Cash for Caulkers: A Window of Opportunity?

When President Obama is judged on how he handled the Great Recession, voters will likely focus on two initiatives: What he did to combat the potential collapse of the auto industry and how he cushioned the blow for a housing market in free fall.

For the former, it's now widely agreed that his Cash for Clunkers program, which provided rebates of up to $4,500 for people who traded in their old vehicles for new ones, was a resounding success. It created 40,200 new jobs, according to the Center for Automotive Research, and resulted in the sales of more than 500,000 vehicles that would have otherwise sat idle in dealerships. In the process, the program provided a lifeline to hundreds of small businesses. Now, President Obama is turning his attention to the second and more serious problem: the home construction industry.

While the nation's jobless rate stands at 10 percent, unemployment in the construction industry vaulted to 24.7 percent, the highest on record since 1976. What's more, total sales for privately held residential construction companies and home remodelers plummeted 13.8 percent and 11 percent, respectively, in 2009, according to financial analysis firm SageWorks. Contractors are doing jobs at a loss just to stay busy, and countless more are closing up shop altogether.

In a new program, what Obama calls Cash for Caulkers, homeowners would be able to receive $12,000 in rebates if they make their homes more energy efficient. To Obama, this would not only add to energy independence and reduce global warming but also revive the comatose home industry.

The program could put a spark to a wide range of home-related businesses, including manufacturers and dealers of doors and windows, insulation, and building materials, as well as the contractors and remodelers who install them. There are no hard numbers yet on how many jobs Cash for Caulkers could create or how much revenue it could generate, but company owners interviewed for this story say they expect business to double if the program is approved by Congress.

But while the program has the support of President Obama, it is not yet law. And after the president's recent healthcare victory, it is unclear whether Republicans would tolerate another legislative win, especially one that costs $6 billion. Already, Republicans like Rep. Fred Upton of Michigan have signaled they will not support the bill unless they understand exactly how it will be paid for.

But Rep. Peter Welch, the Democrat from Vermont who introduced the bill, says the program is an opportunity to find "common ground" at a time when Congress is "locked in partisan battles." After all, who doesn't support energy efficiency and a boost for home improvement?

For small businesses like AHT Windows, a remodeling firm in Clintonville, Wisc., Cash for Caulkers could be a lifeline. "The program is one of the biggest tax credits in the history of home improvements," says AHT president Scott Young. He thinks his business could benefit tremendously if homeowners who couldn't otherwise afford to upgrade their windows find themselves with a pocketful of rebates for double panes. Instead of paying, say, $24,000 to install energy-efficient windows, an AHT customer would pay just $12,000 after the immediate Cash for Caulkers 50 percent rebate.

Mo Nariani, founder of Joe Green Home Solutions in Salem, Mass., says he loves the program in concept but he's worried about the unintended consequences. If Cash for Caulkers passes, he can see his new business more than doubling from $200,000 in its first fiscal year to $500,000 this year. He could also see all that extra business immediately evaporating once the program expires a year or two later, leaving him with a firm that's overburdened with staff and supplies.

"I'm worried about the creation of artificial consumer demand," says Nariani, whose business performs energy audits -- a comprehensive evaluation that determines ways energy can be conserved within a home. "There's no way to know whether people will continue to do these thing without a rebate program." What's more, he's losing business in the short term because 10 percent of his prospects are sitting on the sideline, waiting to see if the program passes.

Nariani's concerns are similar to those raised by some car dealers during the height of Cash for Clunkers. Critics said the program was simply frontloading sales that would have come along anyway in future months, instead of enticing new car buyers to the market -- buyers who wouldn't have made a purchase otherwise. A recent study by the Maritz Automotive Research Group rebuts that theory, concluding that Cash for Clunkers generated 542,000 "incremental" sales that would not have happened without the program.

Small business owners like Partrick Pitrone, president of USA Insulation, are confident that Cash for Caulkers would offer a similar boost to the home improvement industry. "I'm certain this program would jump-start the green economy and help create a lasting market," he says. "It will drum up a lot of interest and exposure that will keep things going whether or not there's a rebate in the future."

But just the word "rebate" is already causing consternation among business owners. Under previous government-sponsored energy programs, consumers received a tax credit for making their homes more efficient. But Cash for Caulkers -- like Cash for Clunkers -- is structured as an immediate rebate. That setup created major headaches for car dealers who had to pay those rebates out of pocket and then wait weeks or months before they were reimbursed by the government.

Mo Nariani notes that cash flow is the lifeblood of any small business and he's concerned about putting his at risk. "I'm not excited about getting into the money-lending business as we wait for the government to pay us," he says. "I've heard some talk about it taking 45 days to get paid back under the program. We're used to getting paid a lot quicker than that."

The National Assoc. of Home Builders, which has not yet endorsed Cash for Caulkers, sees another problem with the program: certification. Contractors would be required to get government-approved certification from the Building Performance Institute, an organization that has developed a set of technical standards for retrofit work.

"The devil is in the details," says Elizabeth Odina, federal legislative director at NAHB. "The program requires specific certification credentials, which could be limiting to our members. It's possible that not everyone would be able to use the program equally." She points to contractors in remote areas who may not have easy access to a training center.

But business owners like Nariani and Beth Davis, owner of Dedhico Home Improvement in Silver Spring, Md., insist that certification is absolutely necessary, even if they have to pay a few thousand dollars for training. "It's imperative that the program only offers rebates if the home improvement contractors meet licensing and insurance requirements," says Davis. "There are too many businesses out there operating illegally and it gives reputable companies like ours a bad name when problems arise."

In fact, the Australian government had to shut down a similar, $4 billion home energy initiative earlier this year after lax oversight allowed an influx of fly-by-night operators. They improperly installed insulation in tens of thousands of homes, which allegedly led to 90 house fires and four deaths, and 1,000 homes inadvertently wired with live electrical currents.

These are problems that Cash for Caulkers will certainly aim to avoid. But at this point nobody is quite sure when the measure will come up for a vote. Patrick Pitrone at USA Insulation is hoping it's sooner rather than later. "This industry has been hurting for too long," he says. "Cash for Caulkers could change the face of our business overnight."