Funding for Home Heating in Reconciliation Bill? Right Idea, Wrong Vehicle

In its most recent energy price forecasts, issued December 6, the Department of Energy projected that natural gas prices would be 44 percent higher this winter than last winter and that the prices of other winter heating fuels would be significantly higher as well. These steep price increases will entail unaffordable increases in heating bills for many low-income households and thus will lead to increased need for federal heating assistance, which is provided by the Low-Income Home Energy Assistance Program (LIHEAP).

The need for increased LIHEAP funding is urgent. Local LIHEAP agencies are already reporting unprecedented increases in applications for assistance, and local officials have expressed concern about whether available funding will allow them to assist eligible applicants throughout the winter.^[1] Research indicates that, without funding increases to protect poor households from price increases, many LIHEAP beneficiaries will reduce their consumption of food and other necessities this winter to pay for the rise in heating costs.

According to our calculations, meeting the needs of this year’s new LIHEAP applicants while also providing sufficient assistance to last year’s LIHEAP recipient households to keep their out-of-pocket heating costs stable will require increasing LIHEAP funding by $2.281 billion over last year’s appropriation, to a total of $4.464 billion.^[2] In contrast, the fiscal year 2006 Labor-HHS appropriations conference report (H.R. 3010) filed on November 16 provides only $2.183 billion in funding for LIHEAP, the same dollar level as last year.

The budget-cut “reconciliation” bill that the House of Representatives passed on November 18 (H.R. 4241) includes $1 billion in additional funding for LIHEAP. But while additional home heating assistance is desperately needed this winter, reconciliation legislation is not an appropriate vehicle for providing this help. The funding provided in the House reconciliation measure would not solve the problem of increased LIHEAP need, for several reasons.

• Even if combined with the $2.183 billion provided in the Labor-HHS appropriations conference report, the $1 billion is substantially less than is needed to cover new LIHEAP applicants and hold out-of-pocket costs constant for last year’s recipients. That would require total funding of $4.464 billion, not $3.183 billion.
• The LIHEAP increase provided in the House reconciliation bill is part of a package that makes permanent cuts in entitlement programs, including low-income programs such as Medicaid, food stamps, and child support enforcement, reducing expenditures by approximately $50 billion over the next five years. Since reconciliation bills are designed to meet a specific dollar target in total cuts, any LIHEAP increases provided through reconciliation entail deeper cuts in other programs. Moreover, the LIHEAP increase is part of a bill that, overall, harms low-income households far more than it helps them, because the negative impact of permanent cuts in other, equally needed forms of assistance would outweigh the gains from a modest, one-time increase in LIHEAP funding.
• Finally, statutory allocation formulas would prevent much of the LIHEAP funding provided in the House reconciliation bill from reaching the states whose residents have the greatest need for increased LIHEAP assistance. All of the $1 billion funding in the reconciliation bill and $2 billion of the $2.183 billion in the Labor-HHS appropriations conference report would be distributed according to a statutory allocation formula; the remaining $183 million is designated as contingency funding and is distributed by the Department of Health and Human Services (HHS) as it sees fit. We distribute the total $3 billion in non-contingency funding according to the statutory allocation formula and then assume that the $183 million contingency funding would be distributed in the same proportions as contingency funds were distributed in 2005. Under these assumptions, states such as Pennsylvania, Oregon, and New York would see funding increases of less than 30 percent relative to 2005, even though overall LIHEAP funding would be 50 percent higher. Three states — Maine, Minnesota, and Wisconsin — would receive funding increases of less than 3 percent. Meanwhile, some warm-weather states would see funding increases of more than 150 percent.

Rather than providing increased LIHEAP assistance through reconciliation legislation, Congress should provide increased funding for this winter through an emergency appropriation. This would prevent increased LIHEAP funds from coming at the expense of other low-income programs. Congress should also include provisions allowing HHS to distribute LIHEAP funding more flexibly than the statutory formula permits, so that the funding increase can be allocated based on the severity of the increases in heating prices.

The remainder of this paper discusses these issues in greater detail.

LIHEAP Increases Should Not Come at the Expense of Other Low-Income Programs

The $2.281 billion increase in LIHEAP funding that is needed this year is best provided through the appropriations process and designated as an emergency for purposes of the Congressional Budget Act. An emergency designation for the additional LIHEAP funding is appropriate since the funding is needed due to this year’s sudden spike in energy prices, which was caused in part by the recent hurricanes. Prices are expected to fall back at least part of the way to more normal levels after this winter is over. Therefore, the need for extra LIHEAP funding is essentially an unexpected emergency, and the funding is appropriately designated as such, just as other hurricane-related expenditures have already been.

Without an emergency designation, additional LIHEAP funding would have to come at the expense of other programs funded in the Labor-HHS appropriations bill or at the expense of programs being cut in the reconciliation bill. In both cases, the cuts would disproportionately impact low-income programs. Cuts made in the appropriations bill would at least be temporary, confined to one year’s budget. Cuts made in reconciliation, on the other hand, would likely last even beyond the five-year reconciliation time period, since there is no "sunset" feature in the House or Senate reconciliation bills, and they will therefore continue to result in a loss of benefits and services long after the initial required savings have been secured.

In addition, it would likely be harder to secure an emergency designation in reconciliation than in an appropriations bill. Emergency designations in reconciliation are rare, whereas they are more common in appropriations bills.^[3]

Congress Should Provide for a Flexible Distribution of LIHEAP Funds

If additional LIHEAP funding is made available as the House reconciliation bill provides — that is, under the normal LIHEAP allocation formula — the funds will be distributed among states in a highly inequitable manner. As Table 1 shows, several states would see increases of less than 3 percent in their LIHEAP funding, even through the program’s total funding would have increased by almost 50 percent. Many other states would receive modest funding increases, amounting to much less than 50 percent. Meanwhile, a third group of states would receive rather massive funding increases of 100 percent, 150 percent or even more.

In other words, the $1 billion funding increase would not be apportioned in a way that would reflect the needs the additional money is supposed to address. In general, the states with the greatest need for increased LIHEAP funds this year are cold-weather states, especially those that are heavily reliant on natural gas, the fuel expected to experience the largest price increases. States that use LIHEAP funding primarily to provide cooling assistance will have less need for increased funding this year, since cooling is fueled mostly by electricity, and electricity prices are projected to increase only slightly.

But, as the table shows, the statutory allocation formula would provide relatively small increases to such cold-weather states as Pennsylvania, Oregon, and New York, while providing far larger increases to warm-weather states such as Florida, Arizona, and South Carolina. Maine, Minnesota, and Wisconsin, all cold-weather states, would receive funding increases of less than 3 percent. This would be particularly harmful in the case of Minnesota and Wisconsin, which not only experience very cold winters but are also heavily dependent on natural gas.

The reason for the inequity is that different formulas are used to distribute LIHEAP funding to states when total non-contingency LIHEAP funding is below than when it is above $1.97 billion. In 2005, total non-contingency LIHEAP funding was $1.9 billion, and so the funds were distributed according to the so-called ‘old’ formula. If non-contingency LIHEAP funding increased to $3.0 billion, the funds would be distributed according to the so-called ‘new’ formula. This formula gives greater weight to ‘cooling days’ (defined as days with temperatures above 65° F) and other factors that tilt funding towards warm-weather states. The formula does not take into account this year’s extraordinary price increases, since it is based on older fuel price data.^[4]

Congress has the option of designating some or all LIHEAP funding as contingency funding, which would allow HHS to distribute the funding more flexibly according to HHS’ determination of need. Last year, HHS used this flexibility to distribute LIHEAP contingency funding differently from the statutory formula that otherwise applies to LIHEAP funds, with a larger share of the contingency funds going to cold-weather states such as Maine, Minnesota, New York, Connecticut, and Pennsylvania. The Labor-HHS appropriations conference report provides $183 million of its LIHEAP appropriation in the form of contingency funds, while none of the funding in the House reconciliation bill carries a contingency designation. A contingency designation could, however, be provided in either the reconciliation or an appropriations bill.

Conclusion

Congress needs to take action to protect low-income households from sharply rising energy prices this winter by temporarily increasing funding for LIHEAP. We estimate that last year’s funding level of $2.2 billion should be increased to almost $4.5 billion. Reconciliation legislation, however, is an inappropriate vehicle for providing this additional funding. Providing funds in reconciliation would very likely entail a damaging trade off — additional permanent cuts in other types of assistance for low-income families and individuals. Finally, the LIHEAP provision in the House reconciliation bill would distribute the additional LIHEAP funding in that bill in an inequitable and inefficient manner that is not responsive to the increase in need.