Jack Manning got rich off a federal housing credit. Now he wants to get richer off an energy credit.
John P. Manning built a billion-dollar fortune on low-income housing, plying a gift for political friend-making and hard-core lobbying to create low-income housing tax credits and reap prodigious profits on a portfolio of 147,000 apartments worth $11 billion. Along the way he averted failure myriad times, rescued by luck and powerful allies.
Now Manning, 58, is chasing his next windfall. To pull it off he will need fortune and friends in abundance. He is raising up to $400 million to harness the wind for energy and the tax code for subsidies. On these wind farms, each dotted with multiple million-dollar towers topped with giant, perfectly curved propellers, government loot is as much a driving force as moving air. But the federal tax credit for wind energy is set to expire at the end of next year. Gulp.
“The window is going to open and shut very quickly,” he says. Thus Manning is racing to raise the cash, entice builders into building and switch on the giant pinwheels by next year: The credits can’t be used until the first pulses of power course down the wires. At the same time he aims to persuade a passel of powerful pals in Washington to extend the subsidies, preferably forever.
“This is a much easier sell than affordable housing,” Manning insists. His campaign is eerily similar to what he pulled off 20 years ago when his company, Boston Capital, run with partner Herbert Collins, played a key role in getting Congress to create tax credits for builders of affordable housing and to make the breaks permanent.
Along the way he made many friends: His office in Boston is blanketed with dozens of photos of himself flanked by President Bill Clinton, Senator John Kerry, Senator Edward Kennedy and other Washington face cards. “Why do you think I am so intrigued by it?” he says. “This is what I love.”
Wind is further along than most alternative-energy schemes. In western Europe wind farms have a collective peak output of 40 gigawatts of electricity. The wind does not blow steadily, but that is enough capacity, averaged over a year, to power 10 million homes. In the U.S., the windy Midwest, along with California and Texas, could provide 20% of the nation’s electricity if we built enough farms to catch the breeze. But nationwide only 400 wind farms have been built, with a capacity of 10 gigawatts of peak power. These windmills generate less than 1% of our juice.
FPL Energy is the nation’s largest wind harvester, with 3.8 peak gigawatts spread across 47 sites in 15 states. General Electric (nyse: GE – news – people ), Siemens (nyse: SI – news – people ) and Mitsubishi (other-otc: MSBHF.PK – news – people ) produce turbines for this purpose.
But even when the alternative is to burn fossil fuels, the wind game likely wouldn’t exist without tax breaks. A single, three-blade tower runs $1 million. A 50-megawatt farm that costs $100 million to build needs $8 million or so a year in revenue to amortize the metal and to cover costs like insurance and property taxes. If the juice, though, is competing with coal-fired power priced at 4 cents a kilowatt-hour, it will yield only $6 million a year. The federal handout worth 1.9 cents a kwh is crucial.
If the pols can be persuaded to keep the subsidies flowing, Manning can make a good living by, in essence, acting as a tax broker. The person or corporation building the wind farm may have no use for tax credits, but other taxpayers do. It simply has to be legal to transfer unused credits from one taxpayer to another. Manning will be there to facilitate the transaction.
He does not, of course, advertise himself as a trafficker in tax dodges. His job, rather, is to save petroleum. “Taxpayers get a good deal because they are reducing dependency on foreign oil,” he avers. “Right now we are importing oil from a part of the world that hates us.”
Manning is a scrappy guy. Growing up in Fall River, a poor city in southern Massachusetts, he got into fistfights on his way to Catholic school. At home his father, a pediatrician, treated special-needs children and tended to Manning’s mother, a polio patient who had to use an iron lung. “It was hard for him and hard for me, too,” Manning says; a few years ago he was finally able to persuade his dad, now 86, to hand care of his wife over to professionals. “We had to constantly worry if there was a power failure, what to do if help doesn’t come,” the son says. “When I look at problems we have [in business], they are tangible. They can be outworked and outhustled. That can’t.”
He graduated from Boston College in 1970, joined a financial firm and began selling real estate tax shelters, amassing $100,000 in a few years. Soon he bet it on a real estate business he formed with Collins, a former Raytheon (nyse: RTN – news – people ) executive 18 years his senior. They lost it all when the prime rate hit 12% in 1974 and banks called in their condo loans. Undaunted, they formed what is now Boston Capital and got into rural rental housing–for the tax angle. Collins worked developers, Manning took on Wall Street. In the next ten years they set up 100 investment funds totaling $350 million. By the mid-1980s, riding the Reagan wave, the pair began lobbying Washington for a tax credit for low-income housing.
“Heck, we were part of the policy formulation,” says Collins, now 76 and semiretired. The credits passed in 1986. Manning formed a broker dealer, lured institutional investors and floated his first fund for them–on Black Monday, Oct. 19, 1987. “It was gruesome,” he says.
A few years later they borrowed $100 million to buy hotels with 10% down. Real estate crashed, and the banks called in the loans. They managed to repay by cutting more deals. In 1993 the Clinton Administration and Congress made the low-income housing tax credit permanent. By 2001 Collins had sold his share of Boston Capital to Manning for an estimated $100 million.
Tax breaks for wind, ethanol, solar and other nonoil sources popped up in 1992, expired in 1999 and were renewed only intermittently, most recently in 2005, when Congress voted a two-year extension. Investors responded. This year 3 gigawatts of windmill capacity are being installed.
But at the end of 2007 the wind could stop blowing altogether unless Congress acts to extend the tax credits yet again. In August Manning hosted his old ally, Senator Kerry, at Manning’s weekend boathouse on Nantucket, talking up his new wind fund and the need for permanent tax credits. Kerry, who sits on the Senate Finance Committee, views a long-term extension as a priority, his office says. Two helpful bills introduced in the Senate this year (one of them cosponsored by Kerry) went nowhere, but the industry has high hopes for next year.
So does Jack Manning. “With the geopolitical winds kicking in, the U.S. would be crazy not to go for this,” he says.
By Tatiana Serafin
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