Physical Needs Assessment and Energy Audits for Public Housing U.S. Department of Housing and Urban Development Office of Public and Indian Housing Office of Public Housing Investments Physical Needs Assessment and Energy Audits for Public Housing HUD Office of Public Housing Investments Bruce Rieder bruce.d.rieder@hud.gov May, 2014 Thank you for joining us to review HUD’s PNA and energy audit. Many of you may have already viewed some of our online training on this so today I want to focus more on status of the final rules, decisions you need to make in advance of a final rule, and some of the practicalities of proceeding with a PNA including the benefits to you. SHARE EXPERIENCE-property management background and beginning with HUD. For those that are interested, I will continue after this session with a demonstration of the tool itself. 1 1

FACTS The status quo in public housing is not sustainable Public housing inventory is declining Maintaining the physical plant is becoming more challenging Political environment is not conducive to a return to an earlier model of public housing Risk Management-alternate structures and funding Recognize reality of the circumstances to manage risk-to torture a metaphor- is it wise to put all of your eggs into the public housing basket in reliance upon it in the future? No one has perfect knowledge or a crystal ball; the only constant is change.

WHY A PNA? Public Housing stands virtually alone in real estate as PNA not being routine There is no strategy that can be pursued without a PNA RAD, LIHTC, Demo, CFFP… Waiting to start reduces ability to respond and creates lost opportunity All of real estate uses PNA principles-sf home purchase inspection; purchase sell or finance real estate; replacement reserves, preventative maintenance; budget prioritization-myth that private sector housing is different and has all the money it needs every year.

HUD’S NEED Accountability to the taxpayer Macro level risk management Capacity building for the PHAs Tools not reports Technical assistance 21st Century information expectations

The Trend Apr 10 2014 Senate Unanimously Passes Warner-Portman Transparency Legislation ~ Bipartisan DATA Act allows taxpayers to track every dollar spent by federal agencies ~ ~ ‘Most significant transparency legislation since Freedom of Information Act' ~ APRIL 28, 2014-UNANIMOUSLY PASSES IN HOUSE A recent stark example of data and accountability expectations. In a political environment as sharply divided as we currently have there is agreement on the high priority of accountability to taxpayers and transparency of federal expenditures

What is a PNA? A Physical Needs Assessment (PNA) is systematic review all of the major physical components of property to result in a projection of future needs and costs to meet those needs. PNA as proposed is a strategic planning tool. It is not a budget but is a budget tool. A PNA can serve as documentation for a long term grant or loan with more proscriptive protocols. It’s the beginning point for a number of other tools Nothing magic about it. Visualize a spreadsheet; simple definition for what can be a very different activity depending upon the use of the PNA; PNA in support of a financial transaction will necessarily have more stringent protocols; HUDs proposed requirement is on the simplest end of the spectrum-truly a baseline.

WHAT INFO GOES IN? Inventory data (HUD uses PIC data) Quantity of each physical component Cost to replace each component Estimated useful life-how long does it last from the time it is “new”? Remaining useful life-how much longer before the component I have in place will not longer be useful and will need to be replaced? This is the same minimum data that goes into any PNA for any process.

PNA INSPECTION An inspection is only a part of the ASSESSMENT process-the assessment is based on the inspection Not the same as the UPCS The PNA inspection is a sample but is more representative of the inventory characteristics than a UPCS sample Physical Needs ASSESSMENT=data gathering; an inspection; entering the inspection result to a tool; analyzing and adjusting the data

What is an Energy Audit? An Energy Audit (EA) is a systematic review of the energy use and requirements for real estate that seeks to identify opportunities for energy savings. While Energy Audits (EAs) and Physical Needs Assessment (PNAs) often involve a review of the same building systems, EAs have historically been completed independently of PNAs. The broader real estate industry is moving aggressively to integrate EAs and PNAs as has HUD’s Mark to Market program. It’s a report card and a note on what you need to consider to do better; just as with the PNA, an EA with more stringent protocols would be used to support a transaction such as an Energy Performance Contract (EPC).

Background The current EA rule at 965 (302) requires only that an EA be performed to state standards but provides no standards of expectation for the result. PHAs are exposed to energy audits of poor value and little usefulness particularly in states that lack standards. The 2005 Energy Policy Act encouraged the integration of utility management and capital planning to maximize energy conservation in Public Housing. The energy audit rule will require a more comprehensive review than currently required-approximately a Level 2 ASHRAE which is the standard for an audit that results in quantifiable improvement that will result from an action

Energy Audit Integration Data points from an energy audit will be inserted into the PNA form Identify ECMs, specify equipment and its cost and estimated useful life Provide annual utility usage for the standard component and for the ECM so that a usage savings can be calculated Provide the current utility cost rate Can use EAs up to 3 years old

PROPOSED RULES The Proposed PNA rule was published in the Federal Register On July 20, 2011. The rule itself is 5 pages. The rule and comments received can be reviewed at www. Regulations.gov The Proposed EA rule was published in the Federal Register On November 17, 2011. The rule itself is 9 pages. The rule and comments received can be reviewed at www. Regulations.gov These two proposed rules are planned to be consolidated in final form into a single rule that amends the Capital Fund rule.

PNA Rule The PNA Rule will require: All PHAs regardless of size to perform a PNA once every 5 years, to update annually, and to submit to HUD in a format determined by HUD-THE GPNA TOOL currently available The PNA will have a planning horizon of 20 years The PNA will be coordinated with and integrate data from the required energy audit Minimum qualifications for a PNA provider, can be performed by qualified PHA staff Why extend the requirement to small PHAs. Why every 5 years; why 20 years; what is the annual update; use current dollars; move toward concurrent performance of PNA and EA

PNA Provider Qualifications Experience (5 years) performing physical property inspections and cost estimating Demonstrated knowledge of applicable building standards and codes Demonstrated knowledge of energy efficiency practices Working knowledge of commonly used computer technology (MS Excel, Office etc) OFO is offering energy efficiency/green training program; knowledge of energy efficiency practices can be demonstrated by implementation of an EPC for example; emphasis on experience rather than credentials

Energy Audit Rule The EA Rule requires: Continuation of EA performance every 5 years Specific categories of “Core” ECMs to be evaluated including water conservation An assessment of existing property conditions, maintenance, and resident education Analysis of utility bills with comparison to a benchmark if available (Portfolio Manager is an example) BUILDING ENVELOPE; HEATING, COOLING AND SYSTEMS; WATER; POWER/LIGHTING; APPLIANCES. What are a PHAs minimum expectations of what they should get from an energy audit; why every 5 years; subsequent Energy Audits should be less burdensome than the first. Portfolio Manager

Energy Audit Rule The EA rule requires (cont’d): Identification and recommendations on ECMs that should be considered by the PHA Categorization of ECMs by payback period based upon a simple payback calculation Cost of the recommended ECM’s in current $ and expected useful life Annual consumption savings projection for each ECM Identification of exposures and other opportunity Introduce consistency into what is reviewed by PHAs; common sense expectations for the result of an energy audit

Energy Auditor Qualifications The EA does not require a specific form or format The EA rule will establish minimum qualifications for an energy auditor: Experienced in the performance of residential energy audits Shall hold a valid certification from a recognized state or national energy auditor certifying agency The energy auditor can be qualified PHA staff or utility company providers Can also achieve qualifications with multiple providers; Association of Energy Engineers, (certified energy auditor, certified energy manager), BPI (Building Performance Institute), and RESNET (Residential Energy Services Network).

Energy Audit Rule Does not require an investment grade energy audit but encourages Life Cycle Cost Analysis (LCCA) for ECMs that may warrant further investigation Does not require that ECMs recommended by the EA be implemented by the PHA-remains the PHAs business judgment Differentiates between “Core” ECMs and “Advanced” ECMs Green assessment can be included but not required What is an investment grade energy audit? What are core vs advanced ecms? What is a green assessment?

Status and Rollout

Status and Rollout A working copy of the PNA tool is posted on the HUD website. A contract for training and providing technical assistance to PHAs and field offices is in place. Web based trainings have been prepared and are available to access at HUD.gov HUD is accepting voluntary submissions FINAL DRAFT; HUD WILL NOT BE TRAINING ON HOW TO DO A PNA-WILL TRAIN ON THE TOOL. THERE ARE MORE THAN SUFFICIENT INDUSTRY RESOURCES AND CAPACITY; RECORDED TRAINING SESSIONS AVAILABLE ON OUR WEBPAGE;

Implementation Delay HUD has delayed the commencement of implementation. Capital Fund final rule published 10/24/2013. First due date will not be earlier than early 2015. Due dates will be established in an Implementation Notice published concurrently with or shortly after publication of the final rule-6 months minimum advance notice Although contracting all the necessary work is not required, it is recognized that many PHAs will need the resources of a more normalized Capital and Operating fund to proceed with this work. It’s not a question of if but when.

Status and Rollout GPNA submission due dates are planned to be 120 days prior to the end of the PHA’s fiscal year. The initial submittal schedule may change depending upon when the final rule is published. June 2 for fye 9/30 September 1 for fye 12/31 December 1 for fye 3/31 March 2 for fye 6/30

CURRENT DECISIONS Regardless of when a final PNA rule is effective: PHAs with a current requirement need to decide if they are going to proceed based upon the proposed rules. This is entirely voluntary. Small PHAs are exempted in the CF rule until a notice is issued

Proceeding Early PHAs may now proceed on a voluntary basis prior to final implementation of the rules. PIC data available by emailing request to PHAPNA@hud.gov; function migrating to EPIC A blank tool, prototype tool, and other resources are available at the HUD website Support available through field offices To date we have issued more than 500 individually requested PIC data sets to individual PHAs to begin work in the tool on some level. Submissions have already been completed by a number of PHAs

Proceeding Early Should a PHA proceed in advance of rule? Risk of final rule change Assess the PHA’s capacity and resources to proceed Need to proceed (CFFP, EPC etc) Advantage of better availability of contractors Early submittals are being accepted by HUD and are not intended to change future due dates This is an individual PHA decision based on its particular circumstances. PHAs are now in the best position to control their own scheduling of this activity. HUD intends that early submissions will be accepted as in compliance with a final rule and that the “aging” of data can be up to 3 years. Proceeding with some of the preparation steps prior to a commitment to proceed may suggest a course of action.

How to Prepare The tool will pre-populate with PIC data and will be validated at receipt against PIC data so it is critical that PIC data be current. The tool will rely upon the creation of sample sets of like kind buildings and units at each site. The PHA has the best knowledge to create these sets in advance-what are you going to inspect?

How to Prepare Sampling Size Protocol substantially the same as the existing protocol. For dwelling spaces, survey a minimum of 10% of the number of units per project of similar condition; not just a straight 10% sampling if more are required to obtain a diversity of unit characteristics. For non-dwelling spaces, survey up to 100% but at least 50% if conditions are known to vary; or if all spaces are known to be in the same condition, survey at least 20% of the total.

How to Prepare Acquaint yourself with the GPNA tool Begin preparing RFP documents Consider what new improvements you may want to include in projections Any PNA relies upon a review of existing documentation as a starting point. Collating the likely documentation that will be needed for a PNA in advance will save time, and can save money if you are using a contractor. Consider if your agency has the capacity to perform in house in whole or in part and if you will want to contract some services; Regardless of the contracting decision; a PNA and energy audit do require involvement and engagement by the PHA to provide information, logistical support, and to review the final product and learn how to work with it

Documentation for PNA/EA At least one year of energy bills for all PHA held accounts (tenant held accounts if available); 3 years is recommended. Copies of any previous energy audits, PNAs, EPC documentation, 504 assessments, and other similar property assessments Maintenance log or summary, preventative maintenance plan

Documentation for PNA/EA Building drawings if available Current bids for major work if available and local cost records and database if developed-determine if a standard or customized cost index will be used Capital Fund P&E reports for up to 5 years UPCS Annual inspection reports DOING A PNA ON A NEW BUILDING

PNA Tool

PNA Tool The primary purpose in creating a tool rather than another report was to provide a project based strategic planning tool. By creating a tool HUD hopes to make more sophisticated and effective planning techniques available to smaller PHAs. The tool makes use of current accessible technology in order to organize large amounts of data and automate as many of the routine calculations as possible The tool will be pre-populated with the PHA’s data from PIC and adjusts calculations for non-ACC units Performing a PNA is always a time consuming and tedious process; use current technology to streamline

PNA Tool The PNA Tool is a standalone Microsoft Access based application installed on PHAs desktop, notebook, or network computers. Not necessary for the user to have Access software Internet based distribution of the PNA tool The inspection based tool leads the user through a series of inputs and automatically calculates and produces the 20 year projection as well as a number of useful printable reports.

PNA Tool PHA Inputs Cost, Estimated useful life, quantity, and remaining useful life are the minimum entries required for each applicable component. The PHA divides its sites, buildings, and units into representative sets from which a 10% inspection sample is performed. The PHA enters costs from an index or supportable local data set for replacement or refurbishment of each applicable building component and enters this information in the cost library page. Why a 10% sample; cost index is determined by the PHA from a nationally recognized index or a supportable local cost data set

PNA Tool PHA Inputs (cont’d): -The PHA enters an estimated useful life in the cost library for each of the items from a national index or its local supportable data set. -The PHA enters quantity and remaining useful life for each component item on tool created inspection sheets for a sample set of each class of components-site, building exterior, building systems, units, and common areas if applicable. (same classifications as PASS) -The tool (cost library and inspection sheet)is pre-populated with most commonly applicable components but is fully editable by the PHA to reflect their actual components Estimated useful lives are taken from national indexes or a supportable local data set. PHAs won’t typically use all of the 289 components listed. Always keep in mind the 4 minimum required entries; the PNA tracks components that are replaced with capital funds, not used to track operating funds

PNA Tool From the minimum inputs above the tool can calculate the 20 year projection for all applicable property components and create the reports. Once this 20 year projection is created, it is fully editable by the PHA so that various scenarios of timing, cost, and quantity adjustments can be modeled. Can override the inspections but can always return to them.

PNA Tool Once the basic 20 year projection of replacement needs is in place the PHA can consider the addition of components that do not currently exist: Sustainability Needs-this is where the energy audit information is used to add energy conservation measures to the projection-the tool automatically calculates simple payback based upon the entries Marketability Needs-comp0nents that the PHA would like to have to improve livability, security etc Accessibility Needs-components that the PHA needs to put in place to achieve accessibility

PNA Tool Additional Features Allows a need to be reflected as “immediate” or “critical” and can create separate reporting for those categories. Allows for markup to be added as well as a local multiplier adjustment Cost libraries and inspection forms are exportable to excel spread sheet format so they can be worked with outside of the tool Documents and Photos can be stored within the tool to provide documentary backup

PNA Tool Additional Features (cont’d): Allows refurbishment to be shown instead of replacement reflecting actual experience of PHAs “New PNA” creates a new form which can be blank so that the user can create a PNA for other property types it may have, such as section 8 property-user would manually input inventory data The tool has functionality to use the above feature to create a PNA for an individual development within a Development/AMP Pre-existing PNAs can be directly entered into the 20 year spreadsheet

PNA Tool Reporting to HUD Once the PNA is completed to the PHAs satisfaction, the reporting function is found on the bottom of the Reports Page. With one selection the tool creates an XML file for each AMP which is emailed as an attachment to HUD by the user. T HUD does not retrieve the entire tool, only an extract of data so it is important that the PHA maintain the integrity of their reporting version for future reporting. Submittals can be updated at any time by resubmitting, the latest received is entered. Annually, PHAs will “update” the PNA which simply involves recording in the form on the Annual Update report which items where completed during the year and submitting to HUD –the tool will automatically move incomplete items to the next year. HUD does not use all of the data the PHA collects in order to create its PNA. The information is used for national aggregation.

PNA Tool HUD will collect summary level data from the PHAs: Replacement Needs for Site, Building Exterior, Building Systems, Common Areas, and Unit gross numbers plus major historical component cost items such as roofs, windows, HVAC, plumbing, and electrical. Sustainability Needs within 23 designated measures and “other ” Marketability Needs Capital Improvements Accessibility Needs Capital Improvements

PNA Tool How Will HUD Use the Submitted Data? Each submittal will be reviewed for anomalies that may result in inquiry from HUD and possible need for correction. The review is intended to identify information that looks erroneous or falls so far outside the norm as to raise a question. The review is intended to correct error. The PHA data will be aggregated nationally for analysis by HUD to inform policy and, if determined practical to provide some extracts that PHAs can use to assess their operations within their peer group of PHAs. HUD does not use all of the data the PHA collects in order to create its PNA. The information is used for national aggregation.

Thank You QUESTIONS? Contact your HUD field office PIC data files available by email request to: PHAPNA@hud.gov

LINKS PNA : http://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/programs/ph/capfund/physicalassessment The GPNA Tool and prototype is located on HUD’s GPNA Resource webpage at: http://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/programs/ph/capfund/gpnatool Rules: www.regulations.gov search on HUD proposed rules published in federal register on July 20, 2011 and November 17, 2011 PIH Energy Conservation Resources: http://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/programs/ph/phecc