Compiled by the LIHEAP Clearinghouse
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.
Since FY 1991, LIHEAP grantees have competed for the leveraging incentive funds available each year (until 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 through 2007, states were given awards for the previous year's leveraging activities.
This changed in 2008, when HHS announced in June that there would be no leveraging awards issued with FY 2008 funds for FY 2007 leveraging activities because Congress had not allocated funding the awards; however, the funding was provided later in the year. For FY 2008 leveraging activities, Congress again did not provide awards funding so grantees did not submit leveraging reports. Congress provided funding for the leveraging activities of FY 2009 and 2010, but has not done so for subsequent years. As a result, grantees have not submitted leveraging reports for those years.
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' leveraging activities from FY 1996 on.
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 compiled 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 2010, at least 22 states reported supplements totaling over $591 million in state and local funds.
However, the funding is generally sporadic, based on the response of state legislatures to such factors as energy prices and LIHEAP funding decreases. Few states provide their own supplements to LIHEAP on a regular basis.
Note that state-allocated funds cannot be counted as leveraged resources if the money is used for administrative purposes.
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.
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.
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, ratepayers in 22 states pay a non-bypassable charge on their electric and/or natural gas bills that funds 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. A number of other states do not have formal pubic benefits programs, but do fund low-income energy programs through their rates.
Utility ratepayer funding is by far the largest source of leveraged funding for both rate assistance and energy efficiency. In FY 2010, at least 35 states leveraged over $2.3 billion in low-income discounts, special rates, fee waivers or weatherization from one or more of their utilities. By comparison, the remaining leveraged resources totaled about $700 million. For more information about ratepayer funding of low-income energy programs, see this section of the Clearinghouse website for state-by-state history and details.
The portion of ratepayer funding 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 the criteria of sections 96.87(d)(1) and one of the criteria in section 96.87(d)(2).
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.
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
- Funds used as matching or cost sharing for any federal program.
- 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.