CHCDF Series on Housing as Infrastructure

Energy Savings Can Help Preserve the Supply of Affordable Units

By Kathi Whalen, Public Housing Authorities Directors Association
Originally published on PHADA

Congressional funding for the public housing program has sharply declined. In the last eight years successive deep cuts to the Operating Fund have resulted in more than $6 billion in losses. And the Capital Fund is consistently funded at levels well below the annual accrual needs. This means that the infamous $26 billion capital backlog continues to grow unabated. These funding levels threaten the existence of public housing – housing currently occupied by many of the neediest families, seniors and disabled persons in more than 3,000 communities across the country. Ambitious infrastructure spending is needed to preserve and update the public housing inventory.

In the midst of this current funding crisis HUD continues to spend a significant portion (1 in every 5 dollars) of its public housing budget to pay for utility costs. HUD pays utility expenses calculated on actual consumption. Housing authorities (HAs), in turn, pass these funds through to utility providers. Neither HUD nor housing authorities have adequate resources to change the trajectory of this spending. Since 2012, HAs have received only a portion (81–90%) of their operating needs from Congress but must, of course, continue to pay 100% of their utility bills. The combination of unchecked utility costs and declining operating funds means fewer remaining dollars to serve residents and to maintain their housing units. An infusion of infrastructure spending for energy improvements could break this costly cycle by providing housing agencies the financial resources to pay for 21st-century technology to sharply lower utility (typically gas, electricity, oil, water) consumption and costs. Savings generated by reductions in utility costs could then be put to work preserving public housing on behalf of public housing residents. The new Trump Administration has a few options for finding energy savings that also support public housing preservation. They are:

1. Energy Performance Contracts (EPC) with Energy Service Companies (ESCO)

The Department has encouraged housing agencies to enter into Energy Performance Contracts with energy service companies (ESCO) to address their public housing energy-efficiency needs. This allows housing agencies to use private borrowing to make energy improvements. HUD agrees to continue to pay utility costs at a “frozen” consumption level for 20 years. The savings – the difference between the frozen consumption level and the new reduced energy spending allows for repayment of the ESCO loans. This approach has limited application since it tends to work best for larger agencies that can produce major costs savings with the energy improvements. After 20 years agencies have much more efficient, more financially secure properties and HUD can pay utilities at lower consumption levels.

2. Frozen Rolling Utility Base

HUD should apply the frozen consumption (rolling utility base) used successfully in energy performance contracts to all public housing agencies to provide a financial mechanism to create widespread energy improvements and savings. Agencies that are allowed to generate savings and to then use those proceeds to improve their properties will shortly become expert at establishing energy-saving priorities. Moving to Work (MTW) flexibility has helped some agencies become leaders in energy conservation. Because of low Operating and Capital Fund levels the improvement will be incremental and not as dramatic as those in ESCO partnerships. Retained savings from energy savings will benefit struggling properties and their residents. And as with ESCOs, after 20 years agencies have much more efficient, more financially secure properties and HUD can pay for utilities at lower consumption levels.

3. Direct Infrastructure Investment – “It Takes Money to Save Money”

Direct infrastructure investment for energy improvements would allow housing authorities to create more energy-efficient properties more quickly. This would improve comfort and livability for residents and help to preserve properties for the next generation in need. It would importantly end the long-term demand for HUD to fund utility consumption levels indefinitely. Direct infrastructure investments in energy improvements could cause larger savings across the public housing inventory to accrue even more quickly. With adequate investments agencies could also optimize their energy solutions. For instance, an agency with aging boilers could do more than just replace boilers. The better long-term solution might include a more thorough approach – perhaps the installation of a geothermal field along with more insulation and high performance windows and doors. These one-time comprehensive solutions are rarely an option with declining Congressional funding. Public housing units and building are often clustered and contiguous making energy investments helpful and effective for a large numbers of households. Infrastructure investments in renewable might reasonably allow some properties to be less dependent on the electrical grid or to become net producers of energy.

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