Wednesday, July 19, 2023

California's Experts on Affordable

Housing Finance, Advocacy & Policy

Accessing Inflation Reduction Act Funds

for Affordable Housing

In August 2022, the Federal Government passed the Inflation Reduction Act (IRA), the largest investment the government has made in combating climate change, almost $400 billion. California is grateful for this record-breaking investment that will help us meet our state’s ambitious goal of achieving carbon neutrality by 2045. Achieving this goal in a way that is equitable for Californians who are low-income will require state leaders to match this huge new federal investment with our own resources and innovative approaches, particularly when it comes to ensuring that the interests of low-income renters are addressed. 

Installing energy efficient technology, solar panels, energy storage, and other technology associated with reducing emissions can be expensive, both in terms of adopting new technologies but also in maintaining them and paying for higher electricity rates over time. Fortunately, the IRA provides billions of dollars that are potentially available for decarbonizing affordable housing. This newsletter is intended to provide an update on when the first round of IRA resources will become available, how to access them, and when and how remaining funds will become available. 

The Treasury, Environmental Protection Agency (EPA), and Department of Energy (DOE) control the largest portion of IRA resources potentially available to help decarbonize affordable housing. In addition, the Department of Housing and Urban Development (HUD) has over $2 billion dollars in grants and loan authority for the Green and Resilient Retrofit Program, and the Department of the Interior has $150 million for a tribal electrification program. Initial guidance is not published on the tribal electrification program yet, so this newsletter limits discussion to the other programs.

The Treasury

The Treasury has two types of tax credits: the Investment Tax Credit (ITC) and the Production Tax Credit (PTC). Previously, the tax credits were only for energy generation, but now it also includes energy storage. The ITC is an up-front tax credit for installation, whereas the PTC is a credit based on the production of energy. DOE published a helpful web page to navigate which credit works best for certain businesses. 

In most housing-related cases, the ITC is more beneficial than the PTC because the PTC favors projects with higher capacity factors and lower capital costs. In addition, one of the major changes is that, previously, housing providers using the Low Income Housing Tax Credit (LIHTC) had to reduce their LIHTC credit request by 50% of the ITC credit amount. Thanks to the IRA, providers can now add ITC on top of LIHTC, generating additional private investment to cover almost the full cost of sustainability improvements. 

Additionally, affordable housing is eligible for so-called “adders” for the ITC, which increase the percentage of costs covered by the credit. Moreover, for tax-exempt organizations, the Treasury offers a direct pay option instead of a tax credit, if elected. Table 1.1 describes the ITC credits. With these credits combined with LIHTC, housing providers may be able to cover the entire cost of installation, making solar much easier to install. Typically, most housing providers rely on solar contractors to navigate this process, and technical assistance is also available through the various state and clean energy incentive programs. It is expected that the adders to the program will begin in the third quarter of 2023. 

Table 1.1 Investment Tax Credit (ITC) Adders

The Department of Housing and Urban Development (HUD)

The Green and Resilient Retrofit Program (GRRP) under HUD has over $2 billion in grant and loan authority. The money is divided into three paths: elements, leading edge, and comprehensive as described below in Table 1.2. GRRP funds are only for retrofits of HUD-assisted multifamily properties and are disbursed as grants and loans. Each path has multiple application due dates, where each period disburses money. However, if a property is not chosen, it will be eligible for the next period. Applications are currently being accepted.

 Table 1.2 Green and Resilient Retrofit Program

The Environmental Protection Agency (EPA)

The EPA is administering the Greenhouse Gas Reduction Fund (GGRF). As shown in Table 1.3, the EPA will disburse GGRF funds in three competitions taking place this fall, the first two being the National Clean Investment Fund competition and the Clean Communities Investment Accelerator competition. Both competitions are geared towards financing sustainable technologies including solar, storage, and retrofit technologies. Funds will be provided to lenders to finance projects, and while financial assistance in the form of loans is expected, grants are not. In contrast, eligible applicants for the third competition, “Solar for All”, include state and local governments, and the funding provided will be in the form of grants, rebates, and subsidies specifically for solar and storage projects. Applications for all three programs are due this fall with funding will be disbursed Spring/Summer 2024. Because this funding is for the financing entities, funds will not be available to housing providers until later in 2024, at the earliest. 

 Table 1.3 Greenhouse Gas Reduction Fund

The Department of Energy (DOE)

The DOE has two rebate programs: The Home Efficiency Rebate program and the Home Electrification and Appliance Rebate program. Together, both programs have a total budget of $4.5 billion, including a tribal set-aside for $225 million. Funding is allocated and administered by state energy offices, with a more detailed breakdown of program components provided in Table 1.4. Federal guidelines for these programs are expected to be available Summer 2023. After this, states can apply, form their own guidelines, and distribute funds. Money is expected to become available later in 2024.

Table 1.4 Department of Energy (DOE) Rebate Programs

State Efforts

Several state agencies impact how California takes advantage of this historic funding. In terms of leveraging investment, iBank, California’s Infrastructure and Economic Development Bank, and the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA), in the State Treasurer’s Office (STO), are exploring ways to finance sustainable technology more easily, including applying for GGRF money. Additionally, CAEATFA is working closely with the CEC to address gap financing issues and implementing on-bill repayment. The Partnership has met with the STO in developing financing tools for decarbonization and iBank in pursuing GGRF funding.  

Although not directly receiving, or applying, for funding through the IRA, the California Public Utilities Commission (CPUC) plays an important role in regulating technologies connected to the grid. The CPUC is in the middle of proceedings regarding virtual net energy metering (VNEM), which governs how multi-tenant properties receive solar credits, and community solar. The IRA specifically has money for solar, energy storage, and community solar. These proceedings will affect how affordable housing takes advantage of these funds. The Partnership has been active participants in the VNEM proceeding and supporters of legislation to help install solar on more multi-family homes and incorporating energy storage in multi-tenant buildings.

The State Energy Office will distribute the IRA rebate program funds. The Partnership has been involved in a working group to help State Energy Offices with planning implementation of these programs. To distribute funds as rapidly as possible, the Partnership has recommended to the CEC that the state consider distributing funds through existing programs like the Equitable Building Decarbonization program, the Low-Income Weatherization Program, the Building Initiative for Low-Emission Development program, and the TECH program, provided they align with federal guidelines. 

The IRA is an unprecedented investment in fighting climate change, and there are billions of dollars dedicated to decarbonizing our housing supply. The state has done much to ensure that California is competitive for funding and that the roll-out is seamless. It is, now, incumbent on the nonprofit affordable housing community to play our part in reducing energy use and greenhouse gas emissions and that the state’s journey to carbon neutrality takes place as equitably as possible for low-income renters. The Partnership stands ready to work with you on IRA implementation.