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Running Head: LEADERSHIP OPPORTUNITIES WITH THE LOW INCOME WEATHERIZATION PROGRAM IN OREGON

Leadership Opportunities with the Low Income Weatherization Program in Oregon:

Maximizing the Three E’s of Equity, Economy, and Environment

Stephen John McMurtrey

Capstone Project

Executive Master’s of Public Administration

Portland State University

June, 2012

LEADERSHIP OPPORTUNITIES WITH THE LIWP IN OREGON 2

Table of Contents

Abstract…………………………………………………………………………………..3

Chapter 1: Introduction and Background…………………………………………….4

Chapter 2: Review of Literature....................................................................................19

Chapter 3: Demonstration Project.................................................................................39

Chapter 4: Conclusion and Suggestions........................................................................48

References.........................................................................................................................59

Exhibits.............................................................................................................................68


Abstract

Increasing energy costs are over-burdening low-income Oregonians. To combat

this, developers of affordable housing in Oregon draw funds from Oregon Housing and

Community Services under their Low Income Weatherization Program (LIWP). This paper

details the need for a re-design of the LIWP programmatic requirements and policies. It presents

the results of a demonstration study, which shows significant energy savings could be achieved

by changing the incentive criteria built into the current LIWP program. Adopting the criteria

used in the demonstration study project would require opening communication between the

affordable housing development Community and Oregon Housing and Community Services

(OHCS). This paper identifies the key elements of a leadership strategy for both opening up

dialogue with OHCS regarding the LIWP and adopting new practices for reducing energy usage

in low-income affordable housing developments in Oregon.


Chapter 1: Introduction

The purpose of this Capstone project is to formulate an appropriate leadership strategy

for altering current practices governing low income weatherization funds for multifamily

developments in Oregon. The project is divided into two parts. The first part examines in detail

the existing policies and practice surrounding the Low Income Weatherization Program (LIWP)

as it is managed through Oregon Housing and Community Services (OHCS). The second part

explores various leadership strategies for initiating change and recommends a strategy that seems

most appropriate for the case problem I have selected for this study.

The case I have selected for this study is Oregon’s Low Income Weatherization Program

(LIWP). This program provides a dollar for dollar funding stream for each kilowatt hour (kWh)

saved for meeting energy reduction benchmarks when building new or rehabbed multifamily

affordable housing in Oregon. Affordable housing developers who request funds must verify

through a third-party process that energy reductions were met. Recent evidence suggests that the

LIWP places too heavy an emphasis on expensive mechanical and electrical systems for

maximizing energy reduction measures and does not value the efforts of design team input,

resident input, and more cost effective measures for achieving energy savings.

This case study is written from the perspective of Northwest Housing Alternatives

(NHA), the largest nonprofit provider of low income housing in the state of Oregon. In 2011

NHA undertook a study to measure the energy reduction performance of an existing building in

their portfolio. The goal was to identify how the entire construction program (as designed by an

integrated project team with resident input) affected the building’s energy performance. The


results of this study suggest that the measures used by NHA resulted in more energy savings than

those prescribed by LIWP. Though NHA followed the guidelines of the LIWP, it has been

determined through the case study that the weatherization measures allowed under the LIWP,

though capable of lowering energy usage, don’t focus on building elements which would provide

the greatest and best use of these limited resources. The NHA case study not only determined

highest and best use of weatherization measures but it also took into account a project’s location

in Oregon and the resident population usage of the building.

The second part of this paper discusses the leadership strategies that might be most

appropriate for opening up dialogue opportunities between OHCS and NHA to discuss the

findings of NHA’s study in 2011. Currently there are barriers to communication that exist

between the two organizations. Some barriers are consistent with historical barriers that seem to

be inherent in the government to nonprofit service provider relationship (see Osborne, 2010).

Other barriers can be linked to interorganizational structure and how each organization “does

business” (Lipsky, 1993). Another barrier is the lack of a direct way to share knowledge between

organizations. This last point is extremely important, especially given the findings from the case

study that will be presented. Without an open line of communication in place that can allow for

interorganizational sharing of knowledge, skills, and abilities precious dollars allocated under the

LIWP will not maximize value of the investment to low-income residents (equity), the public

(economy), or our natural environment (environment), hereafter, referred to as the three E’s.

The two major parts of this Capstone paper will be organized into the following 4

chapters. This Introduction serves as Chapter 1. It provides an in-depth examination of the

current crisis of rising energy costs and the impact these costs have on low income residents in

Oregon. It also explains the LIWP as it is currently being implemented through OHCS and


documents the importance of improving weatherization for low income residents. Chapter 2

provides a literature review relevant to this study. It examines current research surrounding

leadership practices for strengthening interorganizational communication while creating

stakeholder buy-in. This study draws from this body of literature to recommend key elements of

a leadership strategy for opening up dialogue between OHCS and NHA to share knowledge that

would likely result in altering current LIWP practices and achieve greater energy savings.

Chapter 3 presents the results of a field demonstration project undertaken by NHA, which

relied on a charette approach to maximize the value of existing weatherization funding policy

and implementation requirements. This method takes into account what is most needed (on a

building by building basis) to maximize utility reduction costs. Chapter 4 provides suggestions

for how the LIWP might be modified to maximize the three E’s (equity, economy, and

environment). The chapter also identifies some of the key leadership implications for initiating

changes to current LIWP practices then draws together the findings from the literature review

and NHA’s demonstration project to present a strategy for creating a dialogue with OHCS

regarding changes in the existing LIWP program.

A National Energy Crisis

There is a national crisis facing low income Americans—rising energy costs. The

extreme rise in the cost of energy over the last several years has created a climate that adds to the

cycle of poverty in our country. As high energy costs begin to burden low-income households

(LIHEAP program, Oregon.gov), choices must be made that weigh some of humanity’s basic

human needs (Max-Neef, 1991). As energy costs rise, low income Americans are forced to


choose between paying their utilities and providing essential needs (food, clothing, shelter) for

themselves and their families. A recent USA Today article notes that,

households paid a record $1,419 on average for electricity in 2011, the fifth consecutive

yearly increase above the inflation rate. The jump has added about $300 a year to what

households pay for electricity. That's the largest sustained increase since a run-up in

electricity prices during the 1970s (Cauchon, USA Today, 12/13/2011).

The graph below demonstrates the steep rise in electrical utility rates from 1990 through

2010.

(USA Today, 12/13/11)

According to the latest Census Bureau calculations, 46.2 million Americans are counted

as poor (US Census Bureau). In 2010, 13.8% of Oregonians were qualified as “in poverty”; this

figure represents a 2.1% increase from the same metrics used to calculate poverty in 2008 (US

Census Bureau poverty data). Thanks to the current economic crisis, federal and state budget

cuts, and the rising cost of energy, the number of low-income households continues to expand.

Between 2000 and 2010 energy prices to consumers have increased by 70% (Mulvey, 2008).

http://www.usatoday.com/money/industries/energy/story/2011-12-13/electric-bills/51840042/1


Perhaps no population has felt the effects of rising energy costs more than those classified as

low-income.

The problem for many poor Americans is the unreasonably high percentage of energy

costs in proportion to their limited income. According to the Hearthlight Foundation, the average

American household spends roughly 6 percent of income on utilities: for low-income families,

that amount jumps to more than 15 percent (Hearthlight; see also HUD.gov). Preliminary

information shows that as low-income households focus on meeting basic needs, few of them

practice energy conservation or financial management to budget for escalating utility costs.

The disproportionate percentage of income spent by poor households on utilities

threatens to grow. Federal funding for bill payment assistance programs has been cut nearly in

half for 2013 (LIHEAP, 2012). The $80 billion need for low-income energy assistance relies on

just $3.03 billion in funding. Unpaid bills fuel a vicious cycle that drives low-income families

deeper into arrears with their utility bills. With average household utility costs of $3,600 each

year and annual household incomes lower than $20,000, low-income families fight to preserve

the few funds they have available. According to the Hearthlight Foundation, The impact of

utility bills on low-income households is increasingly gaining attention. Utilities impose a

disproportionate burden on the poor. For single, elderly poor and disabled persons living on

Social Security Income (SSI), the average energy burden was 19 percent of SSI (Hearthlight

Foundation, 2012; Cawthorne, 2008).

For Aid to Families with Dependent Children (AFDC), the energy burden was on

average, seven times greater than for families at median income (LIHEAP.org). AFDC families

paid an average of 26 percent of their income toward energy, while median income families


spent an average of less than 4 percent of their income on energy (HUD.gov, 2009; see also

NLIEC.org).

Table 1- Utility Burden on U.S. Demographics (HUD.gov, 2009)

Income Level Percent of Income for Utilities

U.S. median

SSI elderly

SSI (DE, IL, VT)

AFDC

4 percent

19 percent

25 percent

26 percent

According to the Congressional Research Service, senior households that earned less than

$15,000 a year spent a staggering 20% or $3,000 a year on energy related expenditures in 2006,

the bulk of which was household energy usage (Mulvey, 2008; CRS, 2008). Since energy burden

is calculated by dividing individual or family incomes by their energy cost, the lower the income,

the higher the burden for the same energy bill.

Chart 1 demonstrates the 1998-2008 estimate of bottom quintile of Income [MFI] v.

Home Fuel Prices (Power/EOS update, February 2008). The results clearly demonstrate the

burden faced when considering flat, stagnant, or no income households and the direct effect of

increased home utility costs.

Table 2- Income v. Fuel Prices1999-2008


1999-2008: Income v. Fuel Prices

50

100

150

200

250

300

350

400

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

year

Perc

ent I

ncre

ase

MFI Electricity LPG Nat. GasFuel Oil

(EOS, 2008)

In an effort to combat rising energy costs government backed grant programs for

weatherization upgrades have been expanded in recent years. One of the main publicly funded

programs that provide energy assistance to low-income households is the Low-Income Home

Energy Assistance Program (LHEAP.org). The LIHEAP program is a block grant program and

operates its programmatic weatherization activities through state housing finance agencies

(HFA’s) or through regional Community Action Agencies created under President Johnson’s

Economic Opportunity Act of 1964 (Congresslink.org).

Each state’s LIHEAP division receives a majority of its funding from the federal

government under the energy assistance fund. However, only about 10% of LIHEAP funding is

allocated towards weatherization programs in multifamily development (Ambinder, 2010). For


low-income multifamily development in Oregon, developers must rely on agreements between

local electrical utilities and the state under the Low Income Weatherization Program (LIWP).

Low Income Weatherization Program (LIWP) as a Strategy for Reducing Utility Costs

In the State of Oregon the LIHEAP program funds are administered by Counties or

directly through Community Action Agencies (CAA’s). This program lends itself most clearly to

single-family qualifying households and perhaps Housing Authority’s with single family units

that utilize low-income housing vouchers (EERE.energy.gov). For the good that can be provided

by LIHEAP funding, however, it lacks a strong equivalent for multifamily development. This

leaves only the Low Income Weatherization Program (LIWP) available for large scale

weatherization measures on new and rehabbed multifamily low-income developments. The

attraction of the LIWP is that it provides a dollar for dollar funding stream for demonstrated

kilowatt per hour (kWh) reductions. Oregon Housing and Community Services (OHCS) manage

the program through their Consolidate Funding Cycle (CFC), utilizing the LIWP as a gap

financing tool. OHCS receives funding for the LIWP through legislation passed in 1999 under

SB 1149 (Oregon Legislative Assembly, 1999). This legislation established a Public Purpose

Charge to electrical utilities of $60 million of which $7.6 million is annually allocated for low-

income weatherization and is under the control of OHCS to manage; these funds are split

between the LIHEAP and LIWP programs (US Dept of Health and Human services, 2012; see

also SB1149). As a financing tool the LIWP acts as an additional funding source with the

understanding that by drawing LIWP funds the developer receiving the funds will seek energy

reduction measures that have been third-party verified.


Applicants seeking LIWP funds can only apply once a year through the state’s

Consolidated Funding Cycle (CFC) and like many assistance programs, the amount of money

available for weatherization funds has reduced steadily over the last three years (OHCS, CFC

awards 2009-2011). The program is designed on a point system that allows a developer to

request one dollar of weatherization money for each kilowatt hour saved. To arrive at a number,

the developer must hire a state approved third-party energy auditor who verifies (based on

project scope) kilowatt per hour savings (kWh). However, there are very few acceptable ways to

demonstrate kilowatt hour savings. The program only accepts certain categories which primarily

focus on: appliances, windows and doors, and floor and ceiling insulation measures. While

important, these measures don’t maximize the value of energy reduction measures that could be

reached through a more integrated co-production and design charette process.

Given the current design of the program there is not an effective way to maximize the

three E’s of energy reduction. With limited funding available for the program and rigid

guidelines that don’t allow a regional or building by building way to demonstrate energy

reductions, developers are incentivized to follow the minimum guidelines of the LIWP and go no

further. The value in energy reduction measures isn’t being overtly supported by OHCS through

the current design of the LIWP and as a result the program is at best a half measure.

Financing for the LIWP relies almost entirely on agreements between utility companies

(Portland General Electric and Pacific Power and Lighting) and their public purpose agreements

(House Bill 3587, 2011; SB 1149, 1999). This is important because from the outset, energy

reduction measures are focused entirely on electricity. For the few regions in Oregon that

participate, there’s no complimentary incentive for other utility fuels (Natural Gas, Propane,

Heating Oil) or any explicit water reduction measures. Most of the state is therefore either


underserved by any incentive for weatherization measures or there is no incentive to build green

at all.

The LIWP has adopted many of the Leadership in Energy and Environmental Design

(LEED) requirements for demonstrating energy reduction. In a rehab like the case study to be

presented in chapter 3, these categories include the following: windows, doors, walls, ceiling,

floors, refrigerator, lighting (CFL’s), and heat pump. As designed the LIWP lacks a way to

reward (outside of marginal financial incentives) the efforts of developers that demonstrate

tremendous energy reductions through their construction program that are more passive in

design, e.g. good building envelope performance, eaves at the roofline, storm water management

and water reduction measures.

LEED as a programmatic outline for the LIWP

The LIWP shares many features of Leadership in Energy and Environmental Design

(LEED), which was first created and implemented by the U.S Green Building Council in 1998

(USGBC.org, 2011). LEED has been very successful in educating builders and consumers in the

value of green construction practices; however, the certification process is costly. Data suggests

that LEED certification in and of itself costs the average multifamily project no more than

$2,500 (Murray, 2010). However, the bulk of the costs associated with LEED certification can be

directly correlated to increased hard costs to meet certification requirements. Calculated at a 2%

overall increase in hard costs a developer could expect upfront costs to exceed $200,000 on a 10

million dollar project (McCormick (2008), quoting Gerding Edlin data, p. 37). Obviously, few if

any low income housing projects can afford this kind of expenditure. Another factor that plays


into LEED systems design is the timeline for payback on the measures installed. For many

Affordable housing projects cash flows may be minimal. For those projects that may not have the

option of using LIHTC’s, large capital investments in systems that may not be entirely useful for

the project add costs that increase the project debt. After operating expenses are covered and the

required fees are paid for existing loans, distributions to the project partnership are made and

management fees are paid, very little is available to re-distribute back into the building to cover

systems expenditures.

Developers of luxury condos and high end apartments are better able to absorb the

construction costs associated with LEED certification because they are in a direct sales market or

are able to charge high-end rents (McCormick 2008, Mulvey 2008). For developers of affordable

multifamily housing, however, rents are fixed based on a tenant’s income and a variety of other

rent structuring requirements that run with multifamily development units for the duration of

their affordability period (OHCS.gov). Also, efforts to become LEED certified haven’t always

produced the most sustainable structure for a particular region (McCormick, 2008). LEED lacks

the ability to weigh points for a particular region or biome. As a result, developers find

themselves needing to spend large portions of their project capital for mechanical and exhaust

systems when they might have maximized utility reduction by simply increasing insulation in the

exterior walls, providing shade trees, or reducing high water costs. As currently modeled, few if

any of these measures would qualify under the LIWP and it would be up to the construction

budget to find an off-setting financing source to include these measures in the construction

program.


Communication and Leadership Issues

Oregon Housing and Community Services has a very top-down hierarchical

approach to governance and is an ingrained part of its culture. The void in communication

between OHCS and their partners (e.g. NHA) has lead to a large degree of confusion regarding

the ultimate goals and expected achievements concerning the LIWP. This has created a barrier to

getting OHCS, developers, and NHA to work together to re-examine the LIWP. But recent

developments at OHCS suggest there is an opportunity for change to occur.

OHCS has recently gone through an extreme restructuring of its hierarchy in an

effort to make it more transparent and open to its constituency and partner organizations. This

change provides an opportunity to revisit the existing leadership challenges that have lead to

interorganizational communication issues. Several approaches to dealing with these

communication issues and a review of the existing models for generating good inter-

organizational communication and leadership are discussed in the literature review portion of

this capstone in chapter 2.

Data Based Analysis through a Demonstration Project

The organization that I work for, Northwest Housing Alternatives (NHA) has taken an

approach to green building that I believe is outside the box. It seeks to find ways to align stake

holder wishes through a cost-benefit analysis that serves common goals. As a nonprofit

affordable housing development firm we have as one of our core principles to provide reduction

of energy costs at all of our properties. Our reasoning is two-fold: first, our tenants are vulnerable

populations, many of whom are well below the federal poverty line. Typically our residents earn


about 30% of area median income which by nature means that they are at-risk financially. Any

way that we can reduce their overall cost burden is a mission of ours and one way we can do that

is to try and design construction programs that seek to maximize systems that lead to drastically

reduced energy expenditures. Second, by focusing on reduced energy costs we are also focusing

on reduced operational expenditures. By reducing our operational expenditures we are reducing

not only the long term costs to operate our projects but also reducing our need for extra state

funding. Lower operating costs equal lower long term per unit per year expenses that require

large retainers of cash to protect against debt service payments and loan default, etc.

NHA is a long-term owner of all of our properties and as such we are keenly aware of

the rising costs of energy to operate the projects in our portfolio. We are a statewide organization

that has buildings in every corner of Oregon so we have seen firsthand the effects of poor

building performance on our bottom line. By spending the up-front costs to assemble teams of

architects, engineers, contractors, planners, and our own project staff we have been able to create

a baseline program that can be carried to any corner of our state and act as a set of standard

operating procedures for weatherization.

Cottonwood II’s energy analysis provides a template for maximizing the usage of the

state’s LIWP funds by marrying their benchmarks for performance with smart design. The

results are that we have been able to reduce overall energy costs for our residents and our

properties which benefit everyone. Our experience shows that by focusing intently on a

building’s envelope (tightening up the shell) we can directly influence the effects of solar gain

and heat loss as well as protect against water infiltration that can lead to mold and dry rot. The

tightening of the shell along with low U-value windows means that it takes less energy to heat

and cool a building regardless of its location. The results are a trickledown effect. The more


energy efficient a buildings shell is, the less you need expensive mechanical systems to operate

the heating and cooling functions. The less you need these large mechanical systems the less you

ultimately draw from the energy grid. The more savings you can demonstrate from reduced

energy consumption the lower your operating costs are, and so on. The exact same methodology

works for our tenant population and demonstrates directly the social, monetary, and

environmental value brought by this approach.

Summary

Low-income Oregonians are spending an increasing amount of their income to cover

escalating utility costs. As these costs continue to rise there are quality of life considerations that

must be made. Weatherization of multifamily affordable housing developments represents a

chance to maximize Equity, Economy, and Environmental benefits to low-income Oregonians,

owners of low-income housing and the general public. Currently the LIWP doesn’t allow enough

flexibility to maximize its value to low-income residents, the public or the environment.

The LEED program used by LIWP was developed to serve large commercial and

residential buildings in a market rate environment and the programmatic requirements for

demonstrating energy reductions create too high a cost burden for affordable housing

developments. Further, LEED and the LIWP don’t provide a way to maximize energy reductions

on a building by building basis, which takes into account geographically important factors.

Current LEED requirements specify that the same demonstrations of energy reduction be applied

whether a building is in Oregon or Florida.


There is recent empirical data to justify an alternative to LEED designed weatherization

strategies as it applies to the LIWP. This data shows that through design charette’s with

stakeholders, in conjunction with resident input, maximum energy reduction benefit can be

derived from approaching each project on a case by case basis based on location and taking into

account building envelope and assessment of building operational and resident needs. While

there are organizational barriers to using the information provided by the empirical data findings

as they pertain to low-income weatherization strategies, there are new conditions that bode well

for initiating a change in direction.


Chapter 2: Literature Review

In this chapter, I will undertake a review of the literature that is relevant to my research

question. Since my research question has several connected parts, I will organize my literature

review around the following four questions: What is the problem we are trying to address? Why

is weatherization an important starting point? Why does the state of Oregon’s program need to

be changed? What leadership strategies are most appropriate to address the problem?

The Problem

Rising energy costs are over-burdening Oregonians classified as low-income. The steep

increases in household energy related costs are estimated to be 20% or more of a low-income

family’s yearly budget (Mulvey, 2008; CRS 2008). As energy costs continue to rise, the cycle of

poverty is increased and low-income individuals and family’s alike are forced to choose between

keeping the lights on and providing basic human needs like clothing, food, and shelter (Max-

Neef, 1991; Lipsky, 2001).

For low-income multifamily development in Oregon, programs are in place that attempt

to reduce energy cost burdens to residents of affordable housing. The main program utilized by

Oregon Housing and Community Services (OHCS) is the Low-Income Weatherization Program

(LIWP). The program can be utilized by for-profit and nonprofit housing developers through

OHCS’ Consolidated Funding Cycle, also known as a tax credit application (OHCS.gov; see also

HUDuser.org).


The LIWP provides a dollar for dollar funding source for demonstrating reductions in

kilowatt per hour (kWh) usage by a given development. Though the program does achieve kWh

reductions it lacks the flexibility to allow for innovative design techniques and resident input (co-

production) that could maximize resident, public, and environmental value (Moore, 1995;

Osborne, 2010). There are also significant barriers to communication between OHCS and partner

organizations Like NHA. These barriers don’t lend themselves to necessary knowledge transfer

between organizations (Osborne, 2010). Hierarchical management systems that are in place at

OHCS have furthered difficulties in communication. The hierarchical design of the agency,

however, has recently been challenged by the new Director level leadership, but it is too early to

tell whether any changes will drastically affect program management.

Historically, communication barriers frequently exist between government and their

service providers, who rely on different organizational and power structures to get their work

done. But increasingly the literature is showing that a deliberate attempt on the part of both

parties to recognize and address the differences can produce much better outcomes.(Bockmeyer,

2003; Lipsky, 1993; Osborne, 2010; Silverman, 2008). Most of these new approaches recognize

the importance of power sharing strategies, which have been absent between NHA and its

government partner OHCS, for over twenty years. As a result there is a distinct communication

barrier, which has created confusion about common goals, pressures and perspectives which

stymies OHCS’ ability to meet their mission and design sensible policy.

Why Weatherization?


The LIWP is unique as an affordable housing financing tool because it provides an

opportunity to develop quantifiable energy savings from various strategies. Utility reduction

savings are passed directly to residents and building owners. If there are lower utility costs for

residents then fewer individuals and families need to draw auxiliary assistance from the

government for reducing their energy burden. This is good fiscal policy making. Though many

tax credit tools used to create or preserve existing affordable housing can measure the increase in

units during a funding cycle, they cannot directly demonstrate exact cost savings for a resident or

property owner like the LIWP can; the process is formulaic. If “A” represents kWh usage prior

to construction and “B” represents kWh usage after construction, then you get “C” which should

be the delta between A and B or net energy savings. Once a project is completed, the building

and its components can be tested against the weatherization techniques used. The end in essence

justifies the means.

The importance of quantifiable measures should not be understated when demonstrating

value to a wide array of stakeholders. Quantifiable measurement helps foster public trust

(Osborne, 2010). Mistrust of Housing Finance Agencies (HFA’s) and their use of public funds is

a common theme (Basolo, 1999; Brunick and Maier, 2010; Silverman, 2008). As HFA’s shift

from public sector delivery of affordable housing programs to a public-nonprofit partnership

where the nonprofit becomes the service provider, governments take on more of a supportive

role to program delivery (Silverman, 2008). This supportive position can foster public distrust.

The onus for delivery lies with the nonprofit service provider. Their knowledge of what is

beneficial to maximize the value of their service becomes tantamount to service success. In the

case of the LIWP, anything that a nonprofit service provider can do to maximize energy

reductions helps to build trust for both co-producers of the partnership (Scally, 2009). It does so


by first saving on energy use and second by providing the occupants with more cash income for

other basic necessities.

As was pointed out in the introduction of this paper, funding from the LIWP comes from

legislation that mandates electrical utilities to earmark funding for weatherization in single and

multifamily developments. Part of the resources that fund this program come from rate increases

so demonstrating that maximum public value is occurring is a high priority. However,

maximizing value and reaching the three E’s of equity, economy and environment take good

policies and communication on an interorganizational basis. As good fiscal managers of the

LIWP, OHCS can be seen as a “hub” firm (Barringer and Harrison, 2000). The

interorganizational relationships developed for service delivery begin at the “hub” and branch

out to the other stakeholders involved. Through successful management of partner relationships

along with quantifiable measures that can be released to the public, OHCS has the opportunity to

legitimize their efforts during a time of great organizational re-shuffling.

Why Change the LIWP?

The LIWP as currently designed doesn’t go far enough towards energy reduction

measures. The program is rigid and only allows for limited categorical demonstrations of

electrical utility reductions. Currently there are no equivalent funding streams for natural gas or

propane usage; there also are no measures to encourage reduced water consumption. Further, the

program has no way to measure for a site’s geographic location or utilize historical knowledge

(in a rehab application) of resident input. Lastly, the program doesn’t allow for an integrated

(charette) design approach that uses a cost-benefit analysis for demonstrating real-time energy


reductions. These factors, coupled with the fact that OHCS is using public money to finance the

LIWP, demonstrate the need to re-examine the policies and procedures currently utilized.

Stakeholder Theory provides a useful approach for helping to understand and solve the

problem I have outlined above. The approach looks at interorganizational relationships in the

context of identifying affected and interested parties to a given set of organizational goals and

programs. In stakeholder theory, as discussed by Barringer and Harrison (2000), “firm’s

stakeholders are any group of individuals who can affect or are affected by the firm, including its

investors, suppliers, employees, customers, competitors, local communities it operates within,

regulatory agencies and so on” (Barringer & Harrison, p.6)

OHCS fits perfectly the situation described by Barringer and Harrison. OHCS serves as a

hub for a wide variety of interorganizational relationships with its service delivery providers. By

receiving funding for the LIWP that is at least in part financed through public user rate increases,

OHCS has directly created a partnership with the citizens of Oregon. As Freeman (1984) and

Clarkson (1998) point out, however, not all stakeholders are created equal and it is up to the

“firm” to expertly determine which stakeholder matters most. In the case of the LIWP, is it

enough to provide some level of utility relief? Or does OHCS have a larger fiduciary

responsibility to the greater public? If OHCS has information that would produce greater energy

savings and do so in ways that would benefit low income users even more than the current

programs, do OHCS leaders have an affirmative obligation to take the initiative in using this

information to create some fundamental changes in existing low income weatherization policies

and practices? This capstone project argues that because OHCS leaders are keepers of the public

trust, they are required to demonstrate a higher level of fiscal and social responsibility to the

citizens of Oregon.


Leadership Strategies with the LIWP

This Capstone project uses the concept of “value” as a central leadership strategy for

bringing about changes in the low income weatherization program. This Capstone case argues

that OHCS leaders need to use the concept of value found in the literature on public service

leadership to initiate change. Following is a summary of the principles from this literature that

are relevant for initiating change.

Principle 1--Value must be demonstrated in multiple ways

As Stephen Brookes and Keith Grint point out in their book, The New Public

Leadership Challenge, leadership and its effect on public value has [historically] centered on the

quantitative outcomes desired by centralized government rather than on the social goals desired

by the general public (Brookes & Grint, p. 9). For example, balancing a budget by cutting funds

to social welfare programs has been “acceptable” practice on the national and state level. In the

case of the LIWP this is equivalent to OHCS pursuing the conservatively adopted criteria from

LEED that allow for base metrics to meet energy reduction measures rather than going with a

more malleable strategy that may create what would appear to be inconsistencies when it comes

to measuring kWh reductions. Though the function of public managers is to maintain close

watch of the quantitative measures associated with public governance, manager’s must also

maintain a high level of alignment between stewardship of public finances and the achievement

of larger societal goals (Brookes & Grint, p.9).


The idea that public managers must maintain a balance between fiduciary leadership and

creating public value may be seen as a conundrum, especially when social goals often times do

not create money making endeavors (Lipsky, p.85-86). Public determination of what constitutes

value can often times be at odds with fiduciary requirements. When this occurs, managers must

“embrace” the paradox of their situation (Osborne, p. 419). By “embrace” Osborne means that

they must strive to align themselves with internal and external stakeholders that bring expertise

and credibility from both sides of the discussion. Often times public managers’ trend towards

conservatism (Brown, Potoski, and Van Slyke, 2006) and seek to optimize value tradeoffs for

service delivery (deLeon, 1995). Typically, managers have little influence over the rules and

laws governing service delivery and must seek these tradeoffs which trend towards favoring

programs or policies with lower transaction costs (Dunn, as cited in Brookes & Grint 2010;

Osborne 2010; Brown, et al, 2006). These value tradeoffs can begin to dilute the intended goal of

the policy or program in place. In an effort to embrace elected officials and the public

simultaneously, public managers’ conservatism may have the tendency to embrace knowable

outcomes rather than risk more innovative findings (Ruckelshaus, as cited in Moore, p. 99). For

example, maximizing the flexibility of the LIWP may be politically feasible and in the eye of the

public may be the best avenue for demonstrate the highest and best use of public funds.

However, the organizational implications of managing the program may represent too high a risk

for OHCS because of internal capacity considerations or internal cost implications. As a result

many public housing entities have chosen to go with a model based on LEED that is easily

managed internally and provides at least some level of energy reduction.


Principle 2—In order to create stakeholder buy-in, leadership must be strong at the

programmatic level

Public managers are seen as keepers of the public trust and as such must make continual

value judgments (Moore, 1995; Morgan, et; al, Foundations, chapters 1-3, (5); 2008; Osborne,

2010; Brookes & Grint, 2010). In order to make these judgments, however, there needs to be

appropriate latitude for a manager to make the type of calculated leadership decisions necessary

to balance value tradeoffs.

The idea that a public manager is a keeper of the public trust is a common theme (see

Moore, 1995; Lipsky, 1998; Bardach 2009; Brookes and Grint, 2010; Osborne, 2010). As

keepers of the public trust, managers take on a persona that defines their operational role within

the organization where they interact. Talbot (2010) defined managerial roles within public

organizations in the UK as falling within four distinct categories: Counselor, Chief Executive,

Collaborator, Conservator (Talbot, as cited in Brookes & Grint, pgs. 24-30). For the purposes of

this discussion the role of the Collaborator is most directly relevant for the kind of leadership

role needed to bring about change in my Capstone project.

The Collaborator role as discussed by Talbot is centralized in a mid-managerial position

within the parliamentary government in England (Talbot, as cited in Brookes and Grint, p. 29).

Here in the U.S. this same position may be seen as a program manager or mid-level executive

(see Morgan, et. al. 2008, pp. 27-29, 140-141). At OHCS this person likely would be the head

of the LIWP program and, given OHCS’ current hierarchical design, would surely have

interagency dealings in other programmatic areas. In other words, the nature of the OHCS’s

hierarchy enables the collaborator to have direct control over the LIWP as well as considerable


influence in other areas that provide funding for low-income housing development. While OHCS

as an organization values intra-agency communication and knowledge sharing the culture of

OHCS does not encourage this type of leadership initiative to be taken at the moment. As

“keepers of the public trust”, OHCS staff are by nature of their position forced to make decisions

in a vacuum. The stress of compliance and demand beyond agency capacity creates the need for

programmatic simplifications. In the case of the LIWP it becomes easier and safer to “check

boxes” than it is to engage with nuanced analysis (Martha McLennan, Executive Director of

NHA, personal communication, 5.24.12).

As Talbot (2010) further argued, the role of the collaborator is chiefly responsible for

providing the leadership necessary for inter and intra-agency dealings. The position is not unlike

that of a broker who marries together similarly interested parties for a common goal. The

collaborator must have the authority to broker relationships and enough charisma to create

stakeholder buy-in. Structurally, the collaborator role uses value tradeoffs both internally and

externally to demonstrate public trust. Key to this process is the use of stakeholders both within

their organization and within the community where they operate. Leadership becomes a cross-

sectional approach for the collaborator role and power is spread along a more lateral than vertical

plane (Schofield and Pegg, as cited in Brookes & Grint, 2010).

In the case of the LIWP as managed by OHCS, Moore’s entrepreneurial advocacy

approach is structurally viable but lacks empowerment of the manager’s assigned to the program.

Simply put, program managers at OHCS don’t appear to make direct decisions without seeking

approval from the upper echelon of the agency. From a partnership perspective this is an

exasperating process. First, it stretches organizational process (both intra and interagency) to

extremes. This costs both organizations involved extra staff time and significantly lengthens the


time to reach decisions. Second, it does little to foster trust in OHCS’ ability to lead. If assigned

managers cannot make direct decisions without seeking approval, then they aren’t really

managing.

As “keepers of the public trust”, the role of a program manager is to prioritize the

fiduciary goals of the program being managed As mentioned previously, this is often times

difficult if not impossible to achieve given lofty policy goals that significantly increase the

financial costs of a project. Further, if there is no ability for a program manager to rebalance the

tradeoffs between financial and social goals on a given project, then a leadership void is created

with resulting poor policy implementation.

Osborne (2010) discussed the importance of leadership and collaboration amongst

stakeholders. Osborne agrees with Brookes and Grint on the importance of a collaborative

leadership approach (see also Huxham and Hibbert2008; Brookes & Grint, 2010) when dealing

with managerial problems that require balancing competing values. Osborne’s (2010)

collaborative advantage process looks to substantiate the existence of the partnership by

establishing common ground and tradeoffs between organizations. Key themes are building trust

and identifying roles through proper use of all parties’ knowledge, skills, and abilities (k,s,a’s).

The sharing of k, s, a’s becomes the shared power needed to make the collaboration function

effectively. Given the case at hand, many of these elements are already present for information

exchange but again, organizational culture prevents lines of open communication. The necessary

inter-departmental flexibility may be built into OHCS’ operational design but interactions with

the agency lead to a different experience; less flexibility and more rigid adherence to entrenched

policies have been the norm.


In order to accomplish housing development goals OHCS must work with a variety of

partners outside of the agency. These partnerships (in the case of housing development) are less

affected by, or concerned with, service delivery and act more like a conduit relationship in their

design. This conduit relationship is based on the financing stream that places the developer in an

ownership role with OHCS as a monitor of compliance with the funding requirements. After the

project converts to permanent financing, continued monitoring of the program is in the hands of

the developers own management of the asset and the oversight brought by the purchaser of the

tax credits and the permanent lender. What occurs in this partnership is a period of intense

scrutiny from tax credit application through construction and ultimately until the permanent loan

takes hold. Afterwards, OHCS has only limited interaction with the project development staff.

Though OHCS has worked with NHA as a partner over twenty years, the moment NHA

receives a financing award, the open lines of communication begin to close and resignation to the

status quo takes hold. In the case of the LIWP, this resignation places value on easy

implementation of programmatic rules rather than flexibility that may move a project closer to

the policy goal of maximizing energy reductions. For whatever reason, OHCS resists direct

suggestions when it comes to re-defining existing policies; the result is that important ground-up

communication is lost.

Principle 3—Organizational capacity affects all

OHCS as a large public agency views itself as a keeper of the public trust. As such there

seems to be some reticence to allowing the type of bottom up communication that an

entrepreneurial advocacy model of leadership would require. As Moore (1995) argues, however,


the process of identifying stakeholders becomes an invaluable part of assuring that buy-in is

created. By allowing for bottom up communication, a manager can assure that the necessary

stakeholders are identified and that the necessary programmatic changes can be made to increase

legitimacy (Moore, p.155). The process becomes more improvisational and less planned, allying

itself more with the experiences of a private corporation than that of a government body (Moore,

p.159). The people best situated, best equipped to exercise this leadership are the managers of the

agency (Behn, p. 212). This type of leadership, however, is successful when the organization

provides a public manager with the structural capacity to utilize leadership to gather allies for

programmatic achievement.

Organizational capacity is a key contributor to exactly what an agency can accomplish

(Moore, 54). Public trust and value will mean nothing if an organization is unable to follow

through with its plans. In the case of OHCS, partnerships are an essential ingredient for

programmatic delivery. Under the LIWP, OHCS distributes funding to a third-party organization

to follow through with programmatic requirements. OHCS isn’t in the business of developing

housing, rather, they are in the business in assuring that homelessness is combated by engaging

with for profit and nonprofit affordable housing development agencies to meet the agency goals;

goals that have been established both on the national, regional, and local level. In this capacity,

OHCS acts as a pass through entity for the cause of reducing homelessness. This “passing

through” requires that not only OHCS but also its partners have both the authority and the k,s,a’s

to develop affordable housing and use best judgment of how to maximize public value through

institutional knowledge (Osborne, p. 140). Who better to have an understanding of how best to

maximize value of a program than the service partners responsible for implementing it? In order


for this process to work, OHCS must empower its middle-managers to align stakeholders for

service delivery through negotiating and managing contracts.

The contractual relationship built between agencies provides the organizational capacity

for service delivery. A strong partnership around an aligned mission can become the most

important element for defining value. Identification of the goals a staff is assigned to achieve is

critical; are goals aligned with meeting compliance with rules or a larger policy purpose? Many

agencies stop at the compliance level (McLennan, 2012) because it is a satisfactory measure of

the policy goal. When examining the LIWP, the opportunity exists to move past compliance into

real energy savings by adding to OHCS’ capacity. When partnering with a mission driven

organization, value expands from a narrow focus on monetary issues to a concern for more

intrinsic social values (Moore, 1995; Brookes & Grint, 2010; Osborne, 2010). With increased

capacity there comes an opportunity to redefine value (Finch, as cited in Brookes & Grint, 294).

Larger societal goals are able to be incorporated and expand beyond compliance and a

strengthening of collaboration and leadership not only between agencies but within them

(Moore, p. 117-118). Without a well thought plan for power sharing or without a well established

set of stakeholders on both the horizontal and vertical axis, public faith in the designed

partnership can be lost. In fact, adding the additional component of a public-private partnership

(instead of a more formal public agency service delivery model) to the mix can exacerbate the

situation if the proper leadership roles aren’t clearly identified (Finch, as cited in Brookes &

Grint, p.287).


Osborne (2010) details the power and leadership dynamic through interagency

knowledge transfer (174-178). The idea is that agencies approach collaborative arrangements

with a certain mindset to how shared k,s,a’s will be transferred. The knowledge transfer dynamic

must work both ways but is often controlled by the organization with access to the bulk of the

monetary capital (Osborne, p. 137). Osborne furthers that a type of collaborative inertia (p. 180)

occurs where collaborations between organizations find themselves sidelining; which he

describes as a process that leads to each organization sharing k,s,a’s on an intra-agency level but

ignoring any interagency sharing . The overall message is that a clearly defined and aligned set

of goal statements and expected outcomes needs to be agreed upon between partnering

organizations. Agreed upon goals in a collaborative environment maximize buy-in at all levels of

the partnership and maximize appreciation for what the collective team is trying to accomplish.

The move in recent years to use contractual relationships as a way to demonstrate public

value has been widely discussed. Public value is achieved by an alliance between the public

agency and the service deliverer that is memorialized with a formal legal contract. This

arrangement creates a clear separation of responsibility for fiduciary management and

responsibility for the alignment of social and societal goals with policy objectives (Lipsky, p.98).

The end result is a marrying between the horizontal and hierarchical levels of bureaucracy. The

horizontal hierarchical line becomes a shared leadership that is intra-agency in its design and the

vertical becomes an inter-agency leadership within each organization (Brookes and Grint, p.8).

The relationship between the horizontal and vertical levels of leadership for the delivery

of public value is demonstrated by Stoker (2010) when he discusses the role of networked

governance. To Stoker the role of networked governance is to legitimize the role of a “wide

range” of participants in public decision making and provide more “bottom-up” approaches to


creating public value (as cited in Brookes and Grint, 2010, p153-154). The idea here is that

leadership must cast a wide net for stakeholders who become co-producers of public value. By

providing for the ability to network in an interagency fashion, leadership becomes more holistic

in its approach where a broad cast of stakeholders are working towards a common goal. But how

can this type of leadership emerge when there is a hierarchical mindset and no predisposition on

the part of the parties to change? One of the answers is the increased reliance on “contracting

out for service” that has been driven by scarce financial resources.

The traditional top-down approach to government service delivery has begun to change

with the increasing use of contracts for services outside of government (Lipsky, p. 55). No longer

is a local authority required to be directly responsible for service delivery and monitoring. The

relationships between local authorities and nonprofit and private sector service deliverers has

allowed government bodies the opportunity to create an arm’s length distance between societal

goals and values and the implementation of those goals. In England, the establishments of Local

Area Agreements (LAA) have allowed local agencies and communities to co-produce service

provision that is directed at partnership formation for tackling local problems (Goss and Tarplett,

as cited in Brookes and Grint, p. 264-265). Leadership, therefore, is allowed to flow in the

Building Leadership Capacity

Clarity of RolesWorking Together

Focus and Prioritization

Awareness

Community Leadership


networked governance model as discussed by Stoker and as depicted in the diagram below.

(Source: Audit Commission 2003, as citied in Brookes and Grint, 2010)

The importance of a community based approach to leadership is two-fold. First,

leadership in this design allows for community input. Public value is created by giving

stakeholders direct access to the decision making process (Brookes and Grint, 2010; Osborne

2010; Moore, 1995). Second, leadership in this form allows for a more open communication

channel from the ground up.

In Mark Moore’s book, Creating Public Value: Strategic Management in Government

there is considerable discussion about the role of public governance and leadership. Moore

argues that in order for a manager to mobilize support for an idea the idea must resonate with the

internal and external stakeholders’ views (Moore, p. 93). In other words, there must be some


level of action taken by managers that demonstrate their commitment to the greater whole of an

idea not just the individual parts. Moore further develops this idea when he talks about

entrepreneurial advocacy. Moore suggests that it isn’t enough for a public manager to create

value-added results; rather, the manager must be able to demonstrate that the results achieved are

worth the, “cost of private consumption and unrestrained liberty forgone in producing the

desirable result; only then can we be sure that some public value has been created” (Moore, p.

29). The first part of this explorative process is to identify those within the agency or department

that must “sign-off” on the policy or idea. In other words, managers must identify horizontally

who they can align themselves with intra-agency. Secondly, a manager must identify those

(likely external) parties that wish to participate because of aligned interests (Moore, p.151-152).

This is an interesting point when considering the managerial style of a large organization

like OHCS. Culturally the organization seems reticent to change. Though the partnerships

formed both inter and intra-agency suggests a collaborative working relationship, the realities are

that the relationship is much more parochial. Perhaps the most dangerous thing that can happen

is that the inner workings of a partnership begin to fail and the general public loses faith that

either partnering organization can effectively accomplish the goal at hand. An integrated

understanding of the stakeholders on the vertical and horizontal planes by partnering

organizations will be important. Partnering organizations (like NHA) have the ability to further

outreach and support based on their status as a mission-driven organization. This type of

outreach helps build capacity can help legitimize efforts to the general public and can bring new

funding streams and stakeholders to the overall partnership.

Stephen Osborne suggests caution on the part of managers when seeking to provide

public value through the use of organizational partnerships. He argues that public value should


be demonstrated by the implementation of the partnership, lest the partnership, “be seen as just

another word for privatization” (Osborne, p. 150-151). This is a critical notion. What Osborne

and others in this review have suggested is that in order for a public-private partnership to work

there must be shared knowledge, some level of authority, and leadership at all levels that provide

for buy-in.

Osborne (2010) points out that majority power lies with those who have access to the

majority of funds (p. 137). In such cases public trust will be tied to the most visible face that is

implementing the policy or program in question. One of the adverse consequences of this

imbalance in power is the absence of industry knowledge necessary to successfully implement a

partnership agreement. This describes the current set of relationships surround the LIWP. The

face of the program is squarely tied to OHCS as the manager of the funds and the manager of

their usage. However, for adaptations to the existing policies to be made, knowledge and the

skills and abilities of those utilizing the funding must have an ally within the “managing”

organization in order for change to occur.

The programmatic guidelines for the LIWP are designed to cover a wide base and aren’t

necessarily adaptable. Their lack of flexibility and orientation towards complicated or expensive

systems don’t allow for the recipient of funds to guide usage of those funds to areas of their

project that may provide a better return on investment. What ends up happening is that new

technologies and/or prioritization of departmental goals to demonstrate savings outweigh the

benefit that could be derived by utilizing the funds to maximize effectiveness on a building by

building level. At what point do secondary goals begin to outweigh primary goals? If affordable

housing is the primary goal and green building design is a secondary goal that has tremendous

internal and external support, at what point do the resources set aside to meet the secondary goals


begin to divert us from the primary objective? If secondary goals of maximizing energy

reductions under the LIWP have the industry investing precious resources in brand name

reductions (Energy Star, LEED) but ignore the building envelope, then every dollar spent

becomes wasted because the building itself can’t regulate its temperature. The result is that

resident’s and operations have an energy efficient refrigerator but must continue to maximize

their heating and air conditioning use because the building acts more like a sieve than it does like

skin. If the existing policy is directing resources in the wrong areas; if the resources designed to

create public value are being allocated to the wrong metrics, how does communication then enact

change?

Principle 4—Trusting the expertise of your partnership

One suggestion provided by all authors reviewed is the power of co-production. In this

sense, data derived from the clients receiving the benefit of the services provided becomes a

powerful leverage tool. For example, the case study presented herein represents the value of

resident input in defining a construction program. The decision to include the institutional

knowledge of residents who, in some cases, have resided at Cottonwood II for as many as twenty

years was an invaluable and cutting edge decision. Resident knowledge of how the building

operated seasonally directly influenced our approach to weatherization.

Each author in turn discusses the caveats associated with co-production (see Moore 1995;

Brookes & Grint, 2010; Osborne 2010). These include stereotypes regarding the services

provided and the clientele accepting these services. In the case of low-income residents there is a

stigma that poverty equals a lack of credible input (Saunders, Social Policy Research Center,


2004; see also Robb, Can the Poor Influence Poverty, 1999; 2002). This lack of credibility stems

from stereotypes wrought within the general public (Saunders, 2004). However, the advantages

of co-production seem to far outweigh the potential stigmas that may surround it. As Moore puts

it, co-production through the use of input from those receiving (e.g. low-income citizens) public

benefit is given legitimacy by demonstrating a uniform application of rules and guidelines;

developing the role of multiple players in providing “specialized expertise” and creating

significant economies of scale (Moore, p. 287-88). According to Moss, the people best aligned

with identifying where resources should go and how best to use those resources are the local

authorities, the community where the services are being provided, and the clients that receive the

benefits of the service (as cited in Brookes & Grint, p. 258). Osborne (2010) sees co-production

as a way to create synergy between what government objectives are and what client needs are.

Co-production is an important part of developing a construction program for the use of

weatherization funds. Who better to understand the needs of an existing building than the

residents who live there? Though building code and funding source requirements may drive the

initial ideas of what is to be accomplished, ultimately NHA decides how we will develop green

building measures through regular interaction with the residents we serve. Our policy was

developed from information gathered from residents through a series of community meetings

where we direct a Q&A about how residents feel the building is performing. We then take this

information and discuss it with our project team of architects, engineers and general contractor.

From this information gathering session and design charette we are able to create a base template

for the differing areas we will measure existing efficiencies in the subject building. As the

following demonstration project will demonstrate, this co-production approach creates a

property-specific plan for identifying how LIWP funds should be invested.


Chapter 3: Demonstration Project

Introduction

This chapter discusses the methods and results that lead to an energy performance

audit of the Cottonwood II Apartments in Hermiston, Oregon. The audit was conducted post-

rehab of the site and after a year’s worth of post-rehab utility information had been collected.

The goal was to examine pre and post-rehab building-wide energy usage and to determine

whether our weatherization strategy for energy reduction measures was in line with the goals we

had set. What was ultimately discovered was that through an integrated design team approach

and the use of co-production, we were able to experience exciting reductions in energy usage.

This system also showed that there is a strong link between emphasizing building envelope

considerations and not emphasizing the suggestive energy reduction measures as found in the

LOW Income Weatherization Program (LIWP), which is available as a funding source for

multifamily affordable housing development.

This chapter is organized around the following questions: What were the outlying

circumstances leading to an energy performance audit? What team was needed to examine

existing building components and provide suggestive measures for change? What if any

stakeholder buy-in was required to implement our energy reduction strategy? What were the

results and implications of the energy audit performed in 2011?

Background and circumstances leading to our energy audit case study


Northwest Housing Alternatives (NHA) mission statement is to create opportunities

through housing. As a long standing goal of our organization, opportunities are broadly explored.

Opportunities are seen as quality of life endeavors which have NHA staff working diligently to

provide all that we can for our residents to ensure they have the opportunity to spend less time

worrying about where they live and more time focused on themselves and their family needs.

In early 2008, NHA began discussing how to lower utility burdens at our properties. This

was in part driven by communication from our Asset Management departments that had alerted

the organization to alarming spikes in utility costs. These costs were threatening to over-burden

several properties in our portfolio so much so that the organization would have to financially

support these properties or raise rents to our residents to offset the utility cost increases. Though

raising rents is an option and allowable within varying guidelines of an affordable housing

properties rent structuring (Federal Register, 2012), raising rents to cover budget oversights

doesn’t fit within our mission.

Historically the overall approach to weatherization of a building had largely been

informed through requirements imposed by OHCS under the LIWP. Our project partners,

however, had been gathering evidence that would suggest that focusing on a buildings envelope

(siding, windows, and air barrier) would maximize the benefit of all energy reduction measures.

It also was the best way to demonstrate value when considering scarce resources. Though siding

and windows represent a very large portion of a construction budget, when mapped out over the

entire square footage of a multifamily property, the price per square foot comes down. Also, and

most importantly, evidence suggested that in order for the other prescribed measures of the

LIWP to truly maximize energy reductions and thereby maximize, economic, social, and

environmental value, the building must be treated as a living entity where the skin (or envelope)


acts as human skin does in regulating heat gain and heat loss. In order to test our hypothesis we

needed the right setting and circumstances to try our approach on an occupied building.

The Cottonwood II Senior Apartments are located in Hermiston, Oregon. The complex

contains 24 units over three stories and is elevator served. The rehab of this project was

undertaken by Northwest Housing Alternatives (NHA) in 2009 as part of a process to continue

the buildings affordability period for another thirty years. Simultaneously, NHA rehabbed the

Cottonwood I Family Apartments which consisted of 24 units of townhome style apartments and

shared a connecting parking lot with Cottonwood II.

Cottonwood II was chosen for energy auditing for a variety of reasons. The site is a

single building which is elevator served so resident usage is spread outside of individual units

and into common areas, corridors, and the main tenant lounge. The building is part of a portfolio

of projects that were purchased by NHA in 2008. The Cottonwoods had been designed, built and

owned by the same ownership group and general contractor during the late 1970’s as part of a

HUD project based Section 8 program (US Dept of Treasury). This allowed NHA to test our

methodologies for weatherization practices on very similar structures in Bend and Medford; the

Bend and Medford buildings are nearly identical to Cottonwood II. Cottonwood II covers all

project utilities including resident apartment usage. This is a unique situation and it places a

premium on energy reduction from a building operations standpoint. Any reductions in

apartment utility usage and common area utility usage affect our overall operational costs. It also

allowed us the opportunity to explore historical energy usage documentation. Lastly,

Cottonwood II has been managed by the same property management firm and onsite property

manager since 1978. This provided NHA not only access to historical records of how the


building has operated from a utility standpoint but also a unique look at tenant usage patterns and

a historical look at how the building has aged over time.

Team and methodology

As an organization that values an integrated approach to housing development, we sought

out partnerships with architects, general contractors, financing (both construction and

permanent), equity investment and the like that would participate in our process for

recapitalization of the Cottonwood II and also would approve our construction program as part of

the 9% tax credit application through OHCS. As a standard procedure, NHA issues request for

proposal for most of our development needs. In the case of equity, we chose Wells Fargo (Wells

also handled the construction lending) and for permanent financing we approached the Network

for Oregon Affordable Housing (NOAH; noah-housing.org). Both Wells and NOAH have

worked with NHA for many years and on many different developments. The mutual trust that

has been formed between the organizations made it easier for us to approach them with our ideas

for the entire rehabilitation of Cottonwood II, but also made it easier to keep them apprised of

our desires for trying new techniques for reaching energy efficiency measures. For our general

contractor, we chose Walsh Construction Co. /Oregon. Walsh is widely recognized as the leader

in affordable housing construction. They have an excellent reputation and are well respected by

the financing community and OHCS; a strong reputation and track record are key to providing

the necessary stakeholder buy-in when attempting levels of innovation with both public and

private financing. Our architects were Andrews Architects. A boutique firm, the Andrews has

been long standing activists and proponents of affordable housing development for neighborhood


connectivity. They have over thirty years of experience working on multifamily developments in

Oregon and SW Washington and share NHA’s vision for energy reduction while creating the

best possible living experience for residents. The team also extended outside of the direct

development team into the local community. As a project, we sought to draw subcontractors and

local suppliers to the site helping to assure that local businesses and the community would be

able to stimulate job growth. Building officials were brought in from the local planning and

permit departments to advise on code considerations with our wall assemblies and to provide

insight on climate considerations. Lastly, we sought advisement of Cascade Management, our

onsite manager and the existing Cottonwood II residents.

Knowing that we would be applying for Low Income Housing Tax Credits (LIHTC)

through OHCS we started the process of identifying energy reduction measures by calculating

what categories of funding we could draw LIWP funds from (see Exhibit 1). Once we had these

categories determined we took the gathered information from local building officials, the

institutional knowledge of our general contractor and architect, and the information provided by

Cascade and our residents to determine the best place to focus our weatherization program. All

indicators pointed to the importance of the building envelope. The building envelope consists of

a weather resistant barrier at the building sheathing; air-sealing of all potential penetration areas

on the building exterior; rigid insulation (1” rigid foam); new high efficiency vinyl windows and

patio doors or sliders; fiber cement siding. An aggressive plan at the exterior would then inform

how we looked for energy reduction on the interior of the building.

During the pre-development stage we held community meetings with site staff and

residents. The culmination of this information directly helped us understand how the building

functions during a seasonal cycle. The results corroborated what we had expected, that in the


summer the building gets incredibly hot and in the winter incredibly cold. This information

coincided with information gathered from local building officials and our own investigations

regarding weather patterns and Cascade’s long term management of the site. For a variety of

reasons we chose not to add expensive mechanical heating and cooling systems to resident

apartments and the building as a whole. First off, mechanical systems can add a considerable

amount to the projects construction budget. Add to this the long term maintenance agreement

costs and the overall cost savings take a considerable time to be recovered. Instead we focused as

previously mentioned on the building exterior, which helps reduce heat gain in the summer and

heat loss in the winter (see Exhibit 2). We then replaced existing base board electric heaters

(main apartment heat source) with updated heaters. We also added ceiling fans in every room

and upgraded kitchen exhaust and bathroom exhaust fans to help with air quality and circulation.

The windows we installed have trickle vents in them that allow an apartment to draw make-up

air even when the windows are closed which also helps with indoor air quality and air

circulation.

We upgraded ceiling and wall insulation wherever we could and made sure that we air

sealed all penetrations. The tightening of the building shell created the foundation for drastic

energy reductions (see Exhibit 3). To all of this we added Energy Star rated appliances where

applicable, installed new low-flow pressure balanced tub/shower valves; low flow kitchen sink

faucets; low flow toilets.

For the common area spaces we drastically reduced existing overhead lighting which was

contributing to heat gain. We discovered during construction that the Community Room air

conditioning unit was failing so we replaced it with a heat pump style unit and added variable


speed fans that could help distribute conditioned air throughout the community room and to the

open day room on the second floor above.

Lastly, we focused on a variety of long term more passive measures for reducing energy.

Exterior lighting was focused down rather than the traditional up and utilized higher efficiency

bulbs. This reduced wasted lighting into the night sky and drew less electricity. We installed an

electronic door opener called a Door King. This increased the buildings overall security and kept

residents from propping the main entry door open throughout the year allowing heating or

cooling energy to be lost. We installed shade trees on the south and west exposures where the

sun can be very powerful. We also looked to install lower gallon per minute sprinkler heads for

irrigation. We used a light color of roofing shingle to reduce heat absorption and we utilized

patio doors that had integral screens to promote cross-ventilation in units.

Stakeholder buy-in

There was little need for stakeholder buy-in from anyone other than OHCS; this will be

discussed in greater detail in the next chapter. All of the project partners were excited about the

opportunity to preserve a resource like Cottonwood II and all felt that the construction program

we had chosen to undertake was not only wise it was important. Local officials were thrilled to

have work for their planning and permitting departments and appreciated being part of the

conversation regarding design elements. Our residents were excited to have a stake in the

construction program and our onsite manager was overjoyed that the building was getting a

facelift. Buy-in from our funding partners was evident from the outset. Each funding partner has

its set of analysts to review and advise on our financing and construction assumptions. Prior to


beginning any construction work, each partner (Wells Fargo, NOAH, OHCS) had the chance to

review our project plans and specifications and vet any concerns they may have had with our

assumptions. This process assured that everyone was well aware of what we were trying to

accomplish. It also created an extended team dynamic and began for us the idea that this type of

envelope-centric focus could be applied to several buildings in our portfolio as well as any new

acquisitions we have in the future.

Results and Implications of Findings

As can be seen from Exhibit 3, the results of the energy audit were very exciting. In the

first year of operations post-rehab we reduced building wide electrical energy usage by 25% and

water consumption by 18% (see Exhibits 4 and 5). In essence, we had chosen to draw LIWP

funds under the allowed categories and augmented the program to argue for efficiencies at the

building envelope rather than trying to achieve large scale energy reductions through

complicated mechanical systems and expensive lighting and appliances. As the energy audit

notes, where lighting and appliances were replaced, we used Energy Star rated fixtures which

meet the minimum standard for OHCS. The overall outcome of our weatherization strategy is an

energy signature that demonstrates a significant reduction in energy usage at the site (see Exhibit

6).

Though OHCS’ categories for weatherization will no doubt help reduce energy

consumption, it is evident from the analysis of Cottonwood II that true energy reduction starts

with building envelope considerations. It could be argued that the LIWP as currently prescribed

is an augmenting feature for a building. The LIWP could be seen as bonus reduction measures


but as the program is designed and implemented, there is no applicable category to assure that

important envelope considerations are being made by a developer. As designed, the LIWP is a

misused tool for achieving energy reduction. Further, and as will be discussed at length in the

next chapter, there doesn’t appear to be the necessary leadership at OHCS to champion true

energy reduction measures. Though energy reduction is a high priority for the department (OAR

813-205-0000; see also Economic Impacts of Weatherization, Oregon.gov), the maximization of

weatherization benefits isn’t being undertaken. According to OHCS, for every dollar spent as a

result of energy savings yields an additional $.63 for Oregon Counties and $.85 statewide

(Oregon.gov). From an economic standpoint, if you could increase this re-investment in our state

at a very low price-point, wouldn’t it be worth it? If you could exponentially reduce resident

utility costs such that low-income citizens could be on a more equitable level with other

Oregonians wouldn’t it be worth it? Lastly, if you could do all of these things and help reduce

the carbon footprint for our planet, wouldn’t you be maximizing the three E’s (economy, equity,

and environment)? The next chapter will discuss the necessary leadership needed and at what

levels of organizational hierarchy they are needed in order to stimulate an evidence based change

to the LIWP.


Chapter 4: Findings and Conclusions

There is little question that those involved with low-income housing development are

passionate people. The mission of the industry is to fulfill societal goals of providing one of our

agreed to essential human needs (Brunick &Maier, 2010; Max-Neef, 1991). Engaging

stakeholders is rarely an issue in affordable housing development due to the financing structures

and the fact that on a national level, housing for all citizens holds high value. Where stakeholder

buy-in can become problematic is in the sharing of power, leadership, and capacity (Barringer &

Harrison, 2000; Hillman and Keim, 2001; Nutt, 2004).

The preceding chapters discussed the alarming rate at which utility costs are rising and

their adverse effects on low-income Oregonians. The existing strategy for mitigating these rising

costs in affordable housing development is to rely on the Low Income Weatherization Program

(LIWP) as managed by Oregon Housing and Community Services (OHCS). This paper has so far

demonstrated that the existing LIWP program as it currently stands does not allow for the types

of weatherization strategies that maximize benefit to low-income residents in affordable housing

developments. Further, as keepers of the public trust, the LIWP doesn’t allow OHCS to

maximize benefit to their funding partners or the general public. Though evidence can be

marshaled to show that the LIWP is in need of a redesign, there are existing organizational

barriers to opening up a dialogue with OHCS to address data based findings. These barriers are

primarily found in the historical funder to nonprofit service provider relationship (Osborne,

2010) and a lack of empowerment of middle management at OHCS.


In light of the current hierarchical shifts occurring at OHCS, the author believes there are

opportunities to engage with OHCS to discuss the need for changes to the LIWP and to promote

the necessary partnership sharing of knowledge, skills, and abilities. Such a partnership would

greatly increase the equitable, economical, and environmental value sought by all participants in

their collective efforts to aggressively reduce energy consumptions by low-income affordable

housing residents and the owners of those properties.

The following suggestions will focus on the necessary preliminary steps for opening up

dialogue with OHCS, thus laying the groundwork for a new leadership strategy for maximizing

the usefulness of the LIWP. It is hoped that these steps will secondarily strengthen the working

relationship between OHCS and their service providers while promoting a co-production model

for achieving aligned goals. The following suggestive measures are not ranked in any priority;

rather, they represent what is believed to be necessary components (based on assembled data and

findings) to promote a dialogue that is truly interorganizational in design.

Power must be shared

There must be agreement that the existing LIWP program needs a facelift. This

requires that both OHCS and their service providers (e.g. NHA) agree to cooperatively pursue

the sharing of knowledge, skills, and abilities. Data collected must be freely presented on an

interagency level. In order for a power sharing dynamic to exist, there must be the necessary

structural components available to transfer knowledge on an interorganizational basis. This point

has been discussed by Osborne (2010) and Moore (1998). As Osborne points out, “one of the key

benefits associated with effective interagency cooperation is that it can lead to more efficient


policy delivery, by eliminating the duplication of effort and improving communications”

(Osborne, p.133). This in and of itself isn’t the easiest hurdle to overcome. As has been

suggested in the literature review portion of this paper, the sharing of k, s, a’s requires that the

parties involved recognize the value of the collaboration and are willing to share power. As

Schofield and Pegg have discussed, as service delivery becomes more and more complex, there

needs to be a devolution of “power and resources from the center to those delivering public

services” (Schofield and Pegg, p.212; as cited in Brookes and Grint, 2010). Given the existing

relationship between OHCS and NHA, this would require a fundamental shift by OHCS in

recognizing the ability for a single service-provider relationship to help inform LIWP

procedures.

There must be leadership at the middle manager level

Middle managers are the necessary ingredient for creating stakeholder buy-in.

Middle managers act as programmatic champions. They provide the necessary leadership push to

rally people to a cause or an ideal. They are the primary developers of interorganizational

relationships (Morgan et al, 2008) and given the opportunity will determine how best to manage

the stakeholders involved (Hillman and Keim, 2001). In order for this to occur at OHCS, middle

managers (program managers) must be allowed to champion a cause. They must be given the

power and authority to coordinate support and foster relationships. Historically, this type of

leadership at OHCS has not been apparent. Power does not appear to be distributed amongst

middle or program management. Rather, decisions are made at higher levels of the managerial

chain and passed down to middle management. Given the recent hierarchical and organizational


shifts occurring, it is yet to be seen whether the new climate at the organization will value and

foster this type of leadership.

Co-production must be valued

As the data presented from the Cottonwood II energy audit would suggest, co-

production as a strategy for maximizing value was a key process in reaching NHA’s energy

reduction goals. This required that NHA be willing to listen and absorb the collective wisdom of

the integrated team to reach our goals.

Co-production at the nonprofit level for reaching internal goals isn’t the issue.

Rather, the issue is that the same valuation of co-production must be exhibited by OHCS. In

order for this to occur, OHCS must acknowledge that the sharing of knowledge will help them

reach their own internal goals. This requires leadership at the middle manager level but also it

requires an organizational culture shift that values (beyond the fiduciary link) the findings of

their agency partners. This will require that OHCS acknowledge that as managers of public funds

there is the opportunity in the LIWP to increase the public’s return on investment in

weatherization. As the data would suggest (Cottonwood II energy audit; Oregon.gov), return on

investment is increased when considering new ways to structure the LIWP. As Moore (1995)

suggests, if an agency like OHCS is to recognize the value of its partnerships in achieving public

benefit, then the organization must continue to seek opportunities that increase partnership

contributions and align interests that have public, private, and nonprofit organizations,

“coproduce the value attributed to public sector organizations” (p. 287).


Partnerships build capacity

The collected results of the data on Cottonwood II must be shared with OHCS.

This requires that NHA take a leadership stand in the nonprofit community and have the

willingness to stand by our findings. Currently there are shifts occurring in the affordable

housing world (outside of NHA’s findings) that are challenging how we increase energy

efficiency in buildings. Buildings (industrial, commercial, and residential) in the U.S contribute

to over 48% of this country’s greenhouse gas emissions and over 70% of all electricity usage

(Passive House US, 2011). Going back to the rising costs of energy on our most financially

challenged citizens, organizations are seeking new ways to look at building energy performance.

Given the findings from Cottonwood II, NHA must take a leadership role through engaging

further study of our weatherization program and keep collecting data. Our collected knowledge,

when combined with the knowledge of our direct partnerships (contractors, architects, engineers,

residents) and also the findings of our affordable housing counterparts, is building our industry’s

capacity. We as an industry have become the experts and through this knowledge we can help

build capacity for OHCS.

Oregon’s State Housing Finance Agency (HFA) OHCS is the face of affordable housing

finance. Therefore, underutilized funds or policies and procedures that don’t maximize benefit

are bad for the whole industry. Through the sharing of k, s, a’s we have the opportunity to

reshape the policy and procedures surrounding the LIWP. Greater attention needs to be paid to

how the LIWP is managed. If the program as currently modeled doesn’t maximize; if it is in fact

increasing overall costs, then a networked subsystem (Morgan, et al, 2008) needs to be

developed that will help advance the policy. The maximization of value will then allow for

scarce resources to be allocated towards other programs or resource streams.


As an industry it is important that we utilize the Oregon Opportunity Network (OON).

OON (oregonon.org.) acts as the policy voice for affordable housing developers in the state and

is a critical component to communicating with OHCS. Their primary function is to advocate for

affordable housing policy and provide guidance as a liaison between Community Housing

Development Organizations, housing support organizations, and OHCS. Policy chapters

comprised of volunteer members from the affordable housing industry are regionally located

around the state. Platforms for discussion fall along main hubs of the affordable housing

industry: Development, Finance, Asset Management, Resident services, and Executive Directors.

The groups act as a think tank for issues facing our industry. Collected topic ideas and findings

are then coordinated into Industry Support Conferences which are held in varying parts of the

state. Given the recent findings of Cottonwood II, projects undertaken by Portland’s Central City

Concern (see Passive House, Hooper Detox Ctr, and Hatfield Building) and several other

developments around the state, there is significant momentum for utilizing OON as a way to

open communication regarding a revamping of the LIWP. The data collected demonstrates the

need for change and as partners it is the industry of affordable housing development that should

provide the necessary leadership in presenting this information to OHCS.


Conclusions and Suggestions for Opening Communication and Discussions with OHCS

regarding the LIWP

There are three major conclusions from this study that have implications for the future work of

NHA. First, the leadership of NHA needs to take the initiative to have conversations with OHCS

about revamping the criteria for the LIWP program. Second, NHA needs to continue collecting

benchmark data on its weatherization strategy and using this information to enlist the support of

other partners supporting low income housing. Third, NHA as a matter of policy should adopt

an “envelope first” approach to all of its low income housing construction and rehabilitation

NHA and OHCS Partnership Re-alignment

The power relations and communication channels between OHCS and their service providers

like NHA need to be reworked in order to maximize the economical, equitable, and

environmental value of the LIWP. Changes in the hierarchical structure of OHCS make the

timing right to jointly explore a variety of questions related to LIWP, including the following:

Who has the power to make changes to the program? What are the programmatic outcomes that

OHCS wants from the LIWP? How are the distributions of LIWP funds handled internally by

OHCS; Is there a well planned distribution schedule based on need or is there a “fire-drill”

scenario where funds are brought in and need to be distributed as quickly as possible on a first-

come first-served basis? What, if any, cultural shifts are present that could open up

communication between OHCS and NHA?


But what is the best way of laying the foundation for high level conversations to occur

regarding the previous list of strategic issues, some of which may require changes in

administrative rules and perhaps in legislative authority. A two pronged strategy is needed

which requires OHCS to continue collecting benchmark information and then using this data to

strengthen its relationship with partners within the affordable housing network in Oregon.

Using Benchmarking Data to Build NHA Partnerships

The data collection initiated by NHA needs to continue. At each new and rehabbed project NHA

needs to continue to utilize energy modeling techniques in conjunction with integrated team

design approaches (project partners, management, and residents) to maximize energy reduction

for each specific building. As this data is collected there needs to be an industry wide look at

findings from OHCS efforts.

One of the best ways to leverage NHA’s data is to partner with OON. As pointed out in the

previous section OON has the ability to communicate directly with upper tier staff at OHCS.

Though NHA communicates directly with the upper tier staff at OHCS, the communication lines

that have been established by OON are a far more effective way to create buy-in to policies or

programmatic considerations. Also, OON’s entire function is to act as industry support for

affordable housing issues. The design of the organization allows for industry professionals to

convene, open up dialogue regarding issues or desires, and vet any potential issues that may

result from network sessions prior to presenting them to OHCS.

One caveat to this is that OON is currently experiencing some organizational shifts.

Traditionally OON has been operating as the affordable housing industry in Oregon’s de facto

policy representative for several years but they haven’t historically been tremendously organized.


The organization is largely dependent on volunteerism as found within the industry and it has

recently been made clear that they are reorganizing how they will do business. Given this

scenario, it is suggested that if talks regarding the LIWP and OHCS stall either within OON or

between OON and OHCS, that NHA needs to take the necessary leadership action to organize

stakeholders and present findings directly to OHCS.

If NHA is to act as a champion for LIWP program changes, success will only come by

aligning ourselves with the necessary vertical and horizontal stakeholders who share our

common goals and ideas. These would include architects, contractors, engineers, and fellow

developers who, like us, are seeking to maximize building energy efficiencies. It will also take

the backing of our financial partners in the lending environment; equity investors, construction

and permanent lenders and the involvement of organizations and individuals that champion

energy reduction will carry power and influence that adds an additional layer of legitimacy to the

cause.

In reviewing the Oregon Administrative Rules (OAR) regarding the LIWP, it becomes

clear that there is enough flexible language that the program could be revisited (OAR 813-205-

0120; see also ORS 757.612). ORS 757.612 requires that a public purpose expenditure standard

for electric companies for the funding of low-income weatherization efforts be in place until

January 1, 2026. A 3% surcharge will be applied to retail (non-residential) electrical utility users

for the funding of these efforts. Funds received by OHCS through ORS 757.612 are then at their

discretion to be distributed through the establishment of an advisory committee for

weatherization (see ORS 458.515). Once weatherization funding is received by OHCS the

monies are split into two distinctive pots. One pot is for Low Income Weatherization Assistance

(OAR 813-205-0000) and the other is for the LIWP (OAR 813-205-0085). There are very basic


requirements for receiving funding and can be distilled into a few common themes: funding is

available to for-profit, nonprofit, and local government entities; funding is designated for low-

income housing development serving qualified households at or below 60% of area median

income; projects must maintain their affordability status for a minimum of 10 years (OAR 813-

205-0110). What is truly important is the vagueness of the rules when it comes to eligible

activities. AS OAR 813-205-0120 would suggest, weatherization measures need to demonstrate

one or more of the following: measurable cost-effective energy conservation; repair measures

that are deemed necessary for energy savings performance or preservation of existing energy

saving measures; and general weatherization measures (including health and safety

improvements) that when installed represent an improved energy performance beyond code. This

would suggest that OHCS has maximum flexibility in providing, accepting, or modifying

changes to the policies and procedures associated with the LIWP.

NHA Should Adopt an “Envelope First” Policy

Regardless of the given policies and procedures’ surrounding the LIWP, enough data has been

collected by NHA to justify an “envelope-first” approach to construction and one that promotes a

performance based standard rather than a system that bases its measurement on specific

categories. Utilizing a performance based standard allows maximum flexibility on a building-by-

building basis and takes into account a building’s geographic location (see passive house

international.org). In communicating this information to OHCS, either via OON or via another

route, NHA should make a commitment to continue our weatherization approach at no cost to the

state on the understanding that the costs have been incurred at no-burden to the general public

and that the data will be non-proprietary. Currently, pre-development spending is allowed to be


folded into the construction budget during the Consolidated Funding Cycle for 9% tax credits.

By suggesting that until formal adoption of findings and agreement to methods can be

established, that NHA cover these costs, we are demonstrating our commitment to a new energy

reduction strategy and are also demonstrating our commitment to truly co-producing results with

OHCS.


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