Raphael Stevens

While ETFs holding stocks such as Microsoft, Tesla and Meta Platforms have outperformed this year, there are other ways to play the artificial intelligence trade beyond familiar Big Tech names.
For those who want to ride the AI rally while still diversifying their portfolio beyond the tech sector, there are other fields benefiting indirectly from the AI craze, two ETF experts say.

Baird’s head of ETF trading, Rich Lee, and VettaFi’s head of research, Todd Rosenbluth, both said there is a wider choice of industries seeing AI gains than investors may initially think.
“We’re seeing trends towards health care, we’re seeing eCommerce companies,” Rosenbluth told CNBC’s Bob Pisani on “ETF Edge” on Monday.
“In the last four months, we’ve seen consistent flows and trends towards robotics,” he said, highlighting ETFs such as the Global Robotics and Automation Index ETF (ROBO), and the Global X Robotics & Artificial Intelligence ETF (BOTZ).
“AI is going to empower the industrial space and robotics to make them more efficient,” he added.
ROBO is up 21% year to date, while BOTZ has gained more than 34%.

Rosenbluth also cited fintech as a future major beneficiary of AI.
“Even the financial technology space in general is going to be driven in part by AI,” he said. “It’s going to help advisors do their jobs better, it’s going to help investors sort through information better, it’s going to help processing.”
Lee said the industrial sector could also see gains from the technology as it becomes more incorporated into everyday workflow.
“[Industrial companies] are looking for better processing through automation,” he said. “They’re going to have to look at AI as part of their business processes to realize some of these gains.”
“So, we’re going to see AI creep into other sectors and industries we may not traditionally associate with tech or AI,” Lee said.

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Goldman faces an inflection point: Boom-or-bust activities like trading or advising on mergers have fallen out of favor with investors.
Which is why Goldman CEO David Solomon has hitched his fortunes to asset and wealth management after dropping an ill-fated retail banking effort.
Concerns surfaced recently after former asset management co-head Julian Salisbury departed Goldman for a smaller rival. His former co-head, Luke Sarsfield, also left earlier this year, helping fuel worries about a brain drain at Goldman.

David Solomon, Chairman and CEO, Goldman Sachs, participates in a panel discussion during the annual Milken Institute Global Conference at The Beverly Hilton Hotel on April 29, 2019 in Beverly Hills, California.
Michael Kovac | Getty Images Entertainment | Getty Images

Goldman Sachs is known as Wall Street’s top brand, a juggernaut employing some of the world’s best traders and investment bankers.
But it’s facing an inflection point: Those high-profile businesses have fallen out of favor with investors since the 2008 financial crisis. Instead, it’s been steady, fee-generating areas like wealth and asset management that are valued far more than boom-or-bust activities like trading or advising on mergers.

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Goldman shares have been stuck at a relatively low price-to-tangible-book value, a key industry metric that measures how the market sizes up a firm compared to the value of its hard assets. Goldman trades for just above one times price to TBV, while rivals including JPMorgan Chase and Morgan Stanley are valued at roughly double that.
Which is why Goldman CEO David Solomon has hitched his fortunes to asset and wealth management. His latest move positions Goldman to take advantage of two big trends in finance: The rise of alternative assets including private equity and growth in the fortunes of the ultrarich.
Still, concerns surfaced recently after former asset management co-head Julian Salisbury departed Goldman for a smaller rival. Salisbury, who was most recently chief investment officer for AWM, is joining San Francisco-based private equity firm Sixth Street. His former co-head, Luke Sarsfield, also left earlier this year, helping fuel worries about a brain drain at the firm.
Goldman, which put former trading co-head Marc Nachmann in charge of AWM in October, says the company has a deep bench and that the average tenure of partners is its longest in a decade.

What is asset management, exactly?

Simply put, Goldman portfolio managers make bets across the universe of financial instruments, either on behalf of clients or using the bank’s own funds.

That runs the gamut from the least risky, plain-vanilla holdings like money market funds, to fixed-income products like corporate bonds funds, stock ETFs and mutual funds, and finally to alternative assets including private equity, private credit (i.e. loans to corporations), real estate and hedge funds.

Compared to rivals JPMorgan and Morgan Stanley, which are big players in traditional assets like stock funds, Goldman is more weighted to the esoteric world of alternative investments, which is why it’s sometimes said that Goldman wants to build a “mini-Blackstone” within the bank.
Goldman gets paid through management and incentive fees, which swell as funds attract more assets. Altogether, Goldman has $2.71 trillion in assets under supervision as of June 30, which includes wealth management assets.  

What about wealth management?

The industry has coalesced around a model where financial advisors charge fees, often 1% to 2% of a typical client’s assets annually, to manage investments. They also can earn fees for loans or other products geared towards the wealthy.
Goldman does particularly well with the ultra-rich, defined as those with at least $30 million to invest; it has about 8% of that cohort in the U.S., according to a company presentation. In fact, Goldman’s average ultra-high net worth client keeps about $60 million at the bank.
Where Goldman fares less well is serving the merely rich; it has only about 1% of the high-net worth market, or those who have between $1 million and $10 million to invest.
The bank has more than $1 trillion in wealth management client assets. While significant, key rivals are both larger and growing faster: Morgan Stanley had $4.9 trillion in client assets as of June 30.

Why does it matter?

Goldman is still very much tethered to the ups and downs of Wall Street. The bank’s trading and advisory division generated two-thirds of Goldman’s $23.1 billion in revenues so far this year.
A pandemic-era boom in deals and trading in 2020 and 2021 was quickly followed by a bust, and last quarter marked the industry’s lowest investment banking haul in a decade. That’s caused Goldman to report the steepest profit drop this year of the six biggest U.S. banks, making the push for sustainable sources of growth even more urgent.

Arrows pointing outwards

For Solomon, who has battled criticism over his ill-fated retail banking push, leadership style and hobbies, success in AWM would provide a welcome counterpoint to those who say he’s made too many errors.

Has it been smooth sailing?

Not exactly. Solomon has made tough decisions to consolidate the various pockets of investment at the firm, and then to focus on raising outside funds while shrinking wagers made with house money. That’s upset some insiders used to autonomy over decades of operation.
He’s also shuffled the deck several times. In a 2020 reorganization, Solomon pulled apart asset and wealth management and assigned Salisbury and later Sarsfield to co-lead the asset manager, a move he reversed when he reunited the businesses and named Nachmann to lead AWM.
That upheaval has led to the departure of the ex-asset management co-heads, as well as other senior leaders.

How’s the business doing now?

Despite the turbulence, AWM has been making progress against its fee and fundraising goals, supporting the idea that Goldman’s reputation for savvy investing gives it an edge.
The bank is on track to reach its goal of generating at least $10 billion in fee revenue by next year. And its total assets under supervision rose by $42 billion to $2.71 trillion in the second quarter.

While Solomon cautioned that Goldman’s “asset management journey” would take two to three years before meaningfully helping margins, he sounded optimistic.
“I feel very, very good about the strategic decisions that we’re making,” Solomon told investors in July. “We see a clear line of sight, and we’re going to make progress.” More

The Omaha-based conglomerate’s operating earnings totaled $10.043 billion last quarter, 6.6% higher than the figure from the same quarter a year ago.
Net income totaled $35.91 billion, compared with a $43.62 billion loss during the second quarter last year.
Berkshire’s massive cash pile grew to $147.377 billion at the end of June, near a record and much higher than the $130.616 billion in the first quarter.

Warren Buffett tours the grounds at the Berkshire Hathaway Annual Shareholders Meeting in Omaha Nebraska.
David A. Grogan | CNBC

Berkshire Hathaway on Saturday reported a solid increase in second-quarter operating earnings, while the cash hoard at Warren Buffett’s conglomerate swelled to nearly $150 billion.
The Omaha-based giant’s operating earnings — which encompass profits made from the myriad of businesses owned by the company, like insurance, railroads and utilities — totaled $10.043 billion last quarter, 6.6% higher than the figure from the same quarter a year ago.

Net income totaled $35.91 billion, compared with a $43.62 billion loss during the second quarter last year. The strong results were bolstered by a jump in Berkshire’s insurance underwriting and investment income.
Berkshire reported a near $26 billion unrealized gain from its investments as its gigantic stake in Apple led the market rally in the second quarter. The tech giant soared nearly 18% during the quarter and Berkshire’s bet has ballooned to $177.6 billion.
The “Oracle of Omaha” trimmed his Chevron stake by $1.4 billion to $19.4 billion at the end of June. Shares of Chevron have significantly lagged the broader market this year, down more than 11%. The S&P 500 has rallied almost 17% in 2023.

Cash hoard swells

Berkshire’s massive cash pile grew to $147.377 billion at the end of June, near a record and much higher than the $130.616 billion in the first quarter.
Share repurchase activity slowed down as the conglomerate’s stock climbed back to a record high. The company spent just about $1.4 billion in buybacks during the quarter, bringing the year-to-date total to $5.8 billion.
The conglomerate’s Class A shares hit a new record close of $541,000 on Thursday, exceeding the conglomerate’s previous high of $539,180 reached on March 22, 2022. The stock has gained 13.8% this year.

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A stroll down “Quantum Boulevard” reveals one of the world’s tightest concentrations of bleeding-edge technology firms. Dozens of companies feed a quantum-computing supply chain that did not exist a few years ago. Their wares include some of the most advanced commercialised technology on the planet. The district is hardly a decade old; not long ago the most modern tech in the area was farming equipment. And it is in an unlikely spot: Hefei, the capital of Anhui, one of China’s less fancied provinces. China’s growth is flagging, but its economic miracle appears alive and well in Hefei. Home to about 9.6m people, the inland city saw its GDP grow by more than 8% a year on average from 2012 to 2022. Once considered backward and poor, Hefei’s residents now enjoy a disposable income that comfortably exceeds China’s urban average (see chart). The city’s success owes much to what some call the “Hefei model”. A unique combination of local-government investment and private enterprise, the model has been described as state capitalism at its best. It has fostered industries like high-end manufacturing, electric vehicles (EVs), biotech and semiconductors. These so-called strategic, emerging industries now account for over 56% of Hefei’s industrial output, compared with less than 27% in 2013. Whatever local officials have been doing, it appears to be “the right mix of industrial policy and private-sector mojo,” says Robin Xing, an economist at Morgan Stanley and a Hefei local.This style of growth is precisely how Xi Jinping, China’s leader, envisions the country’s future. Hefei’s technological progress chimes with Mr Xi’s call for an “Industrial Revolution 4.0”, in which China shakes off “low-quality” growth—cheap manufacturing and debt-financed homebuilding—by capturing entirely new industries and their supply chains. This vision reserves special attention for the inland backwaters that have missed out on much of the internet boom in coastal provinces. If Mr Xi has his way, the next decade of development will look more like Hefei than today’s tech hubs of Shenzhen and Hangzhou.BOE Technology, the world leader in LCD displays, has some of its main factories in Hefei. So does NIO, one of the world’s fastest-growing ev companies. China’s leader in voice-recognition artificial intelligence, iFlyTek, was founded by the local university. Its most advanced DRAM chipmaker, CXTM, was co-founded by the local government.Foreign companies have also endorsed Hefei’s efficiency. Volkswagen, a German carmaker, has operated manufacturing plants in the city for years. Earlier this year it announced plans for a €1bn ($1.1bn) innovation centre in Hefei that will help design evs. Such hubs are rare outside China’s largest coastal cities, especially for multinationals. Few inland areas can muster the talent, logistics and supply chains to foster them. But Hefei has the right conditions to set up such a facility, says Ralf Brandstätter, Volkswagen’s China chief.Boulevard of unbroken dreamsHefei’s success has stirred plenty of curiosity. Delegation after delegation of officials from less prosperous regions have visited the city in the hopes of taking some economic magic back home.. A staff member at a state investment group in Hefei says his firm is booked to capacity over the next month hosting visitors from other city governments.They will quickly learn the model’s essential ingredients. The first is a large pool of highly educated, motivated people. Hefei is far enough inland—about 470km from Shanghai—to have missed out on the 1990s boom in the Yangzi river delta. But it is close enough to absorb the influence of its better-off neighbours, giving it what Anhui locals say is a scrappy, underdog attitude.During the Cultural Revolution, a politically tumultuous period between 1966 and 1976, the University of Science and Technology of China (USTC) was forced to leave Beijing. The nation’s top tech college tried several cities before settling in Hefei in 1970. In the flight from political violence, often directed at academics, it lost more than half its scholars and equipment. But utsc has now re-emerged as a global centre for science. The surrounding education system has also flourished, giving the city a high density of good schools, notes Christopher Marquis, the co-author of “Mao and Markets: The Communist Roots of Chinese Enterprise”.That has made it a hub for advanced technology. USTC has designed China’s most advanced quantum computer. Not far away at the Institute of Physics, scientists are testing one of the world’s most advanced fusion-energy reactors, the Experimental Advanced Superconducting Tokamak. The earliest human trials with CRISPR, a genetic-engineering tool, were conducted at a Hefei hospital in 2015. Since then a thriving biosciences industry has sprung up.A second ingredient of the Hefei model is the flow of talent. The city government frequently recruits from the engineering and science departments of local universities. It also encourages exchanges between government offices, university departments and companies, building trust and networks. One local cadre spent years at USTC helping researchers identify marketable patents, while holding a government position. Businesspeople in Hefei say officials throughout the local administration can discuss industry topics in depth. A third factor is the “chain boss” system. The government has created groups of firms in 12 industries, including semiconductors, EVs, quantum sciences and biotechnology. Each group has a “chain boss”: a government official who oversees big-picture planning for the industry. In 2020, for example, Hefei’s Communist Party chief was the chain boss of the city’s integrated-circuits industry. The mayor oversaw the display-screen industry.These bosses work with a state-appointed “chain leader”, typically the dominant company within an industry. The government passes policy directions to this leader, which shares them with other companies in the supply chain. Companies and officials use this communication channel to discuss the allocation of state capital, the sourcing of materials and potential bottlenecks in supplies, noted Ni Hua, an analyst at East Asia Qianhai Securities, in a report last year.Before the state invests in a new company, officials consult with all members of a chain to understand how the newcomer will fit in, says an executive at a local quantum-computing firm. One young entrepreneur who recently started a business in Hefei says that breaking into these industry groups is incredibly difficult. There is little scope for ruthless competition within supply chains. Instead the focus is on beating companies in other regions or countries.The fourth ingredient in the model is state capital. While cities elsewhere in the world fund schools, build sewers or house the poor, Hefei’s administration ploughs money into the most promising companies it can identify. It has been described as a “government of investment bankers”. Its outlays flow mainly through three vehicles. Each has sprawling portfolios spanning hundreds of investments. Chained melodyThese investments give the city government broad reach. Companies such as BOE, the display-maker, and NIO, the ev firm, stand at the centre of vast supply chains. Smaller companies move to Hefei to be closer to them. Most remain privately owned. But if they suit the government’s plan for the supply chain, they will probably attract some state investment. In this way entire supply chains are linked up by just a few state investors that answer to the city government.For nearly a decade cities and provinces across China have been experimenting with state-backed venture capital, raising as much as $1trn. But many of their investments have yielded mediocre returns at best. China’s venture-capital state has been written off as a cash sink and a prime opportunity for corruption. Last year, for example, anti-corruption authorities rounded up executives at China’s premier state fund, the National Integrated Circuit Fund, in an attempt to weed out graft. What sets Hefei apart? The city’s state capitalists have clearly benefited from the city’s history and location. Not every inland metropolis can learn from Shanghai without being swamped by it, or provide refuge to a great university. The tight links of the “chain boss” system also ensure that Hefei’s state capitalists do not invest without guidance from industry.Hefei’s state investors have also been unusually adventurous. Most cities lack the expertise to run private-equity funds. And they do not have incentives to make bets with distant, uncertain pay-offs. Cadres often spend just five years in one location. Even if a long-term investment were to succeed, they would not be around to enjoy their triumph. These short horizons inhibit officials’ investment choices. Many government funds, for example, have put money into chip designers not chipmakers, notes Tilly Zhang, an analyst at Gavekal Dragonomics, a research house. Chip design is less capital-intensive and quicker to show returns.Hefei’s state capitalists have no such inhibition. The local government’s first big punt was a $5.2bn investment in BOE in 2008. (Officials delayed the construction of a subway system in order to scrape the funds together.) The LCD screen industry was then dominated by South Korea and Japan. Critics noted that it would take years to for Chinese firms to be able to compete. But BOE eventually built several plants in Hefei and has since come to dominate the global industry. NIO, the electric-car maker, was even riskier. In 2020 the group was on the verge of collapse when Hefei invested 5bn yuan ($700m). nio then moved its China headquarters and some production facilities to the city. In less than two years NIO had recovered and its share price soared. The city made a return of up to 5.5 times its initial investment, according to Bloomberg. Hefei Jiantou, a government fund that invested in both BOE and NIO, has taken in investment income of at least 5bn yuan each year between 2019 and 2021. For Mr Xi’s economic vision to succeed, the Hefei model will have to spread far beyond its place of origin. Smaller cities will have to sprout big firms in leading industries, such as EVs, solar energy and chips. One quantum boulevard will not be enough. But experimentation in one city has often provided a template for the rest of the country. The “Shenzhen model” in the 1980s, for example, pioneered the combination of Chinese labour and foreign capital that turned southern China into the workshop of the world. Around the same time the “Wenzhou model”, named after the south-eastern port city, showed that household factories, often financed by family savings, could succeed, with the help of peripatetic sales agents travelling up and down the country.Can the Hefei model also be exported? Several inland cities have similar starting conditions, such as good schools and strong industrial bases. Such places might be able to replicate some of Hefei’s investment strategies, says Mr Xing. But Hefei’s success suggests that education, industry and geography are not enough. Political incentives must also align. Mr Xi frequently demands loyalty and austerity from his cadres. The Hefei model, on the other hand, requires gumption and daring. State capitalists must be prepared to take the kind of risky bets that do not always pay off. The model cannot succeed in other cities unless their local cadres are free to fail. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

About 23% of Americans over age 65 live in poverty, according to the Organization for Economic Co-operation and Development. That’s one of the highest shares among developed nations.
U.S. Census data suggests a smaller share of the elderly are poor, and that old-age poverty nationwide has been falling.
Experts say tweaks to Social Security benefits would be the best way to address senior poverty. But it would be costly at a time when the program’s finances are already shaky.

Peopleimages | E+ | Getty Images

Is old-age income poverty too high?

Consider this thought exercise: What is a tolerable poverty rate among American seniors?

By one metric, the U.S. fares worse than most other developed nations in this category.
About 23% of Americans over age 65 live in poverty, according to the Organization for Economic Co-operation and Development. This ranks the U.S. behind 30 other countries in the 38-member bloc, which collectively has an average poverty rate of 13.1%.

According to OECD data, only Mexico ranks worse than the U.S. in terms of old-age “poverty depth,” which means that among those who are poor, their average income is low relative to the poverty line. And just three countries have worse income inequality among seniors.
There are many contributing factors to these poverty dynamics, said Andrew Reilly, pension analyst in the OECD’s Directorate for Employment, Labour and Social Affairs.
For one, the overall U.S. poverty rate is high relative to other developed nations — a dynamic that carries over into old age, Reilly said. The U.S. retirement system therefore “exacerbates” a poverty problem that already exists, he said.
Further, the base U.S. Social Security benefit is lower than the minimum government benefit in most OECD member nations, Reilly said.

There’s very little security relative to other countries.

Andrew Reilly
pension analyst in the OECD’s Directorate for Employment, Labour and Social Affairs

The U.S. is also the only developed country to not offer a mandatory work credit — an important factor in determining retirement benefit amount — to mothers during maternity leave, for example. Most other nations also give mandatory credits to parents who leave the workforce for a few years to take care of their young kids.
“There’s very little security relative to other countries,” Reilly said of U.S public benefits.
That said, the U.S. benefit formula is, in some ways, more generous than other nations. For example, nonworking spouses can collect partial Social Security benefits based on their spouse’s work history, which isn’t typical in other countries, Mitchell said.

Old-age poverty seems to be improving

Here’s where it gets a little trickier: Some researchers think the OECD statistics overstate the severity of old-age poverty, due to the way in which the OECD measures poverty compared with U.S. statisticians’ methods.
For example, according to U.S. Census Bureau data, 10.3% of Americans age 65 and older live in poverty — a much lower rate than OECD data suggests. That old-age income poverty rate has declined by over two-thirds in the past five decades, according to the Congressional Research Service.
Historically, poverty among elderly Americans was higher than it was for the young. However, that’s no longer true — seniors have had lower poverty rates than those ages 18-64 since the early 1990s, CRS found.

“The story of poverty in the U.S. is not one of older folks getting worse off,” Mitchell said. “They’re improving.”
Regardless of the baseline — OECD, Census Bureau or other data — there’s a question as to what poverty rate is, or should be, acceptable in a country like the U.S., experts said.
“We are arguably the most developed country in the world,” said David Blanchett, managing director and head of retirement research at PGIM, the investment management arm of Prudential Financial.
“The fact anyone lives in poverty, one can argue, isn’t necessarily how we should be doing it,” he added.
Despite improvements, certain groups of the elderly population — such as widows, divorced women and never-married men and women — are “still vulnerable” to poverty, wrote Zhe Li and Joseph Dalaker, CRS social policy analysts.

Two major problem areas persist

At the very least, there are facets of the system that should be tweaked, experts said.
Researchers seem to agree that a looming Social Security funding shortfall is perhaps the most pressing issue facing U.S. seniors.
Longer lifespans and baby boomers hurtling into their retirement years are pressuring the solvency of the Old-Age and Survivors Insurance Trust Fund; it’s slated to run out of money in 2033. At that point, payroll taxes would fund an estimated 77% of promised retirement benefits, absent congressional action.
“You could argue pending insolvency of Social Security is threatening older people’s financial wellbeing,” Mitchell said. “It is the whole foundation upon which the American retirement system is based.”

About 40 years ago, half of workers were covered by an employer-sponsored plan. The same is true now.

Olivia Mitchell
University of Pennsylvania economics professor and executive director of the Pension Research Council

Raising Social Security payouts at the low end of the income spectrum would help combat old-age poverty but would also cost more money at a time when the program’s finances are shaky, experts said.
“The easiest way to combat poverty in retirement is to have a safety-net benefit at a higher level,” Reilly said. It would be “extremely expensive,” especially in a country as large as the U.S., he added.
Blanchett favors that approach. Such a tweak could be accompanied by a reduction in benefits for higher earners, making the system even more progressive than it is now, he said.
Currently, for example, Social Security replaces about 75% of income for someone with “very low” earnings (about $15,000), and 27% for someone with “maximum” earnings (about $148,000), according to the Social Security Administration.
Reducing benefits for some would put a greater onus on such households to fund retirement with personal savings.

However, the relative lack of access to a savings plan at work — known as the “coverage gap” — is another obstacle to amassing more retirement wealth, experts said.
Research shows that Americans are much more likely to save when their employer sponsors a retirement plan. But coverage hasn’t budged much in recent decades, even as employers have shifted from pensions to 401(k)-type plans.
“About 40 years ago, half of workers were covered by an employer-sponsored plan,” Mitchell said. “The same is true now.”
Of course, workplace plans aren’t a panacea. Contributing money is ultimately voluntary, unlike in other nations, such as the U.K. And it requires financial sacrifice, which may be difficult amid other household needs such as housing, food, child care and health care, experts said. More

The Inflation Reduction Act, which President Joe Biden signed in August 2022, created rebate programs for consumers tied to energy efficiency.
There are two initiatives: the Home Efficiency Rebates program and the Home Electrification and Appliance Rebates program.
Consumers can potentially get up to $14,000 or more toward the partial or full cost of an efficiency project.
States must apply for the federal funds. Florida signaled it wouldn’t offer the rebates after a recent veto by Gov. Ron DeSantis.

Emilija Manevska | Moment | Getty Images

Consumers may soon be able to access $14,000 or more of federal rebates for making energy-efficient upgrades to their home.
But just how soon will vary by state — and some may opt not to make the funds available at all.

The rebates are part of the Inflation Reduction Act, which earmarked $369 billion in spending for policies to fight climate change, amounting to the biggest piece of climate legislation in U.S. history. President Joe Biden signed the measure into law in August 2022.
The IRA devotes a total of $8.8 billion for two initiatives: the Home Efficiency Rebates program (which offers up to $8,000) and the Home Electrification and Appliance Rebates program (up to $14,000).
In essence, they are consumer discounts to cover the partial, or in some cases full, cost of home-efficiency projects like installing insulation or an electric heat pump or buying electric Energy Star appliances.
The rebates are generally designed to be delivered at the point of sale, from a retailer or contractor. Their value varies depending on factors like project expense, household income and total energy savings.
“It’s a first-of-its-kind program,” said Kara Saul Rinaldi, CEO and founder of AnnDyl Policy Group. “We’ve never had federal rebates like them before.”

Florida doesn’t plan to offer the rebates

States, which will administer the funds, must apply to the U.S. Department of Energy to receive their allocated grants. The application window opened July 27 when the DOE issued guidance to state energy offices on program design.
How soon the money might start flowing to consumers is unclear, however.
The earliest adopters may be able to implement their respective programs and begin issuing rebates near the end of 2023, but most will likely do so next year, according to federal officials and energy-policy experts.
“Exact timing will vary across programs, but generally DOE expects households to be able to access these rebates in much of the country in 2024,” Amanda Finney, a U.S. Energy Department spokesperson, explained in an e-mail.
One state, Florida, has publicly signaled it doesn’t intend to apply for its $346 million of allocated federal funds. (Only California and Texas have a higher state allocation.) It’s unclear if other states will bow out as well.
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The Inflation Reduction Act lets states use a share of their federal grant to administer the rebate programs (to hire staff, for example). Republican Florida Gov. Ron DeSantis, a 2024 presidential contender, vetoed the state’s authority to spend that administrative funding, which totaled about $5 million, according to a spokesperson for the state’s Department of Agriculture and Consumer Services.
As a result, the state isn’t applying for the federal rebates. It’s unclear if that stance will change if the administrative funding becomes available later, the spokesperson said.
Finney, the U.S. Energy Department spokesperson, said the Florida Energy Office hasn’t “formally notified” the Biden administration of its intent to decline the funds.
DeSantis has described certain environmental measures — like investing in companies that emit fewer greenhouse- gas emissions — as “woke,” an oft-used Republican critique of progressive policy.
The IRA narrowly passed the House and Senate, without one GOP vote. The law is a centerpiece of the Biden administration’s goals to slash greenhouse gas emissions and avoid the worst impacts of climate change.
“I think that politics [may] come into play, and if it does then it means funds would need to be redistributed to the other states,” AnnDyl Policy Group’s Rinaldi said on a recent Building Performance Association press call about the rebate programs.
States have an Aug. 16, 2024, deadline to notify the U.S. Energy Department if they intend to participate. Applications are due by Jan. 31, 2025.
Declined funds would then be redistributed.

Rebates may ‘stack’ with tax breaks, other incentives

The rebates — known collectively as Home Energy Rebates — are available to consumers until Sept. 30, 2031 (or until a state depletes its grants).
With some exceptions, it’s unlikely consumers can claim funds in both rebate programs due to rules against double-dipping, experts said. However, consumers may be able to pair rebates with certain clean energy tax credits, which are currently available.
“You can get tax credits even if the state [rebate] program isn’t in place yet,” said Jennifer Amann, a senior fellow in the American Council for an Energy-Efficient Economy’s buildings program.

Historically, such clean energy tax breaks have largely accrued to higher income households — who are more likely to have a tax liability and therefore benefit from the tax credits, which are nonrefundable. But lower earners can pair the new rebates with existing programs like the federal Weatherization Assistance Program.
By “stacking” rebates with other incentives, low earners can get more than $22,000 in potential support from the federal government, according to an analysis by the AnnDyl Policy Group. Middle-income households can get up to about $19,000, and higher earners can receive over $7,200, the analysis found.
Additional efficiency incentives may be available from local utilities, experts said.
The associated rebate income limits vary by region. They’re pegged to an area’s median income, as defined by the U.S. Department of Housing and Urban Development.
“Low-income households” are those that earn 80% or less of the area’s typical income. Those with “moderate” incomes earn 80% to 150%; “market rate” households have income exceeding 150%.

How the Home Efficiency Rebates program works

In dollar terms, larger rebates are generally available to the lowest earners. They’re eligible to have more of their efficiency project costs covered — perhaps up to 100%.
The Home Efficiency Rebates program is for consumers who cut their household energy use via efficiency projects: for example, by installing efficient air conditioners, insulation, air sealing, windows, doors and smart thermostats.
Rebate values are tiered based on household energy savings.
For example, low earners can get up to $4,000 or $8,000 toward their project costs if they cut their energy use by 20% or 35%, respectively. Generally, the rebate is capped at 80% of a project’s cost for low earners — though states can opt to cover 100%.
Middle and high earners can get up to $2,000 or $4,000, respectively, capped at 50% of project costs.  
Overall, the program takes more of a “comprehensive” and “performance”-based approach for energy savings in the whole house, Amann said. Consumers would generally work with a contractor to ascertain qualifying projects and their associated energy reduction, she said.

How the Home Electrification and Appliance Rebates program works

The Home Electrification and Appliance Rebates program is more “prescriptive,” Rinaldi said. That’s because it pays specified dollar amounts for certain upgrades.
Consider these examples of Energy Star appliances, as outlined by the U.S. Energy Department:

Up to $1,750 for an electric heat pump water heater
$8,000 for an electric heat pump for space heating and cooling
$840 for an electric heat pump clothes dryer
$840 for an electric stove, cooktop, range, or oven
$4,000 for an electric load service center
$2,500 for electric wiring
$1,600 for insulation, air sealing and ventilation

This rebate program is only available to low- and middle-income consumers.
Low earners can get 100% of project costs covered. Middle earners can get up to 50% of their costs covered. The total rebate is capped at $14,000 for both groups.
For more information, the U.S. Energy Department published lists of frequently asked questions about the rebate programs and clean energy tax credits. More