Leveraging Nonfederal Resources For LIHEAP
Compiled by the LIHEAP
Leveraging, or attaining nonfederal supplemental funding and other resources to supplement federal LIHEAP and weatherization funds, has long been a topic of interest to state and tribal LIHEAP programs given that federal funding levels are unpredictable and can vary widely from year to year. Leveraging took on special importance with the enactment of a leveraging incentive provision in the 1990 LIHEAP reauthorization bill.
Under this provision, effective in FY 1992, the Department of Health and Human Services (HHS) may allocate supplementary LIHEAP funds to grantees that have acquired nonfederal leveraged resources for their LIHEAP programs. Grantees wishing to compete for leveraging incentive funds must submit a report to HHS each year that quantifies the amount of leveraging accomplished by the grantee during the previous year, less any costs incurred by the grantee and any costs imposed upon LIHEAP clients.
On January 16, 1992, HHS published an interim final rule implementing the incentive provision and providing criteria on what counts as leveraging. This interim final rule was in effect until the final rule was published May 1, 1995.
The part of the final rule that applies to the leveraging incentive program became effective October 1, 1995, and the new requirements were used to evaluate grantees' FY 1996 leveraging activities. The final rule's provision relating to the grant allocation formula was used in FY 1996 to reward grantees' FY 1995 leveraging activities.
Since FY 1991, LIHEAP grantees have competed for the leveraging incentive funds available each year (except for FY 2008, as explained below) as part of the Congressional appropriation to LIHEAP. FY 1991 was the first "base period" of the program; participants were rewarded for their activities with FY 1992 funds (the "award period"). For each subsequent year of leveraging, states were given awards for the previous year's leveraging activities.
Approximately $25 million yearly was available for the first three years of the leveraging incentive program; for FY 1994 activities the leveraging incentive fund increased to $30 million. The amount Congress appropriated for FY 1995 leveraging activities was $22.5 million; however, the appropriation also required that up to 25 percent of the leveraging amount be set aside for the new Residential Energy Assistance Challenge Program (REACH), leaving $16.875 million for leveraging. Each year thereafter, an amount has been deducted from the leveraging appropriation for REACH; the leveraging award totals have averaged around $20 million. This table shows grantee leveraging and awards totals since FY 1991. Leveraging by states reached a record of nearly $2.7 billion for 2006, falling slightly to nearly $2.6 billion for 2007.
Other than funding changes from year to year, there has been little change in the program until 2008. In June of that year, HHS announced there would be no leveraging awards issued with FY 2008 funds for FY 2007 leveraging activities. This was because, after reviewing the FY 2008 appropriations language, HHS found that Congress did not authorize funding for leveraging and REACH for 2008. As a result, funds that were normally set aside for the LIHEAP leveraging and REACH programs were not awarded for those activities; instead, they were awarded as regular block grant funds in June of 2008.
However, grantees were awarded funds for FY 2007 leveraging activities as part of FY 2009 funding released in October of 2008 because the appropriations language allowed this. States were told not to submit leveraging reports for activities conducted during FY 2008 and there will be no awards for that year's activities. HHS said it would resume the normal leveraging schedule for FY 2009 activities. States are to submit leveraging applications no later than November 30, 2009, based on FY 2009 leveraging activities, with awards to be released the following spring.
Additionally, the 1990 reauthorization of the Department of Energy (DOE) Weatherization Assistance Program authorized a one-time allocation of $3 million for states which "obtained a significant portion of income from non-federal sources for their weatherization programs or increased significantly the portion of low-income weatherization assistance that the state obtained from non-federal sources." This money was allocated to the state WAP grantees in 1993-94.
Also of importance to WAP grantees, the Weatherization Program Regulations at Sec. 440.14(b)(9)(xiv) allow grantees to use a portion of their grant for leveraging activities, and they must include in their plan: "The amount of Federal funds to be used, and an explanation of how they will be used, to increase the amount of weatherization assistance that the State obtains from non-Federal sources, including private sources, and the expected leveraging effect to be accomplished." According to the National Community Action Foundation, there is no limit on the amount of funds a grantee may use for leveraging so long as the leveraging activity is one that promotes expansion of energy conservation funding for eligible households.
This memorandum will provide a brief overview of the LIHEAP final rule and discuss some examples of leveraging used by states and tribes. It is not an attempt to summarize all the leveraging regulations or to recommend any particular form of leveraging.
Each grantee should seek guidance from HHS as to whether a leveraged resource is countable and meets all statutory criteria. Grantees may contact the Clearinghouse for additional information on what other grantees have claimed and had approved by HHS as leveraged resources. HHS sent each grantee a copy of the rule as part of Information Memorandum 95-20 dated June 9, 1995. Grantees should first consult the final rule, whose preamble provides extensive discussion of all the regulations and can offer a great deal of guidance. The LIHEAP Clearinghouse annually compiles a narrative summary and table of state and tribal grantee leveraging activities, and more detailed information from grantee leveraging plans is available by contacting the Clearinghouse.
It should be noted that some grantees may engage in activities that, while supplementing energy resources available for energy assistance for low-income households, do not qualify as leveraging because they do not meet the statutory criteria. Or some activities, though countable and benefiting many low-income families, may take too much of a grantee's administrative time to adequately document and quantify.
HHS has emphasized that such activities are important and that grantees should continue them. And, because federal LIHEAP funding fluctuates from year to year, it is important to remember this comment from the National Community Action Foundation, a group that lobbies for programs administered by community action agencies: "A program that leverages LIHEAP or WAP resources is worthwhile in its own right, regardless of whether it qualifies for the incentive funds."
WHAT COUNTS AS LEVERAGING
Essentially, a resource or activity cannot be counted as a leveraged resource under LIHEAP unless it results in home energy benefits to LIHEAP-or federally-eligible households that can be measured or quantified. The final rule identifies three categories of leveraged resources and benefits that can be countable provided they meet all other applicable provisions: (1) cash, (2) home energy discounts and waivers, and (3) third-party in-kind contributions.
(1) CASH RESOURCES
An example of the first is cash from a non-federal source such as state, tribal, or oil overcharge funds, or private sources such as utility-sponsored fuel funds. Certain oil overcharge funds distributed to the states by DOE after October 1, 1990, may also be countable. The cash could be used to supplement a LIHEAP grantee's heating, cooling, crisis or weatherization programs, to purchase fuels, or to install weatherization materials.
State Supplements to LIHEAP
Historically, states have supplemented LIHEAP with their own funds. For example, in FY 2007, at least 25 states reported supplements totaling nearly $573 million in state and local funds.
Other State Supplements: Since the advent of utility restructuring, a number of state legislatures or regulatory commissions have authorized public benefits funds, also known as universal service, system benefits, or societal benefits funds, as part of their utility restructuring processes. As a result, utility customers in 22 states pay a non-bypassable charge on their electric and/or natural gas bills that reverts to the state's public benefits fund for certain public purposes such as low-income bill assistance and energy efficiency, energy efficiency programs for all customer classes, and renewable energy and research and development programs.
The portion of public benefit funds that is spent on meeting the energy needs of a state's low-income population can be counted as a leveraged resource if it meets all other criteria. For more information about public benefits funds being used for low-income energy needs, see the “Public Benefits/ Universal Service” section of the LIHEAP Clearinghouse website for state-by-state details about low-income energy programs operated through public benefits / universal service / system benefit funds.
Note that state-allocated funds cannot be counted as leveraged resources if the money is used for administrative purposes.
Oil Overcharge Funds
Beginning in the 1980's, the DOE has distributed to the states monies acquired through cost judgements against oil companies that violated petroleum pricing legislation and regulations. These funds are known as Petroleum Violation Escrow or oil overcharge funds. In accordance with federal statute, court orders, and/or agreements, states may allocate a portion of their share to one or more of five federally-funded energy programs, including LIHEAP and the DOE Weatherization Assistance Program, and certain other purposes or uses for some of the oil overcharge funds.
However, the major sources of oil overcharge funds, Exxon and Stripper Well, are nearly depleted and cannot be relied upon as significant leveraged resources. These contributions to LIHEAP totaled $25.6 million in FY 1994, (compared with $872 million in 1988), and had dwindled to about $2 million in FY 1996.
Grantees must consider oil overcharge funds carefully when quantifying their leveraged resources. The final rule limits countable oil overcharge funds to those funds that were distributed to a state or territory by the DOE after October 1, 1990, as well as interest earned in accordance with DOE policies on oil overcharge funds that were distributed to a state or territory. This means the date the funds were distributed to the states by DOE, not the date they were designated for LIHEAP by the state or territory, which may have been later. This rules out Exxon funds, which were distributed prior to October 1990, but may leave some Stripper Well and Texaco funds.
The funds must have been used to assist low-income households to meet the cost of home energy through (that is, within and as a part of) a state or territory's LIHEAP program, another federal program, or a non-federal program. They must not have been previously required to be allocated to low-income households.
Tribal grantees that receive oil overcharge funds from the state in which they are located (and/or interest the state earned on oil overcharge funds) and use these funds or the interest they earned for home energy assistance, can count these funds under the leveraging incentive program, as long as these funds meet all the applicable statutory and regulatory requirements. The same funds may not also be counted by the state.
Usually established by utilities in partnerships with nonprofit groups, fuel funds solicit employee, customer or corporate contributions, which are earmarked for low-income customers in crisis who have exhausted all public sources of help, whose need is extraordinary, or who do not quite meet their state's requirements for assistance. Other funds have been created by community, charitable or church groups.
There are now over 300 fuel funds nationwide in at least 47 states and in many metropolitan areas. According to leveraging reports, their combined fuel assistance totaled over $117 million in FY 2007, compared with $92 million in FY 2002. Funds distributed by community, charitable or church groups totaled about $26 million. The totals may be higher because some funds either are not countable under leveraging, or haven't been counted or reported. More information about fuel funds is available from the National Fuel Funds Network website.
While these funds vary widely as to their integration and coordination with LIHEAP, under the leveraging regulations coordination with LIHEAP is crucial. (To qualify, funds must meet all criteria of sections 96.87(d)(1) and at least one criterion in section 96.87(d)(2).)
Some fuel funds are operated by utilities and non-profits without integration with LIHEAP, in which case they cannot be counted as leveraged resources under section 96.87(d)(2)(iii), even if their clients were LIHEAP-eligible. Other fuel funds were designed by states specifically to supplement LIHEAP. However, states and fuel fund coordinators must ensure that resources counted went to serve households that were "federally eligible," meaning they meet the standards for LIHEAP income eligibility and/or LIHEAP categorical eligibility as defined in the LIHEAP statute. If a fund serves those beyond federal eligibility requirements, those people cannot be counted in the total of leveraged resources.
The requirement (section 96.87(d)(iii)) that leveraged resources be coordinated and integrated with LIHEAP is crucial for grantees wanting to claim benefits from fuel funds under the criterion.
Because the interim rule was somewhat vague on the meaning of coordination and integration of a resource with LIHEAP, and many grantees were confused, the final rule added eight conditions describing specific circumstances that demonstrate that a resource is integrated with the grantee's LIHEAP program, and that the resource and LIHEAP function cooperatively and in coordination with each other to provide an interrelated larger unit or whole. A leveraged resource must meet one of the eight conditions. Many of these conditions will be of interest to states that wish to claim fuel funds or church/community contributions. (See Attachment 1)
For more information, see the LIHEAP Clearinghouse website.
(2) HOME ENERGY DISCOUNTS AND WAIVERS
Home energy discounts or credits may include discounts or reductions in utility or bulk fuel prices or partial or full waivers of certain utility and other home energy fees. Utilities and delivered fuel vendors, individually or in coordination with LIHEAP or other governmental programs, have historically provided benefits from this category to LIHEAP recipients and other low-income households. Many of these discounts, waivers, and services may be countable under the leveraging incentive rules.
In documenting a discount, only the actual discount is countable, and it must be subtracted from the "fair market value," or the price other customers are charged for the fuel. For example, if a grantee obtained oil for LIHEAP clients at $1.10 per gallon, and the fair market value was $1.30, only the $.20 per gallon discount could be counted.
According to Clearinghouse records, at least 35 states receive discounts, special rates or fee waivers for low-income persons from one or more of their utilities. (In some restructured states, discounts or special rates have been incorporated under public benefits funds, as discussed above under the State Supplements section.) In California, all regulated utilities are required to offer a 20-percent discount to LIHEAP recipients, and many non-regulated utilities do so as well. Massachusetts, Montana, Arizona, Washington and the District of Columbia are among the other states where discounts are required or offered by some utilities. Such activities must meet the criteria of sections 96.87(d)(1) and one of the criteria in section 96.87(d)(2) to be countable.
A number of states and several tribes have negotiated contractual arrangements with participating delivered fuel vendors to provide LIHEAP recipients with discounts for bulk fuel purchases. Such programs in Connecticut, Maryland and Massachusetts have resulted in a price break for oil purchases (as well as propane and wood in Maryland) for LIHEAP recipients.
For more information, the Clearinghouse has a memorandum available titled "LIHEAP Negotiations with Non-Regulated Fuel Vendors."
(3) THIRD PARTY IN-KIND CONTRIBUTIONS
These could include fuels donated to LIHEAP, as well as donated materials, supplies and labor, as long as the labor or materials are for activities mentioned in the final rule and are not for administration or outreach purposes. For example, in an emergency crisis program with donated oil, the oil could count, but not the time to administer the emergency deliveries. Materials, supplies and labor donated for weatherization of low-income homes could also count.
GRANTEE INVOLVEMENT IN LEVERAGING
While only one of them is required, any of the three criteria listed under section 96.87(d)(2) may be a deciding factor in whether a leveraged resource is countable.
The first criterion pertains to involvement by the grantee's LIHEAP program in the development and acquisition of a resource or benefit; the second involves whether the leveraged resources were provided to low-income households as a part of the grantee's LIHEAP program; and the third concerns whether they were appropriated or mandated by the state for distribution under the grantee's LIHEAP plan and were integrated and coordinated with the grantee's LIHEAP program.
According to the section 96.87(d)(2)(i), if a grantee wishes to claim that a resource resulted from its involvement, "the grantee's LIHEAP program [must have] had an active, substantive role in developing and/or acquiring the resource/benefits from home energy vendor(s) through negotiation, regulation, and/or competitive bid."
For example, states or tribes should be able to document their LIHEAP program's involvement in negotiations, competitive bids, written agreements, legislation, regulations or mandates through which leveraged resources are developed or acquired.
To show integration and coordination a resource must be identified and described in the grantee's plan before September 30; and the description must include how the resource is integrated and coordinated. The new rule adds eight objective conditions for coordination and integration and a resource must meet at least one of them in order to be considered integrated and coordinated with a grantee's LIHEAP program.
If resources in the above three categories were obtained by a county or subgrantee agency, they could count if the county or subgrantee were acting in its role as a subgrantee or contractor of the state LIHEAP grantee.
WHAT CANNOT BE COUNTED
Section 96.87(f) lists the resources and benefits that cannot be counted in the leveraging reports. Included are budget counseling and energy conservation activities, which many grantees consider essential components of their programs. Another major "uncountable" is funds used as matching or cost sharing for any federal program.
The final rule deleted as separate countable resources all services involving delivery and transportation, that is, delivery of fuel, weatherization materials, and other items, along with purchase, rental, donation and loan of supplies and equipment used to deliver these things and used to install weatherization materials.
IDENTIFYING, DEVELOPING AND DEMONSTRATING LEVERAGING PROGRAMS
The rule allows grantees to spend a certain portion of their LIHEAP funds to identify, develop, and demonstrate leveraging programs. States may spend up to the greater of $35,000 or 0.08 percent of their federal LIHEAP allotments to do so; tribes, tribal organizations and territories may spend up to the greater of two percent or $100 of their federal LIHEAP allotments.
These funds are not subject to the limitation on funds that may be used for costs of planning and administration, and they may be spent for either administrative or non-administrative activities. When preparing the leveraging report, they must be deducted as offsetting costs from the total amount of resources leveraged, whether or not there are any resulting leveraged benefits.
QUANTIFYING AND DOCUMENTING LEVERAGED RESOURCES
With each leveraged resource, grantees must be able to document that the resource has been used to benefit only federally-eligible, low-income households. They must also document the gross valuation of the benefit and its net value, that is, less the associated costs or charges to the recipient households and the costs to the grantee to leverage the resource. Two-part leveraging report forms distributed to the grantees provide a method of distilling the essential information that grantees will need to quantify the resources.
ALLOCATION OF THE LEVERAGING INCENTIVE FUND
After experimenting with several different formulas for determining grantee shares in the leveraging fund, HHS arrived at a two-part formula that it believes carries out the intent of the leveraging incentive fund: to reward grantees that are most successful in leveraging their LIHEAP dollars, taking into account the size of their regular LIHEAP allotment. In this way, if two grantees leverage the same amount, but one has a larger allotment, the one with the smaller allotment would receive a larger proportionate award.
Under the formula, one half of the amount appropriated for leveraging incentive awards is distributed to an applicant based on the funds it leveraged relative to its net LIHEAP allotment during the base period, as a proportion of the total amount of funds leveraged by all grantees in relation to their allotments.
The remaining half is distributed based on the amount of leveraged resources that a grantee leveraged during the year as a proportion of the total amount leveraged by all grantees. No grantee can receive an award greater than its regular LIHEAP allotment; if the formula results in such an excess, the funds will be reallocated to the other grantees.
Effective with FY 1995 activities, no grantee can receive more than 12 percent of the total amount available for leveraging. This was based upon comments HHS received that the bulk of the leveraging incentive funds should not go to just a few large grantees, leaving little for others. During the first three years of leveraging, two large states each received more than 12 percent of the available funds, and the four grantees with the largest amount of leveraged resources received a total of between 47 and 49.7 percent of the total leveraging incentive funds awarded during those years.
Also effective for FY 1995 activities, a grantee cannot receive a leveraging incentive award that is more than the smaller of its regular LIHEAP net allotment during the base period or twice the net value of its countable leveraged resources for the base period. This was to prevent what was seen under the interim formula as providing disproportionate and unfair award amounts to some tribes because it was not uncommon for tribes to receive awards as much as 11 times larger than their amounts leveraged.
Grantees must use their leveraging incentive award funds to increase or maintain heating, cooling, energy crisis, and/or weatherization benefits, through (that is, within and as a part of) the grantee's LIHEAP program.
Leveraging incentive fund are available for obligation during both the award period and the fiscal year following the award period.
This memorandum is an overview of leveraging and the requirements of the leveraging incentive implementation rule. Specific guidance on whether an activity qualifies as leveraging can only be provided by HHS. The Clearinghouse can provide examples of leveraging resources from states and tribes that were accepted by HHS.