Unpacking the Stimulus

May 1, 2009
Residential HVAC contractors say energy tax credits in the Federal stimulus package will help energize system sales. There's also some relief for commercial HVAC contractors willing to dig for federal dollars. Over the long haul, however, only time, sweat

The $788 billion stimulus package — known officially as the American Recovery and Reinvestment Act of 2009 (ARRA) — provides a classic good news/bad news scenario for HVAC contractors. The bill provides glimmers of hope for residential contractors, but less concrete benefits for commercial HVAC sector. Whichever market you serve, the best strategy will be to pick and choose what provides the biggest boost to your business, and stay focused on the basics of service and lead generation.

Residential Tax Credit a Big Perk

Much like the Energy Policy Act of 2005 passed by President Bush, ARRA offers significant breaks for homeowners, and good opportunities for contractors to sell new comfort systems. Specifically, ARRA includes a $1,500 aggregate tax credit for qualified, energy-efficient home improvements, and credits for solar and wind-based power.

Fast-acting residential HVAC contractors are on the move to spread the news. Almost 60% of residential HVAC contractors responding to a ContractingBusiness.com survey said they expect the package to help generate new business, and 80% have already started to implement the news in marketing materials.

One of those — Mark E. Meacham, Inc., Charlton, MA — had a new marketing message ready to go when the stimulus news was announced, just in time for March home shows. The message tells customers to, “customize your own stimulus package, because there's no better way to put tax-free money in your pocket.” They've closed on more than $50,000 in business as a result of the home show outreach. The Meachams are thinking outside the box when it comes to alternative energy, too. To capitalize on credits for solar and wind-based power, they're having technicians attend certification classes to become experts in those technologies.

“Now, we can tie the energy efficiency message in with saving the earth, saving money, and reducing carbon emissions. Hopefully, we can hit a hot button with everyone, depending on what's important to them,” says General Manager/Co-owner Sue Meacham, who founded the company with husband Mark in 1986.

Ray Isaac, president of Isaac Heating & Air Conditioning, Rochester, NY — and the immediate past chairman of the Air Conditioning Contractors of America (ACCA) — revised existing promotional materials.

“We're differentiating Isaac Heating & Air Conditioning by being an authority on the subject,” Isaac says, whose company was the ContractingBusiness.com's Residential Contractor of the Year in 2002. “We're using the tax credit as a kicker on our spring promotion, and have re-written our promo flyers and company newsletter to incorporate the details, which sweetens our offer even more.”

Dewey Jenkins, president, Morris Jenkins, the 2009 ContractingBusiness.com Residential Contractor of the Year, believes this is the best opportunity HVAC contractors have ever had to position themselves as energy consultants.

“The tax credits are keyed around energy savings and we'll be perceived as the ‘experts’ if we're prepared to take on that role,” Jenkins says. About 15% of Morris Jenkins new prospects have expressed interest in Hybrid systems.

Consumers Need to Know

Brett Knox, president, GreenHomes America — an HVAC service/installation company in the final stages of becoming a national franchisor — agrees that it's the contractors' duty to explain tax credits to consumers.

“Most Americans aren't familiar with the Federal tax credits, and it's very rare that anyone calls specifically asking about them. We need to educate through our marketing,” Knox says, and adds that tax credits can bring more credibility to contractor overtures. “When the government puts dollars behind reduced homeowner energy use, we use it to build credibility into our recommendations,” he says.

Knox says tax incentives often cause consumers to buy more quickly. “They realize that nothing lasts forever. The stimulus package is supposed to last for two years. The dollars are short-term. Use them to get people to act sooner rather than later.”

Mark Swepston, president, Atlas Butler Heating & Cooling, Columbus, OH, says his company — the ContractingBusiness.com 2007 Residential Contractor of the Year — has prepared new advertising that draws attention to the tax credits. “When we help customers see that they can save money in ways that they weren't aware of, it always puts us in more of a consultant's role,” Swepston says. He adds that since ARRA was signed, replacement business in the first four months of the year has increased.

Industry Image Enhanced

HVAC industry associations had lobbied lawmakers to include ways to help to consumers and contractors. Stephen Yurek, president of the Air-Conditioning, Heating, and Refrigeration Institute (AHRI), Arlington, VA, says the stimulus bill will provide meaningful incentives for consumers, municipalities, and building owners to move forward with improvements.

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“We're thrilled that there appears to be a paradigm shift in how policy makers view our industry,” says Yurek. “Policy makers now rightly see us as the solution providers we are, and have provided the market stimulus to help us provide those energy saving solutions for the good of the nation.”

Improved Building Codes

The energy-conservation features of Standard 90.1-2007 — Energy Standard for Buildings, Except Low-Rise Residential Buildings — by the American National Standards Institute (ANSI), the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE), and the Illuminating Engineering Society of North America (IESNA) — were recognized through special funding measures in the stimulus package. State governors must now develop plans for achieving 90% compliance with the code, training, and enforcement programs.

“The inclusion of Standard 90.1 in the economic stimulus package demonstrates not only its importance in the building industry, but the importance and economic potential of saving energy and promoting energy-efficient technologies,” says ASHRAE President Bill Harrison. ASHRAE has developed supporting information, which can be found at ashrae.org/recovery.

That's good news for contractors who want to use greener technology, says Chris Manthous, vice president of sales and marketing, Harrington Engineering Inc., Rocky Hill, CT.

Manthous tells ContractingBusiness.com that the HVAC industry's Design/Build commercial contractors — those who have done their homework in anticipation of energy alternatives — are ready with workable solutions. These contractors can help building owners reduce costs, save time, and improve the quality of their facilities, he says. Harrington Engineering, Inc. was a winner and runner-up in the ContractingBusiness.com 2008 Design/Build competition.

Manthous hopes states use ARRA money to update existing building systems to conform with U.S. Department of Energy Energy “Efficiency and Renewable Energy” (EERE) standards.

“This will result in sustainable development, with reduced total cost of ownership. If they don't, they're wasting an incredible opportunity,” Manthous adds. He says projects that leverage green technologies — such as fuel cells, micro-turbines, photovoltaic, and others — may qualify for state, federal, and Department of Public Utility Control (DPUC) incentives, quickening the return on investment of the installed system.

Geothermal, Solar Homes Could Heat Up

The stimulus package calls for a disbursement of $6.9 billion to state and local governments for energy efficiency upgrades and the reduction of carbon emissions. “This could amount to as much as $100 million in the state of Indiana,” says Bruce Ritchey, CEO of WaterFurnace International, a Fort Wayne, IN-based manufacturer of residential, commercial, industrial, and institutional geothermal and water source heat pumps.

According to Ritchey, a $2,000 rebate on the purchase of a geothermal heat pump — or the availability of low interest loans — could generate 200 heat pump sales every month in Indiana, or 2,400 unit sales at the end of the first year.

Brett Knox of GreenHomes America says he sees growth potential for solar residential water heaters. “Particularly when combined with the state and Federal incentives, solar hot water is a good solution, with a great payback,” he says. “With the incentives, payback is about five years or less. And solar hot water doesn't require direct sunlight. It can still generate heat on overcast days.”

Slow Trickle Down

Some “shovel ready” projects, such as road and bridge renovation, have begun, however, home and building construction projects that drive HVAC sales are stalled.

Ken Simonson, chief economist for the Associated General Contractors of America (AGC), says the amount of new HVAC work to be created by the stimulus will depend on when private investors take advantage of the plan's tax incentives.

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“There are amounts scattered through different categories for a variety of Federal agencies and discretionary spending by governors,” Simonson says. “They'll decide whether to put money into school reconstruction or other projects. New building construction isn't emphasized, but it's possible that will get some money.”

Simonson says he believes single-family home construction will bounce back by the end of 2009. Multi-family residential construction will be down for two years or longer.

Commercial HVAC an Indirect Beneficiary

About 10% of commercial contractors responding to a ContractingBusiness.com survey anticipate hiring or re-hiring workers because of ARRA.

“The total dollars allocated for construction from ARRA is about $138 billion. Commercial segments, and especially the hospitality segment, will be way down, so that $138 billion will act like a filler. It comprises a 15 to 20% supplement over two years,” says Tony Guzzi, president/CEO of EMCOR Group, Inc., Norwalk, CT

Guzzi thinks the industry will rev up in the third and fourth quarters of 2009. “For the larger infrastructure projects, you're looking at fourth quarter 2009 to first quarter 2010.”

As for the $21 billion for Federal buildings and infrastructure allocated through ARRA, Guzzi thinks those funds will be allotted to small, retrofit project work in traditional commercial sectors, but with a qualification. Contractors will have to be aligned with decision makers on the General Services Administration (GSA) schedule, or know how to work through the Department of Defense and Veterans Administration channels. Perhaps, then, this is an opportunity for Design/Build contractors to try something new. For more information on how to get involved with GSA projects, visit gsa.gov.

Do What You Do Best, and Then Some

Both residential and commercial HVAC contractors must do all they can to ignore economic bad news and continue to charge ahead as if none of this ever happened.

“Only time will improve the situation,” says Adrian “Ed” Blum, service coordinator, Bryan Cox Mechanical, San Diego, CA. “Over the past couple of years, San Diego was hopping. Service is still busy, but construction projects are on hold. There's lots of empty space to be developed,” Blum reports. “Eventually people will buy a car or home; right now, they're afraid to make a move.”

Residential contractors must focus on continued prospecting and increased service agreement sales among existing customers, judicious cost-cutting, and incorporation of new services wherever possible. (See Garry Upton's Comfort FAQ, p. 14.)

For commercial contractors, system retrofits in anticipation of the R-22 refrigerant phaseout provide opportunities, as do increased use of maintenance agreements.

“Don't let the economy be your excuse,” says John Chapin, co-founder of Complete Selling, Inc., and author of The Sales Encyclopedia. “If you decide that something outside of you, such as the economy, is responsible for your success or failure, you give away control of your destiny and your ultimate success,” he says. For Chapin's Seven Tips for Selling in a Tough Economy, visit contractingbusiness.com/feature/selling_in_tough_economy_0422.

There's still a need that goes beyond comfort. Do all you can to promote your services as crucial to good health and increasing the value and sustainability of buildings and homes.

Clicking for Dollars

For the full range of state and federal incentives for renewable energy projects, visit dsireusa.org/

  • The General Services Administration (GSA) establishes long-term government-wide contracts that allow customers to acquire a vast array of supplies (products) and services directly from commercial suppliers. For information on workings of the GSA, visit gsa.gov.

  • For information on how to become eligible for Federal projects, visit recovery.gov.

  • Members of the Air Conditioning Contractors of America (ACCA) can view a listing of consumer tax credits and other related information by visiting acca.org/govt/