GAO and HUD: What does HUD get for $5B a year? (pt. 1 Summary)

I’m finally beginning a series on GAO’s “Green Affordable Housing” evaluation of HUD’s sustainability efforts.

[Among the many recommendations GAO makes is that HUD collect more and better data about operational costs. The GAO recommendation does not highlight specific data to be collected, but using the LEED v3 "Whole Building Energy and Water Use" requirement: per page 19, it looks like it's just 5 years for LEED-CI. More to come on that.]

GAO wrote the report in part because “[HUD] spends an estimated $5 billion—more than 10 percent of its budget—on energy costs, either directly in the form of public housing operating subsidies or indirectly through utility allowances and contracts for assisted multifamily housing. [HUD] does not have the data necessary to understand the breakdown of these costs or the potential savings opportunities of green building for
many of its programs.”

HUD already provides resources and training and a very, very modest financial incentive to pursue energy efficiency. What I like about the GAO report is its emphasis on using NGO, regional and national sustainability measurements and cribbing the state-level LIHTC incentives for use in HUD projects. This would encompass water use reductions, sustainable material use, and indoor air quality improvement in addition to promoting energy efficiency.

GAO also reminds us that HUD can exercise financial levers: directly through debt financing, Community Development Block Grants, HOPE VI; and indirectly through its support for PHAs and Housing Assistance Vouchers. In addition, HUD’s Office of Policy Development and Research promotes building science and the advancement of durability, energy efficiency, and affordability of housing.

Unfortunately, standard who-pays-for-what conflicts arise in HUD’s relationships with local Public Housing Agencies (PHAs). Writes the GAO:

Some HUD programs offer incentives for energy conservation measures. PHAs receive funds from HUD’s capital fund that may be spent on energy conservation measures, but HUD officials told us that these funds are generally insufficient to cover both the up-front cost of many energy improvements and ongoing repair needs.5 HUD’s operating fund standard rules provide a disincentive to implementing high-cost energy improvements. According to HUD officials, a PHA’s annual operating subsidy is based in part on the prior 3 years of utility consumption, which would be expected to fall in the years following such improvements. This “3-year rolling base” policy allows PHAs to retain 75 percent of savings from reducing utility consumption over a 3-year period, but according to HUD officials, PHAs cannot retain enough savings over this short time to recoup the up-front cost of many large energy efficiency improvements such as high-energy-efficiency boilers.6

It should be noted that these large-scale sustainability initiatives can be met through the use of an energy services company (ESCO) such as Honeywell. Recent regulatory revisions by HUD have improved the processing of these contracts, allowing faster review and longer payback periods. Per the GAO, 195 ESCO contracts were in place in 2007, saving an estimated $50mm annually.

Overall, GAO provides sensible, affordable recommendations for further action. HUD should use third party mechanisms for efficiency benchmarking, collect sufficient information from Section 8 projects and residents, and emphasize (and reward) energy efficiency when awarding grants or in its various lending programs.

These recommendations could have a welcome and systemic impact upon all of multifamily construction, portfolio operation, and lending. We’ll talk more about this in subsequent posts.