Congressional Plan

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-3000
Office of Housing

Congressional Implementation Plan
Budget Neutral Demonstration Program for Energy and Water
Conservation Improvements at Multifamily Residential Units (Title
LXXI, Section 81001)

Provided To:
Committee on Appropriations and Financial Services of the United States
House of Representatives
Committees on Appropriations and Banking, Housing, and Urban Affairs of
the Senate

March 4, 2016

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U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-3000
Office of Housing

Introduction
Title LXXXI of the Fixing America’s Surface Transportation Act (Public Law 114-94)
authorizes the Department of Housing and Urban Development (HUD) to establish a
demonstration program under which the Secretary may execute budget-neutral, performancebased agreements in fiscal years 2016 through 2019 that result in a reduction in energy or water
costs. The legislation authorizes HUD to implement this pilot in up to 20,000 units of
multifamily buildings participating in the project-based rental assistance (PBRA) program under
section 8 of the United States Housing Act of 1937; supportive housing for the elderly program
operating under section 202 of the Housing Act of 1959; and supportive housing for persons with
disabilities under section 811(d)(2) of the Cranston-Gonzalez National Affordable Housing Act.
The legislation states that HUD shall make payments under an agreement only during the
applicable years that the cost savings occurs. This program operates under a Pay for Success
financing framework, a strategy that can be applied across multiple policy areas to direct funds
towards projects that result in positive social benefits, including measurable outcomes for
communities, families, and individuals as well as the environment. Under the Pay for Success
model, the government specifies concrete, measurable outcomes that it would like to achieve—in
this case, reduced water and energy costs—and enters into a contract to pay for these results once
they are demonstrated for specific people or communities in need. By structuring payments
around measurable outcomes rather than a specific set of program inputs or activities, Pay for
Success financing approaches can provide flexibility for policymakers to implement evidence‐
based solutions, carefully test promising innovations, and scale proven programs.
Under this Pay for Success demonstration, HUD is authorized to establish a competitive process
for selecting one or more qualified intermediaries who will, per agreements with HUD, be
responsible for initiating and managing an energy and water conservation retrofit program. This
includes: raising capital from private investors and charitable organizations for the up-front costs
of the Energy and Water Conservation Measures (EWCMs) to be installed under the program;
credentialing energy service providers and facilitating their interaction with property owners;
providing quality assurance for installed EWCMs either directly or through a third-party;
retaining a third-party measurement and verification (M&V) provider; collecting payment from
HUD if savings are realized and providing payments to project investors at their pre-agreed upon
terms; and reporting regularly to HUD on the results of the M&V protocol. Payment by the
Government will occur after agreed-upon savings have been achieved and verified by an
independent third-party provider that conducts the M&V protocol.
The legislation requires HUD to submit to the Committees on Appropriations and Financial
Services of the United States House of Representatives and the Committees on Appropriations
and Banking, Housing, and Urban Affairs of the Senate a detailed implementation plan no later
than 90 days after its enactment. This plan is being provided to both Committees to fulfill this
requirement.
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U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-3000
Office of Housing

Program Design Overview
HUD is in the process of designing this program based on statutory requirements, a review of the
relevant literature and best practices, and lessons learned from similar programs administered by
HUD and other federal agencies. The following are the major program elements currently under
development. Details may change pending the results of further analysis.
Parties and Responsibilities
Although PFS has heretofore been used to deliver social service outcomes—e.g. reductions in
recidivism—the same set of actors will be involved in this application. The government initiates
the transaction by specifying desired outcomes for a target population (in this case, HUDassisted multifamily properties) and then selects an intermediary to achieve them. The
government holds the intermediary accountable for these outcomes and only makes payments
when a pre-determined performance threshold is achieved.
The intermediary is the key actor in a PFS deal, responsible for creating and executing its own
plan for implementation. This plan will include:




Recruiting investors to provide capital and paying them debt service using success
payments provided by the government
Engaging and coordinating service providers (in this case, the energy contractors who
will perform the retrofits)
Retaining a third-party measurement and verification provider to verify outcomes

Performance Measures and Payment Thresholds
As stated in the authorizing legislation, payments made under this pilot program will be
contingent on documented water and energy cost savings achieved at participating properties.
The intermediary will be responsible for retaining a third-party measurement and verification
provider to document savings. In the Notice of Funding Availability (NOFA) released for this
program, HUD will broadly outline its approach to measurement and verification of energy and
water savings and may indicate any thresholds or minimum levels of savings that will be
required to trigger repayment to investors. Applicants will propose a programmatic approach that
they believe will yield the expected level of savings across the entire pilot while satisfying all
other program requirements. HUD will negotiate the final performance measurements and
payment thresholds with organizations selected to participate and will only make payments if
payment thresholds are met as stated in the agreement.
Payment Structure
HUD will consider whether the utility cost savings from installed EWCMs could be shared with
property owners in order to provide greater incentive for program participation. HUD will
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U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-3000
Office of Housing

develop the necessary protocols and procedures for retaining its share of savings realized through
the program and use those funds to pay the intermediaries.
Program Evaluation and Reporting
Per authorizing legislation, HUD will be responsible for submitting annual program evaluation
reports to Congress starting no later than a year after that law’s enactment. HUD’s Office of
Policy Development and Research (PD&R) will have primary responsibility for administering
and sending to Congress an annual program evaluation plan as required by the legislation. PD&R
and the Office of Housing are collaborating on a program evaluation methodology. It should be
noted that the first and/or second year annual evaluation will not be able to state results of this
program since cost savings will have not yet occurred. The Office of Housing will ensure that
data points needed to produce the annual evaluation are captured in the application and reporting
questions developed for this program. PD&R may develop additional survey questions, if
necessary.
Affordability Requirements
HUD will enforce the affordability requirements listed in the legislation which state that the
property must be subject to affordability restrictions for at least 15 years after the completion of
any conservation improvements made to the property under this pilot.
Competitive Selection Process for Intermediaries
HUD will develop and publish a NOFA and application materials to competitively select one or
more intermediaries to carry out the responsibilities of administering this program. Table 1
below enumerates some of the key elements that HUD currently plans to include in this NOFA;
the final document will have a number of other standard provisions as well.
Table 1. Key Pay for Success pilot NOFA Elements
Section Title
General Information
Reporting Requirements

Audit, Quality
Assurance and Quality
Control Requirements

Requirements
Instructions for how to apply, due dates, available training materials
and other general information.
HUD will specify performance measures and detail reporting
requirements for Measurement and Verification results. These
requirements will flow from the internal program evaluation approach
being developed in partnership with PD&R to ensure that
intermediaries’ reporting fulfills all of HUD’s needs.
Applicants will provide a quality assurance and quality control plan
that will detail their strategy for ensuring that work is completed as
proposed and which outlines how problems that arise will be
resolved.
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U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-3000
Office of Housing

Required Experience

Financial Capacity

Proposed Operational
Approach
Portfolio Prospectus

Service Providers

HUD will detail the number of years an applicant or consortia must
have financing or operating affordable multifamily properties
receiving assistance from eligible programs, overseeing energy and
water conservation programs, and raising private capital. HUD will
make clear that applicants are encouraged to put together consortia in
order to bring all of the required qualifications to the application.
However, a single intermediary or its Special Purpose Vehicle will
have the sole legal responsibility for reporting and distributing
payments received from property owners.
HUD will require the applicant to detail their strategy for recruiting
and/or receiving commitments from investors and demonstrate that it
has the necessary financial viability to operate the program for the
first two years, in advance of any measurable cost savings being
achieved.
Applicants will provide their proposed operational approach to
completing the proposed project, including the overall timeline,
staffing structure, and resource allocation.
HUD will ask applicants to list the number and geographic dispersion
of proposed projects. Applicants will also provide financial
performance estimates with breakdowns by building characteristics,
project type, and others, including top-line estimates for performance
measures identified by HUD. HUD will negotiate the final payment
thresholds with organizations selected to participate.
Applicants will state the qualifications for contractors participating in
the program and outline their approach to facilitating interactions
between the contractors and property owners (i.e. with whom the
contractor will have a contractual relationship).

HUD’s goal is to publish the NOFA by the end of fiscal year 2016. HUD will produce evaluation
criteria to select winners from application information and then negotiate agreements with
successful organizations.
Program Implementation
The organizations selected as intermediaries will be responsible for executing the proposals
outlined in their applications. Agreements will offer intermediaries flexibility to alter their
EWCM strategies if they determine during the agreement period that they can improve energy
and/or water conservation savings by altering their approach. HUD will develop an internal
program administration plan which will detail all of the requirements and processes required for
administering the program. It is expected that each office within the Office of Housing will have
responsibility for different aspects of the program, including program coordination, any changes
to Housing Assistance Payment (HAP) contracts and Utility Allowances, field coordination and
training, developing and disseminating standard operating procedures for the administrative
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U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-3000
Office of Housing

functions required for the program, and contract support.
The following are expected to be the major elements of the plan, but details may change pending
the results of further analysis.
Regulatory Waivers and Administrative Changes
Some regulatory and administrative changes may be required in order to put in place the
necessary procedures and systems for administering the program. The specific changes will vary
across programs and vary within each program depending on which assistance contract is in
effect at a given property. Regulatory waivers granted for this program will follow normal HUD
procedures. Office of Housing will coordinate with HUD’s Office of General Counsel (OGC) to
ensure that the program complies with all existing program regulations and restrictions.
Management of Performance-Based Agreements
Office of Housing and OGC will draft a performance-based agreement that enforces all statutory
restrictions along with agreed-upon minimum performance standards that will serve as payment
thresholds. Selected intermediaries will enter into agreements with HUD (to be managed by
Office of Housing) for a maximum of 12 years.
Field Staff Outreach and Training
Office of Housing will administer the technical assistance (TA) protocols established in the
program administration plan. TA will assist in determining the role of field staff in recruiting
program participants, their relationship with the intermediaries, and their operational
responsibilities. In order to maximize the effectiveness of very limited available resources for
TA, Office of Housing will assemble a project team in each of the five regions. The teams will
disseminate information and training materials to regional staff potentially impacted by the
program and handle operational tasks (e.g. adjustments to HAPs and utility allowances for
participating properties).
Systems Management
HUD will determine the information technology requirements for administering this program as
it becomes more developed. It may be necessary to make modifications to existing data
collection systems, including the Integrated Real Estate Management System and Tenant Rental
Assistance Certification System and these changes may require funding to implement.

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