1 Physical Needs Assessment and Energy Audits for Public Housing HUD Office of Public Housing Investments Bruce Rieder August, 2012 U.S. Department of Housing and Urban Development Office of Public and Indian Housing Office of Public Housing Investments 1

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. A PNA is a strategic planning tool. It is not a budget but is an important reference document for the development of annual budgets. A PNA can serve as documentation for a long term grant or loan. 2

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. 3

The current standards for PNAs and EAs in public housing are outdated. Current industry standards for PNAs use automation to streamline what under any circumstances is a time consuming and tedious task. Such tools are often not accessible to smaller authorities. The PNA report (form 52832)provides little useful information to HUD beyond the f.o. 4

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. 5

6 The American Recovery and Reinvestment Act (ARRA) required all PHAs receiving grants to perform a physical needs assessment. ARRA provided the opportunity to update the PNA as a mechanism to enable HUD to demonstrate the impact of the billions of dollars of appropriations distributed through the Capital Fund. ARRA also provided the opportunity to move toward the energy and capital planning integration of the 2005 Energy Policy Act as this idea of integration has been evolving for a number of years. Background

ARRA demonstrated both the capacity for PHAs to implement ECMs, and in the competitive programs the preparedness of PHAs who had good strategic plans in place to successfully compete. A PNA is an important management tool in both private and pubic real estate management, whether property is held for investment, refinanced, or sold. 7

Objectives of the program to establish new standards for PNAs and for EAs include: – Move public housing toward general real estate industry practices – Encourage a project based strategic planning approach as opposed to a reporting approach – Integrate EAs with PNAs to improve the potential for implementation of energy conservation measures (ECMs) and green measures. 8

9 Provide data to HUD in a format that enables aggregation on a national level, provides some trending information for capital spending, and provides more current information in support of capital funding. Capital Needs Assessment (CNA) is done every 10 years and is a sample of public housing with assessment based upon HUD established standards. Capital needs data from all PHAs updated on a regular basis and based upon local PHA conditions and judgments would serve as a data point for comparison to the CNA.

10 The Proposed PNA rule was published in the Federal Register On July 20, The rule itself is 5 pages. The rule and comments received can be reviewed at www. Regulations.gov The PNA rule is in the final rulemaking clearance process. The PNA rule replaces the current PNA regulation at 24 cfr (e)(2) PNA Rule

11 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

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) 12

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 2 years old 13

The Proposed EA rule was published in the Federal Register On November 17, The rule itself is 9 pages. The rule and comments received can be reviewed at www. Regulations.gov The EA rule is in the final rulemaking clearance process. The EA rule replaces the current EA requirement at 24 cfr

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 15

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 16

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 17

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 18

Encourages project-based strategic planning for PHAs – PHAs assess life cycle needs of PH portfolios for a term of 20 years – clear long-term picture and tool for annual budgeting – PHAs move closer to standard industry practices for effective capital planning – PHAs better able to take advantage of capital improvement opportunities as markets change and new programs emerge – PHAs are better able to assess the impact of implementing energy conservation measures and to independently evaluate potential for Energy Performance Contracting – PHAs have an organized and comprehensive reference resource that can be used for modeling 19

20 Enables HUD to better understand the needs -HUD will have real time nation-wide data based upon PHAs’ actual needs to inform policy decisions -HUD will be better able to communicate needs to Congress and others -HUD will be better able to design targeted programs and support policy review PNA Benefits

21 Status and Rollout

22 Following a series of meetings with PHAs in 2009 and 2010 both in Washington DC and in field visits to a number of PHAs, a set of standards, components and protocols were developed for the tool to be developed. The tool was developed during 2011 and pilot testing of the tool at 9 agencies was performed. In addition 20 other agencies volunteered to beta test the tool. The testing phase is completed.

23 Status and Rollout A working draft copy of the PNA tool was posted on the HUD website in November, Final version posted July 20, A contract for training and providing technical assistance to PHAs and field offices was solicited and is in the contract award phase. The contract will provide for a series of webinars, and direct technical assistance to PHAs

The rules which will enable the implementation of the new PNA are in the final rulemaking clearance process and are anticipated to be published by the fall, 2012 Once the rules are published, implementation will begin immediately with all PHAs required to submit a PNA over a year’s time period after publication of the rules. Due dates will be based upon fiscal year end 24

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? 25

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. 26

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. 27

28 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

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 UCPS Annual inspection reports 29

PHAs may now proceed on a voluntary basis prior to final implementation of the rules A blank tool and instructions to obtain a current PIC data download are available at the HUD website Limited support availability 30

31 PNA Tool

32 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

33 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.

34 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.

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 35

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. 36

37 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

38 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

39 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

40 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 ed as an attachment to HUD by the user. – 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.

41 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

42 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.

43 Thank You QUESTIONS? to:

44 LINKS PNA Tool: public_indian_housing/programs/ph/capfund/physicalassess ment public_indian_housing/programs/ph/capfund/physicalassess ment Rules: search on HUD proposed rules published in federal register on July 20, 2011 and November 17, 2011 EPIC: s/public_indian_housing/programs/ph/capfund/epichttp://portal.hud.gov/hudportal/HUD?src=/program_office s/public_indian_housing/programs/ph/capfund/epic PIH Energy Conservation Resources: public_indian_housing/programs/ph/phecc public_indian_housing/programs/ph/phecc Dept of Energy