During his first radio address to the nation on November 8, 2009, President Elect Obama stated that his primary focus is on creating jobs for the middle class in order to stimulate the economy as well as creating an energy policy that creates energy independence.
There is much discussion regarding the best methods to stimulate the economy. Most agree that any stimulus package must create jobs and have a lasting affect on the country. Which is why the idea of spending money on infrastructure is gaining traction. Below are my thoughts on how to achieve some of these goals utilizing the anticipated stimulus package.
My proposal which I believe would create jobs beneficial to kick starting the economy is to create a loan guarantee program for property owners and businesses to finance solar or wind installations. This program would work similar to the current student loan guarantees where credit or income is not determined in obtaining a student loan.
Banks would lend the money to the property owner regardless of credit, income, or equity and the Federal Government would guarantee the principal and interest of the loan. The loans could be either secured against the property in exchange for a lower interest rate or unsecured for a slightly higher rate (unsecured student loans are currently as low as 4.625%). Student loan defaults are currently running at 5.2%. I would respectfully argue that these loan default rates would be similar or less that the default rate on student loans since they will be made to property owners.
Additional considerations of the program:
- Solar panels and associated equipment would need to be manufactured in the US (which creates manufacturing jobs)
- To meet demand the government may offer tax credits for expansion of existing manufacturing facilities or building new facilities.
- Installers would need to be approved by their state agency and agree to a higher set of financial standards (such as posting a bond or certified financial statements)
- Federal government would fund these agencies through loan fees which would be waived for the first year.
- There would be a limit on the maximum loan amount (i.e. 4-5 kw should supply 75% of the electricity needs for a family of 4 in a 2000 sq ft home which would cost $35 - $40k).
- Extended warranties from the manufacturer and installers.
- Property owners would only have to provide evidence that they are current on their existing mortgages.
- Larger loan amounts could be amortized over 20 years.
- Fixed income residents loan payments could be fully or partially subsidized. However they would need to be secured against the property.
- Possible requirement to include an energy audit of the dwelling to identify ways to be more energy efficient.
- Smaller Loans could be used for solar hot water heating, installing energy efficient windows, insulation, etc.
- Similar to student loans, they could not be discharged in bankruptcy.
The obvious advantage of this program are numerous and I've listed some of them below:
- Creates manufacturing and service jobs.
- Decreases our energy dependence on foreign oil.
- Minimal impact on the consumers monthly budget since they will benefit from a fixed monthly payment that could offset or eliminate their future energy costs.
- Decreases global warming and reduces our carbon footprint.
- In a tight credit market, allows property owners the ability to utilize alternative energy
I've performed a cursory calculation of the costs associated with the program so my estimates are my best guess. It would cost the federal government approximately $10 - $12 Billion dollars based on 5 Million property owners and an average loan amount of $30,000. Five million property owners utilizing solar or wind equates to approximately 10,000 Megawatts (1 Megawatt generates enough power for 1 large Wall mart store).
I realize that it will take time for supply to meet demand. However increased demand will reduce overall costs and unlike a personal stimulus check the benefits will continue to pay for itself many years to come.
One last note, I don't work or own stock in any solar or wind companies. I base the above on a combination of experiences. This includes obtaining student loans as well as 15 years experience in home improvement financing which gives me some insight into qualifying contractors as well as the abuses that may occur .
Lastly, I would greatly appreciate any feedback, especially those with experience in alternative energy or student loan financing to validate or repudiate my calculations. It is my intention to correlate the information and forward it to our legislators for consideration in the next stimulis or energy package.
Posts
1 comment:
Steve,
A few thoughts on your creative and timely proposal. Before I list my thoughts, please know that none of this is "criticism"...but is meant to help provide feedback and food for thought. In my business, I frequently benefit from my VPs, Directors and Managers challenging my ideas, etc.
1. would federal and/or state income tax credits be given to purchasers of the solar equipment?
2. would federal and/or state tax benefits (accelerated depreciation, expensing vs. depreciation of capital investments required to build out manufacturing facilities, property tax reductions/waivers, etc.) be provided to companies which build the plants necessary to make the solar equipment?
3. could independent installers get a "tuition" tax deduction for the expense they would incur by attending training courses?
4. would the cost of equipment be less if it was sourced from the lowest bidding approved manufacturer regardless of nationality? I know you want the equipment to be manufactured domestically but: a) prices would probably be far less if all global manufacturers were to participate due to increased competition b) the program could ramp up faster if all qualified global manufacturers could particpate (far greater industrial base to supply 5 million homes)
5. would you consider focusing exclusively on business properties in a Phase 1 of the proposal? And residences in Phase 2? Installations in large business properties such as the Wal-Mart store example could take bigger bites out of the problem faster. Also, business entitites are more accustomed to dealing with somewhat complex projects. Imagine if Wal-Mart embraced this for all stores! My point is that if the proposal focused on large retail stores, office buildings, malls and other industrial buildings the same job creation, environmental benefits and energy independence goals could be met with far fewer installations. Business entities also have the means to invest in something like this if given the proper tax incentives to do so. Many of them would also increase the value of their "good will" assets whereas there is no such thing for homeowners.
6. would the appropriate legislators be willing to embrace a program which involves banks lending money to customers regardless of credit and provide a government guarantee of the loans given the recent Fannie Mae and Freddie Mac melt-downs which were a result of just that? My point is, it may be a politically impossible climate in which to propose that. Just something to keep on the radar screen. There are plenty of credit-worthy borrowers to support the proposal.
7. what is the useful life of the equipment involved in this? The loan durations would probably have to be pegged to that. A ten year loan at 6% for $30,000 required a monthly payment of about $333. Is that feasible or were you thinking of a longer duration?
8. do SoCal Edison and other electric utility companies have any interest in participating financially? Perhaps partnering with the govt. and end users in some way?
9. it seems to me that the vast majority of properties (whether residential or business properties) would be candidates for solar and not wind power. If that is true, then would your proposal enjoy the benefits of streamlining and simplification if it only dealt with solar at the outset?
10. there is a known cost associated with a manufacturer providing a warranty and that is part of their accounting. How will increased cost to the manufacturer of providing the extended warranties be paid for?
11. could there be a component of your proposal which would facilitate financing for manufacturers to build the plants and acquire the machinery necessary to make the solar equipment?
12. similarly, could there be a component of your proposal which would facilitate financing for trade schools, technical institutes, etc. to set up the proper programs to train a work force of installers and service technicians?
13. have you thought about approaching a US based manufacturer to review your proposal and perhaps participate in presenting it to the appropriate legislators? They are probably already well connected with the right folks in Washington and/or Sacramento but may not have made such a comprehensive proposal.
OK, those are my questions and feedback items. Good luck!
Post a Comment