HUD Updates Guidance on Treatment of Solar Benefits for PHAs and HUD-Assisted Housing

Published by Teresa Garcia on Friday, October 6, 2023

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To be eligible for many community solar programs and on-site solar incentives, property owners are often required to distribute the financial benefits to tenants—financial benefits that can be direct (i.e., a credit on the tenant’s electricity bill) or indirect (i.e., distributed by an owner and not by an individual meter).

For tenants of public housing or of properties with assistance from the U.S. Department of Housing and Urban Development’s Office of Housing, this raises the question of whether the financial benefit of solar must be factored into the tenant’s utility allowance or included in the tenant’s annual adjusted income. Either way, the value of the financial benefit is reduced for the tenant, so owners should be aware of existing rules for utility allowances and income calculations.

To help PHAs and HUD-assisted property owners better understand how solar financial benefits should be factored into utility allowance baseline analyses and income calculations, HUD in August published new guidance that consolidates multiple previously issued policy documents and includes current guidance for HUD programs supporting solar.

“At a time when people are struggling to make ends meet, all while dealing with the existential threat of climate change, President Biden’s Investing in America agenda is making solar programs a reality for low-income and working families that need it most,” said HUD Secretary Marcia Fudge in an Aug. 4 press release. “This updated guidance is reinforcing that all communities deserve to participate in America’s growing clean energy economy. Under this guidance, HUD will help more communities build a healthier and cleaner future for all.”

Novogradac partner Rich Larsen, CPA, who serves many public housing authority (PHA) clients, said the HUD guidance provides clarity and consistency that can encourage greater participation in solar.

“I think if PHAs were hesitant to use solar because they were uncertain of how utility allowances and operating subsidy would be affected, then this guidance could encourage those PHAs to jump into solar energy,” said Larsen. “The guidance also gives solar companies that are trying to sell products to PHAs a roadmap on how they can structure rebates in a way that will optimize the benefit to the PHA and to tenants.”

For Jeffery K. Patterson, CEO of Cuyahoga Metropolitan Housing Authority (CMHA) in Ohio, the HUD guidance is a step in the right direction in supporting PHAs with their clean energy goals. Based in Cleveland, CMHA is the seventh-largest PHA in the country and oversees about 10,500 public housing units across 60 properties.

“For all of us housing authorities, our challenge is how do we weave [renewable energy and sustainability] into existing projects that we’re trying to do and how do we do that in the most cost-effective and sustainable way,” said Patterson.

CMHA has a record of energy efficiency. In 2008, it used a $32 million energy performance contract to make its building systems and boilers more energy efficient. CMHA also used part of the energy performance contract to install a green roof at Lakeview Terrace, one of the nation’s first public housing properties, which was completed in 1937. In 2010, CMHA consolidated five operations buildings into its current headquarters, a LEED Silver-certified building located on a 6-acre campus in Cleveland. The CMHA campus features a solar field with 4,300 panels. Patterson said the solar farm not only provides energy to the headquarters, but it serves as an educational tool. CMHA gives tours of the solar farm to help residents and staff learn about the merits of renewable energy and sustainability.

“As a housing authority, [solar] wasn’t an area we necessarily had to look at,” said Patterson. “It says something about this housing authority and others that have chosen to take this opportunity to look at [solar] as a way that can be very impactful to their residents and developments. I give HUD credit for going back, looking at this and seeing how they can provide guidance.”

Rate Reduction Incentive (RRI)

In its Aug. 2 guidance, “Treatment of Solar Credits in Master Metered Buildings in Public Housing,” HUD said PHAs considering community solar should be aware that community solar could increase their operating subsidy eligibility if combined with an RRI approval from HUD and that community solar can lower a PHA’s utility rate. If PHAs take “special and significant” efforts beyond statutory or regulation requirements to reduce their utility rate, then the PHA can include an RRI in their operating subsidy submission. Subject to approval from HUD, the RRI may be 50% or 100% under PIH Notice 2023-17 and solar credits are an eligible RRI action.

Determination of Treatment of Solar Credits in Utility Allowance and Annual Income Calculation

PHAs and HUD-assisted property owners can follow a two-step process to determine whether community solar credits should be included /excluded from the utility allowance schedule or included/excluded from a family’s annual income for purposes of rent calculation and/or eligibility determination.

1. Determine if community solar credits affect the utility allowance calculation.

When evaluating the effect of a solar credit on the utility allowance calculation, PHAs and owners of HUD-assisted properties will need to check a copy of the tenant’s electricity bill. If the solar credit reduces the energy consumption cost by lowering actual utility rates, then the owner is required to submit a new baseline analysis, regardless of when the last analysis was submitted to HUD or the contract administrator for approval. Below is a flow chart to help determine whether the credit is tied to the cost of consumption.

Factors for Determining Whether the Credit is Tied to the Cost of Consumption

Question A

Click to Enlarge

source: HUD Notice 2023-09, Aug. 3, 2023


Question B

Click to Enlarge

source: HUD Notice 2023-09, Aug. 3, 2023


2. Determine if community solar credits should be considered annual income for rent calculation or determining eligibility.

If the solar credit is tied to the cost of consumption, then the credit will not count toward income. If a community solar benefit appears on a household’s electricity bill as an amount credit from the total cost of the bill, then the credit should be treated as a discount or coupon that should not be counted toward income.

Determining Whether Indirect Benefits to Tenants Must Be Factored into Annual Income Calculations

Some multifamily buildings are master-metered, so tenants do not receive an individual electric bill. In other circumstances, even if electricity is individually metered or sub-metered, it is administratively infeasible or not legally possible to distribute financial benefits directly. In these situations, solar programs and incentives may allow property owners to distribute benefits to their tenants through other methods, such as direct cash benefits or building amenities. HUD provided separate lists for PHAs (“Treatment of Solar Credits in Master Metered Buildings in Public Housing,” Aug. 2, 2023) and for HUD-assisted property owners (Notice H 2023-09) on whether types of benefits should be considered income for the purpose of determining family rent or eligibility for HUD assistance.

For example, free or reduced costs for high-speed internet service should not be included in the tenants’ annual income because Wi-Fi is an amenity. Whereas gift cards provided to families would generally be included in family income unless an income exclusion under 24 CFR 5.609(c) applies.

Opportunities for PHAs and HUD-Assisted Housing Owners

Although the recent guidance leaves previously issued HUD solar program policies largely unchanged, the updates for clarity and consistency may make a difference in getting PHAs and multifamily housing owners to be more active in solar programs.

“Before this guidance, there were a lot of questions about how solar benefits would affect housing authorities, multifamily housing owners and, ultimately, tenants,” said Larsen. “This guidance removes the guesswork and tells PHAs and HUD-assisted housing owners exactly how to treat solar benefits with respect to utility allowance baselines and annual tenant income.” 

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