How South Dakota took the money and ran

As the economy melted down in 2009, Congress created a giant stimulus package with orders to federal agencies to shovel money out the door.

The legislation included billions for state governments to promote energy efficient buildings. Within days of President Obama signing the package, states were lining up for money, including South Dakota. All they had to do to qualify for the money was assure the Department of Energy that they would adopt energy building code requirements for both residential and commercial buildings, which would promote energy conservation.

South Dakota’s haul amounted to $23.7 million. And while all the states received money from the program, South Dakota is one of the only states that simply took the money and ran.

The state failed to make good on the assurances required by the federal government to enact statewide building code requirements making new homes and commercial buildings more energy efficient, an Argus Leader Media investigation found. Now, a 2017 deadline is looming: In return for taking the energy efficiency money, states have until 2017 to adopt more efficient energy codes and to create a plan to ensure that at least 90 percent of new buildings are compliant.

In South Dakota, there’s no plan because the state has no mandatory statewide energy codes.

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It’s unclear how the Department of Energy, which administers the State Energy Program, will respond when South Dakota fails to meet the deadline. The law that created the program did not include punitive measures that the department can take against states that don’t meet their obligations. Which likely means the department can’t demand the state repay the money.

Realistically, said Maureen Guttman, the president of the Building Codes Assistance Project, which advocates for stronger building codes, the Department of Energy can’t “claw back” the money it gave South Dakota. But if the state expects future funding, that could be put at risk

“I do think they could use it as criteria for future eligibility. Absolutely I do,” Guttman said.

The Department of Energy did not respond to an interview request.

Tony Venhuizen, the chief of staff to Gov. Dennis Daugaard, said the primary goal of the stimulus bill was to fund shovel-ready projects. The other requirements were secondary to that goal.

“There’s no question this money was used as it was intended,” he said.

But some building officials believe the state should honor its agreement.

“When you make an agreement, you need to stick to it,” said Kasey Abbott, the president of Direct Digital Control in Sioux Falls. Abbott is among a group of industry officials lobbying for legislation that would identify a specific energy code in state law that commercial builders would be required to meet.

Meeting those requirements, which include better insulation, higher-rated heating and cooling units and more efficient lighting, is ultimately better for consumers.

“You build a building and the focus is on first cost,” Abbott said. “However, many people fail to recognize the substantial future cost of heating and cooling that building. I’ve seen studies that show for every one dollar you spend on a commercial building, there is an associated future cost for utilities of about 50 cents. That is a substantial hidden cost, and it is why the energy efficiency of a building is so important – to lower those future energy bills.”

Ron Bell, the chief building officer for the city of Sioux Falls, said building officials across the state support statewide mandatory requirements. Currently, local governments can adopt energy code requirements, but Sioux Falls is among only a handful that do so.

“That would put everyone at a level playing field in construction across the state,” he said.

At the time it was applying for the money, the state was worried about its own energy bills. State government spent the extra $23.7 million on itself.

“It was all used in our state-owned facilities for energy projects,” said Michele Farris, the state energy manager.

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The money came from a controversial $800 billion stimulus package that included funding for so-called “shovel-ready” infrastructure projects, tax relief and aid to state and local governments that were reeling from collapsing revenues triggered by the Great Recession. The 407 pages of legislation included $3.1 billion for the Department of Energy’s State Energy Program. To qualify for additional energy money, the legislation required governors to send a letter to the Department of Energy assuring the department that their states would adopt energy codes for both new residential and commercial buildings.

Ten days after the president signed the package into law, then-Gov. Mike Rounds sent his assurance letter to the department. Rounds noted that he had asked both the Legislature and Public Utilities Commission to “consider actions to improve building energy codes.”

“I want to assure you, within the limits of my authority, we will move forward in these critical areas,” wrote Rounds, who is now in the U.S. Senate.

The letter was far from an ironclad commitment. Even so, the state got its money.

The language in Rounds’ letter wasn’t lost on a task force that he appointed the next year to consider strengthening building codes and energy efficiency. Dusty Johnson, then a public utilities commissioner and a member of the task force, noted in one meeting that the governor’s letter didn’t say the state had improved its building codes, only that the governor had asked that it be done.

According to minutes of the meetings, the members also concluded that the federal legislation didn’t include language allowing the Department of Energy to demand that the state return the money if the state didn’t meet the 2017 deadline, although they did express concerns about future funding.

But that risk didn’t prove great enough. Ultimately, the task force submitted a report with recommendations that fell well short of what the federal government had required. “It is unlikely that legislating a statewide residential energy code with a government enforcement bureaucracy is a viable solution,” the report said.

The report did encourage market-based approaches that would give homebuyers more information about energy efficient homes. In an interview last week, Johnson said instituting statewide mandatory codes wasn’t going to be politically possible.

“At some point, you have to live in the world of the possible,” he said.

“The federal government loves to bribe us with our own money,” he added. “I think South Dakotans have a pretty limited appetite to accepting that approach.”

The report also came during the final weeks of the Rounds administration. The issue was handed off to the incoming administration of Dennis Daugaard. Johnson, who served as Daugaard’s previous chief of staff, said the administration was concerned with how to fill a $127 million budget shortfall and other priorities. Energy codes were not on the to-do list.

“The fiats of the federal government didn’t crack the top 100,” he said.

In 2011, the Legislature adopted a voluntary energy code, which Daugaard supported, but which fell short of what the federal government mandated.

Rob Skjonsberg, the chief of staff to Rounds, said Rounds appointed the working group, which identified recommendations for compliance. He then left office.

“I can’t speak to any of the post-2011 actions,” he said.

Venhuizen said the state has no statewide building inspector, so the state would have no way of knowing if it was meeting the 90 percent compliance requirement required by the federal government.

“I think there were certainly efforts made to comply with those requirements and move in that direction,” he said.

But others think the federal government should take action against states that fail to comply. Guttman of the Building Codes Assistance Project said the government should consider reducing future funding.

“We like to think there’s strings attached to federal funding,” she said.