The election is over. Donald Trump has officially taken, and now there is a lot of work to be done.
In the HVAC universe, part of that work involves how the changes a Trump presidency will impact contractors, distributors, and manufacturers. I recently spoke with Bart James, senior vice president of government relations, ACCA, who was overpoweringly positive on what the Trump presidency holds for every business in America.
“Overall, our members are pretty darned excited — not only regarding a Trump presidency, but also that Republicans have control of both the House and Senate,” he said.
In fact, James feels the stars are aligned for some really positive actions, especially in regard to reducing the number of regulations he deems unfair to consumers and awful for the industry.
“I think there is certainly a need for regulations, but they need to make sense,” James said. “We are now on track for some good things to happen.”
Francis Dietz, vice president of public affairs, Air-Conditioning Heating, & Refrigeration Institute (AHRI) concurred, calling the Trump win an unexpected gift. He believes AHRI may be able to get more done and accomplish more feats under the Trump regime than it could under Obama or a potential Clinton presidency.
“We’ve already taken calls from the staff director of the Energy Commerce Committee in the House asking us what our priorities are,” Dietz explains. “They specifically wanted to talk about Energy Policy and Conservation Act [EPCA] reform, which is something AHRI has been working on. They seem interested in tackling such reforms, and we are interested in helping them with that.”
BURNING DOWN THE HOUSE
The lyrics to the song “Burning Down the House” by the Talking Heads begins with the phrase, “Watch out, you might get what you’re after … Burning down the house.” Many people in this country might yearn for this to become the Trump theme song. But, from an HVAC industry standpoint, that couldn’t be further from the truth.
“We want to impress upon the White House and Congress that they are not doing us any favors by burning the house down,” Dietz said. “We also want to impress upon them that we are not against regulations. There are regulations we helped put into place, like EPCA. We’re not interested in gutting them; we want to improve them. It saves our bacon against states that want to over-regulate, like California.”
Case in point: the never-ending story of refrigerant regulation. In October 2016, 170 countries gathered in Kigali, the capital of Rwanda, to work on and reach a legally binding international accord to counter climate change — a mission that was accomplished but has not yet been ratified by the U.S. Senate. This is a cornerstone policy of the Obama administration, and one Donald Trump may or may not send to the Senate for ratification.
“The Kigali Amendment to the Montreal Protocol is something we spent seven years fighting for under various names,” Dietz added. “We have no interest in seeing it go by the wayside.”
The Kigali amendment calls for an orderly phasedown on the use of HFCs globally. Basically, it has a step-down mechanism similar to what was created for handling R-22.
“It isn’t a phaseout but more of a phasedown,” Dietz says. “It ultimately goes down to 15 percent of its current production values. It cannot be phased out completely because it is used in a number of blended refrigerant chemicals. We like it because it provides predictability. If we didn’t have the Kigali Amendment, then states like California would enact legislation that would impose much more difficult timelines for the complete phaseout of this chemical.”
He adds that AHRI is glad that the interim head of the U.S. Environmental Protection Agency (EPA), Myron Ebell, didn’t gut Kigali. “It is a rare bipartisan project that environmentalists and the industry worked together on,” Dietz said.
With Trump’s December 2016 appointment of Scott Pruitt to lead the EPA, liberal media is claiming he effectively has handed the agency over to interests of the energy industry. Pruitt, the Oklahoma Attorney General who is allied with the fossil-fuel industry, is an outspoken critic of President Obama’s energy policies and may be viewed as the hatchet man to dismantle Obama’s climate change policies. Whether you believe that or not, it does give pause to Trump’s support of the Kigali amendment.
In the case where the Trump administration declines to submit Kigali to the Senate for ratification, Dietz explained that the manufacturer members of AHRI would still have to abide by those rules.
“Most other countries will likely ratify them,” he said. “Many of our member companies are global suppliers. Without ratification of Kigali, many of the products they produce would no longer be able to be sold overseas. Therefore, it’s in our members’ best interests to abide by the rules regardless of ratification. But, without the rule of federal law, states would be free to create even stricter rules that would negatively impact the entire marketplace here at home. A federal ruling keeps this type of state activity in check.”
GENERAL BUSINESS ENVIRONMENT
First, an overall economic outlook. In Forbes magazine, contributor Lawrence Yun writes that we should see a short-term economic stimulus in the first half of 2017, mostly from Trump-promised tax cuts as well as an expected increase in government spending on national infrastructure updates.
“Inflation will likely kick a bit higher from a faster GDP [gross domestic product] growth, which will lead to modestly higher interest rates. Accompanying gains in consumer confidence will further move the economy higher. Should the faster GDP growth be sustained and arise out of higher productivity, then inflation will be manageable.”
Yun also predicts increases in the U.S. trade deficit until Trump imposes trade tariffs and taxes on the export of U.S. currency, which could take some time. The stock market could become more volatile due to changes in financial regulations, looser mortgage lending rules, decreases in regulations governing land-use and zoning, and tighter controls on government bailouts of homeowners living in flood zones and areas with higher natural disaster tendencies, he said.
IS TRUMP GOOD FOR BUSINESS?
More than likely, businesses will benefit under President Trump. If Trump keeps his campaign promises, backed-up by the Republican Congress, we could put 2017 into the big plus column for small businesses and, in particular, the HVAC industry. Of course, we all know there is a tendency for Washington to get embroiled in controversy (something our soon-to-be president is all too familiar with) and campaign promises fall by the wayside. So, take his promises, and these predictions, with a little grain of salt.
Based on what the media is saying, and the comments of James and Dietz, here are some of the positives I see that a Trump presidency offers to the HVAC industry:
- Easing of Bank/Lender Oversight — It’s always about the money. In 2010, President Obama signed the Dodd-Frank law that supercharged bank oversight with a cornucopia of rules and regulations. The idea was to put government controls on mortgage lending in an effort to prevent another housing bubble bust and a subsequent years-long recession. Trump campaigned partly on a vow to dismantle Dodd-Frank, which he — and the banking industry as well as Wall Street — insist is costly, time consuming, and unfriendly to lenders and consumers alike. Trump will either replace it or come up with something new that can help loosen available money for home purchases and home refinance (See: home improvements). This act would help to increase consumer spending in the HVAC industry. The HVAC industry welcomes any action that would increase the amount of money consumers are willing to spend on their HVAC systems.
- Residential Construction Increase — If the Dodd-Frank genie is put back into its bottle, mortgage lending should broaden and changes in zoning rules could make it easier to build and buy new homes. That means more residential construction. The HVAC industry gets a leg up on new system installations as well as service expansion with a bigger demand for replacement parts and components. HVAC equipment manufacturers, distributors, and contractors could see an uptick in demand for products and services. More residential construction demand is quite good for the HVAC industry.
- Commercial Construction Increase. This is one of Donald Trump’s pet areas of influence. This wave of commercial office space construction, health care facilities, and Wall Street investments could prove beneficial to the HVAC industry.
- Regulating Regulations — The industry could certainly benefit from a loosening of the pending furnace efficiency standards and existing confined space rules. As Jerry Howard, CEO, National Association of Home Builders (NAHB), said in an interview shortly after the Trump election victory, “The hallmark of his campaign was to reduce overzealous environmental and labor regulations that place burdens on businesses.” Among the ones he cited were the U.S. Department of Labor’s (DOL’s) overtime rule, Occupational Safety and Health Administration’s (OSHA’s) confined spaces rule, and the EPA’s lead-paint rule. You can add the U.S. Department of Energy’s (DOE’s) furnace efficiency rule here, as well. Though regulations are important, loosening those that strangle the industry could prove fantastic for the HVAC industry.
- Federal Corporate Tax Reduction — This was certainly high on the Trump election promise tree. CNBC’s Bob Pisani said corporate tax cuts are the only thing Trump talks about that has any kind of plausible numbers associated with it. He also says that Trump's proposed nominee for U.S. Treasury secretary, Steve Mnuchin, said in an on-air interview that the administration was still targeting a reduction in the corporate tax rate from 35 percent to 15 percent that may extend to LLCs and S-Corps. If this happens, it could account for a lot of dollars contractors can reinvest into their people, businesses, and brands. Freeing up cash for reinvestment in this way is huge for the HVAC industry.
- Lower Personal Income Taxes — We hear this promise in every election cycle, but Trump may actually pull it off. He still has to work out how the government makes up for the revenue shortfall, but, obviously, such reductions benefit consumers across the board. An analysis of his plan can be found on the Tax Foundation website. If consumers have more discretionary dollars, they will be more open to buying the more costly, but very effective and highly efficient, home and HVAC performance systems and duct upgrades/renovations. And that is excellent for them and the HVAC Industry.
- Inheritance Tax? What Inheritance Tax? — In his tax reduction plan, Trump mentioned replacing inheritance taxes with capital gains on estates valued at more than $10 million. Do you think that could help HVAC contractors who struggle with estate planning? You betcha it would. It would help all small businesses interested in passing businesses on from one generation to the next. This could be a homerun for the HVAC industry.
- Gutting ObamaCare — Health care cost reduction didn’t really happen under Obama’s legacy legislation. The intentions were good; however, the end result was far less than President Obama had hoped for. Under Trump, Republicans will look to either repeal the Affordable Care Act (ACA) or transform it into something that is more affordable. This is a high priority for his presidency. The Trump plan would see the introduction of more competition and less government involvement to keep costs to employers and employees down. ACCA’s James concurs on this point, stating, “I don’t believe Trump will completely clear ACA from the decks, but I do expect major changes and hopefully significant reductions in premiums that will allow contractors to have more choices for their businesses.”
Today, there are two schools of thought on a potential economic stimulus. Some experts say the economy is already recovering and any super influx of incentives and/or interest rate manipulations could have the opposite effect on economic growth. Others see stimulus as a key way to speed up the recovery and a perfect way to help “make America great again.” The latter “school” is further divided regarding how such stimulus should be implemented and managed.
From an HVAC industry perspective, James believes several stimulus/incentive programs are in danger of not being renewed. The biggest is the 30 percent rebate on geothermal system sales. He sees incentives targeted toward solar and wind as being in danger, as well. James intimated that he had held out more hope for those incentives in a Clinton presidency, but doesn’t rule out the possibility that Trump will extend at least one of them.
Overall, 2017 offers the HVAC industry much to be optimistic about. The Trump presidency and Republican-dominated Congress creates a small business-friendly environment for the next four years, at least, and that provides this industry with a basis for investing in future success. Will there be bumps in the road? Count on it. We are talking about Trump here. But the positives of an environment where businesses have relief from burdensome rules and regulations, taxes, and overreaching government interference benefit everyone throughout the HVAC universe and the entire country. There is much work to be done. The time to start is now.
Publication date: 1/30/2017