Public agencies, including those that deliver housing and energy funds to LMI communities, have a primary directive to design and administer programs that protect public safety and deliver social goods while ensuring that taxpayer dollars are used as responsibly and efficiently as possible to avoid abuse. This report identifies 8 Keys to Success, specific program designs and structures in LMI programs that strike the balance between efficiently delivering a social good and mitigating abuse. The report additionally identifies seven separate Keys to Success specific to Green Banks to successfully drive funding into LMI communities (see Program Design Keys to Success for Green Banks section).
1 Carve Out Funds For LMI Programs
The primary goal of energy programs is to achieve the greatest energy savings for the lowest cost. As such, program administrators are drawn to funding large real estate assets with individual tenants. However, the scale of the climate crisis necessitates the decarbonization of affordable housing buildings in LMI communities as well. Such projects are financed and operated differently from market-rate projects and are typically smaller, with disaggregated energy usage. A program developed primarily to decarbonize market-rate housing will not be as effective for affordable housing. Administrators that have carved out separate programs targeted at LMI projects with more favorable terms have typically seen greater success.
2 Create Deep Partnerships between Energy and Housing Agencies to Lead Programs
It is incredibly challenging to find energy program staff that are truly expert in both building science and affordable housing development (i.e. the financing, construction and operation of multifamily affordable housing). However, to effectively develop programs that incorporate greater sustainability into multi- family affordable housing, knowledge of both is required – program designers need to understand both the most impactful ways to incorporate sustainability into buildings without increasing the administrative and financial burden on developers. The most successful programs involve deep engagement between energy and housing staff throughout the program design process.
3 Streamline Energy Funds with Affordable Housing Funds
Most affordable housing developers interviewed preferred to receive energy funds as part of loan structures rather than grants. The vast majority of affordable housing projects in California, New York, and other high-cost markets must receive soft loans from state housing agencies to be financially viable. In the case where developers are already receiving soft loans from states, developers prefer to receive energy funds as an increase to their soft loans rather than cash grants due to administrative and tax advantages.
4 Energy Funds as a Construction Financing Source
Energy funds make much more impact and receive better uptake in low-income communities for new affordable housing projects when they are large enough and structured so that they can be used as a formal construction source of financing in their capital stacks. Both the timing and terms under which energy funding programs are provided can affect successful implementation. Energy funds that are programmed as performance-based rebates are difficult to implement when there is no upfront capital source to pay for equipment installation. Point-of-sale rebate structures alleviate that initial financial burden, freeing up development capital to be used for other critical costs. Other financing structures, such as low-cost debt and/or “soft debt” introduced during the pre-development or construction phases of projects are much more compatible with typical affordable housing financing structures and developer capacities. Early inclusion into funding term sheets and formal commitments enables lenders and investors to formally recognize energy funds as a construction financing source, which makes them much more impactful and valuable to affordable housing developers.
5 Allocate More Funds to Soft Costs
The disaggregated nature of energy savings in affordable housing projects in addition to burdensome rebate requirements require substantially more time and effort to access funding. In order to meaningfully expand into this market, programs must account for the increased soft costs and capacity required for an owner to access 1,000 kilowatt hours of savings in a warehouse building with one tenant versus 1,000 kilowatt hours of savings in an affordable multifamily project made up of 100 individual apartments, each with their own energy bills, multiple investors, and an owner often with limited time and capacity.
6 Ensure Funding Awards are Flexible, Easy to Use, and Large Enough to Change Behavior for Affordable Multifamily Properties
To make dollars stretch further across the most amount of customers, energy program administrators often establish maximum funding awards per project that do not fully cover costs. For example, utility rebate programs are one of the most frequently used sources of energy funding, but they typically cover 5-10% of equipment cost and less than 1% of total project cost. Multifamily affordable housing developers weigh their capacity and project management costs against the size of the energy award. If the awards are not large enough or too administratively cumbersome, they will forgo such funding. Conversely, applications that align with existing funding programs ease the capacity and administrative burden. The most successful programs offer grants for over 80% of equipment cost and meaningful technical assistance to encourage significant design updates that achieve higher efficiency.
7 Authorize Programs for the Long-term
Unfortunately, many well-designed programs are only authorized for a short period of time and are oversubscribed almost immediately. The most successful states consolidate energy funds into a select set of programs to gain scale and then authorize those programs for over 5 years. Long-term authorization gives applicants time to learn the programs and certainty of the funding availability, which allows for planning and brings down their cost to apply and comply. These quality features also give program administrators the justification to ask more of applicants.
8 Streamline Application Processes and Compliance
In an effort to ensure responsible use of public dollars, program administrators often burden affordable housing projects with intensive applications and ongoing compliance, which increases project cost and diverts funds away from amenities for LMI residents. The most mission-oriented energy administrators work with housing agencies to piggyback off existing funding application processes and streamline compliance processes, reducing the administrative burden of their programs and enabling better utilization of funds and services for low-income residents.