NCSHA Letter to DoE on Expanding Utilization of WAP in Multifamily Buildings

July 6, 2009

Mr. Gil Sperling
U.S. Department of Energy
Weatherization Assistance Program
Room 6050
1000 Independence Avenue, S.W.
Washington, DC 20585-0121

Re: RIN 1904-AB-97
Weatherization Assistance Program for Low-Income Persons

Dear Mr. Sperling:
Thank you for the opportunity to comment on the Weatherization Assistance Program
for Low-Income Persons (WAP). The National Council of State Housing Agencies (NCSHA)
represents the nation’s state Housing Finance Agencies (HFAs), which administer a wide range
of affordable housing and community development programs, including tax-exempt Housing
Bonds, the Low Income Housing Tax Credit (Housing Credit), HOME, Section 8, down
payment assistance, and state trust funds. Several state HFAs administer WAP, while others
work in partnership with other state agencies which manage WAP.

NCSHA supports the Department of Energy’s (DOE) efforts to expand the utilization of
WAP in multifamily buildings. Many multifamily properties are aging and in need of
renovation. WAP would enable multifamily property owners to weatherize and improve the
energy efficiency of their buildings, reducing long-term operating and utility expenses and
providing a healthier environment for low-income residents.

Streamline Income Eligibility Procedures

NCSHA applauds DOE and the Department of Housing and Urban Development
(HUD) for working cooperatively to streamline the WAP eligibility requirements, as outlined in
their May 6, 2009 Memorandum of Understanding (MOU). We also support the DOE Notice of
Proposed Rulemaking’s (NOPR) proposal to amend the WAP’s multifamily building eligibility
provisions, which will make it easier for multifamily property owners to participate in WAP.
We agree that if HUD identifies a property as meeting income eligibility requirements under an
assisted or public housing program, that property should be considered eligible for WAP
without further evaluation or verification. We also recommend DOE deem that properties
financed under the Housing Credit program are eligible for WAP.

Recognize HUD Programs and the Housing Credit Provide Sufficient Rent Controls

WAP requires that the benefits of weatherization accrue primarily to low-income
tenants. Generally, this can be demonstrated by reduced utility costs for the tenants that result
from the weatherization work. As the NOPR notes, however, under HUD-assisted housing
programs and the Housing Credit program, tenants may not directly pay for all or part of their
utility bills. In these cases, we believe that the presence of long-term affordability covenants
clearly demonstrates that the benefits of weatherization accrue primarily to the tenants. These
use restrictions ensure that owners will not unduly benefit from weatherization by
inappropriately raising rents, evicting tenants, or selling the weatherized property. Lowincome
residents also receive direct benefits through the preservation and improvement of
affordable housing and through healthier living environments.

NCSHA believes that HUD assistance programs’ low-income resident rent rules satisfy
WAP’s rent increase protection requirement. As the NOPR states, HUD-assisted property rents
are capped at 30 percent of resident income, so residents would not be subject to rent increases
as a result of weatherization. It is unnecessary for DOE to impose any additional rent increase
restrictions on HUD-assisted housing.

Allow States Flexibility in Determining Rent Controls for Housing Credit Properties

For Housing Credit properties, we urge DOE to allow state agencies administering WAP
flexibility in determining the appropriate rent control procedures. As Housing Credit
administrators, state HFAs closely monitor the rent levels in Housing Credit properties, in
adherence to guidelines from the U.S. Treasury and IRS. Housing Credit rents are limited to an
affordable level based on the median income of the area in which the property is located.

State agencies fully understand WAP’s requirement that they must establish procedures
to ensure that rent increases will not occur for a reasonable period of time after weatherization
work has been completed on a property occupied by a low-income tenant, unless those
increases are demonstrated to be related to matters other than the weatherization work
performed. State HFAs are dedicated to preserving affordable housing and protecting tenants’
rights, so they will not approve inappropriate rent increases at Housing Credit properties.

States may require some flexibility, however, to approve certain gradual or delayed rent
increases as necessary for some Housing Credit properties. Housing Credit tenant rents are
determined by subtracting utility allowances from the property’s allowable gross rent.
Increasing utility allowances have forced many owners to reduce rents to levels that threaten
their financial viability. As utility costs decrease, some Housing Credit property owners may
find it necessary to raise rents to continue to cover overall operating costs. The sum of the
tenant rent and the utility allowance would remain constant, so residents would not be
negatively impacted by these rent increases.

NCSHA urges DOE to allow Housing Credit rent increases corresponding to a decrease
in utility expenses. Recently, IRS made changes to the Housing Credit utility allowance
regulation to ensure that property owners could apply accurate utility allowances. Restricting
owners’ ability to raise rent would reduce the effectiveness of these recent regulatory changes.

At the very least, we encourage DOE to allow states to permit some owners to increase
rents incrementally. For example, states may determine that a gradual phase-in of a rent
increase allowable under the Housing Credit program because of decreased utility allowances
will alleviate the impact on tenants. Again, these rent increases would not be to pay for the
weatherization work performed, but they would help Housing Credit owners recoup more rent
to pay for operating expenses.

Support Additional Recommendations for WAP

Over the years, many state HFAs have participated in WAP as the lead agency or in
partnership with another state agency. Those states with experience in utilizing WAP for
multifamily housing have several suggestions for making the program more accessible. These
recommendations do not directly respond to the questions raised in the NOPR, but we urge
DOE to consider them carefully.

Reduce WAP Impact on Housing Credit Eligible Basis

Tax regulations stipulate that Housing Credit owners must reduce their developments’
eligible basis by the amount of federal grants used in those developments. This basis reduction
poses a problem for new and existing Housing Credit developments by reducing the amount of
capital available for weatherization and other repairs. DOE could solve this problem by
allowing WAP funds to be provided as a direct or indirect low-interest, cash-flow-contingent
loan, as federal loans do not result in a reduction of eligible basis for Housing Credit-financed
projects. This change would help newer Housing Credit properties, but not older projects
which have significant cash flow problems and require energy efficiency improvements. An
alternative solution would be for DOE to work with the IRS to obtain a ruling stating that WAP
funds should not be treated as a federal grant for tax purposes.

Train Energy Assessors for Multifamily Buildings and Allow Alternative Assessors

To date, the vast majority of WAP work has been conducted in single-family homes.
States which have used WAP for multifamily properties have found that most WAP assessors
are not experienced or trained to evaluate the energy efficiency of multifamily buildings.

NCSHA urges DOE to change WAP regulations to allow professional energy auditors with
experience in multifamily properties to be approved to conduct WAP assessments. DOE should
allow participating property owners to hire existing energy audit firms, whose staff may have
to travel to conduct this work. In addition, DOE could provide professional training to local
WAP providers to evaluate multifamily properties. We also encourage DOE to require all
energy auditors and WAP providers to develop a standard, detailed report on their findings
and share this report with property owners and WAP state administrators. To date, energy
reports for multifamily properties often have been inconsistent or limited in details or scope.

Allow Properties with Previous WAP Funding to Reapply

Current WAP regulations prohibit properties which have received any WAP funds since
1993 from reapplying for resources. Technology has changed substantially since 1993 and
escalating fuel prices have meant that some efforts which previously yielded little return now
offer real energy and cost savings. Today, a more comprehensive look at sources of fuel savings
is possible. For these reasons, we urge DOE to amend its program regulations to allow
properties which previously received WAP funding to reapply for WAP resources.

Thank you again for the opportunity to comment on WAP. We appreciate your efforts
to create an open and inclusive process for implementing this important program. Please do
not hesitate to contact NCSHA if we can provide additional information.

Sincerely,
Garth B. Rieman
Director, Housing Advocacy and Strategic Initiatives