Weatherization Assistance Program – A Perfect Storm of Potential Waste?
President Obama’s $787 billion so-called “stimulus” bill, formally known as the America Recovery and Reinvestment Act (ARRA), will have reverberations throughout the economy for years to come. The contained a wide range of new government spending programs as well as dramatic increases in existing programs, some of which had previously been funded with relatively small budgets.
One of the programs receiving an exorbitant surge in funds is the Weatherization Assistance Program (WAP), a Department of Energy (DOE) program that distributes federal dollars to the states to be used to weatherize the homes of low-income individuals and families by caulking windows and doors and installing insulation to prevent energy loss and high energy bills. Overall, the DOE is getting more than $38 billion for renewable energy projects from the ARRA. The WAP is slated to get $5 billion of that amount, which will increase the agency’s commitment to the program by “more than twenty times over a two year period,” according to DOE program notices.
The rush to cram $5 billion into this program should be of great concern to taxpayers, especially since the management structure of the program does not lend itself to rigorous oversight and monitoring. Since its inception in 1976, WAP funding has been provided by the federal government, but state governments have been responsible for the administration of the program. States will be flooded with an unprecedented amount of cash. For example, Texas will receive $362 million, a 5,400 percent increase over its 2008 allocation of $6 million. In Virginia, the state’s allocation will go from $4 million in 2008 to $94.1 million, a 2,400 percent increase.
In addition to that bifurcated accountability between the federal government and the states, oversight will be further fragmented because the original statute mandates that “community action agencies” be given priority when the states distribute the funds. These community action agencies are responsible for performing energy audits on dwellings, verifying income eligibility of beneficiaries and keeping records associated with the program. They either perform the work themselves or contract it out to companies in the private sector. There are currently more than 900 community action agencies nationwide receiving funds to do weatherization work (which is arguably a private sector function anyway). DOE and state energy officials acknowledge that this number is certain to rise quickly in order to meet the goal of expending the money within two years.
DOE Inspector General (IG) Gregory Friedman is understandably concerned about waste and fraud. A March 24 Congress Daily report quotes the IG warning Energy Secretary Steven Chu about the significant risks associated with rushing to spend billions of dollars quickly, since the ARRA requirements “represent a fundamental transformation of the Department’s mission…[O]ur experience in the investigative arena has demonstrated that even during periods of normal operation, misuse of funds, submission of false or fictitious data, kickbacks and briberies, and other related fraudulent activity occur with troubling frequency.”
In fact, CAGW contacted DOE officials several times asking to review any WAP program audits, management reports, investigations or relevant oversight materials going back to 2005. At the time of WasteWatcher’s publication deadline, no material had been made available.
On March 5, 2009, in a speech to the National Community Action Foundation, whose members will be the principal spenders of the new billions in weatherization funds, Energy Secretary Chu was quoted as saying “If we don’t do this right, we will be giving energy efficiency and conservation a bad name.” According to a story on Greenwire, Chu conceded that “there is still little accountability for the companies that do residential weatherizations,” and urged the foundation to train its inspectors to watch out for fraud, saying “Fraud is not difficult in weatherization, since insulation is tucked behind walls and heat loss is not visible to the naked eye.”
While the DOE expects to inaugurate new, more standardized rules for the program, oversight at the state level has been patchy to nonexistent. Some states audit participating nonprofits regularly and then spot check a small percentage of the finished dwellings, usually no more than 10 percent, to make sure the work has been done. Other states’ websites list no identifiable audits of the program.
In 2007, Pennsylvania Auditor General Jack Wagner announced the result of an audit his office performed on the program, which was being run out the Department of Community and Economic Development. Auditors discovered that in Philadelphia, for example, “$94,081 in weatherization repairs had been made to the same 30 buildings because two local agencies had failed to coordinate their efforts. In another case, auditors found an applicant received more than $8,700 worth of weatherization services even though the applicant was ineligible based on income.” Wagner identified other weaknesses in the program, including problems with record-keeping, determining income eligibility, and tracking whether actual weatherization services were provided to eligible dwellings.
New federal rules will also increase income eligibility from 150 percent of the federal poverty level to 200 percent. However, because of confusion in the statute’s language over which benchmark states can use, states will have several options for deciding who can receive weatherization funds. One knowledgeable state official said that the law as currently written will allow weatherization funds to go to households making up to $58,000 a year.
Many states have waiting lists for weatherization services. Increasing the income eligibility will add still more, higher-income prospective clients to the state’s rolls, thus creating a never-ending rationale for extension of the expanded program beyond the two-year mark. The program will bloat the bureaucracies at the federal and state levels and create an even larger pool of constituent groups, especially among the thousands of community action agencies that will be the conduits of this cash.
WAP is just one of dozens of programs that have been operating under weak oversight for years or worse yet, completely under the radar. Blasting billions in additional cash into programs where oversight is patchy, sporadic, or non-existent is not simply a case of putting the spending cart before the oversight horse.
Supporters of the president’s “stimulus” package already acknowledge that fiscal run-off is inevitable. However, taxpayers might be shocked to know the potential costs. Earl Devaney, the new chairman of the Recovery Act Transparency and Accountability Board is charged with the unenviable and perhaps unachievable task of tracking “stimulus” spending. In testimony before Congress on March 2, 2009, he stated that he was concerned about the public having a “naïve impression” that, “given the amount of transparency and accountability called for by this Act, little to no fraud or waste will occur.” He went on to say that his “38 years of federal enforcement experience informs me that some level of waste or fraud is, regrettably, inevitable.” In the accounting industry, tolerance for losses to fraud are generally around 7 percent. Using that as the benchmark, the WAP alone could be at risk of losses of $350 million and, overall, taxpayers could be looking at a stunning $55 billion in ARRA losses.
It is difficult to underestimate how difficult it will be for politicians to advocate shutting off the federal spigot for WAP money in two years. One can easily conjure images of public service announcements, castigating members who want to allow the cash flow to expire being portrayed as heartless and insensitive for throwing low-income people out into the cold. And once again, taxpayers could see massive losses to outright fraud and abuse because their leaders in Washington, D.C. chose to wallow in the short-term “feel good” benefit of funneling billions into questionable programs without ever getting a handle on how current outlays are being used.
