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Subsidized Housing and LIHEAP

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Compiled by the LIHEAP Clearinghouse
November 2013, Updated 2016

Whether individuals whose housing and utility costs are subsidized by other programs should be eligible for LIHEAP is a longstanding issue for LIHEAP directors. A related issue is how to handle subsidized tenants whose utility cost is included in their rent.

Some states view the issue in terms of equity, believing that that LIHEAP benefits should be targeted to households that do not already receive assistance through reduced rents and utility allowances, or to those who are most vulnerable to increases in energy costs because they pay their energy costs directly. In some states, this policy has effectively excluded or adversely affected renters, subsidized and non-subsidized, whose heat is included in their rent.

On the other hand, those who advocate LIHEAP payments to subsidized households argue that subsidized housing is not unlike welfare benefits or energy supplements provided by local charities or utility programs. Because these funds are not taken into account when determining LIHEAP eligibility, they question why housing subsidies should be considered in the calculation. They also note that housing subsidy programs vary, and subsidized households should not be seen as one homogeneous category that is "in need" or "not in need" of LIHEAP benefits.

The most current state policies pertaining to subsidized and other renter households are detailed here and can be summarized as follows:

  1. Many states (at least 26) deny LIHEAP eligibility to subsidized housing residents whose energy costs are included in their rent. Several others allow eligibility to these households if the tenants' rental costs are not a fixed low percentage of their income and/or are greater than 30 percent of their income.
  2. Most states consider non-subsidized renters with energy costs in their rent as eligible, although their benefits may be reduced.
  3. Subsidized rental households who pay directly for energy are treated in one of three ways:
    a) their utility allowance (if any) is taken into account in determining benefits; the benefit is reduced either by a flat amount, or by subtracting the amount of the heating or cooling portion of the allowance from the LIHEAP benefit or from the applicant's energy costs;
    b) they are given a reduced or lowest percentage of the regular (highest) benefit; or,
    c) they are treated the same as other households who pay energy costs directly, i.e., benefits are determined from the same matrix, or based upon similar criteria. Several of these states have "renter," "multi-family/single-family" or "attached/detached dwelling" benefit categories, with renter, multi-family, or attached housing applicants receiving a lower benefit. A couple of states require that these renters have rental expenses greater than 30 percent of their income.
  4. Several states give a reduced benefit to all subsidized housing clients, regardless of how energy costs are paid;
  5. Several states make no distinction between subsidized and non-subsidized renters. Benefits may be based on actual costs, or in the case of renters with energy costs included, a back-up matrix based on average statewide costs. Several of these states also have a "renter" or "multi-family/single-family" benefit category, with "renter" or "multi-family" receiving a lower benefit.

For more information, the section below explains legislation pertaining to subsidized households and LIHEAP and other materials provide background from recent reports on subsidized housing.

Background / Legislation

During the period from December 1992 to December 1993, states' policies on subsidized housing were in constant flux because of changing and conflicting legislation.

It began with the passage of Section 927 (Public Law # 102-550) of the Housing and Community Development Reauthorization Act of 1992, effective October 28, 1992. This measure prohibited LIHEAP grantees from denying eligibility to or reducing or eliminating LIHEAP benefits for residents of subsidized housing who are responsible for making out-of-pocket payments for utility bills and receive energy assistance through utility allowances.

The law also required that these tenants be treated identically with other households eligible for LIHEAP and other energy assistance included in the determination of home energy costs for which they are individually responsible and in the determination of their incomes.

Because the section as passed was not what its advocates had intended, legislation in December 1993 amended Section 927. House Bill 3321 provided state and tribal grantees greater flexibility in handling subsidized housing clients who pay their energy costs directly. That flexibility had been virtually taken away with passage of Section 927.

The change to Section 927 restates that tenants paying heating and cooling costs must not have LIHEAP eligibility automatically denied. However, it says a state may consider the amount of the heating or cooling component of utility allowances received by tenants when setting benefit levels under the LIHEAP. The proposal states that the size of any reduction in LIHEAP benefits must be reasonably related to the amount of the heating or cooling component of the utility allowance received and must ensure that the highest level of assistance will be provided to those households with the highest energy burdens.

According to a summary of the House Bill 3321 by the National Consumer Law Center (NCLC), it was intended to remedy situations where states interpreted Section 927 to mean they had to provide large LIHEAP grants to subsidized housing tenants whose utility allowances are adequate or nearly adequate to cover their out-of-pocket energy costs.

"Because LIHEAP funding has been so limited in recent years, this diversion of funds can result in seriously inadequate grants to families in non-subsidized housing who are in danger of utility terminations," NCLC wrote.

Prior to enactment of Section 927, a number of states (at least eighteen, based on Clearinghouse surveys) reduced or eliminated these "direct pay" tenants' benefits by their methods of calculating benefits. (No states actually denied them eligibility). The methods included the following: 1) taking tenants' utility allowances into account in determining benefits; 2) giving these tenants a reduced percentage of the regular benefit; 3) using a point matrix system with these tenants getting fewer points and thus, lower benefits; or, 4) providing a reduced benefit to all subsidized housing clients, regardless of how they paid their energy costs.

At least half of these states changed their policies for FY 1994 to provide these clients with full benefits; one changed its policy effective FY 1993.

Section 927 applies only to subsidized housing tenants who pay their energy costs out-of-pocket, whether or not they receive total reimbursement for the energy costs from the Department of Housing and Urban Development or other federal agencies. It does not apply to subsidized housing tenants whose energy costs are included in their rent.

How Subsidized Housing Programs Work

The Department of Housing and Urban Development (HUD) provides housing assistance to more than 3 million American families, including 1.3 million living in housing directly owned by public housing authorities (PHAs) and 2 million living in privately owned housing where the owner or tenant receives rental assistance from HUD usually under Section 8 vouchers or certificates.

According to a 2010 report, HUD paid over $5 billion in 2006-07, (the most year for which data is available) for utility costs in the various types of housing it oversees, including $2.5 billion as utility allowances to renters under Section 8.

Federal housing law requires that assisted households pay 30 percent of their adjusted monthly income for rent. While the law does not define "rent," HUD policy defines it to include both shelter costs and a reasonable amount for the utilities that would be consumed by an energy-conserving household of modest circumstances, the GAO report says. This 30-percent share is referred to as a household's rent burden. When a PHA or private owner pays for utilities directly, the assisted household pays the 30-percent amount. When a household pays a utility company directly, the household receives a reduction in rent (the utility allowance) to cover the expected costs of consuming a reasonable amount of utilities.

In general, and although approaches vary widely, the allowances are estimates of costs associated with the type of utilities (e.g., gas, electricity, water and sewer) and their use (heating, cooking, water heating and general appliance use). The allowances may also take into account the number of bedrooms and structure type.

For both public housing and section 8 certificates, HUD requires that PHAs review allowances at least annually and revise them as needed so they provide reasonable consumption amounts.

For more information see:

Up the Chimney: How HUD's Inaction Costs Taxpayers Millions and Drives Up Utility Bills for Low-income Families, National Consumer Law Center, August 2010

Latest HUD Progress Report and Energy Action Plan to Congress Click here: http://portal.hud.gov/hudportal/documents/huddoc?id=hudenergyrptcongress.pdf