Public Housing Assessment System

SUMMARY: This proposed rule establishes an entirely new system for the

assessment of public housing in the United States. The nation's public

housing system houses 1.2 million families in 20,000 projects across

the 50 States, Puerto Rico, Guam and the U.S. Virgin Islands, operated

by 3,400 public housing agencies. The major components of the new

system include:

The rule provides for the first-ever assessment of the physical

condition, financial health, and resident services in public housing.

For the first time, the physical condition of every project in the

nation's public housing inventory will be inspected on a regular basis

with uniform standards to ensure that residents receive decent, safe,

and sanitary housing. For the first time, the financial condition of

every public housing agency will be assessed on generally accepted

accounting principles. For the first time, resident satisfaction with

public housing services will be measured and counted in HUD's

assessment of public housing agency management.

The rule provides for increased flexibility for top performers.

Public housing agencies which score in the top ten percent in their

physical condition, financial health, resident satisfaction, and

management operations will receive substantial flexibility and bonus

points for funding competitions.

The rule provides for the establishment of a Troubled Agency

Recovery Center to improve poor performers. Public housing agencies

which perform unsuccessfully on these factors will be referred to a new

Troubled Agency Recovery Center to improve poor performers.

The rule provides for the establishment of an Enforcement Center

and Receivership for agencies which fail to improve performance. Public

housing agencies which fail to post significant improvement within a

year will be automatically referred to the new HUD Enforcement Center

which will institute proceedings for judicial receivership to remove

failed agency management.

The purpose of the new Public Housing Assessment System is to

enhance public trust by creating a comprehensive management tool that

effectively and fairly measures a PHA's performance based on standards

that are objective, uniform and verifiable, and provides real rewards

for high performers and consequences for poor performers. As more fully

discussed in the Supplementary Information section of the preamble, the

proposed rule was developed with the assistance of public housing

agency officials, representatives of public housing agency

organizations, and representatives of public housing residents

organizations.

DATES: Comment due date: July 30, 1998.

ADDRESSES: Interested persons are invited to submit comments regarding

this interim rule to the Regulations Division, Office of General

Counsel, Room 10276, Department of Housing and Urban Development, 451

Seventh Street, SW, Washington, DC 20410. Communications should refer

to the above docket number and title. Facsimile (FAX) comments are not

acceptable. A copy of each communication submitted will be available

for public inspection and copying between 7:30 a.m. and 5:30 p.m.

weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: For further information contact the

Real Estate Assessment Center, Attention William Thorson, Department of

Housing and Urban Development, 4900 L'Enfant Plaza East, SW, Room 8204,

Washington, DC 20410; telephone (202) 755-0102 (this is not a toll-free

number). Persons with hearing or speech impairments may access that

number via TTY by calling the Federal Information Relay Service at

(800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. HUD Constituents Participation in the Proposed Rule

President Clinton's Executive Order on Regulatory Planning and

Review (E.O. 12866, issued September 30, 1993) provides in section

(6)(a) that:

Each agency shall (consistent with its own rules, regulations,

or procedures) provide the public with meaningful participation in

the regulatory process. In particular, before issuing a notice of

proposed rulemaking, each agency should, where appropriate, seek the

involvement of those who are intended to benefit from and those

expected to be burdened by any regulation (including, specifically,

State, local and tribal officials).

Consistent with President Clinton's Executive and HUD's own

partnership initiatives with its constituents and clients, the new

assessment system for public housing was developed with extensive

discussion and consultation with public housing agency (PHA) officials,

officials from PHA representative organizations, representatives of

public housing resident groups, experts in the fields of finance and

audit and physical inspection of properties, and other interested

parties such as housing advocacy groups and local government

representatives. These discussions and consultations began in October

1997 and continued through April 1998. It was important to HUD that

these entities and individuals have input in the development of a

proposal for a new assessment system for public housing.

The consultation and discussions with PHA agency officials and

representative groups will continue through the final rulemaking

process and in the implementation of this new system. During the

transition period to the new system, HUD will work closely with PHAs

and resident groups to make any necessary refinements to the system.

HUD, PHAs and public housing residents all want to see an effective and

efficient management system for public housing, and will work together

to make this a successful system for all concerned.

II. HUD 2020 Management Reforms

On June 26, 1997, HUD released its plan, the ``HUD 2020 Management

Reform Plan,'' for significant management reforms at HUD. HUD published

the plan in the Federal Register on August 12, 1997 (62 FR 43204). The

HUD 2020 Management Reform Plan is directed to (1) empowering people

and communities to improve themselves, and (2) restoring HUD's

reputation and credibility by improving the efficiency and

effectiveness of HUD's programs, operations, and delivery of services.

To improve the efficiency and effectiveness of HUD's programs,

operations, and delivery of services, the HUD 2020 Management Reform

Plan calls for the restructuring of HUD's internal operations to

reallocate resources and consolidate major functions.

Under the HUD 2020 Management Reform Plan, resources will be

allocated in a way that is designed to align HUD's resources with its

long-term mission of empowering people and communities to improve

themselves and succeed in today's world. Consolidation of functions is

designed to avoid duplication of effort, achieve

[[Page 35673]]

consistency and uniformity in the performance of these functions, and

ensure fairness. With respect specifically to HUD's public housing

programs, the consolidation of certain functions is critical to the

survival of public housing as an affordable housing option for low-

income persons. Those consolidated functions that will significantly

impact and benefit public housing operations include the establishment

of a Real Estate Assessment Center, a Troubled Agency Recovery Center

(TARC) and an Enforcement Center. These centers provide the backbone of

HUD's new system for Federal management of the nation's public housing.

The following provides a brief overview of the functions of the three

centers and their relationship to public housing, as well as to other

HUD assisted properties.

A. Measuring Program Performance--the Real Estate Assessment Center

The Real Estate Assessment Center (the ``Assessment Center'' or

``REAC'') is charged with the responsibility for assessing and scoring

the condition of properties in which HUD has an interest and the

performance of entities that manage and own those properties. Until the

establishment of the Assessment Center, HUD's Office of Housing and the

Office of Public and Indian Housing independently operated separate

real estate assessment operations, yet the administration of both

organization's multifamily portfolios is a common function of asset

management. Under the Assessment Center, the assessment of all of the

properties of the Office of Housing and the Office of Public and Indian

Housing is consolidated and the evaluation standards and procedures are

made uniform, to the greatest extent feasible.

The establishment of the Assessment Center marks an important

change in HUD's way of doing business. Until the establishment of the

Assessment Center, HUD has never had an effective and comprehensive

property assessment system. Under HUD 2020 Management Reform, for the

first time in HUD's history, all properties will be physically

inspected and financially assessed using a comprehensive and uniform

protocol. The Assessment Center will play a key role in evaluating and

scoring the condition of public housing properties and the performance

of PHAs, and it also will play a key role in evaluating and scoring the

condition of other HUD-assisted housing and FHA-insured properties, and

the performance of the entities that manage and own those properties.

The Assessment Center will be staffed with individuals who are experts

in the areas of finance and audit, real estate functions, and housing

management operations.

In order for the Assessment Center to effectively perform its

functions, certain assessment tools--specifically, physical condition

standards for HUD properties, and financial information from HUD

reporting entities--need to be made uniform to the greatest extent

possible. As discussed later in this preamble, establishment of uniform

protocols for assessing physical condition and financial information is

underway. These new standardized protocols will become significant

diagnostic tools for the Assessment Center. For public housing, as will

be discussed in more detail later, these uniform protocols will form

part of the basis by which the Assessment Center will analyze the

performance of public housing agencies (PHAs) and assign a score. The

score assigned to a PHA will identify that PHA as a high performer,

standard performer or troubled PHA. High performers will receive

increased regulatory flexibility, bonus points and other incentives.

Those PHAs designated as troubled will be referred to the Troubled

Agency Recovery Center to improve performance.

The uniform protocols to be used by the Assessment Center, although

standardized, will not be static. The Assessment Center will provide an

ongoing analysis and evaluation of assessment methods to determine the

accuracy, the effectiveness and the relevance of inspection, management

and financial protocols, including factors, scoring, weights, sampling

and algorithms. The Assessment Center will keep the public and HUD

program participants advised of the findings obtained through this

ongoing analysis and of any recommended changes to the protocols and

indicators through issuance of Federal Register notice or other

appropriate notice.

One of HUD's objectives under HUD 2020 Management Reform is not

only to identify where performance by program participants fails to

meet acceptable standards, but to assist these participants in raising

their level of performance. For PHAs, such assistance will be provided

either by the appropriate HUD area HUB/Program Center, or by the TARC

if the PHA is designated as troubled.

B. Assisting Troubled Public Housing Agency Performers--Troubled Agency

Recovery Centers (TARCs)

The Troubled Agency Recovery Centers established by HUD will assist

PHAs designated as troubled to reach improved performance through the

development and implementation of sustainable solutions. Upon

designation as troubled, a PHA will be referred to the TARC for

assistance. The TARC will work with the PHA to develop and implement an

intervention strategy to help raise the PHA's level of performance. The

TARC will provide technical assistance to troubled PHAs on a variety of

public housing operation issues, including: property needs and

maintenance; occupancy procedures; resident and applicant relations;

and financial management. One of the principal objectives of the TARC

is to determine the appropriate course of action for the troubled PHA

to achieve recovery, considering the resources and the recovery period

best suited for the individual PHA, its community and the families the

PHA serves. If a troubled PHA is found to be making substantial

progress toward addressing its problems, consideration may be given to

allowing the PHA additional time to continue the recovery effort. If a

troubled PHA's problems are not addressed within the period established

by this rule, the PHA will be referred to the Enforcement Center.

C. Restoring Public Trust--the Enforcement Center

The greatest breach of the public trust at HUD is the waste, fraud

and abuse in HUD's existing portfolio of millions of housing units.

Until recently, each of HUD's program offices (the Offices of Public

and Indian Housing, Housing, and Community Planning and Development)

operated independent enforcement functions, with different standards

and procedures. HUD has combined non-civil rights enforcement actions

for the program offices into one authority--the Enforcement Center. The

Enforcement Center is a fundamental programmatic reform that HUD will

take to restore public trust in fulfilling its mission to provide

decent, safe and sanitary housing for lower and moderate income

households. The Enforcement Center is intended to be the central

Departmental focus for taking aggressive action against owners of HUD's

troubled assisted housing and public housing portfolios. The

Enforcement Center will be responsible for correcting long-standing

noncompliance issues with HUD grantees, and will take action against

owners who do not cooperate with HUD during any recovery process or who

may have put housing projects in jeopardy by engaging in waste, fraud

or abuse.

With respect to public housing, the Enforcement Center will be

responsible for troubled PHAs that fail to improve their performance

during the

[[Page 35674]]

established time period. The actions taken by the Enforcement Center

against such PHAs include judicial receivership to remove failed

management, and referrals for the imposition of civil and criminal

sanctions to the applicable Federal government agencies or offices,

where appropriate.

D. Achieving Fairness By Transferring Responsibility to Independent

Units

Each of the three centers, the Assessment Center, the TARC, and the

Enforcement Center, will be separate units, independent from

traditional HUD program areas and functions. This separation from

traditional program areas reflects a key objective of HUD 2020

Management Reform and that is to treat program participants and assess

program performance on the basis of uniform standards, not on the basis

of which HUD program office administers the assistance. Before the HUD

2020 Management Reforms, program office staff all too often were handed

conflicting mandates. On the one hand, staff were asked to provide

assistance to HUD program participants (communities, housing agencies,

multifamily owners, etc.) to help them meet their housing and urban

development needs; and on the other hand, these employees were directed

to monitor the actions of the program participants. HUD realizes that

both roles are important to HUD's mission and have a place in HUD, but

the role of facilitator and the role of monitor are inherently in

conflict. The creation of the Assessment Center, the TARC and the

Enforcement Center as independent units is designed to address the

inconsistent responsibilities previously handled by program staff.

Dividing the important functions of community facilitator and program

monitor into different offices is a critical step in restoring public

trust in HUD.

Restoring public trust not only will be achieved through

independence of the Assessment Center, TARC and the Enforcement Center,

but in the consistent uniform approach the centers take to the

performance of their respective functions. As discussed earlier, for

the Assessment Center, a consistent and fair approach to the evaluation

of HUD properties requires uniform assessment standards in two critical

areas: (1) The physical condition of properties receiving HUD financial

assistance; and (2) the financial condition of the owners and managers

of these properties.

E. Standardization of Physical Assessment of Properties--Uniform

Physical Condition Standards

As part of the HUD 2020 Management Reform objective to create a

uniform, assessment process for all HUD assisted properties, HUD is

establishing uniform physical conditions standards and inspection

procedures for its assisted housing, FHA related properties and public

housing. These standards are intended to ensure that such housing is

decent, safe, sanitary and in good repair--the physical condition

standard to which HUD assisted housing always has been subject. HUD's

Section 8 housing, public housing, HUD-insured multifamily housing, and

other HUD assisted housing currently must undergo an annual physical

inspection to determine that the housing qualifies as decent, safe,

sanitary and in good repair. The description or components of what

constitutes acceptable physical housing quality and the physical

inspection procedures by which the standards are determined to be met,

however, vary from HUD program to HUD program. To the extent possible,

HUD believes that housing assisted under its programs should be subject

to uniform physical standards, regardless of the source of the subsidy

or assistance. Additionally, to the extent feasible, HUD believes that

the physical inspection procedures by which the standards will be

assessed should be uniform in the covered programs. Therefore, for the

physical condition indicator of the Public Housing Assessment System

(PHAS), this proposed rule provides for public housing properties to be

evaluated on the basis of uniform physical condition standards that

ensure that the public housing is decent, safe, and sanitary. Through

separate rulemaking, HUD will propose to apply these uniform physical

condition standards to properties assisted under other HUD housing

programs. These standards are discussed in greater detail later in this

preamble.

F. Standardization of the Financial Assessment of Program

Participants--Uniform Financial Reporting

The uniform assessment of HUD properties under HUD 2020 Management

Reform also includes a uniform financial assessment process. To achieve

this objective, HUD is establishing uniform standards for annual

financial reporting for HUD's public housing, Section 8 housing, and

multifamily insured housing programs, and will require public housing

agencies, project owners, and managers (if applicable) of HUD-assisted

housing to submit to HUD annually in an electronic mode and

standardized format, to be established by HUD, certain financial

information, prepared in accordance with generally accepted accounting

principles (GAAP), as prescribed by the Governmental Accounting

Standards Board (GASB). Electronic submission is necessary because the

manual submission of annual financial information has become a

significant administrative burden to PHAs, project owners, and

mortgagees, as well as to HUD. HUD is developing a standardized format

for the reporting of the annual financial information, which will be

ready for dissemination in sufficient time to allow PHAs to comply with

the provisions of this rule. This format will be substantially the same

for all covered programs, but the format may vary in certain respects

to reflect different types of reporting entities (e.g., owners of

multifamily/Federal Housing Administration (FHA)-related entities vs.

PHAs). The objective of the uniform financial reporting requirements is

to standardize the annual financial information submission process and,

through standardization, bring consistency to the evaluation of the

financial condition of housing assisted under HUD programs. Therefore,

for the financial condition indicator of the PHAS, this proposed rule

provides for PHAs to submit electronically to HUD annual financial

reports prepared in accordance with GASB GAAP. Through separate

rulemaking, HUD will propose to apply these uniform financial reporting

requirements to program participants in other HUD housing programs. The

financial reporting requirements are discussed in greater detail later

in this preamble.

G. Enhancing Public Trust Through Improved Assessment of Public Housing

and PHAs

The new Public Housing Assessment (PHAS), proposed by this rule, is

designed to enhance public trust by creating a comprehensive oversight

tool that effectively and fairly measures a PHA based on standards that

are objective and uniform. The PHAS represents a major rethinking of

public housing management. The parties most involved in, and affected

by, public housing--PHAs and public housing residents--have expressed

concerns that the existing system largely ignores the physical

conditions of public housing. 1

[[Page 35675]]

Under the current system, a PHA's management performance may be

assessed as acceptable when its residents are living in unacceptable

housing conditions. Other concerns are that the current system is

almost totally dependent on PHA self-certification, rather than on

objective evidence or third-party verification; does not focus on basic

real estate functions; and does not provide for opportunity for input

from those directly served by the PHA--the public housing residents.

The new PHAS responds to these concerns by adding indicators that

provide for independent assessment and specifically assess these

components of a PHA's operation--physical condition of the property;

financial condition; and resident feedback.

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\1\ The current Public Housing Management Assessment Program

(PHMAP), for which the regulations are codified at 24 CFR part 901,

was established in accordance with section 502 of the Cranston-

Gonzalez National Affordable Housing Act (Pub. L. 101-625, approved

November 29, 1990) (NAHA), which amended section 6(j) of the U.S.

Housing Act of 1937 (42 U.S.C. 1437d(j)) (the 1937 Act).

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Under the PHAS, HUD will evaluate a PHA based on the following

indicators: (1) the physical condition of the PHA's public housing

properties; (2) the PHA's financial condition; (3) the PHA's management

operations; and (4) residents' assessment (through a resident survey)

of the PHA's performance. The management indicator of this new

assessment system will incorporate the majority of the existing

statutory management assessment indicators (the remaining statutory

indicators will be part of the other PHAS indicators). Each of these

major indicators is comprised of components. The PHAS indicators are

discussed in further detail below. The PHAS, although applicable only

to public housing, reflects HUD's approach under HUD 2020 Management

Reform to all properties assisted by HUD. HUD will assess all HUD-

related properties in a manner similar to that outlined in this

proposed rule, utilizing uniform financial and physical indicators, and

resident feedback.

III. The Public Housing Assessment System (PHAS)

A. Overview of the PHAS

The new PHAS is designed to instill trust in public housing as a

cost effective and affordable housing option by demonstrating that

there is in place an assessment system that accurately determines

whether a PHA is doing an outstanding, acceptable, or unacceptable job

in providing decent, safe and sanitary housing to its residents. An

accurate assessment of a PHA's performance is critical because the

consequences of that assessment can be significant. For PHAs determined

to be performing well, the consequences will be less scrutiny and

additional flexibility. For PHAs determined not to be performing well,

the consequences will be intensive technical assistance, deadlines for

improvement and possible punitive actions for failure to improve during

established periods.

The approach provided by the PHAS maximizes the best use of public

funds by concentrating resources on those PHAs in most need of

attention and recognizing outstanding performers. The system is

fundamentally designed to provide relevant and verifiable measures that

directly relate to PHA performance. Additionally, the system is

designed to allow HUD to act upon the findings produced from four

comprehensive indicators.

Under the PHAS, the Assessment Center assumes responsibility from

the Office of Public and Indian Housing for assessing the performance

of PHAs. The Assessment Center will examine four essential areas of

housing operations to determine a PHA's performance in delivering HUD

programs and services. These indicators are: (1) the physical condition

of public housing (addressed in subpart B of the rule); (2) the

financial condition of a PHA (addressed in subpart C of the rule); (3)

the management operations capabilities of PHAs, which will incorporate

the majority of the existing statutory assessment requirements

(addressed in subpart D of the rule); and resident service and

satisfaction (addressed in subpart E of the rule). To assess the

performance of a PHA on the basis of the first two indicators, the

Assessment Center will utilize comprehensive and standardized protocols

to conduct physical inspections of public housing properties, as

described above, and to assess the financial condition of PHAs. For the

Management Operations Indicator and the Resident Service and

Satisfaction Indicator, the Assessment Center will gather and analyze

data and information provided by the PHA.

In order to determine a composite score for each PHA, the four

indicators of the PHAS will be individually scored and then combined to

present a composite score that reflects the overall performance of PHAs

for a total of 100 possible points. The 100 points are distributed as

follows:

30 total points for the physical condition;

30 total points for the financial condition;

30 total points for management operations; and

10 total points for resident service and satisfaction.

The following discussion presents a brief overview of each of the

four indicators to be used under the PHAS.

1. PHAS Indicator #1--Physical Condition of Public Housing Properties

Subpart B of part 901 of this proposed rule addresses the Physical

Condition Indicator. This indicator provides for the assessment of the

physical condition of a PHA's public housing. A PHA must maintain its

housing in decent, safe, and sanitary condition.

Statutory Standard of Decent, Safe and Sanitary. This well

established and longstanding physical condition standard has several

statutory sources, including section 3(b)(1) of the 1937 Act, which

provides in relevant part as follows:

The term ``low-income housing'' means decent, safe, and sanitary

dwellings assisted under this Act. The term ``public housing'' means

low-income housing, and all necessary appurtenances thereto,

assisted under this Act other than under section 8.

Section 14 of the 1937 Act, which addresses public housing

modernization, also emphasizes a decent, safe, and sanitary housing

standard. Section 14(j)(2) provides, in relevant part, that ``the

Secretary shall issue rules and regulations establishing standards

which provide for decent, safe, and sanitary living conditions in low-

rent public housing projects. * * *'' 2 In adopting uniform

physical condition standards for public housing, this proposed rule

would not alter the statutory standard for maintaining public housing.

Instead, the proposed rule, by using the statutory terminology, clearly

acknowledges that public housing must be maintained in ``decent, safe,

and sanitary'' condition.3

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\2\ The current regulatory provisions addressing the physical

condition of public housing projects are found in several sections

of HUD's regulations in Title IX of 24 CFR: Secs. 901.30 (of the

PHMAP regulations), 941.203 (of the Public Housing Development

regulations), 965.704 (of the PHA-Owned or Leased Projects

regulations), and 968.315 (of the Comprehensive Improvement Program

Regulations).

\3\ As the proposed regulatory text will show, the physical

condition standards are referred to as ``decent, safe, sanitary and

in good repair.'' As the preamble discussion notes the statutory

physical condition standard for public housing is expressed in terms

of ``decent, safe and sanitary.'' For FHA-related properties, the

statutory standard is expressed in terms of ``good repair and

condition.'' In adopting physical condition standards that are

applicable to both public housing and FHA-related properties, HUD

uses the descriptive term--``decent, safe, sanitary and in good

repair.''

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No Preemption of State and Local Building and Maintenance Codes.

The new uniform physical condition standards established by HUD do not

supersede or preempt State and local building and maintenance codes

with

[[Page 35676]]

which the PHA's public housing must comply. PHAs must continue to

adhere to these codes.

Uniform Physical Condition Standards. The uniform physical

standards being established would set parameters under which public

housing (as well as other HUD assisted housing) must be maintained and

will be evaluated. These standards are designed to analyze, score, and

rank the overall and general physical condition of a project. This

evaluation would not focus on a single element, but would take into

consideration significant observable deficiencies and score compliance

taken as a whole. A single critical element with a major defect (for

example, an inoperable heating system), however, could have a

significant impact on a project's overall evaluation. The standards

address six major areas of the housing to be evaluated: (1) site; (2)

building exterior; (3) building systems; (4) dwelling units; (5) common

areas; and (6) health and safety. The standards emphasize health and

safety considerations as essential to housing that is decent, safe, and

sanitary. Appendix A to the proposed rule lists the items to be

inspected within each of the six major areas.

Physical Inspection of Public Housing. Public housing is not only

currently subject to a standard of decent, safe and sanitary, there is

also an obligation on the PHA to ``inspect'' public housing units.

Section 6(j)(1)(G) of the 1937 Act requires the PHA to inspect units to

ascertain ``maintenance or modernization needs.'' This corresponding

regulatory requirement is found in HUD's regulations at 24 CFR 901.30.

Section 901.30, captioned ``Indicator #5, Annual Inspection of Units

and Systems,'' provides in relevant part that: ``All occupied units are

required to be inspected.'' This rule would not change the current

requirement for an annual inspection. That requirement remains and is

provided for under subpart D of this proposed rule, Management

Operations.

Under this proposed rule, an assessment of the physical condition

of a PHA's properties would be determined by an independent inspection

of the properties by HUD. Consistent with HUD's responsibilities under

the Assessment Center, HUD intends to conduct independent physical

inspections, using a new uniform, objective, and computerized

inspection software developed by HUD, of a statistically valid number

of public housing units for each PHA, in order to confirm compliance

with the uniform physical condition standards. The determination of

whether public housing meets the standard of decent, safe, and sanitary

would be based on a review of observable deficiencies of the site, the

building exterior, the building systems, the dwelling units, the common

areas, and the health and safety conditions of such housing. The

computer program will generate a score for these components. The scores

will allow HUD to assess the overall physical condition of the public

housing as determined by the computer-based inspection.

To ensure the independence of the physical inspection, HUD intends

to contract with private inspection firms to perform the inspections.

All inspectors will be trained under HUD auspices in the use of the

inspection protocol. Upon being certified, inspectors will obtain their

PHA inspection assignment from the Assessment Center. The inspector

will download property profile information on the selected PHA's

projects via the Internet from the HUD Home page. The inspector will

complete the inspection using a hand-held computer that uses the HUD

software. After the inspection is completed, the inspector will upload

the inspection results to HUD's central information data repository

(CIDR) where it will be verified for accuracy and then scored using

predetermined weights based on the relative importance of the property

areas inspected and factual observed deficiencies identified during the

inspection. HUD will exercise quality control procedures over the

contractor inspections to assure the validity and quality of the

inspections.

Total Points for PHAS Indicator #1. The total point value of the

Physical Condition Indicator is 30 of the 100 points available under

the PHAS. In order to receive a passing score on the Physical Condition

Indicator, a PHA must receive a score of at least 60 percent of the 30

points available.

2. PHAS Indicator #2--Financial Condition

Subpart C of this proposed rule addresses the Financial Condition

Indicator and would establish the process for the assessment of a PHA's

financial condition. The rule would require PHAs to submit to HUD, on

an annual basis, certain financial information, prepared in accordance

with generally accepted accounting principles (GAAP), as those

principles are prescribed by the Governmental Accounting Standards

Board (GASB). The rule also requires that the annual financial report

due to HUD must be submitted electronically and in a uniform format,

with the electronic mode and format to be determined by HUD. The

objective of the Financial Condition Indicator is to measure the

financial condition of PHAs for the purpose of evaluating whether they

have sufficient financial resources and are managing those financial

resources effectively to support the provision of decent, safe, and

sanitary housing.

Generally Accepted Accounting Principles (GAAP). Accounting and

reporting in accordance with GAAP would bring much needed consistency

to HUD program evaluation. GAAP requires the participant to manage its

accounting and reporting in accordance with a standard set of rules

published by auditing and accounting professionals and recognized both

within and outside of government. The use of GAAP, therefore, would

enable HUD and program participants to account for transactions and

report results of operations using widely accepted protocols. The audit

process would be enhanced by the use of GAAP, reducing audit costs. The

resulting reports are widely accepted by industry and government and

are, therefore, widely understood. The relative consistency of GAAP

would allow HUD to perform analysis on its large housing portfolio in

ways that assure the overall reliability and validity of the results.

The discussions that HUD had with PHAs, PHA representatives,

residents and other interested parties about the new PHAS included

conversion of PHA financial reports to GAAP. From these discussions,

HUD has learned that GAAP accounting and reporting is more meaningful

than present HUD accounting, and that the majority of PHAs seek the

benefits of the change. A number of PHAs already have begun using GAAP

or are in the process of converting to GAAP. At least two States

(Louisiana and Tennessee) require that all PHAs in those States convert

their HUD basis of accounting financial statements to a GAAP basis for

State reporting purposes. Therefore, PHAs, as well as the accountants

and auditors in those two States, have experience with the GAAP

conversion process. Additionally, several large PHAs (New York,

Chicago, Denver, Seattle, and Baltimore, for example) have already

converted to GAAP. Further, it is expected that many PHAs have

quantified the effect of the differences between GAAP and the HUD basis

of accounting because of the guidance given in the Public and Indian

Housing Low Rent Technical Accounting Guide and because of other

business and operating needs (e.g., the need to fund liabilities for

sick and vacation leave).

For those PHAs that may not be familiar with GAAP or that have not

had

[[Page 35677]]

occasion to prepare GAAP financial reports for other submissions (for

example, reports that may be required to be submitted to State or local

governments), accounting support services are an eligible expense under

the Performance Funding System (PFS). To ease the conversion, the

current PHA accounting guide and chart of accounts will not be modified

except to add those additional accounts needed to record new

transactions in accordance with GAAP or to enhance the existing chart

of accounts to address current business operation requirements. Some

illustrative examples of these new accounts are: (1) an allowance for

uncollectible receivables and the related bad debt expense; (2) an

allowance for depreciation of buildings, structures and equipment and

the related depreciation expense; and (3) liability and expense

accounts for probable losses expected from litigation, claims, and

other contingencies. While a PHA's accounting staff will have to

quantify the amounts to be recorded in these new accounts, the PHA's

independent public accountants can provide guidance on GAAP. HUD also

will offer guidance for purposes of standardizing the conversion

results. Since HUD funds all audit costs as an add-on to the

performance funding system (PFS), PHAs should not bear any increase in

the costs of an audit that may result in converting to GAAP.

Electronic Submission. HUD is aware that automated systems are

being used more extensively among the various entities that participate

in HUD programs, and the use of such systems is expanding within HUD

itself. Vice President Gore's Report of the National Performance Review

has, as a stated objective, the expanded use of new technologies and

telecommunications to create an electronic government. (September 7,

1993, Report of the Vice President's National Performance Review, pp.

113-117, Ref. 2). Requiring the electronic submission of financial data

in HUD housing programs is another step in implementing the Vice

President's objective. The electronic submission of information results

in significant benefits, such as increasing the speed of information

preparation and exchange, cost savings from reduced need for storage

space, improved product because electronic preparation generally

results in reduced errors, and faster HUD review and analysis.

This rule would require PHAs to submit their financial reports to

HUD electronically, via the Internet, rather than through tape,

diskette, or paper. HUD, however, may approve transmission of the data

by tape or diskette if HUD determines that the cost of electronic

Internet transmission would be excessive. HUD anticipates that the

instances in which covered entities will not be able to comply with

submission of financial data electronically via Internet will be very

few. This rule would help to bring HUD up to speed with its program

partners in terms of modern technology.

Assessing Financial Condition. The key indicators used to

distinguish PHAs in strong financial condition from those which may be

financially troubled include: (1) A measure of liquidity, the Current

Ratio (defined as current assets divided by current liabilities), and

(2) a measure of viability, the Number of Months Expendable Fund

Balance (defined as the Expendable Fund Balance divided by monthly

Operating Expenditures); (3) Days Receivable Outstanding (defined as

the average number of days tenant receivables are outstanding); (4)

Vacancy Loss (defined as the loss of potential rental income due to

vacancy); (5) Expense Management/Energy Consumption (defined as expense

per unit for key expenses); and (6) Net Income or Loss divided by the

Expendable Fund Balance (defined as the net income or loss, if any, for

the operating year, divided by the expendable fund balance).

The liquidity measure is evidence of the property's ability to

cover its near term obligations with resources available in the near

term. The viability measure is evidence of the PHA's ability to operate

using its expendable fund balance without relying on additional

funding. Prudent financial management practices, appropriate to the PHA

environment, suggest that these components be maintained at certain

levels, although a range may be acceptable for peer groups of PHAs.

The Days Receivable Outstanding component measures the ability of

the PHA to collect its tenant receivables in a timely fashion. The

inability to collect tenant receivables in a timely fashion might help

explain poor performance in the liquidity and viability measures.

The Vacancy Loss component measures the extent to which the PHA is

maximizing its revenue from operations.

The Expense Management/Energy Consumption component, adjusted for

size and region, and includes energy consumption expenses as well as

any other factors that would reasonably contribute to differences in

expense ratios, will provide a measure of the PHA's ability to maintain

its expense ratios at a reasonable level relative to its peers.

Net Income or Loss divided by the Expendable Fund Balance will

provide a measure of how the year's operations have affected the PHA's

viability to a substantial degree.

Total Points for PHAS Indicator #2. The total point value of the

Financial Condition Indicator is 30 of the 100 points available under

the PHAS. In order to receive a passing score on the Financial

Condition Indicator, a PHA must receive a score of at least 60 percent

of the 30 points available.

Financial Reporting Compliance Dates. HUD intends that the

requirement of electronic submission of GAAP-based financial reports,

in the manner and in the format prescribed by HUD, will begin with

those PHAs with fiscal years ending September 30, 1999 and later. This

compliance schedule will allow sufficient conversion time for PHAs that

are not currently using GAAP. Unaudited financial statements will be

required 60 days after the PHA's fiscal year end (i.e., November 30,

1999), and audited financial statements will then be required no later

than 9 months after the PHA's fiscal year end, in accordance with the

Single Audit Act and OMB Circular A-133. A PHA with a fiscal year

ending September 30, 1999 that elects to submit its unaudited financial

report earlier than the due date of November 30, 1999 must submit its

report electronically and prepared in accordance with GAAP, in the

manner and in the format prescribed by HUD, as provided by this rule.

On or after September 30, 1998 but prior to November 30, 1999 (except

for a PHA with its fiscal year ending September 30, 1999), PHAs may

submit their financial reports in accordance with the financial

reporting requirements of this rule, but would not be required to do

so.

3. PHAS Indicator #3--Management Operations

Subpart D of this proposed rule addresses the Management Operations

Indicators of PHAs and provides for the assessment of a PHA's

management operations. PHAS Indicator #3 (Management Operations)

basically reflects the requirements of the existing PHMAP system.

The PHAS preserves the statutory indicators found in section 6(j)

of the 1937 Act, with some minor reorganization (from that in the

existing system) which is designed to reflect their integration into

the broader PHAS assessment and to establish their new point values

within the PHAS. The statutory indicators are: (1) Vacancy rate; (2)

unexpended Section 14 (of the

[[Page 35678]]

1937 Act) funds; (3) rents uncollected; (4) energy consumption; (5)

unit turn-around time; (6) outstanding work orders; and (7) annual

inspection of units. The Management Operations Indicator of the PHAS

incorporates the seven statutory indicators. As is currently the case

under the existing system, statutory indicators (1) and (5) are

combined under the new PHAS. The statutory energy consumption indicator

is part of PHAS Indicator 2 (Financial Condition), just as it was

folded into the financial management indicator of existing system. The

energy/utility consumption expenses faced by a PHA on an annual basis

will be part of the PHA's annual financial report to HUD.

With respect to non-statutory indicators, the security indicator

remains part of the Management Operations assessment under the PHAS.

The resident services and community building indicator is now replaced

by a separate indicator (PHAS Indicator #4--Resident Service and

Satisfaction). Similarly, the financial condition indicator is now

replaced by a separate indicator (PHAS Indicator #2--Financial

Condition).

The analysis of the individual statutory management indicators will

not deviate significantly from the existing assessment system. Scores

will continue to be based on a PHA's certification to the various

management operations indicators. For example, under Management

Indicator #1 (Vacancy Rate and Unit Turnaround Time), a low vacancy

rate will score higher than a high vacancy rate. Under Management

Indicator #4 (Work Orders) a high percentage of emergency work orders

completed or abated within 24 hours or less will score better than a

lower percentage of emergency work orders completed or abated within 24

hours or less.

As under the existing system, for the Management Operations

Indicator of the PHAS, a PHA will continue to submit certifications as

to its performance under each of the management indicators, and a PHA's

certifications will be subject to independent verification. Appropriate

sanctions for intentional false certification will be imposed,

including civil penalties, suspension or debarment of the signatories.

Total Points for PHAS Indicator #3. The total point value of the

Management Operations Indicator is 30 of the 100 points available under

the PHAS. In order to receive a passing score on the Indicator #3

(Management Operations), a PHA must receive a score of at least 60

percent of the 30 points available.

4. PHAS Indicator #4--Resident Service and Satisfaction

Subpart E of this rule addresses PHAS Indicator #4, Resident

Service and Satisfaction. This indicator assesses the level of resident

satisfaction with PHA housing and services. This assessment would

consist of existing PHMAP Indicator #7, resident services and community

building, revised to (1) be consistent with the framework of the new

PHAS, and (2) provide a separate resident services satisfaction survey.

The objective of this Indicator #4 is to seek input from all public

housing residents. To achieve an acceptable score under this indicator,

a PHA must obtain a response from a statistically significant sample of

public housing residents. The PHA will be responsible for maintaining

original copies of completed survey data, subject to independent audit,

and for developing a follow-up plan to address issues resulting from

the survey.

The resident service and satisfaction assessment score will include

three components of the survey process.

The first component will be the score of the survey results. The

survey content will focus on resident evaluation of overall living

conditions to include topics such as: (1) Resident organizations; (2)

program activities; (3) surrounding environment; (4) management

responsiveness; (5) safety; (6) involvement; (7) resources; and (8)

communication.

The second component will be a score based on the PHA's level of

implementation and its follow-up or corrective actions based on the

results of the survey.

The third component is verification that the data collection,

tabulation and submission was undertaken consistent with guidelines to

be provided by HUD. HUD reserves the right to conduct the survey at any

time on its own.

Total Points for PHAS Indicator #4. The total point value of the

Resident Service and Satisfaction Indicator is 10 of the 100 points

available under the PHAS. A PHA will not receive any points if the

survey is not conducted in accordance with HUD prescribed methodology

or if the survey results are determined to be altered by the PHA.

5. Scoring Performance Under the PHAS and Consequences of the Score

Issuance of the PHAS Score. An overall PHAS score will be issued by

HUD for each PHA 60 to 90 days after the end of the PHA's fiscal year.

As discussed earlier in this preamble, each of the four PHAS indicators

will be graded individually and these four indicators will then be used

to determine an overall score for the PHA. Components within each of

the four PHAS indicators will be graded individually and will be used

to determine a single score for the major indicator. Based on the

score, a PHA will fall into one of three categories:

High Performer PHAs. A PHA that achieves a score of at least 60% of

the points available for each of the four indicators and achieves an

overall score of 90% or greater shall be designated as a high

performer. A PHA shall not be designated as a high performer if it

scores below the threshold established for any of the four indicators.

High performers will be afforded incentives and include relief from

reporting and other requirements as described in the rule.

Standard Performer PHAs. A PHA that achieves a total score of less

than 90% but not less than 60% shall be designated as a standard

performer. All standard performers must correct reported deficiencies.

A standard performer PHA that receives a score of less than 70% but not

less than 60% shall be referred to the appropriate HUD area HUB/Program

Center and will be required to submit an improvement plan to correct

and eliminate deficiencies in the PHA's performance. Standard

performers that receive a score over 70% may also be required to submit

an improvement plan to correct or eliminate any deficiency.

Troubled Performer PHAs. A PHA that receives a total score of less

than 60% shall be designated as a troubled performer. Upon designation

as troubled, in accordance with the requirements of section 6(j)(2)(B)

of the 1937 Act and in accordance with the requirements of this rule,

the PHA shall be referred to the TARC for longer term intensive

assistance in raising its performance level.

The actions that HUB/Program Centers and the TARC with respect to

PHAs receiving low or failing scores under the PHAS are discussed

further in the following section.

6. Consequences of a PHAS Score

As under the existing system, PHAS scores will be made public. PHAs

designated as high performers will be relieved of certain HUD

requirements, effective upon notification of a high performer

designation. Additionally, high performer PHAs may be eligible for

bonus points for funding competitions, where permissible by the statute

and regulations governing the grant program. High performer PHAs also

will receive a Certificate of Commendation from HUD and public

recognition of their

[[Page 35679]]

outstanding performance. Representatives of high performer PHAs may be

requested to serve on HUD working groups that will advise HUD in such

areas as troubled PHAs and performance standards for all PHAs.

Referral to the HUB Program Center. PHAs that are designated as

standard performer and have a score of less than 70% but not less than

60% will be referred to HUD's area HUB/Program Center. The HUB/Program

Center will work with the PHA to correct any deficiency indicated in

its assessment within a period of 90 days, as described in the

Improvement Plan to be submitted to HUD. The Improvement Plan will,

among other things, describe the procedures that the PHA will follow to

correct the deficiencies. If the PHA fails to submit an acceptable

Improvement Plan or correct deficiencies within the time specified in

an Improvement Plan, the HUB/Program Center will refer the PHA to the

TARC for appropriate action.

Referral to the TARC. PHAs that are designated as troubled are

referred to the TARC. The TARC will require the troubled PHA to prepare

and execute a Memorandum of Agreement (MOA), a binding contractual

agreement by which the PHA will commit to take certain action that will

lead to its recovery from a troubled status. The scope of the MOA may

vary depending upon the extent of the problems present in the PHA, but

shall include, among other things, annual and quarterly performance

targets and strategies to be used by the PHA in achieving the

performance targets. The TARC may impose budget and/or management

controls on a PHA referred to the TARC.

Referral to the Enforcement Center. A troubled PHA that fails to

execute or meet the requirements of the MOA will be referred to the

Enforcement Center. The Enforcement Center shall initiate judicial

appointment of a receiver, and where appropriate, the Enforcement

Center may investigate the PHA and seek the imposition of civil or

criminal penalties through the appropriate Federal government agencies

or offices.

The purpose of the referral to one of the three centers discussed

above is to provide for a more effective, efficient and expeditious

resolution of a PHA's problems than is currently the case under the

existing assessment system. The HUB/Program Center and the TARC will

work with PHAs to quickly address performance deficiencies. The

Enforcement Center will seek quick action to replace the management of

PHAs that fail or refuse to address their performance deficiencies.

Appeal of ``Troubled'' Designation. As provided by section 6(j) of

the 1937 Act, a PHA may appeal designation as a trouble agency

(including designation as troubled with respect to the modernization

program); petition for removal of such designation; and appeal any

refusal to remove such designation as permitted under section

6(j)(2)(A)(iii) of the 1937 Act. The appeal shall be submitted by a PHA

to the Assessment Center within 30 days of a PHA's receipt of its

score, and shall include supporting documentation and justification of

the reasons for the appeal. Appeals submitted to the Assessment Center

without appropriate documentation will not be considered and will be

returned to the PHA. Upon receipt of an appeal from a PHA, the

Assessment Center will convene a Board of Review (the Board) to

evaluate the appeal and its merits for purpose of determining whether a

reassessment of the PHA is warranted. Board membership will be

comprised of a representative from REAC, the Office of Public and

Indian Housing, and such other office or representative as the

Secretary may designate (excluding, however, representation from the

TARC).

HUD will make final decisions of appeals within 30 days of receipt

of an appeal, and may extend this period an additional 30 days if

further inquiry is necessary. Failure by a PHA to submit requested

information within the time period provided is grounds for denial of an

appeal.

7. Timeline for Implementation of Inspection and Reporting Dates Under

the PHAS

The new PHAS is proposed to become effective for PHAs with fiscal

years ending September 1999 and later. Financial reports due for PHAs'

fiscal years ending in September, 1999 and later must be prepared on a

GAAP basis. The first scores under the new PHAS will be issued not

later than December, 1999 for PHAs with FYs ending in September, 1999.

Thus, PHAs will have at least one year before the new PHAS scores are

issued. Until September 30, 1999, PHAs will continue to be scored under

the current PHMAP. During this one year transition period, advisory

scores for physical condition and financial management may be issued to

provide guidance to PHAs. The implementation schedule for inspection of

public housing properties and reporting is as described in the

following table:

Real Estate Assessment Center (REAC)

[Assessment Periods and Reporting Dates]

----------------------------------------------------------------------------------------------------------------

REAC assessment results Financial Physical Management Resident survey

------------------------------------- reporting inspection operations ------------------

Period covered ---------------------------------------------------------

Score issued fiscal year end Inspection dates Submission due Survey dates (5)

(1) Due date (2) (3) date (4)

----------------------------------------------------------------------------------------------------------------

12/1999.......... 9-30-99 11-30-99 7/99-9/99 11-30-99 4/99-9/99

03/2000.......... 12-31-99 2-28-2000 10/99-12/99 2-28-2000 10/99-12/99

06/2000.......... 3-31-2000 5-31-2000 1/2000-3/2000 5-31-2000 1/2000-3/2000

09/2000.......... 6-30-2000 8-31-2000 4/2000-6/2000 8-31-2000 4/2000-6/2000

12/2000.......... 9-30-2000 11-30-2000 7/2000-9/2000 11-30-2000 7/2000-9/2000

----------------------------------------------------------------------------------------------------------------

Notes:

1. The period covered for each indicator will be the PHA's entire fiscal year ending on dates shown above. Once

the new PHAS is effective, a PHA cannot change its fiscal year for a period of three years.

2. PHAs with fiscal years ending 9-30-99 and later must provide GAAP financial reports. These reports must be

provided by electronic submission not later than 60 days after the end of the PHA's FY. Audited GAAP reports

(due 9 months after the close of the FY in accordance with the Single Audit Act and OMB Circular A-133) will

be used to update and confirm unaudited financial results. If significant differences are noted between

unaudited and audited results, scoring penalties will apply. For those PHAs that spend less than $300,000 of

Federal funds, HUD cannot require or pay for an audit in accordance with the Single Audit Act. HUD, however,

can require and pay for an ``Agreed-Upon Procedures'' report that could be specifically directed at verifying

calculations.

3. Physical inspections will be scheduled to approximate the new PHAS calculation dates; i.e. within the final

quarter of the PHA's fiscal year.

[[Page 35680]]

4. The certifications and supporting documentation required for the Management Operations Indicator will be due

60 days after the end of the PHA's fiscal year.

5. Resident surveys will be required to be conducted during the course of a PHA's fiscal year and will be

required to be submitted by a PHA at the time that the PHA submits the certifications required under the

Management Operations Indicator.

8. Other Issues Related to the New PHAS

PHA Fiscal Year for First Three Years of the new PHAS. As noted in

footnote 1 to the chart, to allow for a period of consistent

assessments to refine and make necessary adjustments to the new PHAS, a

PHA is not permitted to change its fiscal year for the first three full

fiscal years following the effective date of the PHAS.

Compliance with Other Departmentwide and Program Specific

Requirements. The PHAS is a strategic measure of a PHA's essential

housing operations. The PHAS, however, does not evaluate a PHA's

compliance with every departmentwide or program specific requirement.

For example, a PHA must comply with fair housing and equal opportunity

requirements, requirements under Section 504 of the Rehabilitation Act

of 1973, and requirements of programs under which the PHA is receiving

assistance. A PHA's adherence to these requirements will be monitored

in accordance with the applicable program regulations and the PHA's

annual contributions contract.

Adding, Subtracting and Modifying Indicators. HUD reserves the

right to add new indicators or components of indicators, or remove

indicators or modify indicators of the new PHAS if HUD believes that

such action will contribute to a comprehensive and more accurate

assessment of a PHA's performance. For example, HUD may include in the

Management Operations Indicator a component on verification of tenant

income by a PHA. PHAs and the public will be notified of any change in

indicators or components through issuance of the appropriate type of

notice.

Streamlining of Regulation. Consistent with Executive Order 12866

on Regulatory Planning and Review, HUD reviews its regulations to

determine, among other things, whether the regulations are redundant or

duplicative of other HUD or other agency regulations, and should

therefore be streamlined or consolidated. As part of this review,

streamlining or consolidation changes may be made to this rule at the

final rule stage.

IV. Justification for 30-Day Comment Period

In general, it is HUD's policy that notices of proposed rulemaking

are to afford the public not less than 60 days for submission of

comments, in accordance with its regulations on rulemaking in 24 CFR

part 10. However, HUD has determined that there is good cause to reduce

the public comment period for this proposed rule to 30 days. As

discussed in more detail earlier in this preamble, the announcement,

through this proposed rule, of HUD's new PHAS has been developed with

the participation of PHAs, PHA representatives, residents,

representatives from resident organizations, and experts in the field

of finance and real estate. Therefore, the proposal of a new assessment

system, and the fundamental concepts and components of this new system

are not unfamiliar to PHAs and public housing residents. As discussed

earlier in the preamble and in this section, the diagnostic tools

(physical assessment, financial assessment and resident services and

satisfaction) that are added to the current ``management'' assessment

of the existing system are requirements and standards familiar to PHAs.

With respect to the uniform standards for physical condition and

financial reporting, the components of these standards are not

significantly ``new.'' HUD's physical condition standards closely

resemble the Section 8 housing quality standards and, are therefore,

standards that the PHAs are familiar with. The financial reporting

requirements, as discussed earlier in this preamble, provide for a new

submission format, electronic and in a uniform format prescribed by

HUD, but the overall content of the report largely includes the

financial information that PHAs are already submitting in their annual

financial reports. The requirement to prepare the financial reports in

accordance with GAAP will be a change for some PHAs, but many PHAs are

already preparing GAAP financial reports. The rule provides a

sufficient period for PHAs to convert to GAAP. HUD also will offer

guidance for purposes of standardizing the conversion results, and

since HUD funds audit costs, PHAs should bear minimal, if any, increase

in the costs of an audit that may result in converting to GAAP.

With respect to the Management Operations Indicator, this is

substantially the same as in existing PHMAP, and therefore already

familiar to PHAs.

With respect to the new Resident Service and Satisfaction

Indicator, this indicator builds on the existing resident indicator in

PHMAP.

For the above reasons, HUD has determined that the 30-day comment

period for this proposed rule should provide sufficient notice and

opportunity for interested entities to comment. In order to provide the

fullest and most expedient access to the provisions of this proposed

rule, HUD will make it available on the HUD Home Page on the World Wide

Web at http://www.hud.gov, on the date of publication in the Federal

Register.

V. Findings and Certifications

Paperwork Reduction Act Statement

The proposed information collection requirements contained at

Secs. 901.25(b)(3) (Certification of the extent to which the physical

condition and neighborhood environment adjustment applies; 901.25(b)(5)

(Maintenance of supporting documentation for physical condition and

neighborhood environment adjustment); 901.33(a) (Annual financial

reports); 901.50(b) (Reporting information on resident service and

satisfaction); 901.60 (Data collection); 901.63 (Exclusion request);

901.69 (PHA right of petition and appeal); 901.75 (MOA); 901.77

(Improvement Plan); and 901.81 (Notice and response), of this rule have

been submitted to the Office of Management and Budget (OMB) for review,

under section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C.

Chapter 35).

(a) In accordance with 5 CFR 1320.5(a)(1)(iv), HUD is setting forth

the following concerning the proposed collection of information:

(1) Title of the information collection proposal:

Public Housing Assessment System (PHAS)

(2) Summary of the collection of information:

PHAs shall be required to maintain certain records and submit

certain information, as specified in the rule text, for the purpose of

HUD review. The HUD review will result in a numerical score and the

designation of a PHA's status. A PHA's status may result in: the award

of recognition and incentives from HUD, the requirement

[[Page 35681]]

to design and implement a plan to increase the PHAS score, or the

referral of the PHA for enforcement action. The PHA may petition or

appeal certain aspects of the scoring and designation, and is provided

an opportunity to respond before the imposition of enforcement actions.

(3) Description of the need for the information and its proposed

use:

The information is needed to assess the performance of a PHA in

essential housing operations. The information will be used to reward

good performance and improve or correct deficient performance.

(4) Description of the likely respondents, including the estimated

number of likely respondents, and proposed frequency of response to the

collection of information:

Respondents will be PHAs. The estimated number of respondents is

included in paragraph (5), immediately below. The proposed frequency of

responses is once annually.

(5) Estimate of the total reporting and recordkeeping burden that

will result from the collection of information:

Reporting and Recordkeeping Burden

----------------------------------------------------------------------------------------------------------------

Est. avg. time

Annual freq. for Est. annual

Section reference Number of parties of requirement requirement burden (hours)

(hours)

----------------------------------------------------------------------------------------------------------------

901.25(b)(3)......................... 3,268.................... 1 .5 1,634

901.25(b)(5)......................... 750...................... 1 .5 375

901.33(a)............................ 3,268.................... 1 1.0 3,268

901.50(b)............................ 3,268.................... 1 10.0 32,680

901.50(b)............................ 1.2 million.............. 1 .5 600,000

901.60............................... 3,268.................... 1 25.0 81,700

901.63............................... 350...................... 1 2.0 700

901.69............................... 200...................... 1 2.0 400

901.75............................... 100...................... 1 25.0 2,500

901.77............................... 500...................... 1 10.0 5,000

901.81............................... 5........................ 1 2.0 10

---------------

Total Reporting and Recordkeeping ......................... .............. .............. 728,267

Burden (Hours).

----------------------------------------------------------------------------------------------------------------

(b) In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting

comments from members of the public and affected agencies concerning

the proposed collection of information to:

(1) Evaluate whether the proposed collection of information is

necessary for the proper performance of the functions of the agency,

including whether the information will have practical utility;

(2) Evaluate the accuracy of the agency's estimate of the burden of

the proposed collection of information;

(3) Enhance the quality, utility, and clarity of the information to

be collected; and

(4) Minimize the burden of the collection of information on those

who are to respond; including through the use of appropriate automated

collection techniques or other forms of information technology, e.g.,

permitting electronic submission of responses.

Interested persons are invited to submit comments regarding the

information collection requirements in this proposal. Comments must be

received within sixty (60) days from the date of this proposal.

Comments must refer to the proposal by name and docket number (FR-4313)

and must be sent to:

Joseph F. Lackey, Jr., UD Desk Officer, Office of Management and

Budget, New Executive Office Building, Washington, DC 20503

and

Reports Liaison Officer, Office of the Assistant Secretary for Public

and Indian Housing, Department of Housing & Urban Development, 451--7th

Street, SW, Room 4244, Washington, DC 20410

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 establishes

requirements for Federal agencies to assess the effects of their

regulatory actions on State, local, and tribal governments and the

private sector. This proposed rule would not impose any Federal

mandates on any State, local, or tribal governments or the private

sector within the meaning of the Unfunded Mandates Reform Act of 1995.

Environmental Review

A Finding of No Significant Impact with respect to the environment

was made in accordance with HUD regulations in 24 CFR part 50 that

implement section 102(2)(C) of the National Environmental Policy Act of

1969 (42 U.S.C. 4223). The Finding is available for public inspection

between 7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules

Docket Clerk, Office of General Counsel, Room 10276, Department of

Housing and Urban Development, 451 7th Street, SW, Washington, DC

20410.

Impact on Small Entities

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed and approved this rule, and in so doing

certifies that this rule is not anticipated to have a significant

economic impact on a substantial number of small entities. This

proposed rule would revise HUD's existing regulations for the

assessment of public housing (PHMAP). The new the PHAS incorporates the

statutory indicators of PHMAP, and adds three additional indicators.

One of the new indicators--physical condition--would assess the extent

to which PHAs are providing public housing that is decent, safe, and

sanitary. As explained above, public housing has always been subject to

a statutory standard of ``decent, safe, and sanitary.'' This rule

proposes to simply provide a clear and objective statement of the

standard. This indicator would also entail an annual independent HUD

inspection of public housing, but it would not impose additional

inspection requirements upon PHAs. The clarity and consistency of this

new indicator would provide a fair, accurate, and reliable assessment

of the physical condition of the large public housing portfolio.

However, since this proposed rule would not alter the statutory

standard for physical condition, nor impose additional inspection

obligations, the new physical condition indicator would not have a

[[Page 35682]]

significant economic impact on a substantial number of small entities.

The second indicator--financial condition--would assess the

financial condition of PHAs, requiring them to submit financial reports

to HUD electronically and in accordance with GAAP. HUD estimates that

electronic submission of financial information will be less burdensome

to PHAs, since many PHAs are making more extensive use of automated

systems. This proposed rule would allow exceptions if the cost of

electronic submission would be excessive. GAAP-based accounting

reports, which are widely accepted and recognized, are not

substantially different than the reports that PHAs are currently

submitting. A number of PHAs are already required to use GAAP or are

otherwise using GAAP, and the majority of the PHAs with which HUD has

consulted support the change to GAAP. For those PHAs that are not yet

using GAAP, HUD is taking several steps to ease the conversion,

including making only simple additions to the current PHA accounting

guide and chart of accounts, and providing other conversion guidance

and training, particularly to small entities. Increasing the speed of

information exchange (through electronic submission) and the

consistency and accuracy of the information (through GAAP) would

greatly enhance the assessment of a PHA's financial condition. However,

this new indicator would not have a significant economic impact on a

substantial number of small entities.

The fourth indicator--resident service and satisfaction--entails a

new resident service and satisfaction survey. This survey is key to

obtaining input from public housing residents, which is an important

aspect of assessing public housing. HUD intends that this survey will

be conducted through an automated process, and accordingly, will

present a minimal administrative burden for PHAs in terms of

administering and evaluating the survey. HUD intends to provide the

survey format and the electronic reporting format, as well as software

specifications. Therefore, this survey would not have a significant

economic impact on a substantial number of small entities.

HUD is also seeking to minimize any burden on PHAs by allowing a

significant transition period for converting to the new PHAS. PHAs will

have at least one year before new scores are issued under the PHAS.

During that transition period, HUD intends to issue advisory scores

regarding physical condition and financial management to provide

guidance to PHAs and to ease the conversion to the new PHAS.

The new PHAS is fundamentally designed to provide relevant and

verifiable measures that directly relate to a PHA's performance and

that result in an accurate and reliable score. This improved assessment

process will allow HUD to target its oversight resources on those PHAs

most in need of attention; high-performing PHAs will receive

recognition, along with reduced HUD scrutiny and additional

flexibility. Since the revised assessment system in this rule would not

impose any significant new requirements upon PHAs, and since HUD will

assist PHAs in their conversion to the system, this rule would not have

a significant economic impact on a substantial number of small

entities. However, HUD specifically invites comments regarding any less

burdensome alternatives to this proposed rule that would meet HUD's

objectives as described in this preamble.

Federalism

The General Counsel, as the Designated Official under Executive

Order 12612, Federalism, has determined that the policies contained in

this proposed rule would not have substantial direct effects on States

or their political subdivisions, on the relationship between the

Federal Government and the States, or on the distribution of power and

responsibilities among the various levels of government. The proposed

rule is intended to promote good management practices by including, in

HUD's relationship with PHAs, continuing review of PHAs' compliance

with already existing requirements. The proposed rule would not create

any new significant requirements. As a result, the proposed rule is not

subject to review under the Order.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic Assistance numbers for Public

Housing is 14.850.

List of Subjects in 24 CFR Part 901

Administrative practice and procedure, Public housing, reporting

and recordkeeping requirements.

Accordingly, part 901 of title 24 of the Code of Federal

Regulations is proposed to be revised to read as follows:

PART 901--PUBLIC HOUSING ASSESSMENT SYSTEM

Subpart A--General Provisions

Sec.

901.1 Purpose and general description.

901.3 Scope.

901.5 Applicability.

901.7 Definitions.

Subpart B--PHAS Indicator #1: Physical Condition

901.20 Physical condition assessment.

901.23 Physical condition standards for public housing--decent,

safe, sanitary and in good repair (DSS/GR).

901.25 Physical condition scoring and thresholds.

901.27 Physical condition portion of total PHAS points.

Subpart C--PHAS Indicator #2: Financial Condition

901.30 Financial condition assessment.

901.33 Financial reporting requirements.

901.35 Financial condition scoring and thresholds.

901.37 Financial condition portion of total PHAS points.

Subpart D--PHAS Indicator #3: Management Operations

901.40 Management operations assessment.

901.43 Management operations performance standards.

901.45 Management operations scoring and thresholds.

901.47 Management operations portion of total PHAS points.

Subpart E--PHAS Indicator #4: Resident Service and Satisfaction

901.50 Resident service and satisfaction assessment.

901.53 Resident service and satisfaction scoring and thresholds.

901.55 Resident service and satisfaction portion of total PHAS

points.

Subpart F--PHAS Scoring

901.60 Data collection.

901.63 PHAS scoring.

901.67 Score and designation status.

901.69 PHA right of petition and appeal.

Subpart G--PHAS Incentives and Remedies

901.71 Incentives for high performers.

901.73 Referral to an Area HUB/Program Center.

901.75 Referral to a TARC.

901.77 Referral to the Enforcement Center.

901.79 Substantial default.

901.83 Interventions.

901.85 Resident petitions for remedial action.

Appendix A to Part 901--Areas and Items to be Inspected

Authority: 42 U.S.C. 1437d(j); 42 U.S.C. 3535(d).

Subpart A--General Provisions

Sec. 901.1 Purpose and general description.

(a) Purpose. The purpose of the Public Housing Assessment System

(PHAS) is to enhance trust in the public housing system among public

housing agencies (PHAs), public housing residents, HUD and the general

public by providing a comprehensive management tool for effectively and

fairly measuring the performance of a public housing agency in

essential housing operations,

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including rewards for high performers and consequences for poor

performers.

(b) Responsible office for PHAS assessments. The Real Estate

Assessment Center (REAC) is responsible for assessing and scoring the

performance of PHAs.

(c) PHAS indicators of a PHA's performance. REAC will assess and

score a PHA's performance based on the following four indicators:

(1) PHAS Indicator (Apprentice)#1--the physical condition of a

PHA's properties (addressed in subpart B of this part);

(2) PHAS Indicator #2--the financial condition of a PHA (addressed

in subpart C of this part);

(3) PHAS Indicator #3--the management operations of a PHA

(addressed in subpart D of this part); and

(4) PHAS Indicator #4--the resident service and satisfaction

feedback on a PHA's operations (addressed in subpart E of this part).

(d) Assessment tools. REAC will make use of uniform and objective

protocols for the physical inspection of properties and the financial

assessment of the PHA, and will gather relevant data from the PHA on

the management operations indicator and the resident service and

satisfaction indicator. On the basis of this data, REAC will assess and

score the results, advise PHAs of their scores and identify low scoring

and failing PHAs so that these PHAs will receive the appropriate

attention and assistance.

(e) Limitation of change of PHA's fiscal year. To allow for a

period of consistent assessment of the PHAS indicators, a PHA is not

permitted to change its fiscal year for the first three full fiscal

years following [effective date of final rule to be inserted at final

rule stage].

Sec. 901.3 Scope.

The PHAS is a strategic measure of a PHA's essential housing

operations. The PHAS, however, does not evaluate a PHA's compliance

with or response to every departmentwide or program specific

requirement or objective. Although not specifically referenced in this

part, PHAs remain responsible for complying with such requirements as

fair housing and equal opportunity requirements, requirements under

section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) and

requirements of programs under which the PHA is receiving assistance.

PHAs' adherence to these requirements will be monitored in accordance

with the applicable program regulations and the PHA's annual

contributions contract.

Sec. 901.5 Applicability.

(a) PHAs, RMCs, AMEs. This part applies to PHAs, Resident

Management Corporations (RMCs) and Alternate Management Entities

(AMEs). The management assessment of an RMC/AME differs from that of a

PHA. Because an RMC/AME enters into a contract with a PHA to perform

specific management functions on a development-by-development or

program 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/AME.

(b) PHA ultimate responsible entity under ACC. Due to the fact that

the PHA and not the RMC/AME is ultimately responsible to HUD under the

Annual Contributions Contract (ACC), the PHAS score of a PHA will be

based on all of the developments covered by the ACC, including those

with management operations assumed by an RMC or AME (pursuant to a

court ordered receivership agreement, if applicable).

(c) Assumption of management operations by AME. When a PHA's

management operations have been assumed by an AME:

(1) If the AME assumes only a portion of the PHA's management

operations, the provisions of this part that apply to RMCs apply to the

AME (pursuant to a court ordered receivership agreement, if

applicable); or

(2) If the AME assumes all, or substantially all, of the PHA's

management functions, the provisions of this part that apply to PHAs

apply to the AME (pursuant to a court ordered receivership agreement,

if applicable).

Sec. 901.7 Definitions.

As used in this part:

Adjustment for physical condition (project age) and neighborhood

environment is a total of three additional points added to PHAS

Indicator #1 (Physical Condition). The three additional points,

however, shall not result in a total point value over the total points

available for PHAS Indicator #1 (established in subpart B of this

part).

Assessed fiscal year is the PHA fiscal year that has been assessed

under the PHAS.

Average number of days nonemergency work orders were active is

calculated:

(1) By dividing the total of--

(i) The number of days in the assessed fiscal year it takes to

close active nonemergency work orders carried over from the previous

fiscal year;

(ii) The number of days it takes to complete nonemergency work

orders issued and closed during the assessed fiscal year; and

(iii) The number of days all active nonemergency work orders are

open in the assessed fiscal year, but not completed;

(2) By the total number of nonemergency work orders used in the

calculation of paragraphs (1)(i), (ii) and (iii) of this definition.

Days Receivable Outstanding is Tenant Receivables divided by Daily

Tenant Revenue.

Deficiency means any PHAS score below 60% of the available points

in an indicator or component.

Improvement plan is a document developed by a PHA, specifying the

actions to be taken, including timetables, that shall be required to

correct deficiencies identified under any of the indicators and

components within the indicator(s), identified as a result of the PHAS

assessment when an MOA is not required.

Reduced actual vacancy rate within the previous three years is a

comparison of the vacancy rate in the PHAS assessed fiscal year (the

immediate past fiscal year) with the vacancy rate of that fiscal year

which is two years previous to the assessed fiscal year. It is

calculated by subtracting the vacancy rate in the assessed fiscal year

from the vacancy rate in the earlier year. If a PHA elects to certify

to the reduction of the vacancy rate within the previous three years,

the PHA shall retain justifying documentation to support its

certification for HUD post review.

Reduced the average time nonemergency work orders were active

during the previous 3 years is a comparison of the average time

nonemergency work orders were active in the PHAS assessment year (the

immediate past fiscal year) with the average time nonemergency work

orders were active in that fiscal year that is 2 years previous to the

assessment year. It is calculated by subtracting the average time

nonemergency work orders were active in the PHAS assessment year from

the average time nonemergency work orders were active in the earlier

year. If a PHA elects to certify to the reduction of the average time

nonemergency work orders were active during the previous 3 years, the

PHA shall retain justifying documentation to support its certification

for HUD post review.

Vacancy loss is vacant unit potential rent divided by gross

potential rent.

Work order deferred for modernization is any work order that is

combined with similar work items and completed within the current PHAS

assessment year, or will be completed in

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the following year if there are less than three months remaining before

the end of the PHA fiscal year when the work order was generated, under

the PHA's modernization program or other PHA capital improvements

program.

Subpart B--PHAS Indicator #1: Physical Condition

Sec. 901.20 Physical condition assessment.

(a) Objective. The objective of the Physical Condition Indicator is

to determine whether a PHA is maintaining its public housing in a

condition that is decent, safe, sanitary and in good repair (DSS/GR),

as this standard is defined Sec. 901.23.

(b) Physical inspection under PHAS Indicator #1. REAC will provide

for an independent physical inspection of, at minimum, a statistically

valid sample of the units in the PHA's public housing portfolio to

determine compliance with DSS/GR standard.

(c) PHA physical inspection requirement. The HUD-conducted physical

inspections required by this part do not relieve the PHA of the

responsibility to inspect public housing units as provided in section

6(j)(1) of the U.S. Housing Act of 1937 (42 U.S.C. 1437d(j)(1)), and

Sec. 901.43(a)(5).

(d) Compliance with State and local codes. The physical condition

standards in this subpart do not supersede or preempt State and local

building and maintenance codes with which the PHA's public housing must

comply. PHAs must continue to adhere to these codes.

Sec. 901.23 Physical condition standards for public housing--decent,

safe, sanitary and in good repair (DSS/GR).

(a) Public housing must be maintained in a manner that meets the

physical condition standards set forth in this section in order to be

considered decent, safe, sanitary and in good repair. These standards

address the major areas of public housing: the site; the building

exterior; the building systems; the dwelling units; the common areas;

and health and safety considerations.

(1) Site. The site components, such as fencing and retaining walls,

grounds, lighting, mailboxes/project signs, parking lots/driveways,

play areas and equipment, refuse disposal, roads, storm drainage and

walkways must be free of health and safety hazards and be in good

repair. The site must not be subject to material adverse conditions,

such as abandoned vehicles, dangerous walks or steps, poor drainage,

septic tank back-ups, sewer hazards, excess accumulations of trash,

vermin or rodent infestation or fire hazards.

(2) Building exterior. Each building on the site must be

structurally sound, secure, habitable, and in good repair. Each

building's doors, fire escapes, foundations, lighting, roofs, walls,

and windows, where applicable, must be free of health and safety

hazards, operable, and in good repair.

(3) Building systems. Each building's domestic water, electrical

system, elevators, emergency power, fire protection, HVAC, and sanitary

system must be free of health and safety hazards, functionally

adequate, operable, and in good repair.

(4) Dwelling units. (i) Each dwelling unit within a building must

be structurally sound, habitable, and in good repair. All areas and

aspects of the dwelling unit (for example, the unit's bathroom, call-

for-aid, ceiling, doors, electrical systems, floors, hot water heater,

HVAC (where individual units are provided), kitchen, lighting, outlets/

switches, patio/porch/balcony, smoke detectors, stairs, walls, and

windows) must be free of health and safety hazards, functionally

adequate, operable, and in good repair.

(ii) Where applicable, the dwelling unit must have hot and cold

running water, including an adequate source of potable water.

(iii) If the dwelling unit includes its own sanitary facility, it

must be in proper operating condition, usable in privacy, and adequate

for personal hygiene and the disposal of human waste.

(iv) The dwelling unit must include at least one battery-operated

or hard-wired smoke detector, in proper working condition, on each

level of the unit.

(5) Common areas. The common areas must be structurally sound,

secure, and functionally adequate for the purposes intended. The

basement/garage/carport, restrooms, closets, utility, mechanical,

community rooms, day care, halls/corridors, stairs, kitchens, laundry

rooms, office, porch, patio, balcony, and trash collection areas, if

applicable, must be free of health and safety hazards, operable, and in

good repair. All common area ceilings, doors, floors, HVAC, lighting,

outlets/switches, smoke detectors, stairs, walls, and windows, to the

extent applicable, must be free of health and safety hazards, operable,

and in good repair.

(6) Health and safety concerns. All areas and components of the

housing must be free of health and safety hazards. These areas include,

but are not limited to, air quality, electrical hazards, elevators,

emergency/fire exits, flammable materials, garbage and debris, handrail

hazards, infestation, and lead-based paint. For example, the buildings

must have fire exits that are not blocked and are accessible to all

residents, and have hand rails that are undamaged and have no other

observable deficiencies. The housing must have no evidence of

infestation by rats, mice, or other vermin, or of garbage and debris.

The housing must have no evidence of electrical hazards, natural

hazards, or fire hazards. The dwelling units and common areas must have

proper ventilation and be free of mold, odor, or other observable

deficiencies. The housing must comply with all requirements related to

the evaluation and reduction of lead-based paint hazards and have

available proper certifications of such (see 24 CFR part 35).

(b) Appendix A to this part lists the areas to be inspected and the

items in each area to be inspected.

Sec. 901.25 Physical condition scoring and thresholds.

(a) Scoring. Under PHAS Indicator #1, REAC will calculate a score

of the overall condition of the PHA's public housing portfolio which

reflects weights based on the relative importance of the individual

inspectable areas and the deficiencies observed.

(b) Adjustment for physical condition (project age) and

neighborhood environment. In accordance with section 6(j)(1)(I)(2) of

the 1937 Act (42 U.S.C. 1437d(j)(1)(I)(2)), the physical score for a

project will be upwardly adjusted to the extent that negative

conditions are caused by situations outside the control of the PHA.

These situations are related to the poor physical condition of the

project or the overall depressed condition of the immediately

surrounding neighborhood. The intent of this adjustment is to not

unfairly penalize the PHA, and to appropriately apply the adjustment.

(1) Adjustments in three areas. Adjustments to the PHA physical

project score will be made in three factually observed and assessed

areas (inspectable areas):

(i) Physical condition of the site;

(ii) Physical condition of the common areas on the project; and

(iii) Physical condition of the building exteriors.

(2) Definitions. Definitions and application of physical condition

and neighborhood environment factors are:

(i) Physical condition applies to projects over ten years old and

that have not been had substantial rehabilitation in the last 10 years.

(ii) Neighborhood environment applies to projects located where the

immediate surrounding neighborhood (that is a majority of the census

tracts or

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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) Adjustment is for physical condition (project age) neighborhood

environment. HUD will adjust the physical score of a PHA's project

subject to both the physical condition (project age) and neighborhood

environment conditions. The adjustments will be made to the scores

assigned to the applicable inspectable areas so as to reflect the

difficulty in managing. In each instance where the actual physical

condition of the inspectable area (site, common areas, building

exterior) is rated below the maximum score for that area, 1 point will

be added, but not to exceed the maximum number of points available to

that inspectable area.

(i) These extra points will be added to the score of the specific

inspectable area, by project, to which these conditions may apply. A

PHA is required to certify on form HUD-50072, PHAS Certification (which

is available from the Department of Housing and Urban Development, HUD

Custom Service Center, 451 Seventh Street, SW, Room B-102, Washington,

DC 20410; telephone (800) 767-7468), the extent to which the conditions

apply, and to the inspectable area the extra scoring point should be

added.

(ii) A PHA that receives the maximum potential weighted points on

the inspectable areas may not claim any additional adjustments for

physical condition and/or neighborhood environments for the respective

inspectable area(s). In no circumstance shall a PHA's score for the

inspectable area, after any adjustment(s) for physical condition and/or

neighborhood environments, exceed the maximum potential weighted points

assigned to the respective inspectable area(s).

(4) Scattered site projects. The Date of Full Availability (DOFA)

shall apply to scattered site projects, where the age of units and

buildings vary, to determine whether the projects have received

substantial rehabilitation within the past ten years and are eligible

for an adjusted score for the Physical Condition Indicator.

(5) Maintenance of supporting documentation. PHAs shall maintain

supporting documentation to show how they arrived at the determination

that the project's score is subject to adjustment under this section.

(i) If the basis was neighborhood environments, the PHA shall have

on file the appropriate maps showing the census block groups

surrounding the development(s) in question with supporting census data

showing the level of poverty. Projects 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 projects

and the record of capital improvements, indicating that these

particular projects have not received modernization funds.

(iii) PHAs shall also document that in all cases, projects that

were exempted for other reasons were not included in the calculation.

(c) Thresholds. In order to receive a passing score under the

Physical Condition Indicator, the PHA's score must fall above a minimum

threshold of 18 points or 60% of the available points under this

indicator. Further, in order to receive an overall passing score under

the PHAS, the PHA must receive a passing score on the Physical

Condition Indicator.

Sec. 901.27 Physical condition portion of total PHAS points.

Of the total 100 points available for a PHAS score, a PHA may

receive up to 30 points based on the Physical Condition Indicator.

Subpart C--PHAS Indicator #2: Financial Condition

Sec. 901.30 Financial condition assessment.

(a) Objective. The objective of the Financial Condition Indicator

is to measure the financial condition of a PHA for the purpose of

evaluating whether it has sufficient financial resources and is capable

of managing those financial resources effectively to support the

provision of housing that is decent, safe, sanitary and in good repair.

(b) Financial reporting standards. A PHA's financial condition will

be assessed under this indicator on the basis of the annual financial

report provided in accordance with Sec. 901.33.

Sec. 901.33 Financial reporting requirements.

(a) Annual financial reports. PHAs must provide to HUD, on an

annual basis, such financial information, as required by HUD. The

financial information must be:

(1) Prepared in accordance with Generally Accepted Accounting

Principles (GAAP) as further defined by HUD in supplementary guidance;

(2) Submitted electronically in the electronic format designated by

HUD; and

(3) Submitted in such form and substance prescribed by HUD.

(b) Annual financial report filing dates. The financial information

to be submitted to HUD in accordance with paragraph (a) of this

section, must be submitted to HUD annually, no later than 60 days after

the end of the fiscal year of the reporting period, and as otherwise

provided by law.

(c) Reporting compliance dates. The requirement for compliance with

the financial reporting requirements of this section begins with PHAs

with fiscal years ending September 30, 1999 and thereafter. Unaudited

financial statements will be required 60 days after the PHA's fiscal

year end, and audited financial statements will then be required no

later than 9 months after the PHA's fiscal year end, in accordance with

the Single Audit Act and OMB Circular A-133 (See 24 CFR 84.26). A PHA

with a fiscal year ending September 30, 1999 that elects to submit its

unaudited report earlier than the due date of November 30, 1999 must

submit its financial report as required in this section. On or after

September 30, 1998, but prior to November 30, 1999 (except for a PHA

with its fiscal year ending September 30, 1999), PHAs may submit their

financial reports in accordance with this section.

Sec. 901.35 Financial condition scoring and thresholds.

(a) Scoring. Under PHAS Indicator #2, REAC will calculate a score

that relies on the key components of financial health and management as

well as audit and internal control flags.

(1) The key components of PHAS Indicator #2 include:

(i) Current Ratio--current assets divided by current liabilities;

(ii) Number of Months Expendable Fund Balance--number of months a

PHA can operate on the Expendable Fund Balance without additional

resources; Expendable Fund Balance is the portion of the fund balance

representing expendable available financial resources; unreserved and

undesignated fund balance;

(iii) Days Receivable Outstanding--average number of days tenant

receivables are outstanding;

(iv) Vacancy Loss--loss of potential rent due to vacancy;

(v) Expense Management/Energy Consumption--expense per unit for key

expenses, including energy consumption; and

(vi) Net Income or Loss divided by the Expendable Fund Balance--

measures how the year's operations have affected the PHA's viability.

(2) Additional components. Additional components may be used to

identify circumstances in which there

[[Page 35686]]

exists the possibility of higher risk of waste, fraud and abuse. These

components will be used to detect fraud and will be used to generate

``flags'' that will signal field staff, Enforcement Center staff, or

fraud investigators to take appropriate action. These components will

primarily relate to financial management, but may also be used to

provide a PHA with benchmarking information to allow the PHA to measure

its own performance against its peers.

(b) Thresholds. In order to receive a passing score under the

Financial Condition Indicator, the PHA's score must fall above a

minimum threshold of 18 points or 60% of the available points under

this indicator. Further, in order to receive an overall passing score

under the PHAS, the PHA must receive a passing score on the Financial

Condition Indicator.

Sec. 901.37 Financial condition portion of total PHAS points.

Of the total 100 points available for a PHAS score, a PHA may

receive up to 30 points based on the Financial Condition Indicator.

Subpart D--PHAS Indicator #3: Management Operations

Sec. 901.40 Management operations assessment.

(a) Objective. The objective of the Management Operations Indicator

is to measure certain key management operations and responsibilities of

a PHA for the purpose of assessing the PHA's management operations

capabilities.

(b) Management assessment. PHAS Indicator #3 pertaining to

Management Operations incorporates the majority of the statutory

indicators of section 6(j) of the U.S. Housing Act of 1937, and an

additional non-statutory indicator (security) as provided in

Sec. 901.43.

Sec. 901.43 Management operations performance standards.

(a) Management operations indicators. The following indicators will

be used to assess a PHA's management operations:

(1) Management Indicator #1--Vacancy rate and unit turnaround time.

This management indicator examines the vacancy rate, a PHA's progress

in reducing vacancies, and unit turnaround time. Implicit in this

management indicator is the adequacy of the PHA's system to track the

duration of vacancies and unit turnaround, including down time, make

ready time, and lease up time.

(2) Management Indicator #2--Modernization. This management

indicator is automatically excluded if a PHA does not have a

modernization program. This management indicator examines the amount of

unexpended funds over three Federal fiscal years (FFY) old, the

timeliness of fund obligation, the adequacy of contract administration,

the quality of the physical work, and the adequacy of budget controls.

All components of this management indicator #2 apply to the

Comprehensive Grant Program (CGP), the Comprehensive Improvement

Assistance Program (CIAP), the HOPE VI assistance, vacancy reduction,

and lead based paint risk assessment funding (1992-1995), and any

successor program(s) to the CGP or the CIAP.

(3) Management Indicator #3--Rents uncollected. This management

indicator examines the PHA's ability to collect dwelling rents owed by

residents in possession during the immediate past fiscal year by

measuring the balance of dwelling rents uncollected as a percentage of

total dwelling rents to be collected.

(4) Management Indicator #4--Work orders. This management indicator

examines the time it takes to complete or abate emergency work orders,

the average number of days non-emergency work order were active, and

any progress a PHA has made during the preceding three years to reduce

the period of time non-emergency maintenance work orders were active.

Implicit in this management indicator is the adequacy of the PHA's work

order system in terms of how a PHA accounts for and controls its work

orders, and its timeliness in preparing/issuing work orders.

(5) Management Indicator #5--PHA annual inspection of units and

systems. This management indicator examines the percentage of units

that a PHA inspects on an annual basis in order to determine short-term

maintenance needs and long-term modernization needs. This management

indicator requires a PHA's inspection to utilize the HUD uniform

physical condition standards set forth in subpart B of this part. All

occupied units are required to be inspected.

(6) Management Indicator #6--Security. This management indicator

evaluates the PHA's performance in tracking crime related problems in

their developments, reporting incidence of crime to local law

enforcement agencies, the adoption and implementation, consistent with

section 9 of the Housing Opportunity Program Extension Act of 1996

(One-Strike and You're Out) (42 U.S.C. 1437d(r)), of applicant

screening and resident eviction policies and procedures, and, as

applicable, PHA performance under any HUD drug prevention or crime

reduction grant(s). A PHA may receive credit for performance under non-

HUD funded programs if it provides auditable financial and statistical

documentation for these programs. A PHA with fewer than 250 units will

not be assessed under this management indicator unless it provides

auditable financial and statistical documentation for these programs.

(b) Reporting on performance under the Management Operations

Indicator. Each PHA will provide to HUD a certification on its

performance under each of the management indicators in paragraph (a) of

this section. The certifications shall comply with the requirements of

Sec. 901.60.

Sec. 901.45 Management operations scoring and thresholds.

(a) Scoring. Under PHAS Indicator #3, REAC will calculate a score

of the overall management operations of a PHA which reflects weights

based on the relative importance of the individual management

indicators.

(b) Thresholds. In order to receive a passing score under the

Management Operations Indicator, the PHA's score must fall above a

minimum threshold of 18 points or 60% of the available points under

this PHAS Indicator #3. Further, in order to receive an overall passing

score under the PHAS, the PHA must receive a passing score on the

Management Operations Indicator.

Sec. 901.47 Management operations portion of total PHAS points.

Of the total 100 points available for a PHAS score, a PHA may

receive up to 30 points based on the Management Operations Indicator.

Subpart E--PHAS Indicator #4: Resident Service and Satisfaction

Sec. 901.50 Resident service and satisfaction assessment.

(a) Objective. The objective of the Resident Service and

Satisfaction Indicator is to measure the level of resident satisfaction

with living conditions at the PHA.

(b) Reporting information on resident service and satisfaction. The

assessment will be performed through the use of a resident service and

satisfaction survey to be administered by the PHA in accordance with a

methodology prescribed by HUD. The PHA will be responsible for

maintaining original copies of completed survey data, subject to

independent audit, and for developing a follow-up plan to address

issues resulting from the survey.

[[Page 35687]]

Sec. 901.53 Resident service and satisfaction scoring and thresholds.

(a) Scoring. Under PHAS Indicator #4, REAC will calculate a score

that includes three components of the survey process. One component

will be the score of the survey results. The survey content will focus

on resident evaluation of overall living conditions, to include topics

such as: resident organizations; program activities; surrounding

environment; management responsiveness; safety; involvement; resources;

and communication. The second component will be a score based on the

level of implementation and follow-up or corrective actions based on

the results of the survey. The final component is verification that the

data collection, tabulation and submission was conducted in a manner

consistent with guidance provided by HUD.

(b) Thresholds. A PHA will not receive any points under this PHAS

Indicator if the survey is not conducted in accordance with a HUD

prescribed methodology or the survey results are determined to be

altered by the PHA. A PHA will receive a passing score on the Resident

Service and Satisfaction Indicator if it receives at least 6 points, or

60% of the available points under this PHAS Indicator #4.

Sec. 901.55 Resident service and satisfaction portion of total PHAS

points.

Of the total 100 points available for a PHAS score, a PHA may

receive up to 10 points based on the Resident Service and Satisfaction

Indicator.

Subpart F--PHAS Scoring

Sec. 901.60 Data collection.

(a) Fiscal Year Reporting Period--limitation on changes after PHAS

effectiveness. An assessed fiscal year for purposes of the PHAS

corresponds to a PHA's fiscal year. To allow for a period of consistent

assessments to refine and make necessary adjustments to the PHAS, a PHA

is not permitted to change its fiscal year for the first three full

fiscal years following the effective date of this part.

(b) Physical Condition information. Information necessary to

conduct the physical condition assessment under subpart B of this part

will be obtained from HUD inspectors during the fiscal year being

scored through electronic transmission of the data.

(c) Financial Condition information. Year-end financial information

to conduct the assessment under subpart C, Financial Condition, of this

part will be submitted by a PHA through electronic transmission of the

data to HUD not later than 60 days after the end of the PHA's fiscal

year. An audited report of the year-end financial information is due

not later than 9 months after the end of the PHA's fiscal year.

(d) Management Operations and Resident Service and Satisfaction

Information. A PHA shall provide certification to HUD as to data

required under subpart D, Management Operations, of this part and

subpart E, Resident Services Satisfaction, of this part not later than

60 days after the end of the PHA's fiscal year.

(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.

(e) Failure to submit data by due date. If a PHA without a finding

of good cause by HUD does not submit its certifications or year-end

financial information, required by this part, or submits its

certifications or year-end financial information more than 15 days past

the due date, appropriate sanctions may be imposed, including a

reduction of 1 point in the total PHAS score for each 15 day period

past the due date. If all certifications or year-end financial

information are not received within 90 days past the due date, the PHA

will receive a presumptive rating of failure in all of the PHAS

indicators and components certified to, which shall result in troubled

and mod-troubled designations.

(f) Verification of information submitted. (1) A PHA's

certifications, year-end financial information and any supporting

documentation are subject to verification by HUD at any time.

Appropriate sanctions for intentional false certification will be

imposed, including civil penalties, suspension or debarment of the

signatories, the loss of high performer designation, a lower score

under individual PHAS indicators and a lower overall PHAS score.

(2) A PHA that cannot provide justifying documentation to REAC, or

to the PHA's independent auditor for the assessment under any

indicator(s) or component(s) shall receive a score of 0 for the

relevant indicator(s) or component(s), and its overall PHAS score shall

be lowered.

(3) A PHA's PHAS score under individual indicators or components,

or its overall PHAS score, may be changed by HUD pursuant to the data

included in the independent audit report, or obtained through such

sources as HUD on-site review, investigations by HUD's Office of Fair

Housing and Equal Opportunity, or reinspection by REAC, as applicable.

(g) Management operations assumed by an RMC. For those developments

of a PHA where management operations 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. Following verification of the RMC's certification, 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 or responsible party.

Sec. 901.63 PHAS scoring.

(a) Issuance of score by HUD. An overall PHAS score will be issued

by REAC for each PHA 60 to 90 days after the end of the PHA's fiscal

year.

(b) Computing the PHAS score. Each of the four PHAS indicators in

this part will be scored individually, and then will be used to

determine an overall score for the PHA. Components within each of the

four PHAS indicators will be scored individually, and the scores for

the components will be used to determine a single score for each of the

PHAS indicators.

(c) Adjustments to the PHAS score. Adjustments to the score may be

made after a PHA's audit report for the year being assessed is

transmitted to HUD. If significant differences (as defined in GAAP

guidance materials provided to PHAs) are noted between unaudited and

audited results, a PHA's PHAS score will be raised or lowered, as

applicable, in accordance with the audited results.

(d) Posting and publication of PHAS scores. Each PHA shall post a

notice of its final PHAS 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.

Sec. 901.67 Score and designation status.

(a) Designation status corresponding to score. A PHA will be scored

with a corresponding designation of status as follows:

(1) High Performer. A PHA that achieves a score of at least 60% of

the points available under each of the four PHAS Indicators (addressed

in subparts B through E of this part) and achieves an overall PHAS

score of 90% or greater shall be designated a high performer. A PHA

shall not be designated a high performer if it scores below the

threshold established for any indicator.

[[Page 35688]]

High performers will be afforded incentives that include relief from

reporting and other requirements, as described in Sec. 901.71.

(2) Standard Performer. A PHA that achieves a total PHAS score of

less than 90% but not less than 60% shall be designated a standard

performer. All standard performers must correct reported deficiencies.

A standard performer that receives a score less than 70% but not less

than 60% shall be subject to other oversight, as described in

Sec. 901.73. A PHA that achieves a score of less than 60% of the total

points available under PHAS Indicators 1, 2 or 3 shall not be

designated a standard performer, but shall be designated a troubled

performer, as provided in paragraph (a)(3) of this section.

(3) Troubled Performer. A PHA that achieves a total PHAS score of

less than 60%, or achieves a score of less than 60% of the total points

available under PHAS Indicators 1, 2, or 3, shall be designated as

troubled, and referred to the TARC as described in Sec. 901.75. In

accordance with section 6(j)(2) of the 1937 Act, a PHA that receives

less than 60% of the maximum calculation for the modernization

indicator under PHAS Indicator #3 (Management Operations, subpart D of

this part) may be subject to the following sanctions: under the

Comprehensive Grant Program to a reduction of formula allocation or

other sanctions (24 CFR part 968, subpart C); under the Comprehensive

Improvement Assistance Program to disapproval of new funding or other

sanctions (24 CFR part 968, subpart B); or disapproval of funding under

the HOPE VI Program.

(b) Exceptional circumstances of high performer or standard

performer--(1) Independent reviews, rescission of incentives or status.

In exceptional circumstances, even though a PHA has received

designation as a high performer or standard performer, the HUB/Program

Center may conduct any review as necessary, and deny or rescind

incentives or high performer or standard performer status in the case

of a PHA that:

(i) Is operating under a special agreement with HUD;

(ii) Is involved in litigation that bears directly upon the

management of a PHA;

(iii) Is operating under a court order;

(iv) 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 an independent

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

(v) Demonstrates substantial noncompliance in one or more areas

(including areas not assessed by the PHAS). 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 part 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.

(2) When a HUB/Program Center acts for any of the reasons stated in

paragraph (b)(1) of this section, the HUB/Program Center will send

written notification to the PHA with a specific explanation of the

reasons. An informational copy will be forwarded to the Assistant

Secretary for Public and Indian Housing.

Sec. 901.69 PHA right of petition and appeal.

(a) Appeal of troubled designation and petition for removal. As

permitted under section 6(j)(2)(A)(iii), a PHA may:

(1) Appeal designation as a troubled agency (including designation

as troubled with respect to the modernization program);

(2) Petition for removal of such designation; and

(3) Appeal any refusal to remove such designation.

(b) Appeal process. The appeal shall be submitted by a PHA to the

REAC within 30 days of a PHA's receipt of its score, and shall include

supporting documentation and justification of the reasons for the

appeal. Appeals submitted to the REAC without appropriate documentation

will not be considered and will be returned to the PHA.

(c) Consideration of appeal by REAC. Upon receipt of an appeal from

a PHA, the REAC will convene a Board of Review (the Board) to evaluate

the appeal and its merits for the purpose of determining whether a

reassessment of the PHA is warranted. Board membership will be

comprised of a representative from REAC, the Office of Public and

Indian Housing, and such other office or representative as the

Secretary may designate (excluding, however, representation from the

Troubled Agency Recovery Center). For purposes of reassessment, the

REAC will schedule a reinspection and/or acquire audit services, as

determined by the Board, and a new score will be issued, if

appropriate.

(d) Final appeal decisions. HUD will make final decisions of

appeals within 30 days of receipt of an appeal, and may extend this

period an additional 30 days if further inquiry is necessary. Failure

by a PHA to submit requested information within the 30-day period or

any additional period granted by HUD is grounds for denial of an

appeal.

Subpart G--PHAS Incentives and Remedies

Sec. 901.71 Incentives for high performers.

(a) Incentives for high-performer PHAs. A PHA that is designated a

high performer will be eligible for the following incentives:

(1) Relief from specific HUD requirements. A PHA that is designated

high performer will be relieved of specific HUD requirements (for

example, fewer reviews and less monitoring), effective upon

notification of high performer designation.

(2) Public recognition. High-performer PHAs and RMCs that receive a

score of at least 90% on each of the indicators for which they are

assessed, will receive a Certificate of Commendation from HUD as well

as special public recognition, as provided by the HUB/Program Center.

(3) Bonus points in funding competitions. A high-performer PHA will

be eligible for bonus points in HUD's funding competitions, where such

bonus points are not restricted by statute or regulation governing the

funding program.

(b) Compliance with applicable Federal laws and regulations. Relief

from any standard procedural requirement that may be provided under

this section, 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 performer or standard

performer may be relieved of requirements for prior HUD approval for

certain types of contracts for services, the PHA 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).

(c) Audits and reviews not relieved by designation. A PHA

designated as a high performer or standard performer remains subject

to:

(1) Regular independent auditor (IA) audits.

(2) Office of Inspector General (OIG) audits or investigations will

continue to

[[Page 35689]]

be conducted as circumstances may warrant.

(d) HUB/Program Center to impose requirements. The HUB/Program

Center will have discretion to subject a PHA to any requirement that

would otherwise be omitted under the specified relief, in accordance

with Sec. 901.67(b)(1).

Sec. 901.73 Referral to an Area HUB/Program Center.

(a) Standard performers will be referred to the HUB/Program Center

for appropriate action. A standard performer that receives a total

score of less than 70% but not less than 60% shall be required to

submit an Improvement Plan to eliminate deficiencies in the PHA's

performance. A standard performer that receives a score of not less

than 70% may be required, at the discretion of the appropriate area

HUB/Program Center, to submit an Improvement Plan to address specific

deficiencies.

(b) Submission of an Improvement Plan. (1) Within 30 days after a

PHAS score is issued, a standard performer with a score less than 70%

is required to submit an Improvement Plan, which includes the

information stated in paragraph (d) of this section and determined

acceptable by the HUB/Program Center, for each indicator and/or

component identified as deficient 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. A RMC that is required to submit an

Improvement Plan must develop the plan in consultation with its PHA and

submit the Plan to the HUB/Program Center through its PHA.

(2) The HUB/Program Center may require, on a risk management basis,

a standard performer with a score of not less than 70% to submit within

30 days after receipt of its PHAS score an Improvement Plan, which

includes the information stated in paragraph (d) of this section, for

each indicator and/or component of a PHAS indicator identified as

deficient.

(c) Correction of deficiencies--(1) Time period for correction.

After a PHA's receipt of its PHAS score and designation as a standard

performer or, in the case of an RMC, notification of its score from a

PHA, a PHA or RMC shall correct any deficiency indicated in its

assessment within 90 days, or within such period as provided in the HUD

approved Improvement Plan if an Improvement Plan is required.

(2) Notification and report to HUB/Program Center. A PHA shall

notify the HUB/Program Center of its action to correct a deficiency. A

PHA shall also forward to the HUB/Program Center an RMC's report of its

action to correct a deficiency.

(d) Improvement Plan. An Improvement Plan shall:

(1) Identify baseline data, which should be raw data but may be the

PHA's score under each individual PHAS indicator and/or component which

was identified as a deficiency;

(2) Describe the procedures that will be followed to correct each

deficiency;

(3) Provide a timetable for the correction of each deficiency; and

(4) Provide for or facilitate technical assistance to the PHA.

(e) Determination of acceptability of Improvement Plan (1) The HUB/

Program Center will approve or deny a PHA's (or RMC's Improvement Plan

submitted to the HUB/Program Center through the RMC's PHA), and notify

the PHA of its decision. A PHA that submits an RMC's Improvement Plan

must notify the RMC in writing, immediately upon receipt of the HUB/

Program Center notification, of the HUB/Program Center approval or

denial of the RMC's Improvement Plan.

(2) An Improvement Plan that is not approved will be returned to

the PHA with recommendations from the HUB/Program Center for revising

the Improvement Plan to obtain approval.

(f) Submission of revised Improvement Plan. A revised Improvement

Plan shall be resubmitted by the PHA within 30 calendar days of its

receipt of the HUB/Program Center recommendations.

(g) Failure to submit acceptable Improvement Plan. If a PHA 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 HUB/Program Center will notify the PHA of

its noncompliance. The PHA (or the RMC through the PHA) will provide

the HUB/Program Center 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 of its reasons for lack of progress and, if

unacceptable, will notify the PHA that it will be referred to the TARC

for remedial actions or such actions as the TARC may determine

appropriate in accordance with the provisions of the ACC, this part and

other HUD regulations.

Sec. 901.75 Referral to a TARC.

Upon designation of a PHA as troubled, in accordance with the

requirements of section 6(j)(2)(B) of the 1937 Act and in accordance

with this part, the REAC shall refer each troubled PHA to the PHA's

area TARC for remedial action. The actions to be taken by the TARC and

the PHA shall be as follows:

(a) Recovery plan and MOA. Within 30 days of notification of the

designation of a troubled PHA within its area, the appropriate TARC

will deploy an on-site team to develop a Recovery Plan. The Recovery

Plan shall include recommendations for improvements to correct or

eliminate deficiencies that resulted in a failing PHAS score and

designation as troubled. The Recovery Plan will incorporate a

memorandum of agreement (MOA) as described in paragraph (c) of this

section.

(b) PHA review of recovery plan and MOA. The PHA will have 10 days

to review the recovery plan and the MOA. During this 10-day period, the

PHA shall resolve any claimed discrepancies in the plan with its area

TARC, and discuss any recommended changes and target dates for

improvement to be incorporated in the final MOA. Unless the time period

is extended by the TARC, the MOA is to be executed 15 days following

issuance of the preliminary MOA.

(c) Memorandum of Agreement (MOA). The final MOA is a binding

contractual agreement between HUD and a PHA. 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 PHAS indicators or components identified as a

deficiency;

(2) Annual and quarterly performance targets, which may be the

attainment of a higher score within an indicator that is a problem, or

the description of a goal to be achieved;

(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 HUD,

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, but

not limited to, such sanctions as the imposition of budget and

management

[[Page 35690]]

controls by the TARC, declaration of substantial default and subsequent

actions, including referral to the Enforcement Center for judicial

appointment of a receiver, limited denial of participation, suspension,

debarment, or other actions deemed appropriate by the Enforcement

Center; 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.

(d) Maximum recovery period. Unless extended by the TARC and

documented in the MOA, the maximum recovery period for a troubled PHA

is the first full fiscal year following execution of the MOA.

(e) Parties to the MOA. An 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 of the area TARC; and

(4) The appointing authorities of the Board of Commissioners,

unless exempted by the HUB/Program Center.

(f) Involvement of resident leadership in the MOA. HUD encourages

the inclusion of the resident leadership in the execution of the MOA.

(g) Failure to execute MOA or make substantial improvement under

MOA.

(1) If a troubled PHA does not execute an MOA within the period

provided in paragraph (b) of this section, or the TARC determines that

the PHA does not show a substantial improvement toward a passing PHAS

score following the issuance of the failing PHAS score by the REAC, the

TARC shall refer the PHA to the Enforcement Center, which shall

initiate proceedings for judicial appointment of a receiver, and other

sanctions as may be appropriate. For purposes of this paragraph (g),

substantial improvement is defined as 50% of the points needed to

achieve a passing score.

(2) The following example illustrates the provisions of paragraph

(g)(1) of this section:

Example. A PHA receives a score of 50; 60 is a passing score.

The PHA is referred to the TARC. Within one year after the score is

issued to the PHA, the PHA must achieve a five point increase to

continue recovery efforts in the TARC. If the PHA fails to achieve

the 5 point increase, the PHA will be referred to the Enforcement

Center.

Sec. 901.77 Referral to the Enforcement Center.

Failure of a troubled PHA to execute or meet the requirements of a

memorandum of agreement in accordance with Sec. 901.75 constitutes a

substantial default in accordance with Sec. 901.79 and shall result in

referral to the Enforcement Center. The Enforcement Center is

officially responsible for recommending to the Assistant Secretary for

Public and Indian Housing that a troubled performer PHA be declared in

substantial default. The Enforcement Center shall initiate the judicial

appointment of a receiver or the interventions provided in Sec. 901.83;

and may initiate limited denial of participation, suspension,

debarment, the imposition of other sanctions available to the

Enforcement Center including referral to the appropriate Federal

government agencies or offices for the imposition of civil or criminal

sanctions.

Sec. 901.79 Substantial default.

(a) Events or conditions that constitute substantial default. The

following events or conditions shall constitute substantial default.

(1) HUD may determine that events have occurred or that conditions

exist that constitute a substantial default if a PHA is determined to

be in violation of Federal statutes, including but not limited to, the

1937 Act, or in violation of regulations implementing such statutory

requirements, whether or not such violations would constitute a

substantial breach or default under provisions of the relevant ACC.

(2) HUD may determine that a PHA's failure to satisfy the terms of

a Memorandum of Agreement entered into in accordance with Sec. 901.75 ,

or to make reasonable progress to execute or meet requirements included

in a Memorandum of Agreement, are events or conditions that constitute

a substantial default.

(3) HUD shall determine that a PHA that has been designated as

troubled and does not show substantial improvement, as defined in

Sec. 901.75(h), in its PHAS score in one year following issuance of the

failed score is in substantial default;

(4) HUD may declare a substantial breach or default under the ACC,

in accordance with its terms and conditions.

(5) HUD may determine that the events or conditions constituting a

substantial default are limited to a portion of a PHA's public housing

operations, designated either by program, by operational area, or by

development(s).

(b) Notification of substantial default and response. If

information from an annual assessment or audit, or any other credible

source indicates that there may exist events or conditions constituting

a substantial breach or default, HUD shall advise a PHA of such

information. HUD is authorized to protect the confidentiality of the

source(s) of such information in appropriate cases. Before taking

further action, except in cases of apparent fraud or criminality, and/

or in cases where emergency conditions exist posing an imminent threat

to the life, health, or safety of residents, HUD shall afford the PHA a

timely opportunity to initiate corrective action, including the

remedies and procedures available to PHAs designated as ``troubled

PHAs,'' or to demonstrate that the information is incorrect.

(1) Form of notification. Upon a determination or finding that

events have occurred or that conditions exist that constitute a

substantial default, the Assistant Secretary shall provide written

notification of such determination or finding to the affected PHA.

Written notification shall be transmitted to the Executive Director,

the Chairperson of the Board, and the appointing authority(ies) of the

Board, and shall include, but are not limited to:

(i) Identification of the specific covenants, conditions, and/or

agreements under which the PHA is determined to be in noncompliance;

(ii) Identification of the specific events, occurrences, or

conditions that constitute the determined noncompliance;

(iii) Citation of the communications and opportunities to effect

remedies afforded pursuant to paragraph (a) of this section;

(iv) Notification to the PHA of a specific time period, to be not

less than 10 calendar days, except in cases of apparent fraud or other

criminal behavior, and/or under emergency conditions as described in

paragraph (a) of this section, nor more than 30 calendar days, during

which the PHA shall be required to demonstrate that the

[[Page 35691]]

determination or finding is not substantively accurate; and

(v) Notification to the PHA that, absent a satisfactory response in

accordance with paragraph (b) of this section, HUD will refer the PHA

to the Enforcement Center, using any or all of the interventions

specified in Sec. 901.83, and determined to be appropriate to remedy

the noncompliance, citing Sec. 901.83, and any additional authority for

such action.

(2) Receipt of notification. Upon receipt of the notification

described in paragraph (b)(1) of this section, the PHA must

demonstrate, within the time period permitted in the notification,

factual error in HUD's description of events, occurrences, or

conditions, or show that the events, occurrences, or conditions do not

constitute noncompliance with the statute, regulation, or covenants or

conditions to which the PHA is cited in the notification.

(3) Waiver of notification. A PHA may waive, in writing, receipt of

explicit notice from HUD as to a finding of substantial default, and

voluntarily consent to a determination of substantial default. The PHA

must concur on the existence of substantial default conditions which

can be remedied by technical assistance, and the PHA shall provide HUD

with written assurances that all deficiencies will be addressed by the

PHA. HUD will then immediately proceed with interventions as provided

in Sec. 901.83.

(4) Emergency situations. In any situation determined to be an

emergency, or in any case where the events or conditions precipitating

the intervention are determined to be the result of criminal or

fraudulent activity, the Secretary or the Secretary's designee is

authorized to intercede to protect the residents' and HUD's interests

by causing the proposed interventions to be implemented without further

appeals or delays.

Sec. 901.83 Interventions.

(a) Interventions under this part (including an assumption of

operating responsibilities) may be limited to one or more of a PHA's

specific operational areas (e.g., maintenance, modernization,

occupancy, or financial management) or to a single development or a

group of developments. Under this limited intervention procedure, HUD

could select, or participate in the selection of, an AME to assume

management responsibility for a specific development, a group of

developments in a geographical area, or a specific operational area,

while permitting the PHA to retain responsibility for all programs,

operational areas, and developments not so designated.

(b) Upon determining that a substantial default exists under this

part, HUD may initiate any interventions deemed necessary to maintain

decent, safe, and sanitary dwellings for residents. Such intervention

may include:

(1) Providing technical assistance for existing PHA management

staff;

(2) Selecting or participating in the selection of an AME to

provide technical assistance or other services up to and including

contract management of all or any part of the public housing

developments administered by a PHA;

(3) Assuming possession and operational responsibility for all or

any part of the public housing administered by a PHA;

(4) Entering into agreements, arrangements, and/or contracts for or

on behalf of a PHA, or acting as the PHA, and expending or authorizing

the expenditure of PHA funds, irrespective of the source of such funds,

to remedy the events or conditions constituting the substantial

default;

(5) The provision of intervention and assistance necessary to

remedy emergency conditions;

(6) After the solicitation of competitive proposals, select an

administrative receiver to manage and operate all or part of the PHA's

housing; and

(7) Petition for the appointment of a receiver to any District

Court of the United States or any court of the State in which real

property of the PHA is located.

(c) The receiver is to conduct the affairs of the PHA in a manner

consistent with statutory, regulatory, and contractual obligations of

the PHA and in accordance with such additional terms and conditions

that the court may provide.

(d) The appointment of a receiver pursuant to this section may be

terminated upon the petition to the court by the PHA, the receiver, or

HUD, and upon a finding by the court that the circumstances or

conditions that constituted substantial default by the PHA no longer

exist and that the operations of the PHA will be conducted in

accordance with applicable statutes and regulations, and contractual

covenants and conditions to which the PHA and its public housing

programs are subject.

(e) HUD may take the actions described in this part sequentially or

simultaneously in any combination.

Sec. 901.85 Resident petitions for remedial action.

The total number of residents that petition HUD to take remedial

action pursuant to sections 6(j)(3)(A)(i) through (iv) of the 1937 Act

must equal at least 20 percent of the residents, or the petition must

be from an organization or organizations of residents whose membership

must equal at least 20 percent of the PHA's residents.

Appendix A to Part 901--Areas and Items To Be Inspected

AREA: Site

Items

Fencing and Retaining Walls

Grounds

Lighting

Mail Boxes/Project Signs

Market Appeal

Parking Lots/Driveways

Play Areas and Equipment

Refuse Disposal

Roads

Storm Drainage

Walkways

AREA: Building Exterior

Items

Doors

Fire Escapes

Foundations

Lighting

Roofs

Walls

Windows

AREA: Building Systems

Items

Domestic Water

Electrical System

Elevators

Emergency Power

Fire Protection

HVAC

Sanitary System

AREA: Dwelling Unit

Items

Bathroom

Call-for-Aid

Ceiling

Doors

Electrical System

Floors

Hot Water Heater

HVAC System

Kitchen

Lighting

Outlets/Switches

Patio/Porch/Balcony

Smoke Detector

Stairs

Walls

Windows

AREA: Common Areas

Items

Basement/Garage/Carport

Closets/Utility/Mechanical

Community Room

Day Care

[[Page 35692]]

Halls/Corridors/Stairs

Kitchen

Laundry Room

Lobby

Office

Other Community Spaces

Patio/Porch/Balcony

Pools and Related Structures

Restroom

Storage

Trash Collection Areas

AREA: Health and Safety

Items

Air Quality

Electrical Hazards

Elevator

Emergency/Fire Exits

Fire Escapes

Flammable Materials

Garbage and Debris

Ground Fault Interrupters

Handrails

Hazards

Hot Water Heater

Infestation

Lead Paint

Pools and Related Structures

Smoke Detectors

Dated: June 5, 1998.

Deborah Vincent,

General Deputy Assistant Secretary for Public and Indian Housing.

Donald J. LaVoy,

Director, Real Estate Assessment Center.

[FR Doc. 98-17302 Filed 6-29-98; 8:45 am]

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