Showing signs that they can learn from history, lawmakers are now eying another tax benefit, but only for businesses that create new jobs. That proposal, still in the nascent stages, is designed to address the runaway unemployment numbers that plague many regions, while having the additional advantage of appealing to members of both parties. Indeed, House Minority Whip Eric Cantor (R-Va.) told The New York Times that there’s “a lot of traction for this kind of idea.”

If the White House will take the lead on this, I’m fairly positive it would be welcomed in a bipartisan fashion.

There’s good reason for Congress to do something. On Friday, the Labor Department reported that the economy shed an additional 263,000 in September, knocking the unemployment rate up to 9.8 percent — the highest level since 1983.

The good news here, if Cantor’s comments are indication, is that Republicans, while poised to exploit the jobless numbers to their advantage in next year’s elections, also wouldn’t stand in the way of every proposal addressing the problem.

The report totals government expenditures on different energy sources, both in direct spending and in foregone revenue resulting from tax breaks. It found that while the government spent $72.5 billion on fossil fuels between 2002 and 2008, it spent just $29 billion on renewables. And if the subsidies for corn ethanol – which is of questionable environmental benefit – aren’t included on the renewables side, the government spent just $12.2 billion on renewable energy over that period.

The government directly spent $16.3 billion on petroleum, natural gas, and coal products, and gave the industry another $53.9 billion in the form of tax breaks. Another $2.3 billion was used for carbon-capture-and-storage technology, nearly all of that in the form of direct government spending. A large portion of that spending — $15.3 billion – is actually designed to support overseas production of oil through the Foreign Tax Credit, which allows U.S. companies to avoid domestic taxes if they have paid royalties in the country of origin.

For renewables, the government allocated just $6.2 billion on tax breaks and $6 billion in direct expenditures. And while most fossil fuel subsidies are written into the U.S. Tax Code as permanent provisions, most subsidies for renewables are short-term provisions included in energy bills or other legislative measures, which has limited their usefulness to the industry.

But his enthusiasm isn’t universal.

Illustration by: Matt Mahurin

Amid the buzz the program has generated over the possibility of jumpstarting the sluggish housing market, some worry that “monetizing” a tax credit – which means providing homebuyers with short-term loans secured by their expected tax refunds, so they can gain quick access to the money – isn’t quite as simple as it sounds.

It could make borrowers vulnerable to the same predatory abuses that plague the Earned Income Tax Credit program, an anti-poverty government effort. That program remains a regular target of tax preparation companies, which partner with banks to aggressively market short-term, high-rate Refund Anticipation Loans secured by the refund. Recipients – the working poor – often fork over as much as one-third of their refunds in charges and fees, in order to get their money a week or two earlier. The loan is repaid when the actual refund arrives.

It’s possible that unscrupulous lenders could launch homebuyer tax-credit programs of their own, profiting from the publicity over HUD’s initiative. It’s not clear if the Federal Housing Administration, which has seen its share of the mortgage market explode from less than three percent to more than 30 percent in the past few years, will have the resources to police the program adequately. And with government the largest source of mortgage money in a tight credit environment, “people are going to try to take advantage of it” through fraud, said Ann Fulmer, of vice president of business relations for Interthinx, a provider to lenders of fraud prevention services.

Beyond all that, some decry the idea of helping people buy homes who can’t come up with downpayment money on their own, calling it the kind of thinking that led to the mortgage crisis in the first place. Congress approved the credit as part of the stimulus package approved in February.

Interest in the downpayment program is so intense that earlier this week, when HUD mistakenly posted a mortgagee letter with guidance for the program on its website, then took the letter down, reports spread in the blogosphere that the program had been killed. A HUD spokesman confirmed the speculation was false and that the program was going ahead as planned.

And so is the controversy.

At Minyanville, a financial information Website, real estate consultant Andrew Jeffery declared that “subprime lending has come roaring back,” noting that a few states already have started similar tax credit programs. Financial recklessness, he said, isn’t coming from Wall Street this time around, but from the government itself. As Jeffery put it, federal and state governments are “in a rush to prop up home prices and delay the ultimate day of reckoning” by insisting on “coercing taxpayers to over-leverage themselves” and take on debt they can’t afford.

Peter Morici, an economist and business professor at the University of Maryland, was equally blunt. “If you can’t save for a downpayment, should you be buying a house? It’s like we’re saying, ‘People who can’t save a cent and who can’t let go of their credit cards should get downpayment assistance.’”

Morici also called the program a “total payoff to builders,” who lobbied heavily for the tax credit.

But others aren’t so quick to criticize. They point out that the government is just trying to balance helping out a housing market desperate for buyers with avoiding the kind of risky lending that created the crisis. Fulmer, of Interthinx, noted that the FHA is working hard to “walk a tightrope” – making sure that moderate income buyers still have a shot at buying homes, given steep new downpayment requirements, while backing responsible and sound lending.

“There are competing goals,” said Brian Chappelle, a former FHA official and founding partner of Potomac Partners, a Washington mortgage industry consulting firm. “They want to stimulate housing and economic activity and they also want the borrower to “have skin in the game.”‘

The downpayment idea has attracted widespread interest, with the Wall Street Journal calling it a possible “game changer” for the moribund housing market. In the end, said Chappelle, “our economic problems trump risk concerns.”

In his speech to the National Association of Realtors, HUD’s Donovan said that “we all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a downpayment.” He said the FHA will allow “trusted FHA-approved lenders,” as well as HUD-approved nonprofits, and state and local government entities, to monetize the credit through short-term bridge loans.

HUD spokesman Brian Sullivan said he couldn’t comment further, except to say that the FHA is continuing to work out final details.

The program is expected to mirror efforts already in place in a handful of states, including Missouri, Delaware, New Jersey, Washington, and Pennsylvania. Under those programs, the states offer bridge loans that allow buyers to borrow against their tax credit for down payment and closing costs, then repay it when their tax refunds arrive. If the borrower doesn’t pay, the unpaid loan becomes a lien on the property, at a slightly higher interest rate, which means the borrower faces higher monthly payments over the next decade.

The FHA has run into trouble in the past with down payment programs. Congress last year banned a seller-funded down payment assistance program that led to high default rates on FHA loans. As TWI reported recently, supporters of the banned program, including builders, Realtors, mortgage brokers, and some in Congress, are trying to revive it.

Under the seller funded program, the FHA allowed homeowners to get down payment help from nonprofits or charities funded in part by sellers. But sellers often raised the sales price of a home to cover the cost of the down payment “gift.” The charity or nonprofit that supplied the down payment money was reimbursed by the seller for it, along with service costs and fees, once the deal closed. Borrowers paid for it all, whether they realized it or not. The Internal Revenue Service called the whole thing a scam and revoked the charitable status of seller-funded providers.

Aaron Krowne, founder of the Mortgage Lender Implode-o-Meter, a website that tracks the mortgage industry and is leading a campaign in the blogosphere to block any reinstatement of the seller-funded down payment assistance program, said he doesn’t have the same concerns about the homebuyer tax credit idea.

“It differs significantly from SFDPA (seller funded down payment assistance) in that the seller has no specific inducement to inflate the price, nor is there any third party who earns a fee for laundering a “contribution” from the seller,” he said. “So, in my opinion, it is a bad macroeconomic inducement and is bad policy — but it isn’t criminal and dishonest with likely knock-on effects like SFDPA.”

In addition, the FHA is likely to keep a close watch on the entities it approves to make the short-term loans, and will limit the costs and fees that can be charged, noted Robin Medecke, a researcher at the Mortgage Lender Implode-o-Meter.

Her worries about the program, she said are different.

“Where I would be concerned is the possibility of Fannie and Freddie adopting similar guidelines with limited or no power to dictate or enforce similar restrictions,” she said. “That’s the real as-yet-unopened can of worms, in my opinion, and if it’s further extended to the secondary market, thereby opening up the tax credit advance to private investors, the potential for abuse increases exponentially.”

HUD’s goal in developing the program was to encourage lenders issuing the mortgages to also make the short-term loans to the borrowers, noted Chappelle, the former FHA official. But Chappelle spoke with several small and regional lenders last week, who said they aren’t interested in doing so. Only government agencies and approved nonprofits can issue a lien on the property if the loan goes unpaid, he said.

“While the lender can make the loan, I hear that most won’t do it because it must be unsecured,” Chappelle said. “It can’t be attached to the property. No question some of the tax credit could be abused by entities that will step-in and make these loans.”

Guy Cecala, publisher of Inside Mortgage Finance, which covers the lending industry, agreed, saying an “obvious problem” is that predatory lenders will start marketing similar homebuyer tax refund anticipation programs, “piggy backing on the publicity surrounding the non-profit products authorized by HUD.”

While Donovan referred to “trusted” FHA-approved lenders that will be allowed to participate, Cecala also questioned that assurance. “It gets a little trickier when you bring FHA-approved mortgagees into the mix since that group includes brokers – and probably former subprime lenders,” Cecala said.

Business Week magazine reported last year that subprime lenders with histories of abuses were turning to FHA-backed loans.

The biggest question about the program is whether of the agency has the ability to monitor it for fraud, said Sonia Garrison, a senior researcher with the Center for Responsible Lending. The FHA was downsized over the past decade as it played a smaller role in the mortgage market.

“We’ve got to be able to get the FHA the resources it needs to police the program properly,” she said.

And to draw the fine line between helping the housing market, and keeping a lid on risky lending.

Sen. John McCain (WDC Pix)

PHOENIX— In one of the most contested exchanges from the first presidential debate, Sen. Barack Obama attacked Sen. John McCain’s voting record on alternative energy.

“Over 26 years, Sen. McCain voted 23 times against alternative energy like solar and wind and bio-diesel,” Obama said.

McCain dismissed Obama’s statement as if it were an absurd claim. “No one in Arizona is against solar,” McCain retorted.

Illustration by: Matt Mahurin

Moments later, Obama sought to make another point about McCain and Arizona. The Arizona senator interrupted the Democratic presidential nominee to make a sweeping assertion about his unwavering support for alternative energy development: “I have voted for alternate fuel all of my time,” McCain said, “and no one can be opposed to alternate energy.”

McCain’s legislative record shows otherwise.

Michael Neary, president of the Arizona Solar Energy Industries Association, a non-profit trade association, said McCain frequently says he supports renewable energy development, but his deeds do not match his words. McCain, Neary said, has skipped many important votes or voted against measures that would spur alternative sources like solar and wind.

“If he was truly an ally of alternative energy, he would have taken the time to get out there and vote and maybe rally some of the troops on the Republican side to get [measures] passed,” Neary said. “That’s something he hasn’t done, and this is extremely important to Arizona.”

McCain’s underwhelming support of alternative energy is well known to Arizona’s solar industry leaders, several of whom were surprised to hear the GOP presidential candidate proclaim his strong support for solar during the first debate. McCain’s campaign and Senate office did not return numerous phone calls and emails seeking comment.

Vivian Harte, chairwoman of the Arizona Solar Energy Assn., a statewide solar-advocacy group, said McCain’s backing was needed last winter when a renewable energy tax-incentive bill came within one vote of clearing the Senate. McCain, however, failed to go to the Senate floor and cast a vote — though he was in the Washington area.

Harte said her ears perked up during the debate when McCain declared that no one in Arizona is against solar. “I was surprised to hear that,” she said, “because he has voted against incentives in the past.”

McCain’s resistance to passing tax incentives threatens to derail Arizona’s solar industry just as it is poised to become one of the biggest players in the world. The state, experts say, has the potential to provide a significant share of the nation’s electricity supply. But so far, there has been relatively little interest in developing Arizona’s most plentiful natural resource — sunshine.

Harte said industry technical studies indicate that 10,000 square miles of solar-energy generating facilities in the state’s Southwestern deserts could produce electricity for the entire county. “We have the space and we have the sun,” she said. “Certainly, the Southwestern U.S. should be using a lot of solar power.”

Arizona’s fledgling solar industry heaved a sigh of relief Friday, when President George W. Bush signed the $700-billion Wall Street bailout bill, which included legislation extending and expanding tax incentives for alternative energy that were set to expire at the end of 2008.

The incentives, says Arizona Public Service Co. spokesman Jim McDonald, are vital to the development of alternative energy here. “It’s important to Arizona,” he said.

McCain voted in favor of the financial-rescue bill last week. In doing so, he reversed his history of opposing tax incentives for renewable energy.

In 2004, McCain introduced an amendment that would have eliminated the alternative energy tax credits. In March 2006, he voted against extension of the incentives. In 2007, the senator missed three votes to extend the tax credits set to expire this year.

McCain’s claim during the first presidential debate to support renewable energy is an extension of assertions made in his campaign ads that have come under fire from environmental groups. One ad links McCain to renewable energy, stating that it would be used to “transform our economy, create jobs and energy independence.”

The Sierra Club said the ad is “completely false and misleading” because McCain “has a long record of consistently voting against renewable energy.” The environmental group said in a statement that McCain voted twice in August to block extending renewable-energy incentives to push through offshore oil drilling legislation.

The environmental group also criticized McCain for being the only senator not present for the February vote on an economic stimulus bill that included incentives for renewable energy. McCain’s campaign plane had arrived at Dulles International Airport, about 20 miles west of Washington, shortly before the vote. McCain skipped the debate and vote, telling the Associated Press that he was “too busy” and “focused on other stuff.”

The bill received 59 votes, one short of that needed to cut off debate and allow it to proceed to the floor, where only 51 votes were needed for passage. The next day, McCain voted for a revised economic stimulus bill — one stripped of incentives for clean energy — and it passed the Senate.

Uncertainty over whether the incentives would be renewed has played havoc with solar projects in Arizona. Some were canceled because there wouldn’t be time to finish them this year to qualify for the tax credits. “The whole solar industry was starting to drag,” said a state economic development official.

One threatened project was construction of the world’s largest solar electric generating station, to be built about 70 miles southwest of Phoenix. The Solana power plant would have been derailed if the 30 percent tax credit on the cost of construction had not been extended another eight years.

Abengoa Solar Inc., a Spanish energy company, is planning to build the $1.2-billion facility near the small town of Gila Bend, Ariz. The facility will produce 280 megawatts of power when completed in 2011, enough electricity for 70,000 homes.

Arizona Public Service, the state’s largest electric utility, has a contract to purchase all the electricity produced by the solar plant, estimated to be worth $4 billion over 30 years. Plant construction is expected to create about 1,500 jobs, and the facility is expected to employ 85 skilled technicians. The plant stores energy in saltwater tanks, allowing it to produce electricity for several hours after the sun sets.

In testimony last March before the House Select Committee on Energy Independence and Global Warming, a representative of the Arizona Public Service warned that without the incentives, construction of emission-free sources of electricity like Solana would not happen. “Without these tax credits, large scale solar projects, including Solana, are simply not affordable today,” Barbara Lockwood, APS manager of renewable resources, said in a statement.

Passage of the law clears the way for APS and Abengoa to move forward. Lockwood said the utility is committed to making Arizona “the solar capital of the world and bringing affordable renewable energy to all of its customers.”

Reaching this goal won’t be easy. APS is now reliant on nuclear power, coal and natural-gas-fired generating plants. The utility operates the largest commercial nuclear generating station in the world, with 3,825-megawatt capacity. It owns 29 percent of the triple-reactor Palo Verde Nuclear Generating station, 50 miles west of Phoenix.

The amount of solar power used in Arizona remains a tiny fraction of the energy produced by fossil fuels and nuclear power. APS has installed only 5 megawatts of solar power in the last 20 years. The utility is also planning to build a second large solar facility, working with Nevada utilities, that would generate approximately 250 megawatts. But to keep up with growing demand, APS would have to build one 250-megawatt solar plant a year.

Arizona regulators are pushing the state’s public utilities to generate more power from alternative sources. APS and other utilities must generate at least 15 percent of its energy from renewable sources by 2025 under new regulatory rules.

Congress has tried to pass legislation requiring the nation’s utilities to produce more power from renewable sources. McCain has voted against implementing federal standards.

McCain has close ties to APS, and its parent company, Pinnacle West Capital Corp. Robbie Aiken, Pinnacle West’s chief Washington lobbyist, is an unpaid volunteer for the McCain campaign. He is helping with advance fieldwork and fund-raising. Aiken was also involved in McCain’s 2000 presidential campaign.

Pinnacle West executives, including Aiken, have made personal contributions totaling at least $25,000 to the McCain’s presidential campaign since January 2007. Meanwhile, Pinnacle West chairman, William Post, has raised at least $100,000 for McCain by bundling contributions. Steve Betts, president of SunCor, a Pinnacle West real-estate subsidiary, has also raised at least $100,000 for McCain.

Rather than supporting renewable energy, McCain has made expansion of nuclear energy the centerpiece of his energy policy. During the Sept. 26 debate, he said construction of 45 nuclear power plants would create 700,000 jobs and help the U.S. reduce reliance on foreign energy.

McCain’s call for more nuclear energy has triggered concern in northern Arizona, where widespread radiation contamination from the postwar uranium mining boom, whicht continued until the 1970s, harmed the health of thousands of people.

Harte, of the Arizona Solar Energy Assn., said she doesn’t expect McCain to do much for renewable energy if elected president. “He talks with passion about nuclear power,” she said. “That’s really where his focus is.”

Solar panels (Flickr: Chandra Marsono)

Dennis Markatos-Soriano has been worried. And so are, probably, the hundreds of thousands of other workers in the renewable-energy sector.

Markatos-Soriano, an employee of Carolina Solar Energy, and his fellow clean-energy workers could lose their jobs if the existing federal tax credits for wind and solar energy companies are allowed to expire. He works as a campus outreach coordinator for his company, which distributes solar power.

On his blog for the public-radio business show “Marketplace,” Markatos-Soriano echoed the fears throughout his industry. In a post titled “Congress: Please save my Main St. job, not that fat cat’s Wall St. job,” he wrote:

I got that call today.

The one no one wants to hear from their CEO — that it’s possible the company I work for will run out of money for my part-time position and have to let me go. But, unlike some investment bank officials who got a similar call, our solar energy company didn’t do anything wrong.

We are just prisoner to the waiting game that Congress keeps us in by not renewing the green energy tax credits that help our country deal with the energy crisis…And now many members of Congress are instead considering bailing out a financial industry that has acted recklessly and twisted rules to gain tremendous, unsustainable profits.

Illustration by: Matt Mahurin

But last night, the Senate tacked the renewable energy bill extending the tax credits onto the $700 billion financial bailout plan that congressional leaders hope to pass by the week’s end. Leaders in the Senate voted to pass the bailout bill, along with the tax credits for solar and wind power. Now the entire package is scheduled for a vote by the House on Friday.

All year, the Senate and the House have been battling with different versions of this tax bill.. This week is the last chance for Congress to save the green economy from an uncertain future, according to employees and representatives of the solar and wind industries.

If the tax credits aren’t renewed, 116,000 jobs and $19 billion in private investment could be lost through 2009 (pdf here). With the country’s economy faltering, unemployment rising and energy prices wildly fluctuating, representatives of the solar and wind industries say they would be surprised if lawmakers let a “bright spot” in the economy fall to the wayside.

There’s been a lot of talk about creating green jobs this election cycle. But the reality is that many such jobs already exist because the renewable-energy industry is rapidly growing.

Solar installations grew by 40 percent in 2006, and by an additional 40 percent last year. And wind-powered generating capacity jumped 45 percent in 2007.

According to green workers and trade associations, this growth is the product of the federal tax credits for renewable energies. Allowing the credits to expire. they say, would result in huge layoffs, strain the budgets of green companies or put them out of business.

Markatos-Soriano talked to TWI about the fate of his job at Carolina Solar Energy. He works with universities in North Carolina to hook them up to solar-powered electrical grids at no cost to the institutions.

“We’ve used a financing model that includes the federal tax credit and other incentives to sell electricity directly to the grid,” he said. “So, my job is definitely at risk.”

As for his company if the tax credits went away?

“It would have to get creative,” he said. “I had a conversation with the CEO last week, and [he wanted to push ahead] but the business model is really set to work with tax credits.”

Carolina Solar isn’t the only company running into problems because Congress has not renewed the credits. A solar installation company in Revere, Pa., lost a $300,000 project, according to the Solar Energy Industries Assn., or SEIA, the industry trade association.

In Merrimack, N.H., one of the world’s largest manufacturers of solar-panel equipment told SEIA, according to the trade group’s report, that it would build its next factory in Asia if the tax credits expire.

And in San Diego, Calif., a solar company estimated that its revenues would drop by $60 million in 2009, and $90 million in 2010, if the tax credits die. The company told SEIA that it would have to lay off about 30 workers, starting in 2009, and postpone plans to expand its workforce by 30 to 55 employees. (SEIA did not publish the names of these companies in its study — pdf here.)

SEIA spokeswoman Monique Hanis said in an interview that she and her colleagues were astonished that it had taken Congress so long to extend these tax credits — it has been in the works for almost two years — since they face little opposition from either Democrats or Republicans. “Honestly, we are really surprised,” said Hanis. “We saw huge momentum in both chambers [of Congress]. …. There’s huge public support to move into renewable energy — and solar in particular.”

There’s another reason Hanis is surprised: The renewable energy bill that would prolong the tax credits “won’t cost the government anything” because the bill includes revenue offsets. House and Senate Republicans introduced incentive provisions that are expected to generate enough revenue to offset the $70 billion in tax credits.

Some solar companies have told SEIA that they would move their factories and jobs overseas if Congress fails to act. That would hurt the global competitiveness of the U.S. renewable-energy business.

“[The industry] is sort of on the tipping point of really expanding with a lot of investment from global companies,” Hanis said. “[Renewing the tax credits] would signal to global investors that the U.S. is committed to renewable energy.”

The American Wind Energy Assn. paints a similar picture for the wind-power industry if the tax credits for wind energy expire.

All the new projects planned for next year would be “in limbo,” says AWEA spokeswoman Christine Real de Azua. “Come January,” she said, “new projects will come to a full stop, with construction jobs stopping, contracts being on hold, and increased costs for the companies. And with each month that goes by, things will get worse and worse.”

Real de Azua says such a bleak scenario is not far-feteched. When the credits were allowed to expire in 1999, 2001 and 2003, “new [wind] installations declined by as much as 70 to 90 percent in the following year.”

But not everyone thinks that the end of the tax credits would be the end of the world as far as wind and solar energy is concerned. A wind-turbine-blade manufacturer for General Electric told The Wall Street Journal’s Keith Johnson that the industries will likely roll with the punches.

Richard Morrison, chief executive of Molded Fiber Glass Companies had this to say:

The failure of the U.S. Congress to extend the production credit is not a good thing. Now how bad of a thing is it? It’s hard to predict because things are a little bit different now in 2008 than back in the 1990s when it was a fledgling industry. There is a real business here and a big business and a growing business.

For one thing, according to Morrison, the cost of wind-turbine technology has come down. For another, states will continue to provide incentives even though the federal government doesn’t.

Dept. of Energy solar expert Peter Wong, who works in the agency’s Energy Information Administration, agrees that state incentives would be key in sustaining renewable-energy businesses if the credits aren’t renewed.

“I would say that the industry is not going to collapse because there are still some state incentives in place,” Wong said. For example, solar and winds programs in California and Texas are bolstered by significant state incentives.

In addition, he says that the absence of the federal renewable energy tax credits could drive companies to develop more efficient technology more quickly to bolster their bottom lines.

Opponents in Congress have another reason for voting against the tax-credit extension. During negotiations in June, Senate Minority Leader Mitch McConnell (R-Ky.) argued that the tax credits for wind and solar power won’t reduce the cost of gasoline because it doesn’t focus on increasing the country’s oil supply. “This bill isn’t a serious response to high gas prices,” McConnell said. “It’s just a gimmick.”

Many people working in the renewable-energy industry say companies won’t require tax credits forever–they are just short-term insurance to sustain the boom.

“Solar will get better,” said Markatos-Soriano. “But at this point, the technology needs a boost from federal and state policies that can help [the companies] grow — not only to provide a great deal of energy and reduce the use of fossil fuels but to provide good jobs.”