some industrial and manufacturing incentives, reflecting a continued federal emphasis on domestic production and supply chain security.
The Advanced Manufacturing Production Credit (§45X) still supports U.S.-based production of batteries, inverters, and critical minerals (though support for wind components was cut earlier).
The Clean Fuel Production Credit (§45Z) continues through 2029, supporting ethanol, biodiesel, and sustainable aviation fuel manufacturing.
Cities with industrial assets, logistics hubs, or workforce pipelines – especially in clean fuels or component manufacturing – may still be able to attract new investment. Local governments should align zoning, permitting, and workforce programs to support eligible projects and work with state partners to identify competitive opportunities.
Starting January 1, 2026, projects that use components from “foreign entities of concern” (FEOCs), including many Chinese battery and solar suppliers, may be disqualified from tax credit eligibility. This applies to major credits like §45X (manufacturing), §45Y/§48E (clean electricity), and §45W (fleet vehicles).
Even if a tax credit was not formally repealed or shortened, it may become functionally inaccessible due to these restrictions. Local governments should:
Begin vetting contractors, suppliers, and developers now;
Ask for supply chain disclosure and compliance documentation; and
Seek legal or tax guidance to ensure continued credit eligibility.
Without advance planning, cities risk losing federal support for critical infrastructure projects due to global sourcing issues outside their control.
There are three main actions local government leaders should take to ready themselves for the potential implications of the OBBBA:
Form a clear understanding of the OBBBA’s timeline, inclusive of its many effective dates, deadlines, and program terminations, to proactively respond to the bill’s impacts on city programs;
Bring state counterparts, nonprofits, and private sector leaders to the table to prioritize the partnerships needed to collectively respond to OBBBA’s implications; and
Advocate for clear federal guidelines on the implementation of these tax credit changes so that new investments are not slowed.
As OBBBA moves from passage to implementation, local leaders should track the impacts various aspects of the bill are having on their community and communicate those to their residents and state and federal leaders.
Practitioners can access AFA’s OBBBA Programmatic Detail Chart for more information on how each of the programs and policy areas described above have been updated or impacted through the legislation. AFA staff will monitor OBBBA policy changes and their potential impact to local governments as the law is implemented.
