Testimony of WADE HORN, PH.D.

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TESTIMONY OF
WADE HORN, PH.D.
ASSISTANT SECRETARY
FOR THE
ADMINISTRATION FOR CHILDREN AND FAMILIES
DEPARTMENT OF HEALTH AND HUMAN SERVICES

BEFORE
HEALTH, EDUCATION, LABOR AND PENSIONS COMMITTEE
UNITED STATES SENATE

OCTOBER 30, 2001

Good morning, Mr. Chairman and members of the Committee. I am Wade Horn, Ph.D., Assistant Secretary for the Administration for Children and Families within the Department of Health and Human Services. I appreciate the opportunity to appear before you today to talk about the Low Income Home Energy Assistance Program, which provides assistance to millions of low-income Americans in meeting the costs of home energy heating and cooling.

The Low-Income Home Energy Assistance Program -- known as LIHEAP -- grew out of a series of emergency programs generated by the energy crises of the late 1970s. Today, it continues to help ensure that low-income families and individuals have adequate home energy through a Federal-State partnership which provides states with the flexibility they need to design the best program approach to meet consumer needs.

As such, LIHEAP continues to fulfill its dual responsibility to provide ongoing assistance where it is most needed and to respond to emergency situations such as extreme weather conditions, supply disruptions, or price spikes. For the past several years, about 4 million households per year received LIHEAP assistance to help them get through the winter months. The program also provides cooling assistance to about 400,000 households, and weatherization assistance to about 90,000 more.

These numbers, however, do not begin to tell the entire LIHEAP story. Iowa’s Energy Assistance Program recently completed a study which found that households faced with unaffordable energy bills were going without basic necessities such as food and medical care, or falling behind in paying their rent or mortgage in order to pay their heating bill. Another study in Philadelphia found a relationship between utility termination and homelessness. More specifically, this study found that thirty-two percent of homes in Philadelphia, where electric service was discontinued, were abandoned within one year, as were 22 percent of the homes where residential gas service was terminated.

These examples demonstrate that receipt of a LIHEAP benefit not only means a warm home (or sometimes a cool one), but also often means the difference between a family staying in their home or having to move, with all the disruption that can entail. Indeed, having to move because there is no heat can mean loss of a job, change in a school for the children, or loss of a child care arrangement. Likewise, a LIHEAP benefit can help make it possible for the elderly to stay in their homes, for families on welfare to continue to move toward self-sufficiency, and for working parents to avoid having to seek other forms of public assistance.

LIHEAP provides critical assistance to low-income households affected by energy emergencies, and President Bush, Secretary Thompson and I are committed to maintaining this essential program. As you know, the Department’s programs have been funded temporarily for FY 2002 under short-term continuing resolutions. On October 18, 2001, we began making regular first quarter grant awards for LIHEAP based on the amounts each state requested for the first quarter of this fiscal year. Winter is approaching quickly and experience has taught us that help in paying winter heating bills can mean the difference between self-sufficiency and financial disaster.

LIHEAP funds are allocated to states based on a statutory formula established when the program began. More specifically, funds are distributed based on low-income population, home energy expenditures by low-income households, and weather conditions substantially weighted towards cold weather. Under this formula, almost two-thirds of the funds go to Northeastern and Upper Midwestern states. In addition, state and Federally recognized tribes may request direct funding from the Department of Health and Human Services, and about 130 tribes and tribal organizations do so. Smaller amounts go to the territories.

States and other LIHEAP grantees have great flexibility in applying LIHEAP funds to meet local needs. Clearly, the needs of Maine, for example, are very different from the needs of North Carolina, or even Connecticut. North Carolina, obviously, is much warmer than Maine, but North Carolina also has about 6 times more low-income households than Maine. Connecticut and Maine both have a lot of cold weather, but Maine is a much more rural state than Connecticut. Moreover, Maine has many small "Mom and Pop" energy vendors, whereas Connecticut relies more on larger, commercial vendors that provide about half of the fuel oil and kerosene for energy to low income households.

Even though all three of these states are heavy users of fuel oil for heating, the different circumstances of each state require that they negotiate different pricing arrangements with vendors. For example, more urban states such as Connecticut can negotiate lower prices for LIHEAP recipients because the large commercial vendors in these states can absorb the reduction in price for this population. The small, local vendors in Maine, by contrast, are less able to offer discounted prices. Given these differing circumstances, states have wide flexibility to adjust their LIHEAP programs to meet their unique needs.

We are impressed time and again by the resourcefulness of LIHEAP staff in state and local agencies in using LIHEAP funds to provide meaningful help to families facing a home energy crisis. These workers on the front lines generally resolve or avert the crisis by telephoning the energy vendor, who maintains or restores service based on an assurance that a LIHEAP benefit is to be paid. If the household's arrearage is higher than the maximum benefit amount, local workers often can find other sources of assistance to supplement the LIHEAP benefit. They also can refer the household to other forms of assistance they might need.

A number of states have been successful in negotiating reduced rates for LIHEAP households. For instance, Massachusetts and Connecticut have very sophisticated pricing mechanisms that allow them to realize substantial savings for their clients. Minnesota negotiates specific discount rates with each of its fuel vendors.

Many states take advantage of the opportunity to use as much as 15 percent of their LIHEAP funds for weatherization and other low-cost energy-related repairs. Under certain circumstances, a state can ask for a waiver to use up to 25 percent for weatherization. The flexibility to use a small portion of LIHEAP funds in this way allows states to help households make their energy bills more affordable.

LIHEAP grantees may set their maximum income eligibility level as low as 110 percent of the poverty level or as high as the greater of 150 percent of the poverty level or 60 percent of state median income. Moreover, legislative changes in 1994 made it possible for grantees to look less at absolute income levels and more at need. In setting eligibility levels, states may, for example, give priority to households that pay a large percentage of their income for home energy or that include members who have the greatest energy need because of age or health.

The 1994 LIHEAP reauthorization bill also authorized an annual emergency contingency fund. Funds appropriated for this fund are available for immediate release in emergency situations outlined in the statute, generally when there has been unusually hot or cold weather or when there are supply disruptions and/or sharp increases from normal home energy prices. The number of states that receive funds, the amount released, and the distribution among states depends on the nature of the emergency situation.

For example, last year’s energy costs and record-breaking cold affected the expenditures of many Americans as natural gas prices increased significantly and fuel oil and propane prices that had jumped substantially the previous year remained high. Consequently, many state LIHEAP programs faced an increased number of individuals in need of assistance. To meet these challenges, states had access to $866 million in FY 2000 and FY 2001 LIHEAP contingency funds in addition to the base appropriation of $1.4 billion.

Fortunately, this winter looks likely to be far less severe. The Department of Energy predicts that we will get some relief this year, with winter heating bills for residential consumers averaging from $170 to $320 lower than last year. This prediction is based on several factors. Inventories of key heating fuels, especially natural gas, are above normal levels for this time of year, and substantially above those at the start of last winter. In addition, prices for crude oil and natural gas are at significantly lower levels than last year at this time. Moreover, the demand for space heating fuels is expected to be lower than last winter when weather was 7 percent colder than normal.

For FY 2002, the President has requested the same block grant appropriation as for FY 2001, $1.4 billion, with a $300 million contingency fund. Also, $300 million in supplemental funding appropriated in July remains available in case of an emergency energy situation this fiscal year.

In conclusion, let me reiterate that LIHEAP is a program that works. Through the normal funding mechanisms, it helps millions of America's most needy families maintain a healthy temperature in their homes. Through the emergency contingency process, this program is able to respond to crisis situations such as supply disruptions, price spikes or extreme weather conditions. We can all be proud of the way LIHEAP has worked to serve those most in need, including many hard-pressed working families. This program is an excellent example of the Administration, Congress, and the states working together to design and support a critical program.