Public Housing Management Assessment Program

SUMMARY: This interim rule implements the proposed revision, published

on May 6, 1996, of the Public Housing Management Assessment Program

(PHMAP) at 24 CFR part 901. PHMAP applies to public housing agencies

(PHAs) and resident management corporations (RMCs), and any other

entities under contract to manage public housing, but does not apply to

Indian housing authorities, nor to the Family Self-Sufficiency Program

authorized under section 23. PHMAP provides policies and procedures to

identify PHA management capabilities and deficiencies, and assists HUD

State/Area Offices in accountability monitoring and risk management.

DATES: Effective Date: January 29, 1997. Assessments using the

requirements of this rule will begin with PHAs whose fiscal years end

on March 31, 1997, the final date of the quarter after this rule is

published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: MaryAnn Russ, Deputy Assistant

Secretary for Public and Assisted Housing Operations, Office of Public

and Indian Housing, Department of Housing and Urban Development, 451

Seventh Street, S.W., Washington, D.C. 20410, telephone (202) 708-1380.

A telecommunications device for hearing or speech impaired persons

(TTY) is available at (202) 708-0850. (These are not toll-free

telephone numbers.)

SUPPLEMENTARY INFORMATION: On May 6, 1996, HUD published a proposed

rule (61 FR 20358) to revise the entire PHMAP at 24 CFR part 901.

Eighty-seven comments were received on the proposed rule. The public

comments on the proposed rule and the resulting changes in this rule

are discussed below in section II of this preamble.

I. Highlights of Changes From the Proposed Rule

A number of changes, more fully discussed in section II of this

preamble, below, have been made to the proposed rule by this interim

rule, including the following:

The definition for ``vacancy days: is modified to specify

that it pertains to ``dwelling'' units.

The definitions and methodologies for both the Performance

Funding System (PFS) and PHMAP should be the same as long as feasible,

and the language of the new rule reflects that.

Definitions of the terms ``effective lease date,''

``maintenance plan,'' and ``move-out date'' are added.

The definition of ``average turnaround time'' is changed

to read, ``. . . the annual average of the total number of turnaround

days between the latter of the legal expiration date of the immediate

past lease or the actual move-out date of the former tenant (whenever

that occurred, including in some previous fiscal year) and the date a

new lease takes effect.''

The threshold for progress in reducing the vacancy rate

that applies to a C grade has been changed from 30% to 15 percentage

points.

The term ``Reduced Actual Vacancy Rate in Previous 3

Years'' is clarified to include the fiscal year being assessed under

PHMAP in the 3-year period.

Dwelling units used for non-dwelling purposes with HUD

approval, employee occupied units, and vacant units approved for

demolition or disposition are not included as available units in the

determination of occupancy/vacancy rates

For purposes of indicator #2, Modernization, a minimum

time is specified between the date HUD's monitoring report or audit is

provided to the PHA and the end of the PHA's fiscal year in order to

give the PHA sufficient time to correct all findings. The Department

has revised components #3 and #4 to reflect a minimum time of 75

calendar days.

The Department agrees that emergency CGP work does not

require prior HUD approval and has revised component #5 of indicator

#2, Modernization, to specifically exclude emergency work.

The Department has added specific language to indicator

#4, Work Orders, stating that all preventive maintenance work orders

are to be tracked, as well as which type of work orders are exempted

from the calculation of this indicator.

The new resident services and community building indicator

is now subdivided into four equally weighted components, and the

indicator or the individual components are subject to exclusion based

on the particular circumstances of each PHA. The name of this indicator

has been renamed ``Resident Services and Community Building'' to place

a more accurate emphasis upon the specific role of PHAs for these

functions. PHA's with 100% elderly developments will not be assessed

under this indicator. To avoid penalizing small PHAs with active

programs, PHAs with fewer than 250 units or with 100% elderly

developments may request to be assessed under the indicator at the time

of PHMAP certification submission.

The Resident Services and Community Building indicator has

been revised in order to assess PHAs for the functions they perform in

operating resident services programs and for resident management or TOP

performance only when the PHA is the contract administrator for the

program.

The rule has been changed to state that indicator #8,

Security, does not apply to PHAs with fewer than 250 units under

management unless the PHA requests to be assessed under the indicator

at the time of the PHMAP certification submission.

Section 901.105(d)(3)(iv) has been clarified in the new

rule to state that a PHA's score for indicators #1, #4 and/or #5, after

any adjustment(s) for physical condition and/or neighborhood

environment, may not exceed the maximum potential weighted points

assigned to the respective indicator(s).

Section 901.115(e) of the proposed rule read, ``PHAs with

more than 100 units that achieve a total weighted score of less than

60% on indicator (2), modernization, shall be designated as mod-

troubled.'' The Department agrees that these ``small'' PHAs should also

be assessed on their modernization program, and has amended this

section accordingly.

The posting of PHA PHMAP scores is now required at all

offices, rather than in all developments.

The rule makes clear that PHAs are only required to post

and report out final PHMAP scores and do not have to post and report

any score that is appealed in a timely basis and is under consideration

by HUD.

The rule now specifically permits an appeal from a State/

Area Office rejection of a claim for additional scoring adjustment that

is based on the physical condition or neighborhood environment of

housing developments.

In sections 901.220(b) and 901.225, the Department has

changed the percentage in the new rule to require that 20% of the

residents at a PHA in substantial default indicate to HUD their

interest in participating in the competitive proposal process.

The period has been extended to a 60, rather than 45, day

submission period for certifications to be submitted following the end

of a PHA's fiscal year.

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II. Discussion of Public Comments

General Comments

Comment: One comment stated that PHAs should be monitored, but the

PHMAP grading system is not the answer.

Response: Congress passed the amendments to the 1937 Act that

authorize PHMAP, and it is the clear intent and purpose of Congress to

require HUD to assess PHA management performance. The authorizing

statute provides specific statutory indicators, and permits, as HUD

deems appropriate, up to five additional ones to be used for this

purpose.

Comment: Twenty-four comments stated that a truer assessment can be

accomplished now than before; overall, the proposed rule is positive;

generally pleased with the proposed revisions that eliminate the

snapshot indicators; and the proposed rule is a vast improvement over

the current PHMAP certification. Many of the commenters commended HUD's

effort to streamline the certification process by reducing the number

of indicators from 12 to eight and by providing standard definitions

for critical terms. The first six indicators are measures of essential

property management and a marked improvement over the current system.

Response: The comments are noted by the Department.

Comment: Five comments felt that there should be a transition

period to allow adequate time to change computer programs. There should

be at least one year to sample the new indicators to see how changes

are going to affect individual PHAs. Any revision of the PHMAP should

be made effective beginning with the next fiscal year after the new

rule has been published. Two comments felt that if Congress has moved

the authorization process forward, PHA's should have an ``option year''

implementation where a PHA has a choice to use either the current PHMAP

or the new PHMAP. If the authorization process is stalled, the

Department should not implement the new rule.

Response: Most of the data elements required to determine the grade

or score for the new indicators are already being maintained by PHAs

for reporting requirements for the current PHMAP rule or for other

programs. Because of that, a long transition period is not needed.

Therefore, assessment under this rule will begin with PHAs whose fiscal

year ends the quarter after the publication of this rule (PHAs whose

fiscal year ends in the quarter immediately following publication of

this revised rule will be assessed under the ``old'' PHMAP rule). This

transition period will permit PHAs to organize their data in order to

respond to the new requirements. During the first year of

implementation of the new rule, the Department will consider

modification and exclusion requests based on special circumstances

arising from the initial implementation process. A choice of which set

of criteria to use (have PHAs choose under which PHMAP rule, old or

new, to be assessed) is not feasible because all PHA's must be assessed

using the same indicators for the same period of time (i.e., the same

calendar year) in order for the scoring to be comparable and fair. HUD

is moving forward with this rule because the implementation of the new

PHMAP is not dependant upon Congressional authorization. The new rule

is published as an interim rule to indicate HUD's intention to continue

to refine and improve PHMAP.

Comment: Three Comments requested the Department not to establish a

system which requires PHAs to retroactively retrieve information. The

Commenters stated that in areas where ``improvement over the last three

years'' is considered to calculate the grade, the information needed is

not readily available to the PHAs in the new format required by the

proposed rule. A transition process should be addressed in the new rule

to deal with this.

Response: The PHMAP new rule does not require a PHA to

retroactively retrieve information unless the PHA chooses to certify to

the percentage of improvement within the prior three year period as

permitted by some of the indicators. Since whether to make such a

certification is the decision of each PHA, a PHA should factor in the

additional time to retrieve the necessary information. A transitional

period for this reason is deemed to be unnecessary.

Comment: Three Comments felt that with fewer indicators, it will be

more difficult for small PHAs to achieve high performer status; a low

score on one indicator will have a much greater impact on the total

score.

Response: The reinvention and streamlining of the PHMAP process

seeks to focus on the most significant management aspects of PHA

management and reduce the burden of the PHMAP process while still

producing a valid and reliable assessment. However, the use of fewer

indicators does not result in a disproportionate impact from any one

indicator. The use of modification and exclusion requests allows PHAs

the opportunity to justify why they should not be penalized by a

performance that does not exactly meet the requirements of an

indicator. Even if additional, though less significant, indicators were

used in PHMAP, the weighting of indicators according to their

significance would reduce their individual impact on the score despite

the additional assessment burden that would result.

Comment: One Comment stated that HUD has attempted to add

compliance with specific directives to a program that is supposed to

rate performance, and that including them in PHMAP waters down the

focus and the results of the program. HUD should remove all non-

essential components (Section 3 program at 24 CFR part 135, energy/

utility management, etc.).

Response: HUD has attempted to limit PHMAP to examining essential

aspects of PHA management. Of these, some that deal with compliance

issues, such as the energy indicator, are essential because they are

statutory. In other indicators, such as Resident Initiatives, which

examines, among other subjects, implementation of Section 3 programs,

the degree of successful implementation is regarded as a valid measure

of a PHA's efforts to encourage partnerships with residents and the

local community that help improve management operations at the PHA.

However, compliance-related measures have been kept at a minimum in

this rule.

Comment: One Comment felt that the State/Area Offices should be

given the flexibility to correct shortcomings in the system which could

not have been foreseen in advance.

Response: This rule does provide a high degree of the requested

flexibility to State/Area Offices. The State/Area Offices assess each

PHA within their jurisdiction on an annual basis, and make

determinations for high-performing, standard, and troubled PHAs, and

troubled PHAs with respect to the program under section 14 (mod-

troubled) in accordance with a PHA's PHMAP weighted score. On-site

confirmatory reviews may be conducted by the State/Area Offices, which

may result in corrections to a PHAs total weighted score, if

appropriate. In addition, State/Area Offices make determinations for

exclusion and modification requests, perhaps the greatest area of

flexibility in the PHMAP rule. At the same time, HUD must ensure that

PHMAP is a truly nationwide assessment methodology and that comparable

performance by PHAs in different State/Area Offices is rated without

regard to the location.

Comment: One Comment stated that the Commenter has worked very hard

to achieve high performer status, but cannot achieve it, under the

proposed

[[Page 68896]]

PHMAP ratings. Surely, a rating scheme can be formulated that would be

equally fair to all PHAs, taking into consideration the huge

differences between small and large PHAs, big city and rural PHAs, and

the necessity for each to be operated differently.

Response: As indicated in the preamble of the proposed rule, the

Departments of Veterans Affairs and Housing and Urban Development, and

Independent Agencies Appropriations Act, 1992 (92 App. Act) (approved

October 28, 1991, Pub. L. 102-139) provided that the evaluation of PHAs

must be administered flexibly to ensure that they are not penalized for

circumstances beyond their control; and that the weights assigned to

indicators must reflect the differences in management difficulty that

result from physical condition and neighborhood environment. HUD

implements this mandate, which also reflects the concerns expressed in

the comment, by permitting PHAs to submit modification and exclusion

requests, by limiting the applicability of certain indicators by PHA

size, and by assigning additional adjustments to a PHA's PHMAP score

based upon physical condition and neighborhood environment.

Comment: Two comments stated that PHMAP scores for PHAs and RMCs

should be assessed and scored separately. The purpose of the RMC is to

manage and maintain public housing units independent of the PHA. The

RMC is an independent body that neither answers to, nor is required to

follow the advice of the PHA. Resident groups are being given an

enormous amount of responsibility, without the corresponding

accountability which puts the PHA in an unfair and untenable position.

To relieve the RMC of the necessity of being accountable creates a

situation of ``smoke and mirrors.'' Don't let resident management be an

illusion; make it real. If the RMC has been deemed eligible and able to

manage, it should also be deemed eligible to handle the corresponding

success or failure. Do not combine RMC and PHA PHMAP scores.

Response: As discussed in the preamble to the proposed rule,

because an RMC enters into a contract with a PHA to perform specific

management functions on a development-by-development basis, and because

the scope of the management that is undertaken varies, not every

indicator that applies to a PHA would be applicable to each RMC. Even

if an RMC were to assume all of the management functions for a

particular development, 24 CFR 964.225(d), entitled, Management

contract, and 24 CFR 964.225(h), entitled, Prohibited activities,

provide that a PHA may enter into a management contract with a resident

management corporation, but a PHA may not contract for assumption by

the resident management corporation of the PHA's underlying

responsibilities to the Department under the ACC. In addition, 24 CFR

964.225(k) requires a PHA to review, not less than annually, an RMC's

performance to ensure that it complies with all applicable requirements

and meets agreed-upon standards of performance. The ultimate

responsibility for the management of all of its developments resides

with the PHA, whether it contracts out management or other services to

an RMC or any other contractor.

Comment: Two comments stated that the sample worksheet for

indicator #6 and the PHMAP certification form are not exactly user

friendly. One commenter suggested that HUD redesign these two forms so

that they can be readily understood and computer formatted for those

PHAs that have such capability. The other commenter stated that the new

rule should include a standard questionnaire form for PHA use.

Response: The worksheet and certification form have been

redesigned, as applicable, to make them more user friendly. HUD

welcomes additional, specific recommendations to improve these

documents further.

Comment: One comment felt that PHMAP should be aimed toward

identifying a quality and reliable service delivery. Progress of

development conditions, resident involvement in the solution of

community affairs, as well as independent achievements by the residents

should be evidence of growth and should be rewarded with high scores

and additional benefits.

Response: Even with the reduction and streamlining of PHMAP to

measure only the essential aspects of PHA management, as discussed in

previous responses, the significance of resident involvement and

achievement are recognized in this rule by maintaining resident

involvement as a separate indicator. However, this is only one factor

in a program that attempts to assess all of the significant areas of

PHA management and a PHA must perform well in each area to receive a

high score and additional benefits.

Comment: One comment maintained that the results in the quality of

work and development conditions should be evaluated in connection with

available resources versus market cost in the jurisdictions.

Response: The current PHMAP regulation contains substantial

provisions to ensure that PHAs are not penalized for conditions beyond

their control: (1) a PHA may request a modification of any indicator

and/or component to compensate for conditions beyond its control; (2) a

PHA may request the exclusion of an indicator and/or component for the

same reason; (3) without requesting a modification, the current and new

PHMAP regulations both allow PHAs to modify the scoring calculations

for certain indicators by exempting certain units; and (4) there is a

two-stage appeal process available if the PHA fails to find relief

under items one, two and three, above. As discussed previously,

exclusion and modification requests are processed by the local State/

Area Office, which would have the greatest awareness of the resources

and market conditions affecting a PHA. These procedures provide the

appropriate mechanism to address special circumstances, such as area

market costs, affecting a PHA's performance.

Comment: Two comments were concerned with revisions that would

require the collection and management of new data when that data is

needed solely for PHMAP and is not normally utilized in the management

of housing. Such changes to the data collection and processing system

are not easily accomplished.

Response: The Department's experience in implementing PHMAP so far

has resulted in some refinement in the data necessary to assess

management performance. The goal of this rule is to provide a more

valid assessment process and HUD believes the data requested will

produce this result. HUD will continue to evaluate the appropriateness

and usefulness of the information it gathers in its implementation of

this rule, and will make adjustments as warranted.

Comment: Three comments stated that the proposed rule should be

delayed until Congress has completed action concerning the management

assessment criteria of PHAs. Bills in the Senate and the House have

provisions that would affect PHMAP. The Senate bill would add two

indicators and the House bill would create an accreditation process for

PHAs. It is not clear how these provisions may be reconciled. If the

final bill contains significant changes, HUD should incorporate them

into a new proposed rule re-issued for comment.

Response: HUD believes that this rule, incorporating nearly five

years of experience and feedback on the rule first implemented in

January 1992, represents an improvement over the existing process. The

Department will

[[Page 68897]]

fully implement any statutory amendments to PHMAP when they are made,

but is also continuing to go forward with this rule to avoid delay in

implementing an improved process.

Comment: One comment stated that a PHA's ability to maintain its

units will decline due to the budget cuts to all PHAs, thus affecting

the PHMAP scores. With no funds for repairs, more units will fail HQS.

How are PHAs suppose to improve and maintain housing units when funds

are reduced, and PHAs are denied modernization funds?

Response: HUD recognizes that PHAs have not been fully funded. In

FY 1996, for example, PHAs received only 89% of their funding

eligibility under the Performance Funding System (PFS). To the extent

that a PHA can demonstrate its management performance has been

adversely affected by funding shortfalls, it should do so in an

exclusion/modification request. PHAs are expected and encouraged to do

their best, but they cannot be expected to do the impossible. In

addition, alternative measures have been implemented such as minimum

rents and the new focus on mixed-income housing, which provide PHAs

with possible alternative income sources.

Comment: One comment stated that a system designed to measure

performance of PHAs nationally must be flexible and accommodate local

differences. PHMAP should give consideration to the conditions and

level of difficulty involved in owning and operating public housing in

poverty impacted and distressed urban areas.

Response: PHMAP is required by statute to take into account the

physical condition of a PHA's developments and their neighborhood

environment in assessing management. In the previous rule, PHMAP scores

could be adjusted, based upon physical condition and neighborhood, by

up to 10 points to raise a designation to the next status level. In

this rule, the overall PHMAP score of a PHA will be adjusted by adding

weighted points that reflect the differences in the difficulty of

managing developments that result from the physical condition and/or

the neighborhood environment of a PHA's developments.

Comment: Two comments felt that two indicators, Resident Services

and Security, are troubling and display a tendency toward meddling and

micromanagement. HUD has been trying to retreat from that tendency.

Plus, Congress has been cutting funding for PHAs. The commenters felt

that these indicators are non-management in nature and are not within

the control of the PHA. PHMAP should grade only those indicators which

are within the control of the management.

Response: A PHA's management efforts are directed toward

developments, which are not just properties or structures, but which

are housing: buildings that are people's homes. Because of this, there

is a strong relationship between a PHA's management efforts and quality

of life for a development's residents. While the PHA cannot mandate or

control the positive interaction or advancement of its tenants, it can

foster the environment and opportunity for such interaction and

advancement. The resident involvement indicator attempts to measure a

PHA's success in accomplishing this. On the other hand, a PHA is

obligated to manage and respond to the unlawful behavior of tenants

whose actions impede the peaceful enjoyment of other tenants. The

security indicator addresses the PHA's success in managing this

significant housing issue.

Comment: One comment supports extending coverage to alternative

management entities.

Response: The Department appreciates this concurrence in its effort

to assess and improve the management performance of every PHA.

Comment: One comment urges HUD to adopt those changes that help

streamline the process of assessment and to use the simplest methods

necessary to achieve a particular goal or outcome.

Response: As discussed above, it is HUD's intention to streamline

and improve the PHMAP process with this new rule. Further, HUD is by no

means closing the door on additional refinement, but will continue to

consider and examine additional ways of improving PHMAP. To this end,

this rule is being published as an interim rule.

Comment: One comment felt that it is equally important for PHAs to

develop strong relationships with their surroundings and their

neighbors. There should be points added or deducted to a PHA's final

score based on the role a PHA assumes and its relationship with its

surroundings.

Response: The resident involvement indicator in this rule, as did

the previous resident initiatives indicator that is being replaced,

assesses, in part, a PHA's efforts to involve residents to improve the

community in which they live. Beyond this specific aspect of community

involvement, it is likely that a well managed PHA, the general goal of

PHMAP, is a positive community asset and a good neighbor. The

recognition of outstanding individual community contributions and

achievements by PHAs is important and receives attention from HUD in

special ceremonies rather than in PHMAP, which focuses on the overall,

day-to-day management aspects of PHAs.

Comment: One comment felt that there should be a simplified list of

indicators to be used for smaller PHAs: vacancy rate; rents

uncollected; inspections; and financial management.

Response: The authorizing statute for PHMAP lists seven indicators

that must be used in assessing PHAs. This limits HUD's ability to

differentiate between large and small PHAs in the indicators used for

assessment. However, for indicators #7 and #8, PHAs with fewer than 250

units will not be assessed under these indicators unless they request

to be assessed at the time of submission of the PHMAP certification.

Comment: Three comments stated that the proposed rule is more

process-oriented and requires the tracking and/or collection of much

more data. This is more burdensome and requires additional

administrative responsibilities at a time when the level of public

housing operating subsidy is being reduced.

Response: Although the Paperwork burden estimate for this rule

exceeds the Paperwork burden estimate for the previous rule published

on January 17, 1992, a substantial part of that increase results from

HUD's recognition that a change in necessary data for assessment

purposes will initially require more effort to compile. As was the case

for the previous rule, it is expected that as the collection and

organization of the data becomes more routine following the first

submission, the associated burden will also decrease.

Comment: One comment felt that HUD should look for ways to

eliminate regulations, not just change regulations.

Response: In the past year, HUD has undertaken an extensive effort

to reinvent and streamline all of its rules, and hundreds of pages of

regulations have been eliminated. The statute authorizing PHMAP

requires its implementation by regulations, and HUD must follow this

Congressional mandate.

Comment: Two comments stated that a continuing concern is that

making the annual grade in PHMAP may become the true mission of many

PHAs.

Response: HUD does not consider the prospect of PHA's refining

their management practices to become high performers under PHMAP year

after year to be distressing. The purpose of PHMAP is to assess the

quality of PHA management, and in implementing this program, HUD

intends for the score

[[Page 68898]]

achieved to be a valid measure of performance. To address situations in

which the PHMAP score poorly corresponds to the actual conditions at a

PHA, the rule permits the State/Area Office, in exceptional

circumstances listed in the rule, to reinstate any review to address

particular deficiencies, and to deny or rescind incentives or high

performer status, even though a PHA has satisfied all of the indicators

for high or standard performer designation. The purpose of this

provision is to prevent PHMAP from being an empty, pro forma exercise.

Comment: One comment believes that PHMAP is but one way to evaluate

a PHA's management and ultimately, the quality of its stock. PHMAP is

not a comprehensive measure of PHA quality and it is too process

oriented. Greater emphasis should be placed on key results which more

accurately equate with the quality of the housing stock.

Response: The observation in this comment does not quite correspond

to the parameters and purpose of PHMAP as established under the

authorizing statute. PHMAP evaluates PHA management performance using

seven indicators that are made mandatory under the statute, which

permits the Department to use up to five additional indicators. These

requirements establish limits on what must and what may be used to

assess the quality of a PHA's management, and not the quality of its

housing stock. The statute explicitly requires HUD to take into account

the difficulty of managing developments that result from their physical

condition, indicating the Congressional determination that, to some

degree, the quality of the housing stock is independent of the PHA's

management capability. HUD is obliged to implement PHMAP in a manner

consistent with the statute, and attempts to do so in a manner that

will produce a valid and reliable result. As the Department hopes this

rule demonstrates, HUD is, and will continue to be, receptive to the

refinement of PHMAP based upon its administrative experience and the

input it receives from PHAs.

Comment: One comment encourages HUD to publish handbook guidance

well in advance of the effective date of the new rule so that PHAs may

make any planning, record keeping or operational changes required to

ensure compliance and performance.

Response: The Department anticipates the issuance of a revised

PHMAP Handbook 7460.5 and a new confirmatory review guidebook prior to

the applicability date of the new rule.

Comment: One comment stated that the term ``approved, funded, on-

schedule annual modernization program'' is defined in the rule and in

the preamble under the discussion of indicator #1. But the term is not

used in indicator #1. Is it intended that the term be applied to the

exemption for ``vacant units undergoing modernization?'' If so, it

should be made explicit. Is it intended that the term be used in

connection with indicator #2? If so, then this term is contrary to the

rule's discussion of indicator #2, which includes only CIAP and CGP.

Response: The comment is noted, and the definition for ``approved,

funded, on-schedule annual modernization program'' is superseded by the

definition for ``vacant units undergoing modernization.'' The

definition in this rule, which includes the Hope VI Program, the

Vacancy Reduction Program (VRP), lead based paint risk assessment

funding (1992-1995) and any successor program to the CGP or the CIAP,

applies to indicators #1, #4 and #5, as appropriate. In addition, the

Department intended for all modernization programs to be assessed under

indicator #2. For this reason, lead based paint risk assessment funding

will be assessed under all five components of indicator #2. However,

due to the design of the Hope VI and the VRP, these program areas

cannot be assessed under components #1 and #2 under the modernization

indicator. Therefore, in completing a PHA's assessment for indicator

#2, the State/Area Office will only examine components #3, #4 and #5

for the Hope VI and the VRP. Appropriate language has been added to

indicator #2 in the new rule. A similar comment was made with respect

to indicators #4 and #5, and this response is also applicable to those

two indicators.

Section 901.10 Indicator #1, Vacancy Rate and Unit Turnaround

Component #1, Vacancy Rate

Comment: Many comments agreed with the changes proposed for the

indicator and commended the Department for making the indicator a more

representative measure of vacancies. Six comments commended the

Department for allowing an adjusted vacancy rate to be used for grades

above a C. Seven comments stated that this is a much better way to

compare vacancy indicator grades and scores since all PHAs will be

compared on the same basis. Several comments indicated that this is a

more accurate measure of good management and concurred with the

proposed rule combining these two indicators whereas currently they are

separate. One comment stated that the changes made to indicator #1 are

much more equitable than the current indicator requirements and two

other comments indicated agreement with adjusting the vacancies by the

conditions listed in the rule and with the grading scale for the

vacancy rates. Three comments expressed strong support for the change

indicating that it will allow HUD to more accurately judge a PHA's

vacancy rate.

Response: The Department agrees that, since the adjusted vacancy

rate is derived from valid exemptions, PHAs should be able to achieve

grades above a C level based on an adjusted vacancy rate. The

Department feels that the new component #1 will provide a more

representative picture of PHA vacancies than the current indicator. The

Department also agrees with the assumption that if a PHA scores C or

above in the vacancy component it should not have a problem with

turning around vacant units, and that combining current indicators #1

and #5 into the new indicator #1 is a correct decision.

Comment: Four comments stated that the new vacancy indicator is

really a measure of the number of vacancies weighted equally to the

turnover rate. The comments indicated that the new weighting of

turnover will penalize PHAs that have successful programs for families

that move out of public housing. Two comments stated that the proposed

rule rewards process over product and activity over results, and that

the proposal is far more process-oriented and less results-oriented

than the present system for counting vacancies. The proposed rule

states that vacancy rates should have greater significance than unit

turnaround but proposes a scoring system that requires greater reliance

on unit turnaround and unit turnover than on the number of units vacant

at the end of each month. Eight comments indicated that a 12 month

average of the number of units that are vacant at the end of each month

should be used. This is normally what is expected in any rental market

and the proposed method is too complicated and requires too much staff

time to calculate. Another comment stated that the proposed method

places as much emphasis on turnaround time as on actual vacancies and

suggested using a twelve month average of the number of vacant units on

the 10th day of each month to avoid the problem.

Three comments indicated that the new vacancy indicator would not

reward actual occupancy. Instead of measuring the number of units

vacant at the end of each month, it measures the number of units leased

each month and the amount of time required to lease the

[[Page 68899]]

units to arrive at a vacancy rate which converts to an occupancy rate.

The current method is an honest way to define occupancy levels.

Computing the vacancy rate by calculating the ratio of unit vacancy

days to unit days available places greater reliance on unit turnaround.

It requires PHAs to calculate the vacancy days for all units leased in

a given month plus the vacancy days for all units remaining vacant at

the end of the month, divided by the total unit days available for

occupancy that month.

Six comments stated that this method calculates vacancy days, which

is a function of turnover, rather than the actual number of vacant

units. For example, if two PHAs have the same number of units and

turnaround time, but one has higher turnover, the latter will

automatically have more vacant days than the former. The vacancy rate

should be the average vacancy rate over the past twelve months. Three

comments indicated that the current indicator allows PHAs to answer the

question, ``What is your vacancy rate?'' The answer is, ``Our vacancy

rate is the number of units vacant at the end of the month compared

with the number of units available for occupancy.'' Two comments stated

that if a PHA has a high turnover rate because it is moving residents

out for private lease-up or home ownership, this too, should be an

allowable adjustment to the vacancy rate because PHAs with high move-

out rates are adversely affected even though they may have no control

over the reasons for the high move-out. Two comments suggested that the

snapshot picture be retained.

Three comments indicated that the proposed rule penalizes high

turnover rates and provided the following examples: PHA with a high

turnover rate but the same unit turnaround time would get a higher

vacancy rate than a PHA with lower turnover rate (same unit turnaround

time): PHA ``Y'' with 100 units, and 20 units vacated and filled during

the year (10 days average turnaround) would have a .55% vacancy rate;

and PHA ``Z'' with 100 units, and 40 units vacated and filled during

the year (10 days average turnaround) would have a 1.10% vacancy rate.

A PHA with a high turnover rate and a lower unit turnaround time could

get a higher vacancy rate than a PHA with lower turnover rate and a

higher unit turnaround time: PHA ``A'' with 100 units, and 60 units

vacated and filled during the year (20 days average turnaround) would

have a 3.2% vacancy rate and a B grade. PHA ``B'' with 100 units, and

only 30 units vacated and filled during the year (35 days average

turnaround) would have a 2.8% vacancy rate and an A grade, even though

it averaged a higher (35 vs. 20) vacancy turnaround rate. There is no

basis for rewarding or penalizing a housing authority based on a higher

or lower percentage of residents moving out during a year. Turnover

rates depend on a variety of factors, many beyond the PHA's control.

Some factors are: availability of alternative affordable housing; self-

sufficiency programs; resident demographics; eligibility screening and

lease enforcement; and HUD required transfers.

Response: The Department agrees that by using a methodology that

takes into account circumstances and actions that impact on the

occupancy/vacancy status of a unit over the entire course of the PHA's

fiscal year, PHAs with high turnover rates will have more vacancy days

than comparable PHAs with low turnover rates, assuming that the

turnaround time is the same. The Department disagrees, however, with

the conclusion that this makes the proposed methodology less useful

than one based on taking a snapshot, either on a one-time basis, as is

currently the case, or on a monthly basis over a year's time as

suggested in some comments. The ``snapshot'' approach may be easier to

implement but it grades the PHA performance based on a single-day

measurement that may or may not be representative of the PHA

performance in this area over the entire period of time being assessed.

If an average based on 12 snapshots is better than one snapshot, then

an average based on 365 snapshots will present the most accurate

picture.

It is incorrect to state that the measure of vacancies and the

measure of turnaround time have been given equal weight in the

development of this indicator. The new rule combines the vacancy

indicator and the turnaround indicator of the current Sec. 901 into one

single indicator that has two components. The first component (with a

weight of x2) measures the vacancy rate and, if applicable, the

progress a PHA has made in reducing the vacancy rate. The second

component (with a weight of x1) measures turnaround time. Because the

vacancy rate is a clear manifestation of management effort and reflects

the essence of a PHA's mission, it has been weighted more heavily than

the unit turnaround component. In addition, the proposed rule would use

the second component only when a PHA scores below a C on the first

component.

The proposed methodology provides ample opportunities for a PHA to

adjust its vacancy days for turnover of units due to reasons such as

modernization or that are due to circumstances and actions beyond the

control of the PHA, such as court-ordered or HUD-approved desegregation

efforts. A PHA also has the option of requesting a modification to the

calculation of this component that would take into account any other

special factor, such as self-sufficiency activities or security

measures implemented by the PHA, that may contribute to a higher than

normal turnover of units. The indicator should not be a deterrent or

penalty to PHAs that have successful programs that encourage residents

to move out of public housing to private market housing opportunities.

Success builds upon success and a PHA that is able to work with

residents and prepare them for home ownership or private market rental

units should not have difficulties in attracting applicants for units

that have been vacated.

The Department believes the proposed method of calculating this

component to be the most accurate measure of a PHA's performance in

this area. Also, contrary to some comments, the proposed method of

calculation is the method commonly in use in the real estate industry.

Comment: One comment stated that the proposed rule requires more

calculations than the current method and also requires tracking each

unit for potential adjustments. This will be difficult for many PHAs

and for HUD field staff to verify. The current occupancy rate

calculation method is preferred. Three comments indicated that the

indicator will take hours more in record keeping. HUD reduces PFS and

modernization monies, but expects more and more in reports and record

keeping. The proposed method is cumbersome, inconsistent with other HUD

definitions for determining vacancy, and increases the difficulty level

for calculating vacancy rates.

Two comments stated that the new method of calculating the vacancy

rate is far more process-intensive than the previous methods. PHAs

should be given the opportunity to take a simple average based upon

end-of-month vacancies rather than using the far more complex

calculation offered in the proposed rule. Two comments stated that it

is poor management practice to calculate vacancy/occupancy percentages

one way for the PFS and another way for a management assessment system.

Two comments agreed with the expansion and clarification of the units

that can be exempted from the adjusted vacancy rate and indicated that

the nine

[[Page 68900]]

exemptions should remain consistent with reporting under the PFS.

One comment indicated concern with the need to maintain data on the

cause of each vacancy, as in the examples presented in the preamble.

For large PHAs the data collection and maintenance becomes very

difficult. Maintenance of this data is doable, but HUD needs to

recognize the impact on PHA data systems if the various categories for

adjustment are revised from time to time.

Three other comments stated that this level of evaluating vacancies

would be burdensome for large PHAs. To track the actual vacancy rate

and have the ability to also accurately calculate an adjusted vacancy

rate would require significant alterations to the mainframe computer

system programs as well as to standard operating procedures, and large

PHAs need ample time to implement these changes. One comment stated

that the new component requires that PHAs analyze each vacant unit and

in the absence of readily available industry software, this process

could prove burdensome for large PHAs. Another comment stated that if

HUD retains the methodology of the proposed rule it should provide PHAs

with software that do the bulk of the calculation for them.

Response: The Department does not believe that the information

collection requirements for this indicator represent an undue burden on

PHAs. Most of the data elements required to determine the grade or

score for the two components that comprise this indicator are already

being maintained by PHAs and used in calculating operating subsidy

eligibility under the PFS or used for reporting requirements of other

programs. In fact, if PHAs have been maintaining turnaround time data

accurately under the previous interim rule, no new data collection will

be required, just a change in computation.

The Department understands that a well-run PHA should have a system

in place for monitoring occupied units and vacant units and the

duration of vacancies. Beyond simply being good business practice, PHAs

must monitor turnaround time, both to evaluate the effectiveness of

their maintenance and marketing and leasing efforts, and to develop

information for the current PHMAP indicator on vacant unit turnaround

time. This should pose no more onerous burden on large PHAs than on

smaller institutions, and in fact, would probably be even more

important to a large PHA, where remote monitoring of large-scale

activities is the norm.

In response to the suggestion that HUD should provide software for

this purpose, HUD has no plans to develop additional software at this

time. In addition, as a matter of policy, HUD cannot be in a position

of competing with private-sector software developers.

To a significant extent, the Department has also used definitions

and methodologies in this section that are the same as those used in

other programs. An example of this consistency is that the adjustment

for units vacant for circumstances and actions beyond the PHA's control

as defined in Sec. 901.1(a)(9) is the same for both PHMAP and PFS. The

Department will issue guidance to PHAs on how to use existing sources

of data to calculate each component of this indicator.

Comment: Three comments stated that if HUD wants PHAs to calculate

vacancy loss, then HUD should adjust the turnaround indicator to

reflect that goal, rather than throwing out the existing common sense

method of calculating vacancies. Three other comments indicated that

HUD's justification for the new vacancy indicator is the need to

calculate vacancy loss like the private sector does. The private sector

can estimate dollar value of vacancy loss, but PHAs cannot because PHAs

do not realize rental income until the unit is rented. The private

sector can ``go down their waiting list'' or advertise in the paper to

pick the tenant who can move in the day the unit is ready and PHAs

can't do that. The information can be useful, but the private sector

uses it to determine budgets, not to determine vacancy rate.

Response: The Department disagrees with these comments. Neither the

current vacancy indicator nor the new vacancy indicator were developed

to be a measure of rental revenue lost because of units becoming

vacant. The vacancy indicator is not a measure of financial

performance, but a measure of the ability of the PHA to maximize

occupancy and minimize turnaround time within certain constraints

recognized by the Department.

Comment: Several comments addressed the changes in the grading

scale. One comment indicated that a vacancy rate of 3% for a grade C is

too stringent. Another expressed support for the change from 1% to 3%

vacancy rate in order to achieve an A grade, indicating that it makes

sense with the national average vacancy rate of 7%. Two comments stated

that the current 99% vacancy rate for an A is valid. Another comment

expressed concern with the change indicating that a vacancy rate of 7%

would yield a C grade and still exclude the unit turnaround component

from consideration. One comment stated that it is not clear if the 3%

vacancy threshold for not having to report unit turnaround was retained

or not. Another comment stated its support for the provision that

permits PHAs to choose between adjusted and actual vacancy rate

calculation, but suggested that HUD retain the previous interim rule's

alternative grade C for a reduction in vacancies of at least 30%.

One comment expressed support for the option that allows a PHA to

achieve a C grade if it reduced its actual vacancy rate by at least 15

percentage points within the past three years and has an adjusted

vacancy rate of between four and five percent. It also indicated

support for somewhat lower grades for PHAs making slower progress.

Another comment stated that a PHA can improve by at least 15% and still

receive a lower grade by not matching the adjusted vacancy rate

requirement.

Response: The Department agrees that a vacancy rate of 3% for a

grade C is too stringent and changed that in the proposed rule. The

Department believes that the new grading scale is reasonable and takes

into account the national average vacancy rate and also takes into

account the new method of calculating the vacancy rate, which is more

representative of the true performance of PHAs in this area over the

period of time being assessed.

The Department is also proposing a different threshold for not

having to report unit turnaround. The second component, vacant unit

turnaround time, will only apply to PHAs that score below a C grade on

the first component. PHAs can achieve a C grade by meeting one of the

following conditions: the PHA has an actual vacancy rate of greater

than 5% and less than or equal to 7%; or an adjusted vacancy rate of

greater than 3% and less than or equal to 4%; or the PHA reduced its

actual vacancy rate by at least 15 percentage points within the past

three years and has an adjusted vacancy rate of greater than 4% and

less than or equal to 5%.

Regarding the threshold for progress in reducing the vacancy rate

that applies to a C grade, the Department changed it from 30% to 15

percentage points. The Department agrees that it is important to

recognize and reward significant progress. It also understands that the

grade relief should not defeat the balance of the grading scale. The

grading scale already provides for a somewhat lower grade (a D) for

PHAs with adjusted vacancy rates between four and five percent that do

not achieve the 15 percentage points decrease in the actual vacancy

rate.

Comment: One comment requested that the term ``Reduced Actual

Vacancy

[[Page 68901]]

Rate in Previous 3 Years'' be clarified in order to indicate if the

fiscal year being assessed under PHMAP is the third year of that 3-year

period or if the 3-year period is prior to the PHMAP year being

assessed.

Response: The Department agrees with the comment and the new rule

has been changed to state that the fiscal year being assessed is the

third year of that three year period. An example will be provided in

the revision to the PHMAP Handbook 7460.5.

Comment: One comment stated that the idea of measuring a PHA's

performance over the previous three years seems to be unfair and

generate inaccurate statistics because of diverse variables that would

not remain constant over the years and suggested that each year be

measured against its previous year. Another comment indicated that the

PHA does not currently have a three-year history of the daily vacancy

rate so it must have time to collect this data. It proposed to use the

average rate on the last day of each month until it can get the actual

daily and adjusted rates. One other comment indicated that it would be

extremely difficult to track vacancy days and unit days available for

the previous three years and requested that a more accurate and

equitable method of calculation be sought so that comparison statistics

can remain accurate and consistent.

Response: The Department agrees that due to the change in the

method of computation, vacancy rates generated under the two systems

cannot be compared unless an adjustment is made to the statistics for

the previous two years. Only those PHAs interested in using this

grading option (progress in reducing the vacancy rate during the

previous three-year period) will have to recompute the vacancy rate for

the two years prior to the year being assessed, using the new

methodology. Most of the data needed for this will come from the

records developed by the PHA to comply with the PHMAP reporting

requirements for the current unit turnaround indicator.

Comment: One comment suggested that the five grades be condensed

into a ``satisfactory'' rating (2% adjusted vacancy rate or below);

``adequate'' rating (2-4%); and ``unsatisfactory'' rating (over 4%);

the five grades could be used as a mechanism for setting goals for

troubled PHAs but need not be required for all PHAs.

Response: The Department has some sympathy for the suggestion that

the number of evaluation levels be reduced and simplified, but we do

not believe it appropriate to address that simplification issue at this

time. The biggest reason for maintaining the larger number of

evaluation categories is that beyond the pass/fail differentiation, the

Department expects to be able to use PHMAP scores, and to some extent,

individual indicators, to identify PHAs where performance is clearly

superior and worthy of emulation, and at the other extreme, cases where

performance indicates a need for the Department's intervention in PHA

operations. Five or six ``grades'' may or may not be the perfect model

for this kind of evaluation, but the existing structure appears to be

working to date, and in the absence of demonstrable benefits of

alternate approaches, HUD does not see a need to revisit this issue at

this time.

Comment: One comment stated that it appears to be impossible for

PHAs to obtain a grade of D or F if the adjusted vacancy rate is

greater than 6%. This is not a true grading system and makes it

impossible for PHAs with a high vacancy rate to realize any points for

improvement. It would be unfair to compare a PHA with an older housing

stock to a PHA which may have newer stock or modernized units.

Response: The comment is partially correct that under the proposed

rule an adjusted vacancy rate greater than 6% will result in a PHA

receiving a grade of F. If a PHA has an adjusted vacancy rate greater

than 6% and less than or equal to 7%, and has reduced its actual

vacancy rate by at least 5 percentage points during the past three

years, then the PHA would get an E instead of an F. The grading system

is not unfair to high vacancy PHAs because it does allow for

adjustments in recognition that some types of vacancies are beyond the

control of the PHA.

Comment: One comment stated that the actual vacancy rate does not

exempt units occupied by employees, units used for resident services

and units undergoing modernization. PHAs are penalized by an increase

in the actual vacancy rate when these units are not exempted from the

actual vacancy rate. This creates the potential for PHAs to eliminate

needed resident services by eliminating space for these services in an

effort to decrease the vacancy rate. Most PHAs will be prevented from

ever using the actual vacancy rate if these units are not exempted.

Response: The Department disagrees with the comment. The rule has

been clarified to indicate that units approved for non-dwelling use,

employee occupied units and vacant units approved for deprogramming

will be completely excluded from the computation of this indicator.

Regarding the units undergoing modernization, PHAs are not penalized

because these units can also be excluded under the adjusted vacancy

rate computation. The grading scale for the vacancy indicator allows

PHAs to get all possible grades, including an A, under the adjusted

vacancy rate option. There is no real incentive for PHAs to cut back on

resident services by eliminating space for these services in an effort

to decrease the vacancy rate.

Comment: One comment stated that the increase in difficulty for

calculating the vacancy rate will increase the cost of a PHA's annual

audit.

Response: The Department believes that the increase in scope of

work would not represent a substantial increase in the cost of the

audit and that the additional expense, if any, will represent a good

investment for the PHA. Since the Department reimburses a PHA for its

audit costs, it will reimburse a PHA for any additional audit costs

resulting from changes to any of the indicators.

Comment: One comment stated that the proposed calculation counts

vacant units both during the month and at the end of the month,

regardless of reoccupancy during the 30 days.

Response: The Department disagrees. The proposed calculation adds

the number of vacant units each day of the year (adjusting for valid

exemptions) and divides by the number of unit/days available.

Comment: Three comments proposed that PHAs should be able to choose

either the current method or the new method for computing vacancy

rates. One of the comments stated that there are currently two methods

for calculating the vacancy rate and it seems a bit arbitrary to

abolish this flexibility that PHAs utilize to reduce their paperwork

requirements. Form HUD-51234 already is a requirement that must be

submitted by PHAs and to require a duplication of effort for PHMAP

purposes is contrary to good management practices. The comments

recommend the use of form HUD-51234 or the new calculation methodology

at the discretion of the PHA. This would enable PHAs to retain

flexibility in the manner in which they choose to determine the vacancy

rate without imposing any additional paperwork burden unless the PHAs

elect to do so.

Response: While the Department favors maximum local flexibility, it

is impractical to allow PHAs to be able to pick and choose among

different methodologies for developing the data for this most important

indicator. Allowing that would make it impossible to compare the

vacancy rates for different PHAs (and even for the same

[[Page 68902]]

PHA over a period of time). The Department believes very strongly that

all program participants need to be evaluated under the same basic

procedures, especially the same definitions. To do otherwise is to

invite complaints that the process compares apples with oranges; the

process can't afford to permit the PHAs to elect whether to present

``apples or oranges'' for evaluation.

Comment: One comment stated that the Department should give

consideration to reducing the vacancy standards for a period of time

due to the One Strike policy. Improved screening standards will

increase the amount of time to process an application. If the

Department is seriously concerned about quality of life in PHAs, give

the occupancy people time to do their jobs efficiently.

Response: The Department agrees that the implementation of the

``One Strike and You're Out'' policy and stricter security measures may

temporarily increase vacancy and turnover rates at some PHAs. Adequate

planning in the implementation of the security measures should help

PHAs reduce these temporary problems. After the initial stages, these

programs will have a positive impact on the vacancy and turnover rates

of PHAs due to the increased security and stability of their public

housing communities. Because these situations will greatly vary from

PHA to PHA, it would not be proper to make any changes, even temporary

ones, to the grading standards of the vacancy indicator. Instead, PHAs

that believe that the implementation of stricter security measures

related to the ``One Strike and You're Out'' policy negatively impacted

their vacancy rate may submit a modification request along with their

PHMAP certification.

Comment: One comment stated that because of the low weight (x1) of

the turnaround component relative to the vacancy rate component, the

turnaround component is almost unnecessary since it can't change the

grade of the indicator in a significant way.

Response: The Department disagrees with the comment. Although the

component would not have a big impact in determining the final grade of

the indicator, this is in accordance with the position of the

Department regarding the interrelation and relative weight of the two

components. Because the vacancy rate is a clear manifestation of

management effort and reflects the essence of a PHA's mission, it has

been weighted more heavily than the vacant unit turnaround component.

In addition, the new rule uses the second component only when a PHA

scores below a C on the first component. The Department believes that

if vacancies are at a C level or above, the PHA does not have a problem

with turning around vacant units. It should be noted that the component

would have at least a minor impact in the final grade of the indicator

(may increase or decrease one grade level) and may add up to 6.66

points to the total PHMAP score.

Comment: One comment stated that the proposed rule requirement for

vacant units undergoing modernization is inconsistent with scheduling

adjustments that HUD permitted in the past in recognition of the

realities that some PHAs face in soliciting bids from contractors for

modernization funded work. The proposed time requirement would punish a

PHA with few vacancies that may need to ``stockpile'' vacancies to

accumulate sufficient volume of work to obtain competitive bids from

contractors. It is recommended that all vacancies covered by a funded,

on-schedule modernization program be excluded from the vacancy rate

calculation.

Response: The Department disagrees because the small purchase

procedure is a viable option for PHAs with few vacancies to accomplish

modernization costing less than $100,000 (or a lesser amount as

specified by State law). Under this method, PHAs solicit quotes from an

adequate number (normally, no less than three) of sources and can award

the contract to the offeror with the lowest quote. This method is

significantly less time consuming than the normal sealed bid procedure

where formal advertising is involved. It is also noted that contractors

can be procured for utilization on an as-needed basis, allowing them to

begin work immediately.

Comment: One comment stated that the proposed definition of and

calculations concerning a vacant unit undergoing modernization seems to

be counterproductive; a more equitable way of calculating vacant days

would be to count only those vacant days between the completion of the

modernization work and the day of tenant move-in or reoccupancy.

Response: The Department disagrees with the comment regarding the

adjustment for vacant units undergoing modernization. The adjustments

provided in the proposed rule are either activities that the Department

wishes to support, such as modernization, or represent circumstances or

actions that the Department considers to be beyond the PHA's control.

In such cases where these definitions apply to vacant units before the

units are included in a HUD-approved modernization budget, the units

may be exempted for those other reasons. If the units were vacant prior

to being included in the HUD-approved modernization budget for other

than the exempted reasons in the rule, the vacancy days accumulated

prior to the unit being included in the HUD-approved modernization

budget must be included in the vacancy rate calculation as non-exempted

vacancy days.

Comment: One comment stated that not excluding the vacancy days

that accumulated prior to a unit being included in the HUD-approved

modernization budget from the calculation of this indicator could

result in substantial dollars wasted to make vacant units temporarily

habitable until such time that a modernization plan has been approved

by HUD. Dollars invested in temporary major rehabilitation of units

located in buildings subsequently placed under modernization are lost

because major replacements cannot be salvaged during/after

modernization. In order to not provide PHAs with an unintentional PHMAP

performance measure incentive to waste limited HUD dollars, vacancy

days for units in a building included in a modernization budget which

was approved by HUD during the PHMAP assessment year should be exempt

regardless of whether or not some units in the building were vacant

prior to HUD's approval of the plan.

Another comment recommended excluding from the vacancy calculation

units that a PHA has scheduled to modernize but not yet included in the

modernization budget, as well as vacant units that have been modernized

and are scheduled to be reoccupied. These vacant units should be

excluded because the vacancies are part of the normal modernization

process and are not the result of poor performance. For example, this

PHA has completed modernization of hundreds of apartments for people

with mobility impairments, but HUD has not permitted us to rent

accessible apartments to non-disabled families. These vacancy days

should not be included in the vacancy rate calculation.

Response: The Department disagrees with the comments. The issue of

whether to expand the preferential treatment for units undergoing

modernization to include units scheduled for modernization but not yet

under a modernization budget (for example, units scheduled for

modernization in the second year of the CGP Five Year Plan) was

discussed as part of the Vacancy Rule negotiated rulemaking proceedings

but not adopted. The Department was part of

[[Page 68903]]

the consensus that developed the definition of vacant unit undergoing

modernization and believes it to be appropriate. For the same reason,

the Department does not believe that an adjustment should be given for

the time between completion of modernization work and reoccupancy. Once

a unit has been modernized, there is no reason to allow an adjustment

for the time needed to lease the unit. Marketing and leasing of units

is a normal function of a PHA.

The Department also disagrees with the second part of the comment.

HUD does not control whether or not a PHA can admit non-disabled

applicants to a unit designed for the disabled. If a PHA cannot lease

units with accessible facilities to the persons with disabilities, they

are free to lease those units to non-disabled applicants (see Handbook

7465.1 REV-2, paragraph 5-2c). The cited handbook urges that a PHA

facing such a circumstance `` * * * include a provision in the lease

requiring the family to move if someone needing that size specially

designed unit applies and there is an appropriate unit available for

the family originally admitted.''

Comment: One comment indicated that the PHA has a large number of

competing subsidized units, and certain bedroom sizes and certain

handicapped units are very difficult to rent to residents that are

actually eligible for them. Another comment stated that the indicator

does not accurately reflect the capabilities of a PHA to manage its

units; such factors as market conditions greatly impact a PHA's score

in this area. One other comment indicated that the rule does not

provide enough information on what may be acceptable under changing

market conditions and it does not define what constitutes ``aggressive

marketing and outreach measures'' or provide standards by which such

goals should be reached or judged.

Response: The Department feels that the new rule adequately

addresses the issue of marketing difficulties at Sec. 901.5 and

Sec. 901.10(b)(2)(iii). An adjustment may be made to a PHA's vacancy

days because of market conditions. In order to justify the adjustment,

the PHA will need to document the specific market conditions that exist

and document marketing and outreach efforts. The PHA will need to

describe when the downturn in market conditions occurred, the

location(s) of the unit(s) effected, the likelihood that these

circumstances will be mitigated or eliminated in the near term and why

the market conditions are such that they are preventing the PHA from

occupying, selling, demolishing, rehabilitating, reconstructing,

consolidating, or modernizing the vacant units. The Department has

provided examples of what constitutes changing market conditions in 24

CFR Sec. 990.102 and will issue further guidance to PHAs on this

circumstance in the revision of the PHMAP Handbook 7460.5.

Comment: One comment stated that the grading system for this

indicator penalizes PHAs that are actively modernizing their housing

stock. To require lower vacancy rates for PHAs actively improving their

housing stock through modernization than for PHAs not undertaking the

improvements is egregious at best. The scoring of actual and adjusted

vacancies appears to be unnecessary since the adjusted vacancy rate

only occurs for authorized reasons as defined by HUD. To allow for

adjustments to be made and then apply a different scoring criteria is

illogical and inconsistent.

Response: The Department disagrees with the comment. The proposed

methodology provides ample opportunities for a PHA to adjust its

vacancy days for turnover of units due to reasons that are accepted and

supported by the Department such as modernization or are due to

circumstances and actions beyond the control of the PHA, such as court-

ordered or HUD-approved desegregation efforts. A PHA also has the

option of requesting a modification to the calculation of this

component that would take into account some other factor that is

causing frequent turnover of units at the PHA. The Department believes

the proposed method of calculating this component to be the most

accurate measure of a PHA's performance in this area.

Exemptions

Comment: One comment stated that adjusted vacancies help a poorly

performing PHA score better under the proposed rule, but generally will

do nothing to assist high-performing PHAs because it is doing the

things necessary to prevent these types of vacancies. A high-performing

PHA with just normal vacancies is hurt by the proposed rule. Another

comment stated that the proposed scoring range is looser and,

therefore, objectionable and there are more exemptions. Vacancies have

decreased since the advent of PHMAP, just because HUD is grading PHAs

and they are concentrating on keeping vacancies low. HUD should not

reduce its standards simply to satisfy PHAs who aren't getting the job

done. There should be no changes to the current grading standards. HUD

is going in the wrong direction by making PHMAP high-performance status

so easy to attain as it compromises the credibility of the evaluation

process.

Another comment stated that if a PHA chooses an adjusted vacancy

rate, it has the potential to exempt vacancy days in nine different

categories, some of which are very broad. Under this scenario, it is

conceivable that some PHAs will assume responsibility for few vacancy

days. One other comment stated that most exemptions are easy to

determine or validate except for units uninhabitable ``for reasons

beyond the PHA's control.'' Two other comments indicated that ``reasons

beyond the PHA's control'' is vague and may indirectly be within the

control of the PHA. Because such an adjustment should be the exception

rather than the rule, it should be eliminated. Such units fall into a

murky area that some poorly run agencies may be tempted to exploit. It

may be difficult to demonstrate that the conditions leading to

condemnation by the health department were either within or outside of

a PHA's control.

Response: The Department believes that the adjustments are not a

function of whether a PHA is a high or poor performer, but a

recognition that there are some circumstances and actions that impact

on vacancies that are beyond the control of the PHA, such as a natural

disaster, or that should be supported, such as modernization. The

Department understands that there are often good reasons for unit

vacancies, and that a blanket appraisal of unit vacancies as a bad

condition glosses over some very real and explicable conditions that

affect management of low-income properties in the real world.

The Department believes that it has defined the categories of

vacancies completely enough that most of a PHA's vacancies can be

clearly identified, and that a PHA has a fair opportunity to explain

its situation. Where some number of unit vacancies cannot be adequately

explained in terms of the acceptable or allowable categories, the PHA

will be held strictly accountable, but where the unit vacancies are

within the parameters established by HUD, under the negotiated

rulemaking for the PFS vacancy rule, for example, the Department does

not believe it fair or reasonable that the PHA should be penalized. The

Department agrees that the exemption categories, as presented in the

proposed rule, need some clarification and the new rule reflects that.

The category mentioned by some of the comments is duplicated in the

proposed rule and that duplication will be eliminated in the new rule.

The exemptions will remain consistent with the nine exemption

categories used under PFS.

[[Page 68904]]

Comment: Two comments stated that the language for exemption of

units vacant for circumstances and actions beyond the PHA's control

(Sec. 901.10(9)(v)) provides that insufficient funding for otherwise

approvable applications made for CIAP funds (only PHAs with less than

250 units are eligible to apply and compete for CIAP funds) are

exempted from the calculation of this component. It further provides

that this definition will cease to be used if CIAP is replaced by a

formula grant. The comments stated that this subsection should apply to

CGP, particularly now with the budget reductions. Also, one of the

comments stated that vacant units covered in proposed unit demolition

and disposition applications should be excluded, even if the

applications have yet to be acted upon by HUD.

Response: The Department disagrees and has retained this language

in the new rule. The provisions referred to in the comments were taken

directly from the new Vacancy Rule published in the Federal Register on

February 28, 1996 (61 FR 7586). The rule incorporated recommendations

of a regulatory negotiation advisory committee. The committee did

discuss the issue of providing relief to PHAs (and RMCs) because of

insufficient funding for the CIAP and CGP programs. The relief was

limited, however, to insufficient funding for an otherwise approvable

CIAP application (or failure of a PHA to fund an otherwise approvable

RMC request for CGP funds from its PHA). The CIAP is a competitive

program with insufficient funding to cover the needs of all approvable

funding applications. When the funding program is competitive, a PHA

either gets the funding applied for, or it doesn't. However, since the

CGP is a formula grant program, with guaranteed yearly funding, a CGP

PHA is better able to plan modernization activities in advance and make

crucial repairs as necessary.

The Department does not agree with the suggestion that a PHA be

able to assume HUD approval of a pending application for demolition or

disposition, if the application has not been acted upon at the end of

the fiscal year being assessed. There are significant differences

between initiating the application process and receiving approval to

dispose or demolish.

Comment: Six comments indicated that vacancy days for units that

suffer casualty damage, especially by fire, should not be counted until

the unit is turned back over to the PHA after the contractor completes

the repairs, if applicable, instead of at the time of insurance claim

settlement. It is more logical to include casualty-damaged units in the

same exemption status as units undergoing modernization or units

documented to be uninhabitable for reasons beyond the PHA's control.

The exempted vacancy days for units that suffer casualty damage should

change to read, ``vacant units that have sustained casualty damage

until the unit is ready to be leased or 90 days, whichever is

earlier.''

Response: The Department disagrees with the comment. The indicator

retained the current provision that already allows a PHA to make an

adjustment for the period of time during which the claim is being

adjusted. Since the fire damage to the unit may be minimal or severe,

it would not be appropriate for the Department to allow an automatic

additional period of time of up to 90 days to repair the unit. PHAs may

request a modification to the calculation if they believe they have a

situation (severe damage) that warrants a special adjustment.

Comment: One comment recommended substituting the word ``permits''

for ``requires'' in Sec. 901.10(a)(4) which exempts vacant units in

which resident property has been abandoned, but only if State law

requires the property to be left in the unit. The comment added that

when a resident abandons a unit, leaving their personal property

therein, many small PHAs have no other appropriate space to store such

property during the period of time specified by State law before they

can legally dispose of the abandoned property.

Response: The Department does not concur in the recommendation. The

point of this provision is to limit the period of time when a vacant

unit would be exempted from the vacancy count to the period of time

that is beyond the PHA's control. The proposed change would expand the

provision to cases in which State law ``permits'' a unit to remain

encumbered by abandoned possessions. HUD believes that the existing

language--``requires''--is more specific and more limiting, and is more

consistent with the intent of this regulation and similar recent

regulatory efforts to reduce unit vacancies.

The Department recognizes that some small PHAs might be

inconvenienced by having to store abandoned effects for some period of

time before disposition, but we are not convinced that such

inconvenience is sufficient to justify holding a residential unit off-

line. In most cases, laws on abandonment require that the landlord

secure abandoned property, not necessarily that they leave such

property in place in anticipation of the abandoning family's possible

return. If storage space is at a premium, PHAs have the option of

renting a storage locker and either deducting the cost of the rental

from the proceeds of the sale of the goods, if any, or collecting that

cost from the resident, should he/she re-appear.

Comment: One comment stated that the total available units should

not include units that are being modernized as a result of Federally

mandated work projects (such as a lead-based paint abatement project)

that require that the residents be relocated while the work is being

performed. All vacant units as a result of Federally mandated work that

requires resident relocation should be considered not available for the

period of time that the unit is vacant as a result of the required

work, including the use of the unit to relocate residents during the

course of the work. Another comment stated that the exemptions should

include a category for units held to house residents relocated due to

comprehensive modernization. When a large development undergoes

comprehensive modernization, it is difficult to quickly find units to

transfer all residents; a reasonable time limit should be included in

the exemption.

Response: The Department partially agrees with the comment. The

proposed methodology for calculating the vacancy rate component already

permits a PHA to make an adjustment to its vacancy days for units

undergoing modernization. A PHA also has the option of requesting a

modification to the calculation of this component that would take into

account any other special factors or special circumstances that are out

of the control of the PHA. The Department does not agree with the

suggestion that PHAs be allowed to adjust their vacancy days for units

that are not undergoing modernization but are being held vacant for

relocation purposes.

Comment: One comment stated that the exemption of units that are

uninhabitable is valuable because it allows troubled PHAs to work on

renovating units and getting them back into the occupied inventory

without being penalized in the vacancy rate calculations.

Response: The Department agrees that this exemption category is

valuable, but it should be noted that the category restricts the

exempted units to those uninhabitable for reasons beyond the PHA's

control. The rule further defines these reasons.

Comment: One comment suggested that the rule should be expanded to

[[Page 68905]]

specifically exempt vacant days due to transfer of residents resulting

from overhoused/underhoused conditions and when for security reasons, a

resident must be relocated under a witness protection program.

Response: The Department does not agree with the comment that the

new rule include adjustments for vacancy days associated with

relocation of residents because of over/underhoused circumstances. This

is a situation that should be dealt with by the PHA as part of its

normal operations. Adequate planning on the part of the PHA can greatly

reduce the amount of time that the units involved in the transfer

remain vacant. Vacancies arising as a result of relocation of residents

for security reasons may be dealt with under the modification

procedures.

Comment: One comment indicated that the rule should clarify whether

the PHA can exclude units used for non-dwelling purposes, for resident

services, or that are occupied by PHA employees even if HUD has not

specifically approved their conversion for non-dwelling purposes.

Response: The Department believes that the relevant rules are

sufficiently clear. PHAs may not use dwelling units for non-dwelling

purposes without explicit authorization for the conversion, and there

should be no expectation that HUD would permit exemption of vacant

units used for unauthorized purposes.

Comment: One comment indicated that it appears that

Sec. 901.10(a)(3) requires that to be exempted under this item, units

have to comply with the two conditions at the same time. The comment

added that the exemption should apply if either one of the conditions:

high/unsafe levels of toxic materials or structurally unsound, is

present.

Response: The Department agrees with the comment that the exemption

should apply when either one of the conditions is satisfied. The new

rule has been modified to conform with the Vacancy Rule and the subject

items are now covered under Secs. 901.10(b)(2)(ii) and (b)(2)(iv).

Comment: Two comments observed that there are several categories of

units exempted ``off-the-top'' when calculating adjusted vacancy rate

and turnaround time. The comments indicated that HUD should clarify if

the exemption of units vacant for circumstances beyond the PHA's

control due to changing market conditions is determined by the PHA

(self-certified) or reviewed and decided by HUD as a modification. The

comments also requested HUD to clarify the exemption of units vacant

for circumstances beyond the PHA control due to natural disasters as to

who determines or declares the natural disaster condition.

The comments suggested that, because these are excluded ``off-the-

top'' and using a PHA-certified figure, it is left entirely to the PHA

to decide if these circumstances apply, when they apply, and then to

subtract them out of the calculation. As currently structured, a PHA

could unilaterally adjust the figures they report under ``adjusted

vacancy rate'' and ``turnaround time'' because they believe that

``changing market conditions'' have caused their units to remain

vacant, or because ``insufficient CIAP funding'' prevented the PHA from

occupying the units. All market conditions are ``changing'' to some

extent, and no CIAP-funded PHA ever receives ``sufficient funding for

otherwise approvable applications'' to meet all of their needs. The

real question is, when are these circumstances sufficiently unique and

extensive to impact a PHA's ability to occupy its units?

The comments indicated that these two conditions are so subjective

and judgmental that they should be addressed through the regular PHMAP

modification process. The comments added that it is inappropriate for

an allegedly objective assessment process such as PHMAP to allow the

entity being assessed (i.e., the PHA) to exercise this degree of

unilateral control over their own assessment. This may help to improve

PHA grades, but it does nothing for the integrity of the PHMAP

assessment process. One comment requested that exemptions be clearly

defined, leaving as little subjective determination as possible to HUD

field staff. Another comment requested HUD to clarify if the PHA may

exempt the units listed when preparing the PHMAP certification or if it

should request a modification.

Response: The Department disagrees with the proposition that the

PHAs have free rein to define away unit vacancies as a function of

natural calamities and/or market circumstances beyond control. These

issues were a major source of discussion during the negotiation of the

PFS Vacancy Rule, and the language upon which the negotiated rulemaking

committee reached agreement is faithfully reproduced in this

regulation. For example, the committee deemed the term ``natural

disaster'' sufficiently precise for purposes of establishing a formula

for determining PFS eligibility.

In the case of a claim for exemption under any of these ``beyond-

the-control'' criteria, the PHAs can exclude the units when preparing

the PHMAP certification, but HUD intends that the burden of proof

should fall on the PHA to demonstrate that it has done what it can to

remedy the reason(s) for the vacancy. In the case of a ``natural

disaster'' claim, the PHA would be expected to point to a proclamation

by the President or the Governor that the county or other local area in

question has, in fact, been declared a disaster area. Where a PHA

claims extraordinary market conditions, the PHA will be expected to

document the market conditions to which it refers (the examples of

changing population base and competing projects are the simplest) and

the explicit efforts that the PHA has made to address those conditions.

The Department does not believe that it can draft a regulation that

concretely defines and delimits all the circumstances that could affect

a PHA's capacity to maintain high occupancy levels, nor does HUD deem

it advisable to attempt to do so. The PHAs and their parent State and

local governments are in the best position to recognize and appreciate

specific local circumstances. In this regulation, and in the supporting

handbook guidance, we will expect that PHAs will be able to provide

data with which to support their self-certifications, and upon which

HUD reviewers can verify such self-certifications, but HUD believes

that it would be counter-productive to attempt to define further or to

limit the scope of PHAs' capacity to describe their real-world

situations.

Comment: One comment proposes that an adjustment factor be added

for turnovers delayed because the applicant must give 30 to 60 days

notice (by lease) to their current landlord before moving.

Response: The Department does not agree with the proposed addition.

PHAs should know local conventions on requirements for notice, and plan

their own management activities accordingly, projecting expected

turnovers and providing notice to applicants that a unit is expected to

become available, for example, far enough in advance to avoid delays in

leasing. In those cases where special local circumstances make this

unfeasible, the PHA may submit a modification request to the indicator.

Comment: One comment requested guidance on HUD's interpretation of

units that are vacant ``for reasons beyond the PHA's control'' asking

whether this category includes items such as termite damage, vandalism,

or casualty loss that may not be covered by insurance if there is a

high deductible. Two other comments asked if the exemption would

include units delayed for reoccupancy as a result of heavy

[[Page 68906]]

vandalism since such vandalism is often beyond the PHA's control.

Response: The Department does not consider that the examples cited

in the comment fall under the definition of units vacant for reasons

beyond the PHA's control. Termite control is similar to other examples

of pest control and is considered part of the normal maintenance

operations of any standard performance PHA. A well managed PHA should

also have insurance coverage for casualty loss (including vandalism)

providing enough coverage to enable the PHA to repair the units in case

of casualty damage. In cases where special local circumstances may make

this unfeasible, the PHA should submit a modification request to the

indicator.

Definitions

Comment: One comment stated that the definition of ``under

construction'' as related to force account work should be changed to

indicate that force account work has started in the block (as opposed

to the specific unit).

Response: The new rule has been changed to indicate that force

account work has started either in the unit(s) or in the building(s).

Comment: One comment stated that the term ``units available for

occupancy'' needs to be clearly defined. Some troubled PHAs could argue

that a certain number of their units are not available for occupancy

because of the extremely poor condition of the units.

Another comment indicated that the term ``dwelling unit'' is not

defined in the proposed rule. It should be defined as a unit that is

either leased or available for lease to eligible low-income residents.

Another comment stated that the term ``available unit'' is defined in

the preamble and the rule but never used again. Instead, the term

``unit'' is used in connection to the terms ``vacant unit'' and

``vacancy day''. The term ``unit days available'' is used but no clear

connection is ever drawn between it and ``available units''. HUD should

clarify and substitute where necessary.

One comment stated that the term ``vacant unit'' in the rule is

different from the term as used in the preamble. The preamble indicates

that ``units under lease for non-dwelling uses should not be

included...'' In other words, these units should be excluded. The rule

definition states that units under lease for police substations, social

service providers, etc., are treated the same as units under lease to

eligible families. If an occupant vacates the unit, it is made

available to another social service provider. These units are not

available for lease to eligible low-income residents, and as such,

should not be treated the same as units which are available in this

definition. It should be clarified whether these units will be excluded

from the computation of vacant units or if they will be counted as

occupied units. Another comment stated that units used for non-dwelling

purposes and dwelling units occupied by PHA employees and units used

for resident services need to have additional parameters defined. This

adjustment may encourage some poorly run PHAs to use these loopholes to

get a better adjusted vacancy rate.

Response: The Department agrees that dwelling units used for non-

dwelling purposes with HUD approval, employee occupied units, and

vacant units approved for demolition or disposition should not be

included as available units in the determination of occupancy/vacancy

rates and the new rule reflects that change. We also agree with the

definition of a ``dwelling unit'' as a unit that is either leased or

available for lease to eligible low-income residents.

Comment: Two comments indicated that while the use of the total

unit days available as the denominator in both the actual and adjusted

vacancy rates provides a simple procedure, it tends to understate the

adjusted vacancy rate. A more accurate calculation would exclude the

adjusted vacant units from both the numerator and denominator.

Response: The calculation of the vacancy rate and the use of that

rate to determine a given grade for PHMAP purposes has been and

continues to be closely linked to the methodology and definitions used

in the PFS. Under the PFS, a PHA, when calculating occupancy or vacancy

rates, first determines the total number of dwelling units in its

inventory (the denominator portion of the rate being calculated).

Regulations then permit the PHA to exclude units that have been

approved for deprogramming (e.g., demolition or disposition) as they

become vacant and units approved for non-dwelling use. These exclusions

reflect the permanent nature of the action. Units that are undergoing

modernization or are vacant because of circumstances beyond the PHA's

control are not excluded from the denominator because these actions are

not permanent. By remaining in the denominator, they will continue to

be eligible for operating subsidy.

The inclusion of units undergoing modernization or units vacant

because of circumstances beyond the PHA's control in the denominator

does not make the calculation of the PHMAP adjusted vacancy rate either

``more'' accurate or ``less'' accurate. What is necessary is that the

two quantities that comprise the rate have a logical relationship to

each other. In this case, the relationship is between a PHA's dwelling

unit inventory and that portion of the inventory that is vacant during

the PHA's fiscal year. Under both PHMAP and PFS, there are incentives

to minimize the portion of the inventory that is vacant and both

approaches start by looking at the proportion of total vacancies to the

dwelling unit inventory. If that rate is low enough, the PHA will

maximize its PHMAP grade and its operating subsidy eligibility.

Both PHMAP and PFS also recognize that not all vacancies are

``equal.'' A PHA with a high number of vacant units may still maximize

its PHMAP grade and PFS eligibility if it can show that most of the

vacant units are undergoing modernization. When one makes an adjustment

to the total number of vacancies to exclude those that are undergoing

modernization, the PHA is not changing the fact that the unit is still

part of the PHA's dwelling unit inventory. This is why the adjustment

is only to the numerator portion of the rate and not to the

denominator.

Comment: One comment indicated that the term ``vacancy day''

definition uses the qualifying statement ``...unless the vacancy day is

exempted for an eligible reason.'' A ``vacancy day'' does not lose its

status as a ``vacancy day'' because it is exempted. It simply becomes a

``vacancy day that is exempted''. This should be clarified because

other terms (like ``actual vacancy rate'' and ``adjusted vacancy

rate'') make reference to it in their definitions. Another comment

proposed that the definition for vacancy day should be modified to

specify that it pertains to ``dwelling'' units.

Response: The Department agrees with the comments and the new rule

reflects the changes.

Comment: One comment indicated that the term ``units available for

occupancy'' is defined as the number of units identified on a PHA's ACC

times the number of days available and asked then what number should be

used for units acquired or built during the assessment year? Two

comments asked whether occupied units that have not reached Date of

Full Availability (DOFA) are counted or excluded until they reach DOFA

date.

Response: The definition of number of ``units available for

occupancy'' has been clarified to exclude three categories of units

from the number of units identified in the PHA's ACC. The units

acquired or built during an assessment year will be added on a prorated

basis based on the sum of the

[[Page 68907]]

number of days available of each individual unit added to the ACC. The

date to be used for determining days available is the date of ``End of

Initial Operating Period'' (EIOP) for the corresponding project.

COMMENT: One comment stated that the formula used for the calculation

of the actual vacancy rate is inconsistent with that used for the

completion of PHA financial information and creates the potential for

errors when preparing both the PHMAP certification and the annual

budget documents. The actual vacancy rate should be consistent

throughout all HUD requirements (i.e., form HUD-51234 and budget

forms).

Response: The Department agrees that the definitions and

methodologies for both PFS and PHMAP should be the same as long as

feasible, and the language of the new rule reflects that.

Comment: One comment recommended adding to the list of definitions

the terms ``move-out date,'' which is when the PHA regains possession

of the unit by the legal expiration of the lease; and ``effective lease

date,'' which is the date from which rent is due and payable and all

other provisions of the lease are enforceable.

Response: The Department partially agrees with the comment and the

new rule includes the definitions. The ``effective lease date'' is the

date when the executed lease contract becomes effective and rent is due

and payable and all other provisions of the lease are enforceable. On

the other hand, the ``move-out date'' is the actual date when the

resident vacates the unit, which may or may not coincide with the legal

expiration of the lease agreement.

Component #2, Unit Turnaround

Comment: Two comments stated that if the turnaround calculation is

retained, it should be kept as a separate indicator. Two comments

suggested the elimination of this component, because unit turnaround

measures efficiency of scheduling maintenance activities, which should

be covered by indicators #4 and #5.

Response: The Department disagrees with both of these suggestions.

The requirement to measure a PHA's ability to turn around its vacant

units is statutory, whether the statutory requirement is carried out by

establishing a separate indicator for unit turnaround or by including

unit turnaround as a component of a different indicator. The Department

agrees with the assumption that if vacancies are at a grade C or above,

a PHA does not have a problem with turning around vacant units. The

Department also disagrees that unit turnaround solely measures a PHA's

efficiency of scheduling maintenance activities. The calculation of

unit turnaround also includes down time, which is the time between when

the unit is vacated and a work order is issued for the repair of the

unit; and lease-up time, which is the time from when maintenance

completes the repair of the unit and a new lease takes effect.

Comment: Three comments stated that this component does not

accurately measure a PHA's performance in maintaining and leasing their

units because nothing in the component shows how many units the PHA had

to turn around during the year. These commenters believed the

percentage of units that are turned around during the year should be

included in the formula. For example, if a PHA has a turnaround time of

20 days, and turned over 45% of their units, and you multiply the

turnaround time (20 days) times the percentage of turnover (45%), it

equals 20 times 45%, or nine days. You then subtract nine days from the

20 days to equal a turnaround of 11 days. The commenters felt that this

is a more accurate measure of a PHA's ability to manage and turnaround

per unit. A PHA with a high yearly turnaround is unduly taxed under the

current formula.

Response: The Department disagrees with this suggestion because

this component is measuring the annual average of time it takes a PHA

to turn around its vacant units, rather than measuring the turnover

rate, which takes into account how many units the PHA had to turn

around during the year.

Comment: Three comments stated that the calculation of unit

turnaround includes vacancy days from prior fiscal years, offering

little incentive (scoring) under the proposed rule for re-occupying

older units. It is recommended that unit turnaround time be capped at

one year or 360 days.

Response: The Department disagrees because to do so would result in

an inaccurate assessment of a PHA's ability to turnaround all vacant

units and would provide no incentive for PHAs to ensure that long-tern

vacant units are turned around and reoccupied. In addition, if these

units are not included in the calculation of this component, it would

result in a skewed perception of a PHA's ability to manage its total

maintenance/re-leasing activities. Furthermore, ``turnaround time'' is

a term of art and means all the days that elapse between one tenancy

and the next. In the event that unusual or special circumstances

exists, a PHA may request a modification to the calculation of this

component.

Comment: Two comments feel that this component should be given the

same exemptions as in component #1.

Response: The Department agrees and stated so in both the preamble

and the regulation of the proposed rule, as well as in the new rule.

Comment: Two comments stated that unit turnaround time should

exempt seven days for each PHA-required transfer because one resident

has two units tied-up for a week and sometimes longer.

Response: The Department disagrees with this suggestion. Although

the total time it took the two units mentioned in the comment to be

turned around may have been a week or longer, each unit was turned

around on different days, with different individual total turnaround

time. The intent of this component is to measure the annual average

number of days it takes a PHA to turn around its vacant units, which

includes for each vacant unit a total of down time, make ready time,

and lease up time.

Comment: Two Comments questioned the definition which states that

units are exempted from the vacancy calculation if special conditions

exist that are beyond control of the PHA. They inquired whether this

definition includes units delayed for reoccupancy as a result of heavy

vandalism. They contend that it should because such vandalism is often

beyond the PHA's control.

Response: The Department has determined not to specifically include

heavy vandalism as part of conditions beyond a PHA's control in this

definition since circumstances for individual PHAs will differ. In such

a case, a PHA may submit a modification request to exclude such units

in the calculation of this component, accompanied by justifying

documentation.

Comment: One Comment stated that unit turnaround is assessed based

on calendar days rather than working days (25% of the time in 20

calendar days is non-working time). The Commenter contended that it

should be based on regular working days since most PHAs cannot afford

to pay overtime salary rates.

Response: The Department disagrees and will continue to use

calendar days as the standard for all of the PHMAP indicators.

Vacancies, rent collection, etc., are not based on working days, and it

would be unrealistic to do so. In addition, it is easier to calculate

calendar days, especially when using an automated system, due to the

necessity of factoring in holidays and weekends when using working

days.

[[Page 68908]]

Comment: One Comment stated that unit turnaround operates against

thorough tenant screening and compliance with city code requirements

and, therefore, against the reputation of public housing. These other

factors that affect unit turnaround should be considered, including

strict lease compliance, terminating residencies or relocating over or

underhoused families. The Commenter said that conscientious

implementation of HUD policy can create large turnovers, stress

maintenance resources and result in poor ratings, while a PHA with no

turnovers or even lack of attention to over and under-housing can

maintain an excellent rating.

Response: The Department disagrees with this statement because the

enforcement of and/or compliance with these factors is part of the

ongoing management responsibility of all PHAs. Using good management

practices, a PHA should not have a higher turnaround time due to

enforcement and/or compliance with the other factors mentioned in the

Comment. For example, a PHA that strictly enforces rent collection

procedures will typically have fewer evictions since more residents

will pay rent in a timely manner. This normally will eliminate the need

for evictions or situations where huge balances are built up and the

resident vacates as a result of not being able to pay off the

indebtedness once court action is taken. If a PHA enforces the lease

clauses regarding the upkeep of the unit by occupants through informing

the resident of the family's responsibility, providing instruction as

necessary, and through inspections, repair, and properly instituted

resident charges, units will tend to be in better condition when

vacated, thereby reducing needed repairs and subsequently reducing

vacant unit turnaround time. Additionally, a lack of attention to over

and underhoused residents will affect a PHA's turnover rate, rather

than its turnaround time.

Comment: One Comment requested that the Department consider the

implementation of an exception to the component whereby, if all but one

unit turns over in a timely manner, a PHA can request an exception for

a circumstance that was beyond its control. Even one exception can have

a big impact in a small PHA.

Response: The Department agrees, and in the event a truly unusual

or special circumstance exists, a PHA may submit a modification request

that addresses the circumstance(s) beyond its control.

Comment: One Comment stated that assessing this component based on

how the PHA fared in the first component is appropriate and the grading

is equitable.

Response: The Department agrees, and will continue to examine unit

turnaround as the second component under this indicator.

Comment: One Comment stated that if the current turnaround method

stays, it should be a measure of when the unit is ready physically for

rental and the new tenant has committed to the unit, not necessarily

when physical occupancy occurs.

Response: The Department disagrees with the Comment for several

reasons. First, there is no guarantee that maintenance staff will start

renovations as soon as possible after the unit is vacated. Secondly,

there is no guarantee that the first applicant that is offered the unit

will accept, thereby leaving the unit vacant for a longer period of

time. Thirdly, the Department believes that the definition of

turnaround time takes into account the concerns expressed in the

Department's first two reasons for disagreeing. A well managed PHA

coordinates maintenance and resident selection activities to ensure

that as many units as possible are available for occupancy as soon as

possible by planning move-ins in advance and notifying applicants as

soon as possible. Since the PHMAP assesses management performance, it

is appropriate to include the management of the total maintenance/re-

leasing activities in this component.

Comment: One Comment (1) disagrees that unit turnaround is an

unnecessary component for high performers; (2) feels that this

component should be weighted as proposed; (3) believes that an adjusted

turnaround time exceeding 30 days is unacceptable performance for any

management agency regardless of the vacancy rate; and (4) believes that

the need for a turnaround time of 50 days or less to score on this

component is a poor standard and would not show the results of what may

be clear and significant performance improvements.

Response: The Department disagrees with the first statement because

normally, a PHA (whether a standard or high performer) that achieves at

least a grade of C for component #1 does not have a problem with

turning around vacant units, i.e., unit turnaround is not a factor in a

high vacancy rate. The Department agrees with the second statement

because the vacancy rate is a clear manifestation of management effort

and embodies the essence of a PHA's mission; therefore, it is weighted

more heavily than the process-oriented unit turnaround component. It is

not clear what the Comment meant in the third statement by ``adjusted

turnaround time.'' This term was not referred to in the proposed rule,

was not included as a definition, nor was it used in the text of the

component. The Department also disagrees with the fourth statement and

believes that the range between the grades in this component is

equitable for the new rule.

Comment: One Comment stated that the proposed rule provides that

the calculation of turnaround time for newly modernized units starts

when the unit is turned over to the PHA from the contractor and ends

when the lease is effective for the new or returning resident. This

provision eliminates a level playing field for measuring the normal

turnaround time required by a PHA to restore vacant units to occupancy.

The Commenter alleges that this gives unfair advantage to PHAs that did

not need to vacate units for modernization and it doubly penalizes PHAs

that modernize units for completing modernization on large numbers of

units concurrently. The Commenter felt that this component should

measure the time it takes PHAs to restore units to occupancy when they

vacate for normal move-out reasons.

Response: The Department disagrees with this Comment and believes

that this method of calculating unit turnaround does provides a level

playing field for PHAs because it provides a standard method that will

be used by all PHAs. The Department does not believe that this method

of calculating unit turnaround gives an unfair advantage to any PHA,

regardless of the scope or type of modernization. A unit that is

modernized with the resident in place is not included in the

calculation of this indicator because it has not been vacated and

subsequently turned around; therefore, there is no advantage to be

considered. If a PHA vacates a unit to modernize, the time it took to

modernize the unit is not included in unit turnaround time regardless

of the number of units completing modernization concurrently. A PHA

should be able to plan for move-ins in advance and notify applicants in

sufficient time to coincide with the availability of units. This

component will continue to measure unit turnaround for whatever reason

the unit is vacated and turned around.

Comment: One Comment recommended that average turnaround time be

defined as, ``the annual average of the total number of turnaround days

between the legal expiration date of the immediate past lease (whenever

that occurred, including in some previous fiscal year) and the date a

new lease takes effect, that being the date from which rent is due and

payable and all

[[Page 68909]]

other provisions of the lease are enforceable.'' This allows PHAs to

take into consideration the wide variety of local ordinances and State

statues that effect the termination of a lease and date the PHA thereby

regains possession of the unit.

Response: The Department agrees, in part, with this recommendation,

and will change the definition of average turnaround time to read,

``...the annual average of the total number of turnaround days between

the latter of the legal expiration date of the immediate past lease or

the actual move-out date of the former tenant (whenever that occurred,

including in some previous fiscal year) and the date a new lease takes

effect.'' This change will take into consideration the wide variety of

State and local laws that effect the termination of a lease. By

retaining the actual move-out date of the former tenant in the

definition, a PHA is not penalized for doing evictions, since in such

cases, the resident usually vacates after the legal expiration date of

the lease. It should be noted that in the rare case where an applicant

executes a lease and moves into the unit prior to the completion of

minor repairs, the calculation of turnaround time continues until the

repairs to the unit have been completed by the PHA.

Indicator #2, Modernization--Sec. 901.15

The weight for this indicator has been increased to x1.5 in the new

rule to reflect the importance of planning for and allocating scarce

modernization funding.

Comment: Ten Comments supported the greater emphasis being given to

obligation of funds in relation to expenditure of funds for components

#1 and #2.

Response: The Department concurs that by assigning more weight to

fund obligation, and less to fund expenditure, the rule largely removes

the disincentive for PHAs to accept inferior work products from

contractors.

Comment: Two comments recommended that there should be intermediate

grades for components #1 and #2 that allow for varying times beyond the

required deadlines (e.g., within one year after deadline = C, two years

= D, etc.). Interim grades should be adopted to recognize that

capacities vary between PHAs and the size of their modernization

programs. One method would be: A for 100%, B for 90-99.9%, C for 80-

89.9%, D for 70-79.9%, and F for below 70%. If the Department remains

adamant that these are too many grades, then at least a grade of C

should be available for > 80% but #2, resident organization. This component has a

weight of x1.

(1) Grade A: The PHA can document formal recognition of, a system

of communication and collaboration with, and support for resident

councils where these exist, and where no resident council exists, the

PHA can document its encouragement for the formation of such councils.

(2) Grade F: The PHA cannot document formal recognition of, or a

system of communication and collaboration with, or document its support

for resident councils where these exist, or where no resident council

exists, the PHA cannot document its encouragement for the formation of

such councils.

(c) Component #3, resident involvement. Implicit in this component

is the need to ensure a PHA's delivery of quality customer services to

residents. This component has a weight of x1.

(1) Grade A: The PHA Board of Commissioners, by resolution,

provides for resident representation on the Board and committees, and

the PHA has implemented measures that ensure the opportunity for

regular resident input into plans and the evaluation for ongoing

quality of life and housing management conditions, including but not

limited to, modernization and development programs, screening and other

occupancy matters, relocation, the operating budget, resident programs,

security and maintenance programs.

(2) Grade C: The PHA Board of Commissioners, by resolution,

provides for resident representation on the Board and committees, and

the PHA has implemented measures that ensure the opportunity for

regular resident input into plans and the evaluation for ongoing

quality of life and housing management conditions in the modernization

and development programs and at least three of the remaining six areas

described in grade A, above.

(3) Grade F: The PHA Board of Commissioners, by resolution, did not

provide for resident representation on the Board and committees, or the

PHA has not implemented measures that ensure the opportunity for

regular resident input into plans and the evaluation for ongoing

quality of life and housing management conditions in the modernization

and development programs and at least three of the remaining six areas

described in grade A, above.

(d) Component #4, resident programs management. This component

examines a PHA's management of HUD funded resident programs. However,

PHAs can also get credit for performance under non-HUD funded programs

if they choose to be assessed for them. PHAs must select either to be

assessed for all or none of the non-HUD funded programs. This component

has a weight of x1.

(1) Grade A: If the PHA has any HUD funded special programs that

benefit the residents, including but not limited to, the Family

Investment Center (FIC), Youth Sports (YS), Food Banks, Health Clinics,

Youth Apprenticeship Program (YAP), Family Self-Sufficiency (FSS), or a

Resident Management (RM) or Tenant Opportunity Programs (TOP) where the

PHA is the contract administrator, the PHA can document that it is

meeting at least 90% of its goals under the implementation plan for any

and all of these programs.

(2) Grade C: If the PHA has any HUD-funded special programs that

benefit the residents, including but not limited to, the programs

described in grade A, above, the PHA can document that it is meeting at

least 60% of its goals under the implementation plan for any and all of

these programs.

(3) Grade F: If the PHA has any HUD-funded special programs that

benefit the residents, including but not limited to, the programs

described in grade A, above, the PHA cannot document that it is meeting

at least 60% of its goals under the implementation plan for all of

these programs.

Sec. 901.45 Indicator #8, security.

This indicator evaluates the PHAs performance in tracking crime

related problems in their developments, reporting incidence of crime to

local law enforcement agencies, the adoption and implementation of

tough applicant screening and resident eviction policies and

procedures, and, as applicable, PHA performance under any HUD drug

prevention or crime reduction grant(s). PHAs can get credit for

performance under non-HUD funded programs if they choose to be assessed

for these programs. PHAs with fewer than 250 units will not be assessed

under this indicator unless they request to be assessed at the time of

PHMAP certification submission. This indicator has a weight of x1.

(a) Component #1, Tracking and Reporting Crime Related Problems.

This component has a weight of x1.

(1) Grade A: The PHA Board, by resolution, has adopted policies and

the PHA has implemented procedures and can document that it (1) tracks

crime and crime-related problems in at least 90% of its developments,

and (2) has a cooperative system for tracking and reporting incidents

of crime to local police authorities to improve law enforcement and

crime prevention.

(2) Grade C: The PHA Board, by resolution, has adopted policies and

the PHA has implemented procedures and can document that it (1) tracks

crime and crime-related problems in at least 60% of its developments,

and (2) reports incidents of crime to local police authorities to

improve law enforcement and crime prevention.

(3) Grade F: The PHA Board, by resolution, has not adopted policies

and the PHA has not implemented procedures or cannot document that it

(1) tracks crime and crime-related problems in at least 60% of its

developments, or (2) reports incidents of crime to local police

authorities to improve law enforcement and crime prevention.

(b) Component #2, Screening of Applicants. This component has a

weight of x1.

(1) Grade A: The PHA Board, by resolution, has adopted policies and

the PHA has implemented procedures and can document that it

successfully screens out and denies admission to a public housing

applicant who:

(i) Has a recent history of criminal activity involving crimes to

persons or property and/or other criminal acts that would adversely

affect the health, safety or welfare of other residents or PHA

personnel;

(ii) Was evicted, because of drug-related criminal activity, from

housing assisted under the U.S. Housing Act of 1937, for a minimum of a

three year period beginning on the date of such eviction, unless the

applicant has successfully completed, since the eviction, a

rehabilitation program approved by the public housing agency;

(iii) The PHA has reasonable cause to believe is illegally using a

controlled substance; or

(iv) The PHA has reasonable cause to believe abuses alcohol in a

way that causes behavior that may interfere with the health, safety, or

right to peaceful enjoyment of the premises by other residents or PHA

personnel.

[[Page 68943]]

(2) Grade C: The PHA Board, by resolution, has adopted policies and

the PHA has implemented procedures, but cannot document results in

successfully screening out and denying admission to a public housing

applicant who meets the criteria as described in grade A, above.

(3) Grade F: The PHA has not adopted policies or has not

implemented procedures that result in screening out and denying

admission to a public housing applicant who meets the criteria as

described in grade A, above, or the screening procedures do not result

in the denial of admission to a public housing applicant who meets the

criteria as described in grade A, above.

(c) Component #3, Lease Enforcement. This component has a weight of

x1.

(1) Grade A: The PHA Board, by resolution, has adopted policies and

the PHA has implemented procedures and can document that it

appropriately evicts any public housing resident who:

(i) The PHA has reasonable cause to believe engages in any criminal

activity that threatens the health, safety, or right to peaceful

enjoyment of the premises by other residents or PHA personnel;

(ii) The PHA has reasonable cause to believe engages in any drug-

related criminal activity (as defined at section 6(l) of the 1937 Act

(42 U.S.C. 1437d(l)) on or off the PHA's property; or

(iii) The PHA has reasonable cause to believe abuses alcohol in

such a way that causes behavior that may interfere with the health,

safety, or right to peaceful enjoyment of the premises by other

residents or PHA personnel.

(2) Grade C: The PHA Board, by resolution, has adopted policies and

the PHA has implemented procedures, but cannot document results in

appropriately evicting any public housing resident who meets the

criteria as described in grade A, above.

(3) Grade F: The PHA has not adopted policies or has not

implemented procedures that document results in the eviction of any

public housing resident who meets the criteria as described in grade A,

above, or the eviction procedures do not result in the eviction of

public housing residents who meet the criteria as described in grade A,

above.

(d) Component #4, Grant Program Goals. This component examines a

PHA's management of HUD-funded drug prevention or crime reduction

programs. However, PHAs can also get credit for performance under non-

HUD funded programs if they choose to be assessed for them. PHAs must

select either to be assessed for all or none of the non-HUD funded

programs. This component has a weight of x1.

(1) Grade A: If the PHA has any special drug prevention program or

crime reduction program funded by any HUD funds, the PHA can document

that the goals are related to drug and crime rates, and it is meeting

at least 90% of its goals under the implementation plan for any and all

of these programs.

(2) Grade C: If the PHA has any special drug prevention program or

crime reduction program funded by any HUD funds, the PHA can document

that the goals are related to drug and crime rates, and it is meeting

at least 60% of its goals under the implementation plan for any and all

of these programs.

(3) Grade F: If the PHA has any special drug prevention program or

crime reduction program funded by any HUD funds, the PHA does not have

a system for documenting or cannot document that the goals are related

to drug and crime rates, or cannot document that it is meeting 60% or

more of its goals under the implementation plan for any and all of

these programs.

Sec. 901.100 Data collection.

(a) Information on some of the indicators will be derived by the

State/Area Office from existing reporting and data forms.

(b) A PHA shall provide certification as to data on indicators not

collected according to paragraph (a) of this section, by submitting a

certified questionnaire within 60 calendar days after the end of the

fiscal year covered by the certification:

(1) The certification shall be approved by PHA Board resolution,

and signed and attested to by the Executive Director.

(2) PHAs shall maintain documentation for three years verifying all

certified indicators for HUD on-site review.

(3) A PHA may include along with its certification submission,

rather than through an exclusion or modification request, any

information bearing on the accuracy or completeness of the data used by

HUD (corrected data, late reports, previously omitted required reports,

etc.) in grading an indicator. HUD will consider this assertion in

grading the affected indicator.

(4) If a PHA does not submit its certification, or submits its

certification late, appropriate sanctions may be imposed, including a

presumptive rating of failure in all of the PHMAP indicators, which may

result in troubled and mod-troubled designations.

(5) A PHA that cannot provide justifying documentation to HUD

during the conduct of a confirmatory review, or other verification

review(s), for any indicator(s) or component(s) certified to, shall

receive a failing grade in that indicator(s) or component(s), and its

overall PHMAP score shall be lowered.

(6) If the data for any indicator(s) or component(s) that a PHA

certified to cannot be verified by HUD during the conduct of a

confirmatory review, or any other verification review(s), the State/

Area Office shall change a PHA's grade for any indicator(s) or

component(s), and its overall PHMAP score, as appropriate, to reflect

the verified data obtained during the conduct of such review.

(7) A PHA that cannot provide justifying documentation to the

independent auditor for the indicator(s) or component(s) that the PHA

certified to, as reflected in the audit report, shall receive a grade

of F for that indicator(s) or component(s), and its overall PHMAP score

shall be lowered.

(8) A PHA's PHMAP score for individual indicators or components, or

its overall PHMAP score, may be changed by the State/Area Office

pursuant to the data included in the independent audit report, as

applicable.

(9) A PHA's certification and supporting documentation will be

post-reviewed by HUD during the next on-site review as determined by

risk management, but is subject to verification at any time.

Appropriate sanctions for intentional false certification will be

imposed, including suspension or debarment of the signatories, the loss

of high performer designation, a lower grade for individual indicators

and a lower PHMAP total weighted score.

(c) For those developments of a PHA where management functions have

been assumed by an RMC, the PHA's certification shall identify the

development and the management functions assumed by the RMC. The PHA

shall obtain a certified questionnaire from the RMC as to the

management functions undertaken by the RMC. The PHA shall submit the

RMC's certified questionnaire along with its own. The RMC's

certification shall be approved by its Executive Director or Chief

Executive Officer of whatever title.

Sec. 901.105 Computing assessment score.

(a) Grades within indicators and components have the following

point values:

(1) Grade A = 10.0 points;

(2) Grade B = 8.5 points;

(3) Grade C = 7.0 points;

(4) Grade D = 5.0 points;

(5) Grade E = 3.0 point; and

(6) Grade F = 0.0 points.

(b) If indicators or components are designated as having additional

weight

[[Page 68944]]

(e.g., x1.5 or x2), the points in each grade will be multiplied times

the additional weight.

(c) Indicators will be graded individually. Components within an

indicator will be graded individually, and then will be used to

determine a single grade for the indicator, by dividing the total

number of component points by the total number of component weights and

rounding off to two decimal places. The total number of component

weights for this purpose includes a one for components that are

unweighted (i.e., they are weighted x1, rather than x1.5 or x2).

(d) Adjustment for physical condition and neighborhood environment.

The overall PHMAP score will be adjusted by adding additional points

that reflect the adjustment to be given to the differences in the

difficulty of managing developments that result from physical condition

and neighborhood environment:

(1) Adjustments shall apply to the following three indicators only:

(i) Indicator #1, vacancy rate and unit turnaround;

(ii) Indicator #4, work orders; and

(iii) Indicator #5, annual inspection and condition of units and

systems.

(2) Definitions of physical condition and neighborhood environment

are:

(i) Physical condition: refers to units located in developments

over ten years old that require major capital investment in order to

meet local codes or minimum HQS standards, whichever is applicable.

This excludes developments that have been comprehensively modernized.

(ii) Neighborhood environment: refers to units located within

developments where the immediate surrounding neighborhood (that is a

majority of the census tracts or census block groups on all sides of

the development) has at least 51% of families with incomes below the

poverty rate as documented by the latest census data.

(3) Any PHA with 5% or more of its units subject to either or both

of the above conditions shall, if they so choose, be issued an adjusted

PHMAP score in addition to the regular score based solely upon the

certification of the PHA. The adjusted score shall be calculated as

follows:

------------------------------------------------------------------------

Percent of units subject to physical condition and/or Extra

neighborhood environment points

------------------------------------------------------------------------

At least 5% but less than 10%.................................. .5

At least 10% but less than 20%................................. .6

At least 20% but less than 30%................................. .7

At least 30% but less than 40%................................. .8

At least 40% but less than 50%................................. .9

At least 50%................................................... 1.0

------------------------------------------------------------------------

(i) These extra points will be added to the score (grade) of the

indicator(s) to which these conditions may apply. A PHA is required to

certify on form HUD-50072, PHMAP Certification, the extent to which the

conditions apply, and to which of the indicators the extra scoring

points should be added.

(ii) Units in developments that have received substantial

rehabilitation within the past ten years are not eligible to be

included in the calculation of total PHA units due to physical

condition only.

(iii) A PHA that receives a grade of A under indicators #4 and/or

#5 may not claim the additional adjustment for indicator #1 based on

physical condition of its developments, but may claim additional

adjustment based on neighborhood environment.

(iv) A PHA that receives the maximum potential weighted points on

indicators #1, #4 and/or #5 may not claim any additional adjustment for

physical condition and/or neighborhood environment for the respective

indicator(s).

(v) A PHA's score for indicators #1, #4 and/or #5, after any

adjustment(s) for physical condition and/or neighborhood environment,

may not exceed the maximum potential weighted points assigned to the

respective indicator(s).

(4) If only certain units or developments received substantial

rehabilitation, the additional adjustment shall be prorated to exclude

the units or developments with substantial rehabilitation.

(5) The Date of Full Availability (DOFA) shall apply to scattered

site units, where the age of units and buildings vary, to determine

whether the units have received substantial rehabilitation within the

past ten years and are eligible for a adjusted score for the physical

condition factor.

(6) PHAs shall maintain supporting documentation to show how they

arrived at the number and percentage of units out of their total

inventory that are subject to adjustment.

(i) If the basis was neighborhood environment, the PHA shall have

on file the appropriate maps showing the census tracts or census block

groups surrounding the development(s) in question with supporting

census data showing the level of poverty. Units that fall into this

category but which have already been removed from consideration for

other reasons (permitted exemptions and modifications and/or

exclusions) shall not be counted in this calculation.

(ii) For the physical condition factor, a PHA would have to

maintain documentation showing the age and condition of the units and

the record of capital improvements, indicating that these particular

units have not received modernization funds.

(iii) PHAs shall also document that in all cases, units that were

exempted for other reasons were not included in the calculation.

Sec. 901.110 PHA request for exclusion or modification of an indicator

or component.

(a) A PHA shall have the right to request the exclusion or

modification of any indicator or component in its management

assessment, thereby excluding or modifying the impact of those

indicator's or component's grades in its PHMAP total weighted score.

(b) Exclusion and modification requests shall be submitted by a PHA

at the time of its PHMAP certification submission to the State/Area

Office along with supporting documentary justification, rather than

during the appeal process.

(c) Requests for exclusions and modifications that do not include

supporting documentary justification will not be considered.

(d) Indicator #2, modernization, shall be automatically excluded by

the State/Area Office if a PHA does not have an open modernization

program.

(e) Indicator #7, resident services and community building, shall

be automatically excluded by the State/Area Office for PHAs with fewer

than 250 units, or with 100% elderly developments, unless they request

to be assessed at the time of the PHMAP certification submission.

(f) Indicator #8, security, shall be automatically excluded by the

State/Area Office for PHAs with fewer than 250 units unless they

request to be assessed at the time of the PHMAP certification

submission.

Sec. 901.115 PHA score and status.

(a) PHAs that achieve a total weighted score of 90% or greater

shall be designated high performers. A PHA shall not be designated as a

high performer if it scores below a grade of C for any indicator. High

performers will be afforded incentives that include relief from

reporting and other requirements, as described in Sec. 901.130.

(b) PHAs that achieve a total weighted score of 90% or greater on

its overall PHMAP score and on indicator #2, modernization, shall be

designated mod-high performers.

[[Page 68945]]

(c) PHAs that achieve a total weighted score of less than 90% but

not less than 60% shall be designated standard. Standard performers

will be afforded incentives that include relief from reporting and

other requirements, as described in Sec. 901.130.

(d) PHAs that achieve a total weighted score of less than 60% shall

be designated as troubled.

(e) PHAs that achieve 60% of the maximum calculation for indicator

#2, modernization, shall be designated as mod-troubled.

(f) Each PHA shall post a notice of its final PHMAP score and

status in appropriate conspicuous and accessible locations in its

offices within two weeks of receipt of its final score and status. In

addition, HUD will publish every PHA's score and status in the Federal

Register.

(g) A PHA that cannot provide justifying documentation to HUD

during the conduct of a confirmatory review, or other verification

review(s), for any indicator(s) or component(s) certified to, shall

receive a failing grade in that indicator(s) or component(s), and its

overall PHMAP score shall be lowered.

(h) If the data for any indicator(s) or component(s) that a PHA

certified to cannot be verified by HUD during the conduct of a

confirmatory review, or any other verification review(s), the State/

Area Office shall change a PHA's grade for any indicator(s) or

component(s), and its overall PHMAP score, as appropriate, to reflect

the verified data obtained during the conduct of such review.

(i) A PHA that cannot provide justifying documentation to the

independent auditor for the indicator(s) or component(s) that the PHA

certified to, as reflected in the audit report, will receive a grade of

F for that indicator(s), and its overall PHMAP score will be lowered.

(j) A PHA's PHMAP score for individual an indicator(s),

component(s) or its overall PHMAP score may be changed by the State/

Area Office pursuant to the data included in the independent audit

report, as applicable.

(k) In exceptional circumstances, even though a PHA has satisfied

all of the indicators for high or standard performer designation, the

State/Area Office may conduct any review as necessary, including a

confirmatory review, and deny or rescind incentives or high performer

status, as described in paragraphs (a) and (b) of this section in the

case of a PHA that:

(1) Is operating under a special agreement with HUD;

(2) Is involved in litigation that bears directly upon the

management of a PHA;

(3) Is operating under a court order;

(4) Demonstrates substantial evidence of fraud or misconduct,

including evidence that the PHA's certification of indicators is not

supported by the facts, resulting from such sources as a confirmatory

review, routine reports and reviews, an Office of Inspector General

investigation/audit, an independent auditor's audit or an investigation

by any appropriate legal authority; or

(5) Demonstrates substantial noncompliance in one or more areas

(including areas not assessed by the PHMAP). Areas of substantial

noncompliance include, but are not limited to, noncompliance with

statutes (e.g., Fair Housing and Equal Opportunity statutes);

regulations (e.g., 24 CFR Sec. 85); or the Annual Contributions

Contract (ACC) (e.g., the ACC, form HUD-53012A, Section 4, Mission of

the PHA). Substantial noncompliance would cast doubt on the PHA's

capacity to preserve and protect its public housing developments and

operate them consistent with Federal law and regulations.

(l) When a State/Area Office Public Housing Director acts for any

of the reasons stated in paragraph (k) of this section, the State/Area

Office will send written notification to the PHA with a specific

explanation of the reasons. An information copy will be forwarded to

the Assistant Secretary for Public and Indian Housing.

(m) A PHA may appeal denial of high performer status in accordance

with Sec. 901.125.

Sec. 901.120 State/Area Office functions.

(a) The State/Area Office will assess each PHA within its

jurisdiction on an annual basis:

(1) The State/Area Office will make determinations for high-

performing, standard, troubled PHAs and mod-troubled PHAs in accordance

with a PHA's PHMAP weighted score.

(2) The State/Area Office will also make determinations for

exclusion and modification requests.

(b) Each State/Area Office will notify each PHA of the PHA's grade

and the grade of the RMC (if any) assuming management functions at any

of the PHA's developments, in each indicator; the PHA's management

assessment total weighted score and status, and if applicable; its

adjustment for physical condition and neighborhood environment; any

determinations concerning exclusion and modification requests; and any

deadline date by which appeals must be received. PHA notification

should include offers of pertinent technical assistance in problem

areas, suggestions for means of improving problem areas, and areas of

relief and incentives as a result of high performer status. The PHA

must notify the RMC (if any) in writing, immediately upon receipt of

the State/Area Office notification, of the RMC's grades.

(c) An on-site confirmatory review may be conducted of a PHA by

HUD. The purpose of the on-site confirmatory review is to verify those

indicators for which a PHA provides certification, as well as the

accuracy of the information received in the State/Area Office

pertaining to the remaining indicators.

(1) Whenever practicable, a confirmatory review should be conducted

by HUD prior to the issuance of a PHA's initial notification letter.

The results of the confirmatory review shall be included in the PHA's

initial notification letter.

(2) If, in an exceptional circumstance, a confirmatory review is

conducted after the State/Area Office issues the initial notification

letter, the State/Area Office shall explain the results of the

confirmatory review in writing, correct the PHA's total weighted score,

as appropriate, and reissue the initial notification letter to the PHA.

(3) The State/Area Office shall conduct a confirmatory review of a

PHA with 100 or more units under management that scores less than 60%

for its total weighted score, or less than 60% on indicator #2,

modernization, before initially designating the PHA as troubled or mod-

troubled. The results of the confirmatory review shall be included in

the PHA's initial notification letter.

(4) The State/Area Office shall conduct a confirmatory review on a

yearly basis of all troubled and mod-troubled PHAs.

(5) The State/Area Office shall conduct a confirmatory review of a

PHA with 100 or more units under management prior to the removal of

troubled or mod-troubled designation.

(6) Independent confirmatory reviews (team members from other

State/ Area Offices) shall be conducted of troubled PHAs with 1250 or

more units under management prior to the removal of troubled

designation.

(d) A PHA that cannot provide justifying documentation to HUD

during the conduct of a confirmatory review, or other verification

review(s), for any indicator(s) or component(s) certified to, shall

receive a failing grade in that indicator(s) or component(s), and its

overall PHMAP score shall be lowered by the State/Area Office. The

State/Area Office shall explain to the PHA the reason(s) for the

change(s) in writing,

[[Page 68946]]

correct the PHA's grade for an individual component(s) and/or

indicator(s) and total weighted score, as appropriate, and reissue the

initial notification letter to the PHA.

(e) If the data for any indicator(s) or component(s) that a PHA

certified to cannot be verified by HUD during the conduct of a

confirmatory review, or any other verification review(s), the State/

Area Office shall change a PHA's grade for any indicator(s) or

component(s), and its overall PHMAP score, as appropriate, to reflect

the verified data obtained during the conduct of such review. The

State/Area Office shall explain to the PHA the reason(s) for the

change(s) in writing, correct the PHA's grade for an individual

component(s) and/or indicator(s) and total weighted score, as

appropriate, and reissue the initial notification letter to the PHA.

(f) A PHA that cannot provide justifying documentation to the

independent auditor for the indicator(s) or component(s) that the PHA

certified to, as reflected in the audit report, will receive a grade of

F for that indicator(s), and its overall PHMAP score will be lowered by

the State/Area Office. The State/Area Office shall explain to the PHA

the reason(s) for the change(s) in writing, correct the PHA's grade for

an individual component(s) and/or indicator(s) and total weighted

score, as appropriate, and reissue the initial notification letter to

the PHA.

(g) A PHA's PHMAP score for an individual indicator(s),

component(s) or its overall PHMAP score may be changed by the Area/

State Office pursuant to the data included in the independent audit

report, as applicable. The State/Area Office shall explain to the PHA

the reason(s) for the change(s) in writing, correct the PHA's grade for

an individual component(s) and/or indicator(s) and total weighted

score, as appropriate, and reissue the initial notification letter to

the PHA.

(h) Determinations on appeals and on petitions to remove troubled

or mod-troubled status will be made by the State/Area Office.

(i) Determinations of intentional false certifications will be made

by the State/Area Office. State/Area Offices shall consult with the

local Office of Inspector General for guidance in cases of

determinations of intentional false certification.

(j) In exceptional circumstances, the State/Area Office may deny or

rescind a PHA's status as a standard or high performer, in accordance

with Sec. 901.115(i), so that it will not be entitled to any of the

areas of relief and incentives.

(k) The State/Area Office will maintain PHMAP files for public

inspection in accordance with Sec. 901.155.

Sec. 901.125 PHA right of appeal.

(a) A PHA has the right to appeal its PHMAP score to the State/Area

Office, including a troubled designation or a mod-troubled designation.

A PHA may appeal its management assessment rating on the basis of data

errors (any dispute over the accuracy, calculation, or interpretation

of data employed in the grading process that would affect a PHA's PHMAP

score), the denial of exclusion or modification requests when their

denial affects a PHA's total weighted score, the denial of an

adjustment based on the physical condition and neighborhood environment

of a PHA's developments, or a determination of intentional false

certification:

(1) A PHA may appeal its management assessment rating to the State/

Area Office only for the reasons stated in paragraph (a) of this

section:

(i) A PHA may not appeal its PHMAP score to the State/Area Office

unless it has submitted its certification to the State/Area Office.

(ii) A PHA may not appeal its PHMAP score to the State/Area Office

if the reason the PHA received a deficient grade in any indicator or

component was due to the fact the PHA did not submit a required report

in a timely manner or without an approved time extension.

(iii) A PHA may not appeal its PHMAP score to the State/Area Office

if the reason the PHA received a failing grade in any indicator or

component was due to the fact that the PHA did not provide justifying

documentation to the independent auditor for any indicator(s) or

component(s) the PHA certified to.

(2) The appeal shall be submitted to the State/Area Office and

shall include supporting documentary justification of the reasons for

the appeal.

(3) The State/Area Office will make determinations on initial

appeals and will transmit the determination of the appeal to the PHA in

a notification letter that will also include the date and place for

submitting any further appeal.

(4) Appeals submitted to the State/Area Office without appropriate

documentation will not be considered and will be returned to the PHA.

(b) Appeals of rescission of high performer designation shall be

made directly to the Assistant Secretary for Public and Indian Housing.

(c) A PHA may appeal the denial of an initial appeal by the State/

Area Office to the Assistant Secretary for Public and Indian Housing

for the following reasons:

(1) Initial appeals denying high performer designation;

(2) Initial appeals denying the removal of troubled designation;

(3) Initial appeals denying the removal of mod-troubled

designation;

(4) The denial of an appeal of a determination of intentional false

certification;

(5) Data errors;

(6) The denial of exclusion or modification requests when their

denial affects a PHA's total weighted score;

(7) The denial of an adjustment based on the physical condition and

neighborhood environment of a PHA's developments;

(8) The refusal of a petition in accordance with Sec. 901.140 to

remove troubled or mod-troubled designations.

(d) A PHA may appeal its management assessment rating to the

Assistant Secretary for Public and Indian Housing only for the reasons

stated in paragraph (c) of this section.

(e) A PHA may not appeal its PHMAP score to the Assistant Secretary

unless it has submitted its certification to the State/Area Office.

(f) Appeals submitted to the Assistant Secretary for Public and

Indian Housing without appropriate documentation will not be considered

and will be returned to the PHA.

(g) The date and place by which any appeal must be submitted will

be specified in the letter from the State/Area Office notifying the PHA

of any determination or action. For example, the State/Area Office

initial notification letter or denial of initial appeal letter will

specify the date and place by which appeals must be received. The date

specified will be the 15th calendar day after the letter is mailed, not

counting the day the letter is mailed. If the 15th day falls on a

weekend or holiday, the date specified will be the next day that is not

on a weekend or a holiday. Any appeal not received by the specified

time and place will not be considered.

Sec. 901.130 Incentives.

(a) A PHA that is designated high performer or standard performer

will be relieved of specific HUD requirements, effective upon

notification of high or standard performer designation.

(b) A PHA shall not be designated a mod-high performer and be

entitled to the applicable incentives unless it has been designated an

overall high performer.

(c) High-performing PHAs, and RMCs that receive a grade of A on

each of the indicators for which they are assessed, will receive a

Certificate of

[[Page 68947]]

Commendation from the Department as well as special public recognition.

(d) Representatives of high-performing PHAs may be requested to

serve on Departmental working groups that will advise the Department in

such areas as troubled PHAs and performance standards for all PHAs.

(e) State/Area Offices may award incentives to PHAs on an

individual basis for a specific reason(s), such as a PHA making the

right decision that impacts long-term overall management or the quality

of a PHA's housing stock, with prior concurrence from the Assistant

Secretary.

(f) Relief from any standard procedural requirements does not mean

that a PHA is relieved from compliance with the provisions of Federal

law and regulations or other handbook requirements. For example,

although a high or standard performer may be relieved of requirements

for prior HUD approval for certain types of contracts for services, it

must still comply with all other Federal and State requirements that

remain in effect, such as those for competitive bidding or competitive

negotiation (see 24 CFR 85.36):

(1) PHAs will still be subject to regular independent auditor (IA)

audits.

(2) Office of Inspector General (OIG) audits or investigations will

continue to be conducted as circumstances may warrant.

(g) In exceptional circumstances, the State/Area Office will have

discretion to subject a PHA to any requirement that would otherwise be

omitted under the specified relief, in accordance with Sec. 901.115(i).

Sec. 901.135 Memorandum of Agreement.

(a) After consulting the independent assessment team and reviewing

the report identified in section 6(j)(2)(b) of the 1937 Act, a

Memorandum of Agreement (MOA), a binding contractual agreement between

HUD and a PHA, shall be required for each PHA designated as troubled

and/or mod-troubled. The scope of the MOA may vary depending upon the

extent of the problems present in the PHA, but shall include:

(1) Baseline data, which should be raw data but may be the PHA's

score in each of the indicators identified as a problem, or other

relevant areas identified as problematic;

(2) Annual and quarterly performance targets, which may be the

attainment of a higher grade within an indicator that is a problem, or

the description of a goal to be achieved, for example, the reduction of

rents uncollected to 6% or less by the end of the MOA annual period;

(3) Strategies to be used by the PHA in achieving the performance

targets within the time period of the MOA;

(4) Technical assistance to the PHA provided or facilitated by the

Department, for example, the training of PHA employees in specific

management areas or assistance in the resolution of outstanding HUD

monitoring findings;

(5) The PHA's commitment to take all actions within its control to

achieve the targets;

(6) Incentives for meeting such targets, such as the removal of

troubled or mod-troubled designation and Departmental recognition for

the most improved PHAs;

(7) The consequences of failing to meet the targets, including such

sanctions as the imposition of budgetary limitations, declaration of

substantial default and subsequent actions, limited denial of

participation, suspension, debarment, or the imposition of operating

funding and modernization thresholds; and

(8) A description of the involvement of local public and private

entities, including PHA resident leaders, in carrying out the agreement

and rectifying the PHA's problems. A PHA shall have primary

responsibility for obtaining active local public and private entity

participation, including the involvement of public housing resident

leaders, in assisting PHA improvement efforts. Local public and private

entity participation should be premised upon the participant's

knowledge of the PHA, ability to contribute technical expertise with

regard to the PHA's specific problem areas and authority to make

preliminary/tentative commitments of support, financial or otherwise.

(b) A MOA shall be executed by:

(1) The PHA Board Chairperson and accompanied by a Board

resolution, or a receiver (pursuant to a court ordered receivership

agreement, if applicable) or other AME acting in lieu of the PHA Board;

(2) The PHA Executive Director, or a designated receiver (pursuant

to a court ordered receivership agreement, if applicable) or other AME-

designated Chief Executive Officer;

(3) The Director, State/Area Office of Public Housing, except as

stated in (d) of this section; and

(4) The appointing authorities of the Board of Commissioners,

unless exempted by the State/Area Office.

(c) The Department encourages the inclusion of the resident

leadership in MOA negotiations and the execution of the MOA.

(d) Upon designation of a large PHA (1250 or more units under

management) as troubled, the State/Area Office shall make a referral to

HUD Headquarters for appropriate recovery intervention and the

execution of an MOA by the Assistant Secretary for Public and Indian

Housing.

(e) A PHA will monitor MOA implementation to ensure that

performance targets are met in terms of quantity, timeliness and

quality.

Sec. 901.140 Removal from troubled status and mod-troubled status.

(a) A PHA has the right to petition the State/Area Office for the

removal of a designation as troubled or mod-troubled.

(b) A PHA may appeal any refusal to remove troubled and mod-

troubled designation to the Assistant Secretary for Public and Indian

Housing in accordance with Sec. 901.125.

(c) A PHA with fewer that 1250 units under management will be

removed from troubled status by the State/Area Office upon a

determination by the State/Area Office that the PHA's assessment

reflects an improvement to a level sufficient to remove the PHA from

troubled status, or mod-troubled, i.e., a total weighted management

assessment score of 60% or more, and upon the conduct of a confirmatory

review for PHAs with 100 or more units under management.

(d) A PHA with 1250 units or more under management will be removed

from troubled status by the Assistant Secretary for Public and Indian

Housing upon a recommendation by the State/Area Office when a PHA's

assessment reflects an improvement to a level sufficient to remove the

PHA from troubled or mod-troubled status, i.e., a total weighted

management assessment score of 60% or more, and upon the conduct of an

independent confirmatory review (team members from other State/Area

Offices).

Sec. 901.145 Improvement Plan.

(a) After receipt of the State/Area Office notification letter in

accordance with Sec. 901.120(b) or receipt of a final resolution of an

appeal in accordance with Sec. 901.125 or, in the case of an RMC,

notification of its indicator grades from a PHA, a PHA or RMC shall

correct any deficiency indicated in its management assessment within 90

calendar days.

(b) A PHA shall notify the State/Area Office of its action to

correct a deficiency. A PHA shall also forward to the State/Area Office

an RMC's report of its action to correct a deficiency.

(c) If the State/Area Office determines that a PHA or RMC has not

corrected a deficiency as required within 90 calendar days after

receipt of its final

[[Page 68948]]

notification letter, the State/Area Office may require a PHA, or a RMC

through the PHA, to prepare and submit to the State/Area Office an

Improvement Plan within an additional 30 calendar days:

(1) The State/Area Office shall require a PHA or RMC to submit an

Improvement Plan, which includes the information stated in (d) of this

section, for each indicator that a PHA or RMC scored a grade of F.

(2) The State/Area Office may require, on a risk management basis,

a PHA or RMC to submit an Improvement Plan, which includes the

information stated in paragraph (d) of this section, for each indicator

that a PHA scored a grade D or E, as well as other performance and/or

compliance deficiencies as may be identified as a result of an on-site

review of the PHA's operations.

(d) An Improvement Plan shall:

(1) Identify baseline data, which should be raw data but may be the

PHA's score in each of the indicators identified as a problem in a

PHA's or RMC's management assessment, or other relevant areas

identified as problematic;

(2) Describe the procedures that will be followed to correct each

deficiency; and

(3) Provide a timetable for the correction of each deficiency.

(e) The State/Area Office will approve or deny a PHA's or RMC's

Improvement Plan, and notify the PHA of its decision. A PHA must notify

the RMC in writing, immediately upon receipt of the State/Area Office

notification, of the State/Area Office approval or denial of the RMC's

Improvement Plan.

(f) An Improvement Plan that is not approved will be returned to

the PHA with recommendations from the State/Area Office for revising

the Improvement Plan to obtain approval. A revised Improvement Plan

shall be resubmitted by the PHA or RMC within 30 calendar days of its

receipt of the State/Area Office recommendations.

(g) If a PHA or RMC fails to submit an acceptable Improvement Plan,

or to correct deficiencies within the time specified in an Improvement

Plan or such extensions as may be granted by HUD, the State/Area Office

will notify the PHA of its or the RMC's noncompliance. The PHA, or the

RMC through the PHA, will provide HUD its reasons for lack of progress

in submitting or carrying out the Improvement Plan within 30 calendar

days of its receipt of the noncompliance notification. HUD will advise

the PHA as to the acceptability

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