Enterprise Point of Contact:

Kenny Marable
Policy Assistant
Last Updated: June 1, 2012

Issue Background: Weatherization

Created in 1976, the Department of Energy (DOE) Weatherization Assistance Program (WAP) is designed to reduce the energy use of low-income households, a population that is especially hard hit by rising energy costs. Permanent energy savings are achieved through residential energy efficiency improvements and renewable energy technologies. DOE provides grant funding to states on the basis of relative need for assistance among low-income persons. States then fund a network of local community action agencies, nonprofit organizations and local governments that provide weatherization services. Funds are allocated to individual recipient households according to need-based criteria. Assistance is limited to $6,500 per dwelling unit for energy efficiency improvements and $3,000 for renewable energy technologies. The program is historically funded at around $200 million annually. Under the American Recovery and Reinvestment Act (ARRA; Public Law 111-5), WAP received an additional funding boost of $5 billion. To date, WAP has provided weatherization services to over 6.4 million low-income households. States have historically directed the bulk of WAP funds to single-family residences, although assistance for multifamily rental properties is specifically authorized by statute.

Current Policy Status

Affordable multifamily properties have difficulty accessing WAP funds. The primary hurdle is the impact of grant funds on projects financed with the Low Income Housing Tax Credit (Housing Credit).  Enacted in 1986, the Housing Credit is a federal program that is the primary source of equity for affordable multifamily housing. This tax credit has financed the production of over 1.7 million units of housing since its inception, funding nine out of every ten apartments for low-income households. Housing Credit funds both new construction and rehabilitation activities.

Under federal tax law, any federal grant to a project financed with the Housing Credit results in a reduction in the “eligible basis,” which determines the amount of tax credits the project is able to receive. Consequently, Housing Credit projects are not able to utilize WAP funds in this form because the weatherization money does not add equity to the project. Furthermore, grants may also be considered taxable income, therefore increasing Housing Credit investors’ tax liability. Treating WAP funding as a grant therefore reduces the amount of equity that investors are willing to put into a project.

This hurdle can be overcome by allowing WAP funds to be disbursed as loans rather than grants. Providing states and subgrantees with the flexibility to structure WAP funds as loans will leverage private equity under the Housing Credit, expand the benefits of weatherization to a much wider range of low-income households, achieve large-scale energy savings, create green jobs and help states meet their quantitative production goals under ARRA.   Unfortunately, DOE has determined that it does not have the authority to permit issuance of WAP funds as loans.

Legislative and Regulatory Priorities

Enterprise supports legislative and regulatory efforts to facilitate the use of WAP funds for multifamily housing. It is our interpretation that neither the WAP statute nor the regulations preclude the use of weatherization funds as loans. Therefore, Congress and DOE should issue guidance that gives states the flexibility to structure weatherization loans in ways that will avoid negative tax implications for Housing Credit-financed projects.

Publications and Resources

DOE/HUD Weatherization Assistance Program Guidance

Enterprise Resources

Public Comment on Weatherization of Multifamily Properties

External Resources

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