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Can energy retrofit loans bring wonderful life to economy?

In Frank Capra's classic 1946 film It's A Wonderful Life, Jimmy Stewart as Building and Loan manager George Bailey discovers what the world would have been like if he had never existed.

Without George Bailey's heroic efforts to save the small lender that helped the middle class, Bailey's home town of Bedford Falls would have fallen into decay. Bailey's guardian angel Clarence shows him the town, renamed "Pottersville", under the control of evil slumlord and big banker Henry Potter. The crushing effects of poverty have destroyed the lives of many closest to Bailey.

Poverty Now Spreading in America. Much as in the Pottersville scene from the movie, hopelessness and poverty are now spreading across America. The most inclusive U.6 jobless rate is at 17%, the alternate measure calculated by Shadow Government Statistics shows there are 22.5% jobless, ominously close to the estimated Great Depression peak of 25% unemployment. One in eight Americans are now on food stamps, the highest percentage since records began in 1969. While Congress debates extending tax cuts for the wealthiest Americans, unemployment benefits will expire for millions who still have no hope of finding work.

Most families and businesses are simply "Maxed Out" and at the limits of their budgets. To create jobs, Americans must spend money, but that money has to come from somewhere.

Chart: John Williams Shadow Government Statistics

Projects That Pay For Themselves. While American families and businesses may have little ability to spend more right now, the opportunity to spend less makes sense.

Energy saving and renewable energy projects can more than pay for themselves by cutting the energy expenditures of households and businesses. Though they take up-front dollars to implement, a steady monthly stream of utility bill savings pays off the cost of the project.

An energy loan on good terms can convert the cost of the energy saving and renewable energy projects into a monthly payment that is less than the savings. The family budget improves from Day 1 of project completion.

Creating American Jobs. While these projects pay for themselves with the same money people are already spending on utility bills, energy saving projects are not a "wash" for American job creation, for four reasons:

1. More money is spent now, on the project, than current year utility bills.

2. Energy saving and renewable industries are more labor intensive.

3. Many fuels are imported from other countries.

4. Most energy-saving products such as caulk & insulation are USA made.

The customer saves money, and the project creates jobs. If there was ever a definition of a "no-brainer" you've-got-to-do-this idea, this is the one.

We Need George Bailey. All of the above makes sense, but if your credit rating is shot, or your home equity is gone, your chance of getting an energy loan is nil. Even if you qualify, you may not do it as you don't know how long you will live in the house. If you are a renter, forget it completely.

To create American jobs doing these projects that pay for themselves, there are two proposals now afloat -- Federally Guaranteed Loans, and On-Bill Financing from utilities.

Federally Guaranteed Home Energy Loans. On November 9th, Vice President Joe Biden and the U.S. Federal Housing Administration (FHA) announced a new pilot program for PowerSaver FHA-backed home energy retrofit loans.

In the small (only $25 million) pilot program, which will initially operate only in certain cities and states, homeowners would go through an energy audit that would rate their home's efficiency and recommend energy-saving and renewable energy measures.

Private lenders then would issue loans of up to $25,000 to the homeowner to perform the work. FHA would back up to 90% of the loans with a Federal guarantee. The $25 million spent by FHA will be spent primarily on incentives for private lenders to participate.

While this FHA initiative is a decent start, its limitations reduce its overall effectiveness. Borrowers must have enough equity in their homes to support both their existing mortage and the new energy loan. Borrowers must also have a minimum credit score of 660, and a maximum 45% overall debt-to-income ratio. No renters are covered.

While these rules are clearly designed to protect the FHA from backing loans that are too risky, they define a much smaller class of homes than the total number where energy savings could pay for retrofits.

The biggest limitation, however, will be the program's minimal funding. It is questionable how many PowerSaver loans will ultimately be made.

On Bill Financing. If the nation is ever going to seriously address the enormous amount of building energy retrofits that need to be done, utilities need to be brought into the game.

A proposal long advanced by energy efficiency advocates, including the National Small Business Association, and now included in UK government plans, is for utilities to finance energy saving projects. Customers repay the utility by including the monthly loan payment as a cost-of-service charge on the monthly utility bill for that address.

That last phrase -- for that address -- is the key advantage of On Bill Financing. Much like the other fixed charges on the monthly utility bill that reflect the cost of providing service to that address (e.g. the meter & lines), the loan payment for the energy retrofit would stay with the building and be charged to whomever uses the utility services.

On Bill Financing overcomes the major barriers to energy retrofits:

1. It funds the up-front costs and converts it into a monthly payment.

2. Customers who don't plan to stay long term can still benefit.

3. Energy savings and the loan payment are on the same billing.

4. If a customer is credit worthy for that utility billing, they qualify already.

5. Many utility customers with poor credit can now prepay their bill.

6. Renters can arrange for and benefit from energy retrofits.

7. Balance is not due when building is sold, so equity not an issue.

Utilities can benefit from On Bill Financing by dropping their existing giveaway energy-saving programs (charged to all utility customers), and instead pursuing a new line of profitable business. The energy savings achieved will also reduce the very high costs of building new power plants.

Combining Federal Guarantees with On Bill Financing. As noted above, the FHA PowerSaver Federally Guaranteed loans are far too limited in both scope and funding to achieve either the job creation or energy saving goals the nation needs.

WIth the nation already in a stubborn joblessness crisis, it is beyond time to consider aggressive actions to create jobs. This proposal can work, using private monies already being spent, with little or no government funding. No money needs to be "dropped from helicopters".

One of the advantages of utility On Bill Financing is that the utility sector still has ready access to financing and can raise the funds needed to perform the retrofits. Most of their customers, however, cannot raise the funds -- except to pay for the work out of energy savings, after it is done. In other words, On Bill Financing promotes job creation that would otherwise not happen, by an industry with the ability to finance it.

To encourage utilities to institute such programs, the Federal government may need to pass a National Renewable Energy and Efficiency Standard, a proposal now being contemplated in Congress. As customer billings are now governed by states, the Standard may need to mandate states to change utility billing practices to allow On Bill Financing.

With or without such a national Standard, if the Federal government wants to offer Federal guarantees of energy retrofit projects, it can support utilities who institute On Bill FInancing. Federal Guarantees could back utility bonds whose funds are used for such programs. This would be far bigger and more effective than expansion of an FHA-only program.

By their very nature, utility programs can reach far more customers. Yet, default rates for On Bill Financing are likely to be extremely low, as the loans would continue to be paid if anyone occupies the building and pays the utility bills. The only time a complete default could occur would be if a building was left vacant with no new occupant . The Federal Guarantee cost for On Bill Financing programs would thus likely be quite low.

Will We Fund Pottersville Instead?Will We Fund Pottersville Instead?Federal Guarantees for Too Big to Fail Energy Projects. In stark contrast to the pittance now being put toward helping homeowners struggling to do energy retrofits, the Federal government is eager to spend billions of taxpayer funds on massive and highly risky energy projects.

Well-funded lobby groups from the nuclear power industry and the coal Carbon Capture and Sequestration (CCS) lobby have convinced key members of Congress that billions of dollars of Federally guaranteed loans should be proferred for their highly risky projects.

These projects would be built by utilities, who normally have no trouble obtaining private financing to build power plants. However, the reason private bankers won't fund nuclear power or CCS is the projects are far too expensive to compete.

Just last month, both Exelon and Constellation Energy utility executives made major remarks about the cost of new nuclear power projects, noting that cheap natural gas makes new nuclear prohibitively expensive.

If these projects are Federally guaranteed, however, the market distortions opposed by conservatives may cause the projects to be built anyway, and their very high costs will be passed on to utility customers. If the projects fail, it will be customers again (in the role of taxpayers) who will pay.

Raising utility bills and taxes on the middle class is a prescription for further erosion of the middle class into poverty.

Who will receive the taxpayer billions from these Too Big to Fail projects? Nuclear and CCS promoters will of course walk away with large profits from building the projects. When the project fails, however, the Loan Guarantee from taxpayers would kick in. The Congressional Budget Office estimated this may be needed for over 50% of new nuclear projects built.

With a Federal Loan Guarantee, the funds do not go to utility ratepayers, or even utility shareholders. Rather, the taxpayer funds protect the loan made by the same Too Big to Fail Wall Street banks (the only ones large enough to fund such massive projects) who have already received hundreds of billions in TARP and Federal Reserve subsidies over the last two years.

Political Risks. Politicians see offering taxpayer monies to the banks and the nuclear industry as a way to stimulate the economy.

Yet, will Democrats who support these new subsidies be accused of once again bailing out the Big Banks? Will Republicans be seen as RINO's -- Republicans In Name Only -- willing to favor powerful Patrons with taxpayer funded bailouts that increase the Federal Deficit?

Pottersville or A Wonderful Life? In many ways, America is beginning to look more like the horrific vision of Pottersville than the happy town of Bedford Falls where George Bailey labored.

The American middle class is being destroyed, and hope is disappearing for tens of millions of Americans. Our children see a future less prosperous and more threatening than the present.

As with the vision of Pottersville, much of this has been brought on by the actions of a greedy few. If our actions moving forward continue to enrich the few at the expense of the middle class, there will be Pottersvilles all across America.

Using taxpayer funds to advance expensive Too Big to Fail projects will certainly help the special interest promoters. The Potters of America will thrive.

However, when those projects drastically raise utlity bills, it will further impoverish middle class families left living in inefficient, leaky homes.

(L) Clarence the Messenger(L) Clarence the MessengerWhere We Put Our Funds Matters. When George Bailey faced an anxious crowd of depositors to the Building and Loan wanting to withdraw their funds, he delivered the most memorable explanation ever given of our banking system. George explained "Your money's not here" --- it's in Mary's home, and Bill's business --- invested in making a better community.

Extending credit where it was most needed to the good citizens of Bedford Falls helped that community thrive.

The choices are just as clear for America now. If modest efforts are made now, we can find ways for middle class Americans to do energy retrofits for their homes and businesses. The jobless can go back to work. Family budgets can be protected from drastically rising energy costs. The crushing burden of poverty can be avoided for millions.

It will make a difference in the world that this was done.

Time to Jump in the River? We only need this message to get to our leaders. Now, where is that angel Clarence when we need him most?

Editorial Notes: From the author: It matters where we devote our funds. "It's a Wonderful Life" painted a stark picture of greed taking over a town and destroying the middle class, but for the efforts of one Building and Loan manager to help ordinary citizens. The ethos of this classic movie is even more relevant today as large banks and energy companies threaten to drag the middle class into a state of irreversible poverty. Those who most need to prepare for higher energy costs have the least ability to do so.

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