HUD Pay for Success Pilot Program Passes Congress (Enterprise)

By Diane Yentel and Kenny Marable

Today President Obama is expected to sign into law the Fixing America’s Surface Transportation(FAST) Act, which authorizes federal highway and transit funding for the next five years. Included in the law is a small but important provision that authorizes a new Pay for Success (PFS) demonstration within the Department of Housing and Urban Development (HUD) to improve the efficiency of water and energy systems in government-supported multifamily buildings. This pilot has the potential to be a true “win-win-win,” resulting in long-term cost savings for the federal government, improved health outcomes for residents and benefits to the environment.

Under the new law, HUD can now enter into contracts with outside entities, which then raise private capital from investors to fund energy and water upgrades in HUD-assisted properties. Investors are paid back only when certain cost savings are realized, as verified by a third party. In addition to improving energy usage in old buildings, energy efficiency upgrades have proven to improve the quality of life for residents by meaningfully reducing instances of asthma and other health problems.

HUD currently faces several barriers to achieving energy retrofits and its resultant cost savings, including a lack of upfront capital, regulatory impediments and split incentives between building owners and the residents who make consumption decisions. The PFS pilot will overcome these barriers without any cost to the federal government, as all risks are borne by the private sector.

House Financial Services Committee Chairman Jeb Hensarling (R-TX-5) included the PFS provision in a package of amendments to the FAST Act, and his continued leadership ensured that the provision was included in the final bill agreed to by the conference committee. The proposal was first introduced by Reps. Dennis Ross (R-FL-15), Jim Himes (D-CT-4) Emanuel Cleaver (D-MO-5) and John Delaney (D-MD-6). Their bill, the Private Investment in Housing Act of 2015 (HR 2997) passed the House in July by an overwhelming bipartisan vote.

Sens. Susan Collins (R-ME), Sheldon Whitehouse (D-RI) and Barbara Boxer (D-CA) worked to ensure the provision was included in multiple Senate bills, including the FY16 THUD spending bill. Similar language was also included in a comprehensive energy bill introduced in March by Sens. Jeanne Shaheen (D-NH) and Rob Portman (R-OH).

We commend Congress for passing this important pilot program and thank its congressional champions for their vision, dedication and leadership in seeing it through to enactment. We look forward to working with HUD and our partners to successfully implement this innovative demonstration, which will save taxpayer dollars and—most importantly—improve the lives of low-income families across the country.