The past week has seen two important regulatory actions, as explained below, that warrant your review and understanding, as they may have long-term impacts on the HUD Code industry and consumers of affordable housing.
HUD PREEMPTS MINNESOTA ENERGY MANDATE – IMPORTANT DECISION
In a potentially significant federal preemption decision, made public on July 10, 2014, HUD’s Office of General Counsel (OGC) has ruled that a new Minnesota Department of Labor and Industry (MDLI) energy regulation is preempted and may not be enforced by the state. The regulation at issue, contained in the International Energy Conservation Code (IECC) and adopted as part of the Minnesota State Energy Code — scheduled for implementation in January 2015 — had been interpreted by state authorities as requiring an onsite Blower Door Test for all new residential construction, including manufactured homes. It requires all new homes to meet an air leakage rate not exceeding 3 ACH50, prior to receiving a certificate of occupancy.
In its July 10, 2014 decision, issued as an email to Minnesota state authorities, rather than an opinion letter, as has been the case in the past, OGC recites both the preemption provision contained in the federal manufactured housing law, as amended by the Manufactured Housing Improvement Act of 2000 — with its mandate that preemption be “broadly and liberally” construed — and the preemption provision of the HUD Procedural and Enforcement Regulations (PER) at 24 C.F.R. 3282.11. It then goes on to state: “The Blower Door Test” is essentially a standard requiring remedial actions above and beyond what is required by the federal standards and it does not fall into the consumer protection or warranty exception of 3282.11(c) [i.e., ‘A state may establish or continue in force consumer protections, such as warranty or warranty performance requirements, which respond to individual consumer complaints and so do not constitute systems of enforcement….’] or the 3282.303 exceptions (e.g., monitoring dealer lots for safety, transportation of manufactured homes, etc.). Thus, the Act and … 3282.11(b) and (c) preempt Minnesota’s enforcement of the IECC standard.” (Emphasis added).
HUD also rejected the state’s argument that the “Blower Door Test” was an “installation” standard and thus not subject to federal preemption under HUD’s re-codification of the federal installation standards.
What stands out about this decision, when compared to prior HUD preemption rulings, is – finally — the “broad and liberal” nature of its preemption analysis. In the past, HUD preemption decisions had focused almost exclusively on whether a state (or local) standard addressed the “same aspect” of manufactured home “performance” as a federal standard. These decisions (based on outdated “internal guidance” that MHARR has consistently maintained is legislatively overruled by the 2000 reform law), went to great lengths to construe the “same aspect of performance” test as narrowly as possible in order to avoid federal preemption in most cases. The July 10, 2014 decision, by contrast, does not even attempt to identify a federal standard addressing the “same aspect of performance” as the MDLI regulation. Instead, it simply finds — as expected by Congress when it enacted the enhanced preemption of the 2000 reform law – that the MDLI regulation requires action “above and beyond what is required” by the “federal standards,” collectively and viewed as a whole. In doing so, and as reported by industry sources in Minnesota, it rejected MDLI’s argument that “when [the] federal standards are silent or do not address a specific code or standard … the state is not superseding the Federal Standard and may enforce state standards.”
The preemption analysis of the July 10, 2014 decision – and particularly its apparent rejection of the state’s argument regarding the absence of a “specific” federal standard – could be even more important in the arena of state and/or local fire sprinkler mandates as well. MHARR has stressed, and continues to maintain, that under the enhanced federal preemption of the 2000 reform law, HUD’s “Fire Safety” standards should preempt state and/or local sprinkler mandates even though they do not include a federal “sprinkler” standard per se. Others continue to claim that under the “same aspect of performance” test, some type of federal sprinkler standard – even a supposedly “voluntary” one — is necessary to support federal preemption. This latest HUD decision, though, supports the more robust preemption position advanced by MHARR and, together with HUD’s rejection of a commenter request for the inclusion of a fire sprinkler standard in its December 9, 2013 final rule adopting the second set of standards recommended by the MHCC, could be an important basis for opposing such state and/or local sprinkler mandates. As reported by MHARR, HUD emphasized in the preamble to its December 9, 2013 final rule that “Recent fire data analysis prepared by the National Fire Protection Association (NFPA) indicated that HUD standard units have a similar fire safety record to that of one- and two-family dwelling units…. Further, there is [a] considerable cost impact to install a sprinkler system in a manufactured home for what would appear to be marginal benefits.”
Presented as is, this is an important decision that MHARR will be monitoring very closely with respect to the Department’s approach to enhanced federal preemption under the 2000 reform law going forward.
DEPARTMENT OF ENERGY NAMES MH ENERGY STANDARDS PANEL
The Department of Energy (DOE) has announced the members of a “working group” that is slated to develop proposed manufactured housing energy conservation standards by September 30, 2014, as part of a “negotiated rulemaking.”
As previously reported by MHARR, DOE, in a sudden turnabout from a conventional rulemaking process for manufactured housing energy standards mandated by the Energy Independence and Security Act of 2007 (EISA) that has now been under way for seven years, approved both the negotiated rulemaking and the formation of the manufactured housing working group under the auspices of its Appliance Standards and Regulation Advisory Committee (ASRAC) on June 6, 2014. It subsequently published a notice in the Federal Register on June 13, 2014 seeking members to serve on the new working group. MHARR Senior Vice President Mark Weiss applied to become a voting member and, as confirmed by a July 10, 2014 communication from DOE, has now been appointed to the working group.
DOE’s resort to “negotiated rulemaking” for the EISA manufactured housing energy conservation standards is just the latest twist in a drawn-out, tortured process, that has already seen, among other things — DOE develop a “draft” proposed manufactured home energy conservation rule; selectively leak that draft proposed rule to certain interested parties; the utilization of that leaked “draft” proposed rule as the basis for a not yet disclosed energy proposal that may be brought to the MHCC by those parties in interest; the DOE “draft” proposed rule being withdrawn after its submission to the Office of Management and Budget (following objections and a request for an investigation by MHARR); and now this shift, in midstream, from the “standard” rulemaking process to a “negotiated” proceeding.
Given the failure of DOE, over a seven-year period, to develop a public proposal for manufactured home energy standards, it will be interesting to see how DOE, under a “negotiated” rulemaking regime, will be able to develop properly justified and cost-effective proposed standards in just over two months – let alone involve HUD and the Manufactured Housing Consensus Committee (MHCC) in that process at a meaningful stage, as provided by the EISA law in provisions included at the insistence of MHARR and MHI during the 2007 legislative process. Furthermore, given the composition of the working group – and its inclusion of special interest representatives with a proven track record of continually seeking to impose extreme, unnecessary and needlessly costly regulations on the industry and consumers that would inevitably exclude even larger numbers of homebuyers from the already extremely difficult manufactured housing finance market – the negotiated rulemaking process will need to be watched very carefully to ensure that it is not monopolized or manipulated and that the interests of the industry’s smaller businesses and consumers of affordable housing are fully protected.
MHARR, for its part, will do its utmost to contribute to the work of the committee and cooperate with other members, but will also be vigilant to ensure that manufactured homes – as affordable housing – are not saddled with inappropriate, unnecessary or needlessly costly energy regulations, particularly when the industry already provides a full range of energy conservation packages on an optional basis as a matter of consumer choice.
