Written Statement
Deputy Secretary Ron Sims
U.S. Department of Housing and Urban Development
Subcommittee on Housing, Transportation and Community Development
Committee on Banking, Housing and Urban Affairs
United States Senate
"Green Housing for the 21st Century:
Retrofitting the Past and Building an Energy Efficient Future"
Good morning Chairman Menendez, Ranking Member Vitter, distinguished members of the Subcommittee. Thank you for the opportunity to testify on behalf of the Department today on S. 1379, the Energy Efficiency in Housing Act of 2009. I want to commend you, as well as Senators Whitehouse and Schumer, for your support for energy efficiency and green building throughout HUD's programs and in the affordable housing sector at large. I also want to take this opportunity to commend Chairman Dodd on S. 1619, the Livable Communities Act - which in many ways complements Senator Whitehouse's efforts through the bill we are considering today.
I am here today to provide support for the bill as it impacts HUD's programs and policies, contingent on amending certain provisions of the legislation. Before coming to HUD I was County Executive in King County, Washington for a dozen years, where we developed one of the most cutting edge green building and smart growth programs in the country. As you know, with strong support from this Committee, HUD has created a new Office of Sustainable Housing and Communities and Secretary Donovan has asked me to oversee that office. In that capacity I am responsible for synchronizing our efforts with other departments and agencies and implementing HUD's green building and energy efficiency initiatives as we bring some of the best local ideas for building strong, sustainable communities to the national stage.
So I have a strong interest in the outcome of this legislation. That's why we have worked closely with Congressman Perlmutter and the House Financial Services Committee on H.R. 2366, on the House counterpart to this bill and, at the same time, HUD has begun to implement a series of initiatives that are very much aligned with the goals and objectives of this legislation.
I am pleased to report that HUD has made some significant steps to further our commitment to improving the energy efficiency of the 5 million HUD-subsidized affordable housing units and incorporating energy efficiency standards throughout the various HUD programs. HUD's FY2010 budget proposal, our new Strategic Plan and newly formed partnerships with the Departments of Transportation and Energy and the Environmental Protection Agency reflect HUD's commitment to increasing and promoting energy efficiency.
Nowhere is this commitment more evident than in HUD's new FY2010-FY2015 Strategic Plan, which we published last month. Indeed, one of the five strategic goals of the six year plan is to "promote energy efficient buildings and location-efficient communities that are healthy, affordable and diverse."1
Specific strategies included in the Strategic Plan to support this goal are to: (i) Support and promote an energy efficient, green and healthy housing market by retrofitting existing housing; (ii) Support energy efficiency in new construction projects; (iii) Improve home energy labeling and high-performing upgrades that reduce the carbon footprint of non-HUD supported residential buildings; and (iv) Reduce energy consumption and incorporate green buildings in the design and operation of HUD-supported affordable housing.
In support of this goal, over the next two years, the Department has set a goal of 159,000 energy efficient retrofits or green housing units through our Recovery Act initiatives, as well as through our ongoing programs.
In addition, HUD is hard at work on a comprehensive Energy Action Plan that will provide detailed reporting on energy consumption and expenditures in HUD-assisted housing and lay out a set of specific steps HUD will take over the next two years to dramatically increase the energy efficiency and broader environmental performance of HUD-assisted housing. This Plan is required of us every two years under the Energy Policy Act of 2005 and we look forward to sharing the next version with the Committee later this year.
Greening HUD's stock of public and assisted housing supports four sound public policy principles. First, it's sound fiscal policy. HUD's budget is directly impacted by utility costs. HUD spends an estimated $5 billion annually on energy, either directly in the form of the public housing operating subsidy or indirectly through utility allowances and Section 8 contracts in assisted multifamily housing. This is an area where significant cost savings are possible. For example, a modest savings of just 5 percent per year could generate a savings of $1 billion over the next 5 years.
The overall cost of utilities in public housing (including water and sewer charges) in 2006 totaled $1.85 billion, including an estimated $421 million that was spent through utility allowances on tenant-paid utilities. Utility costs have also been steadily increasing in assisted housing. Between 2000 and 2005, average owner-paid utility costs increased by 28 percent. In addition, HUD spent an estimated $3.2 billion on project- and tenant-based utility allowances in 2007.2 Between 1998 and 2007, the average tenant-based Section 8 utility allowance per resident has increased by 67%.3
Second, energy efficiency and green building play a crucial role in housing affordability. Some are concerned that green building adds to the cost of housing. I do not subscribe to that view: I believe that we can't afford not to build green. Research increasingly shows that all types of affordable housing can be built or rehabilitated to rigorous green standards at minor additional cost, and often without the need for capital investment. Secretary Donovan and I are committed to making HUD a leader in green development precisely because of the benefits it will provide to people across the economic spectrum and lower-income families in particular. These kinds of investments are essential to creating the new generation of professionals-from mechanics and plumbers, to architects, energy auditors, and factory workers building solar panels and wind turbines-we need to design, install, and maintain the first wave of green technologies and unlock the clean energy economy.
As we dispel the notion that green building will mean higher costs for low income families we must recognize, while everyone is hurt by high energy costs, no one is more vulnerable to rising energy prices than low- and moderate-income families. Higher energy costs often result in cutting back on other critical needs, such as medicine and food.
Large scale green initiatives such as the Enterprise Green Communities program show that properties achieving 20 to 30 percent greater energy efficiency yield cost savings that accrue directly to low-income residents, or are reinvested back into the property in which they live.
Third, sustainable, green building has a clear connection to better health as well. Right now we can predict morbidity rates and life expectancy by zip code. In King County, we did a study called HealthScape, which looked specifically at how the built environment and the transportation system impacts public health and climate change.4 What we found was that while people living in the most walkable areas of the county were less likely to be overweight and more likely to be physically active, in pockets of the county with lower-income and high concentrations of minority populations wide health disparities existed.
But as we saw in the High Point public housing development in Seattle, a commitment to building green can be a big part of overcoming these disparities. In addition to walkability, by adding green features specifically designed to reduce asthma triggers, the number of asthma-free days increased, and mold-which is an important asthma trigger, especially in children-was effectively controlled.
Finally, greening our buildings will have a positive impact on our environment. As the American people are well aware, transportation accounts for a third of all greenhouse gas emissions. But most people would be surprised to learn that buildings account for even more – almost 40 percent – of our emissions. About half – 20 percent of all carbon emissions – are from heating, lighting and cooling our homes.5 As many of the nation's Mayors, some 1,042 at last count, have recognized through their commitments to the 2030 Building Challenge, significant improvements in the energy efficiency of our building stock will yield big gains on the carbon reduction front as well. We believe that the federal government should be – and can be - a leader, rather than a follower in reducing the impact of housing on global warming and climate change.
Studies have already found a significant return on efficiency investments. A study of energy savings in single-family homes through the Department of Energy's Weatherization Assistance Program from 1993 to 2005 found that the program achieved savings of 23 percent in gas-heated single-family detached homes.6
This and other studies point to significant savings resulting from energy improvements. For example, through some 200 Energy Performance Contracts in public housing, HUD estimates a cost savings of approximately $100 million per year for an investment of $571 million, with an average investment of less than $4,000 per unit.
So there should be no doubt that lower energy costs in federally subsidized housing are critical to the overall health of the portfolio, and to the welfare of the residents. It is clear that greening buildings will have dramatic benefits for low and moderate income households by reducing their energy costs, improving their health, and increasing economic opportunities. Green building is not only the key to making all our neighborhoods better – it is essential to building the kind of stronger communities America needs to meet the challenges of the 21st century.
The Energy Efficiency in Housing Act will enable HUD to be a more effective partner in this effort. The bill is wide ranging and comprehensive, and in totality represents an important effort to address the high cost of heating, lighting and cooling federally-financed, assisted or insured housing. With suggested modifications that we will be happy to provide the Committee, we are generally in support of the key provisions of the bill as they impact HUD policies and programs.
The bill includes a number of provisions for piloting or demonstrating energy efficiency in federally-assisted or insured multifamily housing, a sector which, due to the "split incentive" between residents and owners faces particular challenges in incentivizing energy investment, along with limitations on accessing energy performance contracts that have so been used with some success in public housing. There are also sections related to energy efficiency in mortgage underwriting, incorporating green standards in the HOPE VI program and stronger energy efficiency requirements for rural housing.
The bill also provides for a competitive grant program to fund local community organizations in low-income communities. The bill also requires HUD to play a financing role in residential renewable energy leasing. This would be an area outside of HUD's current expertise, and the prescriptive terms and potentially risky nature of such financing could ultimately lead to higher costs, or lower participation if high fees are required to offset costs. We look forward to working with you on technical amendments to the bill to clarify this issue. Two provisions in the bill involve public housing, the first applies the Green Communities standard to HOPE VI, the second requires an annual report to Congress. In addition, there are several provisions of the bill that fall outside HUD's jurisdiction.
Our support is contingent on a number of amendments to the bill that we would like to share with the Committee in order to more closely align the bill with the House version of the bill, as well as with HUD's current practices and procedures. The bill also contains provisions that are inconsistent with the Federal Credit Reform Act, and Federal credit policies; such provisions would lead to less efficient or effective use of Federal credit assistance to achieve policy goals and could be costly. Let me touch on a few areas where we believe corrections or modifications will be needed.
First, with regard to minimum standards, our understanding of the bill is that it gives the Secretary the discretion to apply minimum or enhanced energy and green standards as cited in
Section 3 (Definitions). The only programs for which these standards are required are for certain demonstration or pilot programs specified in the legislation. The Committee may want to consider providing the Secretary with the discretion to apply these standards to other programs. The primary challenge will be that recipients of HUD funds in those states who have not yet adopted the minimum standard (the 2009 International Energy Conservation Code) would need to familiarize themselves with the higher code requirements. In addition, even though the application of these standards is discretionary, the definition of HUD "assisted programs" that are covered by these standards should exclude loan insurance and loan guarantee programs, consistent with the definitions in the most recent House version of the bill. It would also be helpful if the bill simply cited the specific programs in the bill to which these definitions apply.
Second, if there is a "green premium" associated with implementing these standards, HUD may need to raise Total Development Cost (TDC) limits accordingly; however it should be clear that any increases in front-end development costs would be offset by lower operating costs, and that energy efficient construction doesn't always require additional costs.
Third, we recommend re-ordering and amending the provisions of the legislation related to energy efficient (and location efficient) mortgage underwriting. Section 11 creates a Commission to study and make recommendations for the creation of model energy efficiency mortgage products and underwriting standards, while Section 10 would have the FHA developing methods for considering the impact of utility cost savings in underwriting standards, separate from and prior to the Commission's proposals. HUD recommends reversing these two sections to allow the Commission to complete its work, submit its recommendations and FHA to consider those recommendations, instead of FHA creating new products without such guidance. We will be happy to provide the Committee with detailed technical suggestions to achieve this end.
We also recommend several improvements to Section 5, which requires the Secretary to establish "budget neutral incentives for encouraging lenders to make, and homebuyers and homeowners to participate in, energy efficient mortgages and location efficient mortgages."7 The key words here should be "budget neutral." The bill should explicitly specify that budget neutrality applies to the FHA Mutual Mortgage Insurance (MMI) Fund and other FHA funds when considering these incentives. In addition, this section requires the Secretary to "consider the lower risk of default on energy efficient and location efficient mortgages" compared to other mortgages; we recommend that this lower risk should be contingent on HUD's analysis and determination that these mortgages do lower the risk of delinquencies or default. This section also establishes a new definition of an energy efficient mortgage for FHA which may be problematic, in that projected or modeled energy savings are not always realized in practice - and may create confusion with current FHA energy efficient mortgages, which are defined differently. Finally, we suggest that this section of the bill also be implemented in conjunction with the Commission's work as described in Section 11 of the bill, rather than requiring the Secretary to act before the Commission has submitted its recommendations.
In the multifamily arena, Section 6 requires HUD to develop incentives to increase the energy efficiency of FHA-insured multifamily housing -- such as a discount on premiums, loan limit increases for energy efficiency improvements, or reductions in required owner contributions -- but does not establish clear parameters for these incentives or require budget neutrality. This section would be improved by providing permissive authority for HUD to create incentives, rather than requiring them, and by including a more limited set of incentive authorities that do not provide blanket waivers of the core statutory loan limits and underwriting requirements that apply to all other multifamily loans.
We look forward to working with the Committee staff to address these and other suggested modifications to the bill. These include, for example, technical amendments for consistency with the Federal Credit Reform Act, possible improvements to the design of multifamily housing pilot programs; more manageable timelines for issuing regulations; amendments to Sections 19 and 21 in order to ensure consistency with Federal credit program policy; and ensuring that HUD has the ability to do proper due diligence on the financial and operational feasibility of implementing new programs in new areas of activity, such as solar leasing (Section 21).
I'd like now to take a few moments to highlight the progress we have made over the past 18 months in moving this agenda forward and to illustrate what HUD is already doing in these areas. The Department's successful Mark to Market (M2M) Green Initiative, initiated in 2007, continues to provide property owners who have entered the Mark to Market Program enhanced incentives and credits for "going green." To date, the program has led to the green rehabilitation of some 27 properties with approximately 2,700 units. HUD requires a green physical condition assessment, an energy audit and an integrated pest management inspection, in order to identify energy and water saving and other measures that improve indoor air quality and benefit the environment.
The Green Initiative is voluntary; to incentivize owners, HUD offers to reduce the required contribution from the owner from 20 percent to just 3 percent, and also increase the incentive performance fee, which is paid annually upon meeting required conditions. Owners agree to green the property for the life of the use agreement (generally 30 years) and to develop and maintain a green Operations & Maintenance Plan.
Recovery Act Investments
Building on the success of this initiative, HUD has targeted funds appropriated by Congress through the American Recovery and Revitalization Act of 2009 to further its commitment to energy efficiency.
Approximately $250 million has been made available for energy efficient and green retrofits in assisted multifamily housing. 210 project applications have been accepted, with approximately 20,000 units. The first award under the Green Retrofit Program went to a New York project, the West 135th St Apartments in Harlem, New York, a 198-unit, 10 building, Section 8 assisted property developed by Jonathan Rose Companies. Energy efficient improvements will include Energy Star refrigerators, replacement of 32 old boilers with 10 high-efficiency boilers, rooftop solar photovoltaic panels, formaldehyde-free kitchen cabinets, recycled-material kitchen counters, Energy Star ceiling fans, compact fluorescent lamp (CFL) fixtures and bulbs, double-pane argon-filled low emissivity (low-e) windows, insulated exterior doors, low-flow fixtures, shower heads and toilets, linoleum flooring to replace vinyl tile, wood floor installations using Forest Stewardship Council (FSC)-certified wood, and non-toxic paints, adhesives an sealants throughout.
