Section 8 Rental Voucher and Certificate Programs and Establishment Section 8 Management Assessment Program (SEMAP)

SUMMARY: This rule establishes the Section 8 Management Assessment

Program (SEMAP) to objectively measure public housing agency (HA)

performance in key Section 8 tenant-based assistance program areas.

SEMAP enables HUD to ensure program integrity and accountability by

identifying HA management capabilities and deficiencies and by

improving risk assessment to effectively target monitoring and program

assistance. HAs can use the SEMAP performance analysis to assess their

own program operations.

DATES: This rule is effective October 13, 1998, Sections 985.102 (SEMAP

profile), 985.103 (SEMAP score and overall performance rating),

985.105(a), 985.105(b), 985.105(d) and 985.105(e) (HUD SEMAP

responsibilities) and 985.107 (Required actions for HA with troubled

performance rating) are stayed as of October 13, 1998, until further

notice.

FOR FURTHER INFORMATION CONTACT: Gerald Benoit, Acting Director, Real

Estate and Housing Performance Division, Office of Public and Assisted

Housing Delivery, Public and Indian Housing, Department of Housing and

Urban Development, Room 4220, 451 Seventh Street, SW, Washington, DC

20410, telephone (202) 708-0477. Hearing or speech impaired individuals

may call HUD's TTY number (202) 708-4594 or 1-800-877-8399 (Federal

Information Relay Service TTY). (Other than the ``800'' number, these

are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. History and Scope of Rule

On December 2, 1996, at 61 FR 63930, HUD published a proposed rule

to establish SEMAP for the tenant-based Section 8 rental voucher and

rental certificate programs (24 CFR part 982), and for certain aspects

of the project-based component of the certificate program and the

Section 8 family self-sufficiency (FSS) program. The proposed rule

described 15 performance indicators that the Department planned to use

to assess HA performance; the annual HA SEMAP certification and HUD

review process; HUD scoring procedures and procedures for designating

high, standard and troubled performers; and requirements for corrective

action plans for improving performance.

HUD received 160 comments on the proposed rule which generally

approve the broad purpose of the rule. Comments object to particular

aspects of the proposed rule, and especially to inclusion of the

proposed indicators for welfare to work and deconcentration. As a

result of comments, the Department has revised the deconcentration

indicator to measure HA efforts to expand housing opportunities rather

than actual dispersal of Section 8 families. A deconcentration bonus

indicator has also been added which awards up to 5 bonus points based

on measurement of actual outcomes of HA actions as they impact on

families choosing housing in low poverty areas. The Department has

eliminated two (2) of the proposed indicators (time from request for

lease approval to housing quality standards (HQS) inspection and

welfare to work), and has added one indicator (utility allowance

schedule). A new component has also been added to the FSS enrollment

indicator to measure the percent of FSS participants with escrow

account balances).

The SEMAP rule does not apply to Indian housing authority (IHA)

administration of the tenant-based Section 8 programs. SEMAP does not

cover the Section 8 moderate rehabilitation program (24 CFR 882,

subparts D and E).

II. Program Operation

The basic SEMAP procedures have been modeled on the performance

indicators for the assessment of public housing management required by

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

These public housing management indicators constituted the core of the

former Public Housing Management Assessment Program (PHMAP), which has

been replaced by the new Public Housing Assessment System (PHAS)

implemented by a final rule published September 1, 1998. The PHAS is a

much broader assessment system which places substantial weight on the

physical condition of Public Housing. Although this SEMAP final rule

does not include a physical assessment component, it is HUD's intention

to develop a physical inspection system for Section 8 tenant-based

assistance once the Department and the industry have gained experience

with the new PHAS system. Subpart C has been reserved in this rule for

a future physical assessment component.

A. SEMAP Certification

Section 985.101 requires an HA administering a Section 8 tenant-

based assistance program to submit annually a SEMAP certification form

within 60 calendar days after the end of its fiscal year. The

certification form requires short answers from HAs concerning HA

performance under the 14 SEMAP indicators and assures HUD that HA

responses are accurate and that there is no evidence of seriously

deficient performance. The HA board of commissioners approves, and the

board chairperson and HA executive director sign, the certification. An

HA must submit its first annual SEMAP certification form within 60 days

after its first fiscal year end that follows the effective date of this

final rule.

B. SEMAP Score and Overall Performance Rating

1. HUD Assessment and Verification of SEMAP Certification

Upon receipt of the annual HA SEMAP certification, HUD will

independently assess each HA's performance under SEMAP using annual

audit reports, family data reported by HAs on Forms HUD-50058 and HUD-

50058-FSS and maintained in the HUD Multifamily Tenant Characteristics

System (MTCS), and other available information to verify the HA

responses. HUD may also conduct an on-site confirmatory review to

verify an HA certification under any indicator. Based upon this HUD

review and verification, HUD will prepare a SEMAP profile for each HA,

assigning a rating for each SEMAP indicator in accordance with the

regulation.

The final rule provides at Sec. 985.3, that if the HUD verification

method for a SEMAP indicator relies on data in MTCS, and HUD determines

those data are insufficient to verify the HA's certification on the

indicator due to the HA's failure to adequately report family data, HUD

will assign a zero rating for the indicator. The Department expects

that no less than 75 percent of an HA's rental voucher and certificate

program participants must be reported for the MTCS data to be

sufficient for assigning ratings under SEMAP. HUD, in its discretion,

may increase the required level of MTCS reporting for SEMAP rating

purposes at any time to a standard higher than 75 percent. HAs are

reminded that the regulations in

[[Page 48549]]

force since 1995, at 24 CFR 982.158 and 908.104, require 100 percent

reporting of participant data to MTCS in accordance with HUD

instructions.

Comments question whether MTCS data are reliable for rating HAs

under the SEMAP indicators and whether independent auditors (IAs) have

sufficient capability to understand program rules to provide accurate

assessments of compliance. Comments also express concern that auditors

will vary in their audit procedures and that the cost of the audit will

increase as a result of the auditor's added responsibilities under this

rule.

The Department will not rate indicators under this rule until it is

confident that MTCS data are reliable and auditor guidance has been

issued to help auditors understand program requirements and

consistently measure compliance. Therefore, until HUD determines that

the independent verification methods for the SEMAP indicators stated in

Sec. 985.3 are properly implemented, the Department will accept the HA

certification and will continue to depend on confirmatory reviews to

the extent they are performed to measure performance and compliance.

Initially, the Department will not assign overall performance

ratings. When independent verification methods for the indicators are

properly implemented, the Department will publish a Federal Register

notice of the effective date for the full implementation of SEMAP,

including ratings under the indicators and issuance of overall

performance ratings, which is expected early in calendar year 2000.

Consequently, implementation of Secs. 985.102 (SEMAP profile), 985.103

(SEMAP score and overall performance rating), 985.105(a), (b), (d) and

(e) (HUD SEMAP responsibilities), and 985.107 (Required actions for HA

with troubled performance rating) will be deferred until further

notice.

Several comments expressed concern that the audit report to be used

for independent verification of performance will not be available to

HUD until as much as 13 months after the HA fiscal year for which

performance is assessed. The Single Audit Act amendments of 1996,

shortened to 9 months the amount of time between the end of an audit

period and the submission of the audit report. Nonetheless, the

Department recognizes that there is still a lag between the end of the

HA fiscal year and the Department's receipt of the audit report. The

Department plans to use the latest available audit report to rate those

indicators for which the audit is the method of verification. The

performance indicators measured by the auditor are mostly fundamental

program responsibilities which HAs have been performing for many years

and for which there has been long-standing guidance. In general, there

ought not be substantial variance in an HA's administration of these

functions from year to year. However, to the extent that the HA has

improved performance under an indicator after the audit, the HA may

describe to HUD any corrective action taken since the audit (see

Sec. 985.101(a)(3)) and, if HUD deems it appropriate, HUD may adjust

the HA's overall performance rating accordingly.

The Department recognizes that the cost of the audit may increase

due to additional compliance testing which may be required as a result

of this rule, and due to the requirement for explicit statements in the

audit report concerning compliance related to the SEMAP indicators. The

Department has determined to bear the added cost in return for the

increased information about how well HAs administer the aspects of the

program measured by the audit.

2. Small Housing Agencies

Several HAs commented that SEMAP is an undue administrative burden

and should not apply to HAs that administer fewer than 250 units. SEMAP

was designed to minimize any new recordkeeping burden. Under the final

rule, an HA that is not already doing so will need to begin maintaining

documentation of its 5 percent HQS quality control inspections. HAs

with FSS programs will need to track the number of FSS families with

escrow accounts. Initial HAs that deal with FSS families who have moved

under portability but continue in the FSS program of the initial HA

will also have a minimal extra record-keeping burden. For all other

SEMAP indicators, the Department expects that all HAs already keep

records that will demonstrate performance in conformity with

longstanding program requirements. Consequently, the Department does

not agree that there is any significant administrative burden

associated with SEMAP that should preclude its implementation for small

HAs.

The Single Audit Act requires non-Federal entities that expend

$300,000 or more a year in Federal awards to have an audit made for

that year. HAs that expend less than $300,000 a year in Federal awards

are exempt from Federal audit requirements. Therefore, the final rule

provides that HAs that expend less than $300,000 a year in Federal

awards and whose Section 8 programs are not audited by an IA, will not

be rated under the SEMAP indicators for which HUD uses the audit report

as the method of verification of HA performance. For these small HAs,

the SEMAP score and overall performance rating will be determined based

only on the remaining 7 SEMAP indicators, including lease-up and those

indicators for which HUD uses MTCS as the method of verification.

Although the SEMAP performance rating will not be determined using the

indicators for which the audit report is the verification method, HAs

not subject to Federal audit requirements must still complete the SEMAP

certification for these indicators and performance under the indicators

is still subject to HUD confirmatory reviews to the extent they are

performed.

3. Determination of SEMAP Score and Overall Performance Rating

Comments objected to the proposed rating of several indicators for

which 100 percent compliance was required in order to achieve highest

points under the indicator. Comments said rating should be less

stringent to allow for human error or circumstances beyond the HA's

control. In the final rule, the rating on several indicators has been

relaxed to not require 100 percent compliance to achieve highest

points. Notwithstanding that some room for error is allowed in the

SEMAP ratings, HAs are reminded that they are responsible for full

compliance with program requirements.

Several HA comments requested the opportunity to review a

preliminary SEMAP score before HUD issues a final score. The Department

does not find the extra administrative procedures involved in issuing

preliminary SEMAP scores worthwhile, since assignment of scores under

SEMAP will be highly systematized, and the scores will generally be

easily determinable from the IA audit report and from MTCS reports

which HAs may obtain from HUD.

HUD will sum its ratings for the individual indicators and divide

by the potential maximum number of points to arrive at an overall HA

SEMAP score. Points awarded under the deconcentration bonus indicator

will be added to the sum of the ratings for the individual indicators,

but will not be included in the potential maximum number of points. HAs

with SEMAP scores of at least 90 percent will receive an overall

performance rating of high performer; HAs with SEMAP scores of 60 to 89

percent will receive an overall performance rating of standard; and HAs

with scores of less than 60 percent will receive an overall performance

[[Page 48550]]

rating of troubled. HUD may modify an HA's overall performance rating

when warranted by circumstances that have bearing on the SEMAP

indicators such as an HA's appeal of its overall rating, adverse

litigation, fair housing and equal opportunity compliance concerns,

fraud or misconduct, audit findings, or substantial noncompliance with

program requirements. HUD will provide the HA a written explanation of

any modified overall performance rating.

As indicated above, the Department will not rate indicators under

this rule until it is confident that MTCS data are reliable and audit

guidance has been issued to help auditors understand program

requirements and consistently measure compliance.

4. HUD Notification to HA of SEMAP Ratings

SEMAP Profile. The final rule provides that within 120 days of the

HA's fiscal year end, HUD will complete an HA SEMAP profile and will

notify the HA in writing of its rating on each SEMAP indicator, the

HA's overall SEMAP score and its overall performance rating (high

performer, standard, or troubled). HUD will also provide an HA's SEMAP

ratings to the chief executive officer of the unit of local government

where the HA has jurisdiction, and SEMAP ratings will be made available

as public information over the Internet. As noted above, however, HUD

will not assign an overall performance rating until HUD publishes the

effective date for full implementation of SEMAP. The HUD notification

letter will identify and require correction of any program management

deficiencies within 45 days.

Modifications, Exclusions, Appeals. Several comments urged that

there be provision for modifications or exclusions of certain

indicators as in the Public Housing Management Assessment Program

(PHMAP), and that there be detailed appeal procedures.

HUD finds the performance indicators in SEMAP so essential to

adequate performance for any Section 8 tenant-based program that

provision for modification or exclusion of any indicator is not

warranted. Since appeals of SEMAP scores and ratings may be made for a

variety of reasons in a variety of circumstances, the Department finds

little practicality for a prescribed appeal process. The rule provides

that the HA may appeal its overall performance rating to HUD by

providing justification of the reasons for its appeal and that HUD must

provide a final written determination to an HA on its appeal. An appeal

made to a HUD hub or program center or to the HUD Troubled Agency

Recovery Center and denied, may be further appealed to the Assistant

Secretary.

C. Required Actions for SEMAP Deficiencies

Section 985.106 requires that the HA improve its Section 8 program

management for any SEMAP indicator that is rated zero (a ``SEMAP

deficiency''), and must send HUD a written report of the corrective

action taken on the SEMAP deficiency within 45 days of receipt of its

SEMAP ratings from HUD. If an HA fails to correct SEMAP deficiencies as

required, HUD will require that the HA prepare and submit a written

corrective action plan for the deficiency within 30 days.

HUD must, under Sec. 985.107, review on-site any HA that is

assigned an overall performance rating of troubled. HUD will issue a

written report of its on-site review findings and recommendations. Upon

receipt of the HUD report, the HA must write a corrective action plan

and submit it to HUD for approval. Both the HA and HUD must monitor

implementation of a corrective action plan to ensure targets for

improved performance are met.

Any HA assigned an overall performance rating of troubled may not

use any part of the administrative fee reserve for other housing

purposes (see 24 CFR 982.155(b)). In these cases, HUD may require use

of the administrative fee reserve for specific administrative

improvements in areas where administration is found deficient.

D. HAs Under the Jurisdiction of More Than One HUD Office

For any HA with jurisdiction under the jurisdiction of more than

one HUD office (e.g., a state agency), the HUD office with the greatest

amount of funding obligated under ACCs will assume all responsibility

for administration of SEMAP for the HA.

E. Default Under ACC

An HA's failure to correct identified SEMAP deficiencies or to

prepare and implement a corrective action plan required by HUD may

constitute a default under the ACC as determined by HUD. The ACC

provides for HUD notice of a determination of default to the HA and

authorizes HUD to take possession of all or any HA property, rights, or

interests in connection with a program if HUD determines that the HA

has failed to comply with obligations under the ACC, including

compliance with all HUD regulations and other requirements (including

the final SEMAP regulation), or with obligations under a housing

assistance payments (HAP) contract.

III. SEMAP Indicators

A. Proposed Indicators for Deconcentration and Welfare to Work

Comments nearly unanimously objected to inclusion of the proposed

SEMAP indicators for deconcentration and welfare to work. The

deconcentration indicator would have measured the extent to which

Section 8 families with children leased units in census tracts of

relatively low poverty, among metropolitan census tracts containing

housing priced at or below the fair market rent (FMR), both within the

HA's jurisdiction and within the entire metropolitan area. Comments

state that deconcentration of assisted families is largely outside HA

control, since the tenant-based program design gives families the right

to choose their own housing. Comments also indicate that a performance

requirement and the added costs to administer a mobility program which

would produce significant results constitute an unfunded mandate. Some

comments stated that the indicator is too complicated and confusing,

and that the 1990 data used to determine areas with FMR-priced housing

and poverty rates may be out of date.

In light of the comments, the Department has decided to revise the

deconcentration indicator. The revised indicator has been renamed

``expanding housing opportunities'' (Sec. 985.3(g)) and measures an

HA's efforts to encourage participation by owners of units located

outside areas of poverty or minority concentration and to inform rental

voucher and certificate holders of the full range of areas where they

may lease housing, both inside and outside the HA's jurisdiction. The

revised indicator measures HA actions required by program regulations

at 24 CFR 982.54(d)(5), 982.301(a) and 982.301(b)(5) and

982.301(b)(13), and so does not require an HA to take action that is

not funded by the administrative fee. The expanding housing

opportunities indicator applies only to HAs with jurisdiction in

metropolitan FMR areas.

The revised ``expanding housing opportunities'' indicator does not

measure where families ultimately choose to lease housing. However, the

Department continues to believe that it is important to develop a

reasonable measure of the extent to which the HA's actions to expand

housing opportunities actually result in family choices to lease

housing in low poverty areas. The Department plans to issue a new

[[Page 48551]]

proposed rule which will present and seek comment on a potential new

SEMAP deconcentration indicator to measure outcomes that is less

complicated than the deconcentration indicator in the December 2, 1996

proposed rule.

To acknowledge the effectiveness of HA actions in achieving

deconcentration until a new SEMAP deconcentration outcome measure is

developed, the Department has added a 5-point deconcentration bonus

indicator to this final rule (Sec. 985.3(h)). The deconcentration bonus

indicator will give HAs with jurisdiction in metropolitan FMR areas the

option of providing data on the percent of Section 8 families with

children who choose housing in low poverty census tracts in the HA's

principal operating area. Bonus points may be awarded if half or more

of all Section 8 families with children live in low poverty areas in

the HA's principal operating area, or if the percent of Section 8 mover

families with children who choose housing in low poverty areas exceeds

by at least 2 percentage points the percent of all the HA's Section 8

families with children who live in low poverty areas. For example, if

20 percent of all assisted families with children are in low poverty

tracts, and 22 percent of mover families with children locate in low

poverty tracts, the HA would be awarded 5 bonus points. Because an HA

might make progress that varies year by year, bonus points may also be

awarded if the percent of families moving to low poverty tracts over a

2-year period is 2 percentage points greater than the percent of all

assisted families with children.

State and regional HAs that provide Section 8 rental assistance in

more than one metropolitan area within a State or region make these

determinations separately for each metropolitan area or portion of a

metropolitan area where the HA assists at least 20 families with

children during the HA fiscal year. The separate metropolitan area

ratings will then be weighted by the number of assisted families with

children in each area and averaged to determine bonus points to be

awarded to the State or regional HA.

Low poverty census tracts are defined as those where the poverty

rate in the tract is at or below 10 percent, or at or below the overall

poverty rate for the principal operating area of the HA, whichever is

greater. This definition of low poverty census tract is intended to be

a relative measure that may differ for the inner city and suburban

portions of a metropolitan area, and that is consistent with variations

in the availability of affordable housing offered at or below HUD FMRs.

The Department does not intend that the bonus indicator for

deconcentration should cause any HA with jurisdiction in a metropolitan

FMR area to directly or indirectly reduce a family's opportunity to

select among available units, including those in high-poverty areas.

Rather, HUD intends, by including the extent to which Section 8

families with children choose housing in low poverty areas as a measure

of performance for bonus points, that HAs will be encouraged to provide

more outreach to owners in all areas of their jurisdictions and more

counseling and assistance to motivate and increase housing choice on

the part of families.

The proposed welfare to work indicator would have measured the

percent of Section 8 families whose primary source of income was

welfare, who moved from welfare to work over the course of a year.

Comments state that movement of families from welfare to work is not

under the HA's control, but rather depends on state work incentives,

family skills, the local economy, and the quality of job training and

placement programs. Comments state that moving families from welfare to

work is not an HA responsibility at all and is unrelated to federal

housing laws and regulations. Several comments state that HAs should

not be expected to coordinate social services without funds to pay the

costs. The final rule eliminates the proposed welfare to work

indicator, but retains the FSS indicator which has basis in federal

housing law.

B. Remarks on Particular Indicators

1. Selection From the Waiting List

This indicator measures whether the HA has written policies in its

administrative plan for selecting applicants from the waiting list and

follows these policies when selecting applicants for admission. The

final rule raises the maximum points for the waiting list indicator

(Sec. 985.3(a)) to 15 points from 10 points as had been proposed, based

on comments which stressed the importance of this indicator.

2. Reasonable Rent

The final rule requires, for maximum points under the reasonable

rent indicator (Sec. 985.3(b)), that the HA document for at least 98

percent of units leased that the rent to owner is reasonable based on

current rents for comparable unassisted units, at the time of initial

leasing; if there is any increase in the rent to owner; and at the HAP

contract anniversary if there is a 5 percent decrease in the published

FMR in effect 60 days before the HAP contract anniversary. This is

changed from the proposed indicator which required that reasonable rent

be documented at the time of initial leasing and ``at least annually''.

The change corresponds to the current requirement in the Section 8

certificate and voucher programs conforming rule.

Comments asked HUD to clarify what is required as a method for the

HA to determine reasonable rent. The Section 8 certificate and voucher

programs conforming rule at Sec. 982.503, requires that the HA

determine whether the rent to owner is a reasonable rent in comparison

to rent for other comparable unassisted units. To make this

determination the HA must consider location, quality, size, type, and

age of the contract unit, and any amenities, housing services,

maintenance and utilities to be provided by the owner under the lease.

The Department plans to issue guidance concerning the determination of

reasonable rent that will be substantially similar to guidance

previously issued in paragraph 6-5 of Handbook 7420.7, Public Housing

Agency Administrative Practices Handbook for the Section 8 Existing

Housing Program.

Some comments questioned why reasonable rent is included as a SEMAP

indicator since, with fair market rents (FMRs) set at the 40th

percentile rents for the area, it is not worth an HA's effort to

determine that rent is reasonable.

FMRs are set for entire metropolitan areas and for entire

nonmetropolitan counties. Within these broad FMR areas it is normal for

rents to vary considerably within submarkets. Within any broad FMR

area, there are likely to be neighborhoods where prevailing rents are

significantly below the HUD-published FMRs as well as neighborhoods

with prevailing rents significantly above the HUD-published FMRs. In

addition, any particular unit may command a lesser rent than the FMR

due to its location, quality, size, type, age and amenities.

Consequently, to ensure that rents paid under the Section 8 programs

are not excessive in the local submarket, it is of utmost importance

for the HA to make a determination of reasonable rent based on

comparable unassisted units in the submarket determined by unit

location, age, quality, size, type and amenities.

3. Determination of Adjusted Income

The proposed rule included an indicator for income determination

and utility allowances. Comments urged HUD not to combine the standard

for

[[Page 48552]]

the utility allowance schedule with the income determination indicator.

Accordingly, the final rule includes a separate utility allowance

schedule indicator.

The proposed rule provided that, to score points on the income

determination indicator, the HA must obtain third party verification of

family income, assets, and composition or document why independent

verification is not possible. Some comments pointed out that third

party verification of family composition is not generally required.

The final rule clarifies at Sec. 985.3(c)(3), that the HA must

obtain third party verification of adjusted income. This includes

verification of annual income, the value of assets totalling more than

$5,000, expenses related to deductions from annual income, and other

factors that affect the determination of adjusted income and

consequently the amount of assistance (e.g., full-time student status,

custody). In general, the family's self-declaration of the numbers of

its members, their ages, and their relationship to the head does not

require third party verification unless there is HA uncertainty

concerning these factors. For further clarification of verification

requirements, HAs may use the guidance in paragraph 4-5 of Handbook

7420.7.

4. Utility Allowance Schedule

The final rule establishes a separate utility allowance schedule

indicator (Sec. 985.3(d)) worth 5 points. The indicator measures

whether the HA maintains an up-to-date utility allowance schedule.

5. HQS Quality Control Inspections

Comments asked for clarification of which inspections were subject

to the 5 percent quality control reinspection and over what period of

time the quality control reinspections must be performed. The final

rule clarifies at Sec. 985.3(e) that to obtain the 5 points under this

indicator, an HA supervisor or other qualified person must reinspect a

sample of units during the HA fiscal year, numbering at least 5 percent

of the number of units under contract during the last completed HA

fiscal year. In addition, the indicator has been modified to also

require the reinspected sample to be drawn from recently completed HQS

inspections (i.e., performed during the 3 months preceding

reinspection) and to be drawn to represent a cross section of

neighborhoods and the work of a cross section of inspectors.

A small HA with only 1 or 2 employees may arrange with a nearby HA

to have a qualified HQS inspector perform the required quality control

inspections.

6. FMR Limit and Payment Standards

The Department had requested specific comment on whether the FMR

limit and payment standards indicator (Sec. 985.3(i)) should be

retained as a SEMAP indicator in the final rule. Comments approved of

the inclusion of this indicator in the final rule.

FMR Limit. Many comments expressed confusion over the FMR standard

which allows only 10 percent of newly leased certificate units to

exceed the FMR/exception rent limit. HAs did not understand how the

indicator accommodated their authority to exceed the FMR by up to 10

percent for 20 percent of certificate units, as well as HUD's authority

to approve area exception rents and case-by-case exception rents up to

120 percent of FMR.

Under the conforming rule, the HA's broad authority to exceed the

FMR by up to 10 percent for 20 percent of certificate units, as well as

HUD's authority to approve case-by-case exception rents up to 120

percent of FMR have been eliminated. However, the conforming rule

retains provisions for HUD-approved area exception rents and provides

for HA approval of exception rents if needed as reasonable

accommodation for persons with disabilities.

The FMR indicator in the proposed rule was written to accommodate

the new over-FMR tenancy option in the rental certificate program.

Under the conforming rule, an HA may approve an initial gross rent that

exceeds the FMR or HUD-approved exception rent (an over-FMR tenancy)

for up to 10 percent of its incremental certificates under budget. The

SEMAP proposed rule standard to have at least 90 percent of newly

leased certificate units with initial rents at or below the FMR was

meant to allow for up to 10 percent of all units to be leased under

over-FMR tenancies. In this final rule the indicator has been modified

for accuracy. The final rule standard excepts over-FMR tenancies from

the measure entirely, and requires that at least 98 percent of units

newly leased under the certificate program, other than over-FMR

tenancies, have initial gross rents at or below the applicable FMR or

approved exception rent limit.

Payment Standards. In addition to measuring whether the HA's

voucher payment standards do not exceed the applicable FMR or HUD-

approved exception rent limits, the final rule modifies the payment

standard aspect of the proposed indicator to also measure whether the

HA's payment standards are not less than 80 percent of the applicable

FMR or HUD-approved exception rent limits.

7. Annual Reexaminations

The Department had requested specific comment on whether the annual

reexaminations indicator should be retained as a SEMAP indicator in the

final rule. Comments approved of the inclusion of this indicator.

Many comments recommended that the SEMAP indictor require the

annual reexamination to be completed ``annually before the HAP contract

anniversary'' rather than ``at least every 12 months''. Comments

indicated that many HAs view the annual reexamination as an annual

process that involves not only reexamination of the family's adjusted

income, but also the annual HQS inspection and the owner's annual rent

adjustment in the certificate program. Many HAs expressed concern about

delays in rent negotiations or in HQS inspections impacting the

timeliness of the HA's annual reexamination.

The program requirement is that the results of the annual

reexamination of the family's adjusted income take effect at least

every 12 months. The annual reexamination of adjusted income does not

entail the annual HQS inspection or the owner's rent adjustment,

although HAs may, nevertheless, find it convenient to coordinate these

annual processes.

Some comments indicated that, when an HA knows a family move is

imminent, the HA will intentionally delay the annual reexamination so

that its effective date will coincide with the HQS inspection and the

HAP contract anniversary for the family's new unit. The law and

regulations do not permit a delay in the annual reexamination for this

reason. However, HUD recognizes that it is administratively convenient

for HAs to coordinate the timing of the annual reexamination, HQS

inspection and owner's rent adjustment processes. When a family moves

to a new unit and thereby establishes a new HQS inspection date and HAP

contract anniversary date, if the family's latest annual reexamination

took effect within 4 months prior to the new HAP contract anniversary,

the HA may simply ascertain whether there has been any change in the

family's adjusted income since the last annual reexamination and, if

so, obtain third party verification of only the change. The HA must

then use any new verified information together with information from

the last annual reexamination to redetermine the family

[[Page 48553]]

share of rent and the housing assistance payment. The HA may consider

and report that income redetermination, upon a move within 4 months of

the effective date of the last annual reexamination, as a new annual

reexamination. This will establish a new annual reexamination date that

coincides with the date of the HQS inspection and HAP contract

anniversary at the new unit.

The ratings for the annual reexaminations indicator at

Sec. 985.3(j) indicate that annual reexaminations may not be more than

2 months overdue. This 2-month allowance is provided only to

accommodate a possible lag in the HA's electronic reporting of the

annual reexamination on Form HUD-50058, and to allow the processing of

the data into the MTCS. The Form HUD-50058 data are used to measure

performance under this indicator. The 2-month allowance provided here

for rating purposes does not mean that any delay in completing annual

reexaminations is ever permitted.

8. Correct Tenant Rent Calculations

This indicator shows whether the HA correctly calculates tenant

rent in the rental certificate program and the family's share of the

rent to owner in the rental voucher program. The final rule

(Sec. 985.3(k)) clarifies that the MTCS report used to verify

performance under this indicator will cover only rent calculation

discrepancies for regular certificate and voucher program tenancies,

and will not include rent calculation discrepancies for over-FMR

tenancies in the rental certificate program, for manufactured home

owner rentals of manufactured home spaces, or for proration of

assistance under the noncitizen rule.

9. Annual HQS Inspections

The ratings for the annual HQS inspections indicator

(Sec. 985.3(m)) indicate that annual HQS inspections may not be more

than 2 months overdue. This 2-month allowance is provided only to

accommodate a possible lag in the HA's electronic reporting of the

annual HQS inspections on Form HUD-50058, and to allow the processing

of the data into the MTCS. The Form HUD-50058 data are used to measure

performance under this indicator. The 2-month allowance provided here

for rating purposes does not mean that any delay in completing annual

HQS inspections is ever permitted.

10. Lease-up

The proposed rule required that 98 percent or more of units

budgeted for the last completed HA fiscal year be contracted to receive

maximum points under the lease-up indicator. Comments state that it is

unreasonable to expect 98 percent lease-up with the required 3-month

delay in reissuance of turnover and that this indicator should be

excluded from SEMAP until the 3-month delay on reissuance is revoked.

The final rule at Sec. 985.3(n) does not address the 3-month delay

on reissuance of turnover. However, in the event future legislation

impacts the lease-up indicator, or any other SEMAP indicator, the

Department will publish a Federal Register notice to temporarily modify

SEMAP standards as may be required by future legislative provisions.

Many comments recommended that the lease-up indicator account for

circumstances which affect leasing such as rental market factors,

economic conditions, and HA termination of assistance for violations of

family obligations. Other comments recommended that allocations for

special use, such as in connection with public housing demolition or

for litigation, should be excluded from measurement of performance

under this indicator.

The lease-up indicator under the final rule measures units leased

during the last HA fiscal year as a percent of units budgeted for the

last HA fiscal year. The number of units budgeted on Form HUD-52672,

Supporting Data for Annual Contributions Estimates, is the number of

units estimated to be leased during the fiscal year and should account

for local market conditions, the HA's experience concerning

terminations for violation of family obligations, as well as for

anticipated leasing of units under special allocations. Therefore, the

indicator has not been modified to further consider these factors.

The proposed HUD verification method for lease-up has been modified

to measure the number of units leased during the last HA fiscal year by

using the number of unit months under contract as reported on the HUD-

approved Form HUD-52681, Voucher for Payment of Annual Contributions

and Operating Statement, divided by 12 months, and then dividing by the

number of units budgeted for the last HA fiscal year as shown on the

HUD-approved Form HUD-52672. Comments indicate this method which

measures lease-up over the course of the fiscal year is preferred over

use of the Program Utilization Report which measures lease-up at a

point in time.

11. FSS Enrollment and Escrow Accounts

The final rule lowers the maximum points for FSS enrollment

(Sec. 985.3(o)) to 5 points from 10 points as had been proposed;

however, another 5-point FSS component has been added to the FSS

indicator. Comments indicate that the SEMAP indicator for FSS should be

fashioned to measure FSS results, not just to count families enrolled

in FSS. The final rule includes a new 5-point FSS component which

measures the percent of current FSS participants with FSS progress

reports entered in MTCS who have had increases in earned income since

enrollment and consequently, have built escrow account balances.

The HUD method of verification for the FSS indicator is an MTCS

report which shows the number of the HA's Section 8 families that are

currently enrolled in the HA's FSS program and the percent of the HA's

current FSS participants that have established escrow account balances.

Occasionally, an FSS participant may move under portability to another

HA's jurisdiction, but remains in the FSS program of the initial HA.

When the family's FSS participation is properly reported by the

receiving HA, MTCS will incorrectly report this family as enrolled and

with an escrow account in the receiving HA's FSS program rather than in

the initial HA's FSS program. Therefore, until the Form HUD-50058-FSS

and MTCS are modified to show the FSS enrollment and escrow account in

the initial HA's program, if the initial HA wishes to be given credit

for the family's FSS enrollment and escrow account, it will be

necessary for the initial HA to manually report on its SEMAP

certification the number of its current FSS families enrolled and the

number of its current FSS families with escrow accounts who have

exercised portability and whose Section 8 assistance is administered

and reported by the receiving HA.

The FSS indicator at Sec. 985.3(o) applies only to HAs with

mandatory FSS programs (i.e., HAs that received FY 1992 FSS incentive

award Section 8 funding or that received FY 1993 and later year Section

8 funding, excluding Section 8 funding in conjunction with Section 8

and Section 23 contract terminations; public housing demolition,

disposition and replacement; HUD multifamily property sales; prepaid or

terminated mortgages under section 236 or section 221(d)(3); and

Section 8 renewal funding).

[[Page 48554]]

C. Comments on Possible Additional Indicators

The Department specifically invited comment on whether SEMAP should

include performance indicators on rent burden and portability. Comments

do not support and the final rule does not include performance

indicators for these areas. However, note that the new expanding

housing opportunities indicator (Sec. 985.3(g)) covers certain aspects

of portability.

The Department also invited comment on whether SEMAP should include

a performance indicator on timeliness of housing assistance payments to

owners. There was relatively light commenting on this potential

indicator in response to the proposed rule; approximately 20 of 160

comments addressed whether to add an indicator for timeliness of

housing assistance payments--4 comments were supportive and 10 were

opposed. Given the light response, the Department plans to issue a new

proposed rule which will provide further detail concerning a possible

indicator for timeliness of housing assistance payments and will seek

further comment on whether to add this as a SEMAP indicator. Timeliness

of housing assistance payments is not included as a SEMAP indicator in

this final rule.

The Department also plans to include in the forthcoming proposed

rule another SEMAP indicator for HA implementation of certain HA

screening and termination policies. On March 31, 1997, the Department

issued a proposed rule for implementation of provisions under the

Housing Opportunity Program Extension Act of 1996. The March 31, 1997

proposed rule would require that an HA deny eligibility for families

who were evicted from housing assisted under the 1937 Act for drug-

related criminal activity or for serious violation of the lease;

terminate assistance for a family that was evicted from housing

assisted under the program for serious violation of the lease; and

establish standards for denying and terminating assistance if a family

member is illegally using a controlled substance or has a pattern of

abuse of alcohol that interferes with peaceful enjoyment of the

premises by other residents. The new proposed SEMAP indicator would

measure HA performance in implementing the requirements of the

forthcoming final rule concerning these admissions and occupancy

policies. The new SEMAP proposed rule will also revise the HQS quality

control inspection sample size to require statistically significant

sample sizes based on the size of the HA's tenant-based program.

The Department noted in the preamble to the proposed rule that it

plans to add a SEMAP indicator in the next 2 years to measure an HA's

performance in analyzing computer matching results under the Tenant

Eligibility Verification System (TEVS) and in taking appropriate

administrative actions (e.g., resolving reported income discrepancies

and tracking amount of money recovered). Comments indicate it is

premature to include an indicator on HA action in support of computer

matching since TEVS needs further development to ensure accuracy and

completeness. The Department acknowledges that it is too early to

include a SEMAP indicator related to TEVS, but plans to add a TEVS

indicator in the future when the system is fully functional.

Finally, the Department is considering adding two additional SEMAP

indicators in the future: one to measure HA performance in enforcing

HQS based on results of inspections performed by an auditing entity for

a sample of units, and the second to measure customer satisfaction.

Both of these measures of HA performance will be used for Public

Housing under a revised public housing assessment system administered

by the Department's Real Estate Assessment Center. After a period of

testing the new public housing assessment system measures in these

areas, the Department anticipates publishing a proposed rule to seek

comment on similar indicators for SEMAP.

IV. Findings and Certifications

Paperwork Reduction Act Statement

The information collection requirements contained in Secs. 985.101,

985.107(c), and 985.106 in this rule have been approved by the Office

of Management and Budget (OMB) in accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3501-3520), and assigned OMB control

number 2577-0215. An agency may not conduct or sponsor, and a person is

not required to respond to, a collection of information unless the

collection displays a valid control number.

Environmental Impact

A Finding of No Significant Impact with respect to the environment

has been made in accordance with HUD regulations at 24 CFR part 50,

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

Act of 1969. The Finding of No Significant Impact is available for

public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the

Office of the Rules Docket Clerk at the above address.

Regulatory Planning and Review

This rule has been reviewed in accordance with Executive Order

12866, issued by the President on September 30, 1993 (58 FR 51735,

October 4, 1993). OMB determined that this rule is a ``significant

regulatory action,'' as defined in section 3(f) of the Order (although

not economically significant, as provided in section 3(f)(1) of the

Order). Any changes to the rule resulting from this review are

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

weekdays in the Office of the Rules Docket Clerk.

Regulatory Flexibility Act

In accordance with 5 U.S.C. 605(b) (the Regulatory Flexibility

Act), the undersigned hereby certifies that this rule is not

anticipated to have a significant economic impact on a substantial

number of small entities. The rule establishes management assessment

criteria for HAs. HUD does not anticipate a significant economic impact

on a substantial number of small entities, since the rule establishes

management assessment criteria which will be utilized by State/Area

Offices for monitoring purposes and the provision of technical

assistance to HAs.

Unfunded Mandates Reform Act

The Secretary has reviewed this rule before publication and by

approving it certifies, in accordance with the Unfunded Mandates Reform

Act of 1995 (2 U.S.C. 1532), that this rule does not impose a Federal

mandate that will result in the expenditure by State, local, and tribal

governments, in the aggregate, or by the private sector, of $100

million or more in any one year.

Federalism

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12612, Federalism, has determined that the policies

contained in this rule will not have substantial direct effects on

States or their political subdivisions, or the relationship between the

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

responsibilities among the various levels of government. The rule is

intended to promote good management practices by including, in HUD's

relationship with HAs, continuing review of HAs' compliance with

already existing requirements. The rule does not create any new

significant requirements of its own. As a result, the

[[Page 48555]]

rule is not subject to review under the Order.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic Assistance numbers are 14.855 and

14.857.

List of Subjects in 24 CFR Part 985

Grant programs--housing and community development, Housing, Rent

subsidies, Reporting and recordkeeping requirements.

Accordingly, 24 CFR, chapter IX is amended as follows:

1. A new part 985 is added to read as follows:

PART 985--SECTION 8 MANAGEMENT ASSESSMENT PROGRAM (SEMAP)

Subpart A--General

Sec.

985.1 Purpose and applicability.

985.2 Definitions.

985.3 Indicators, HUD verification methods and ratings.

Subpart B--Program Operation

985.101 SEMAP certification.

985.102 SEMAP profile.

985.103 SEMAP score and overall performance rating.

985.104 HA right of appeal of overall rating.

985.105 HUD SEMAP responsibilities.

985.106 Required actions for SEMAP deficiencies.

985.107 Required actions for HA with troubled performance rating.

985.108 SEMAP records.

985.109 Default under the Annual Contributions Contract (ACC).

Subpart C--Physical Assessment Component [Reserved]

Authority: 42 U.S.C. 1437a, 1437c, 1437f, and 3535(d).

Subpart A--General

Sec. 985.1 Purpose and applicability.

(a) Purpose. The Section 8 Management Assessment Program (SEMAP) is

designed to assess whether the Section 8 tenant-based assistance

programs operate to help eligible families afford decent rental units

at the correct subsidy cost. SEMAP also establishes an objective system

for HUD to measure HA performance in key Section 8 program areas to

enable the Department to ensure program integrity and accountability.

SEMAP provides procedures for HUD to identify HA management

capabilities and deficiencies in order to target monitoring and program

assistance more effectively. HAs can use the SEMAP performance analysis

to assess and improve their own program operations.

(b) Applicability. This rule applies to HA administration of the

tenant-based Section 8 rental voucher and rental certificate programs

(24 CFR part 982), the project-based component (PBC) of the certificate

program (24 CFR part 983) to the extent that PBC family and unit data

are reported and measured under the stated HUD verification method, and

enrollment levels and contributions to escrow accounts for Section 8

participants under the family self-sufficiency program (FSS) (24 CFR

part 984).

Sec. 985.2 Definitions.

(a) The terms Department, Fair Market Rent, HUD, Secretary, and

Section 8, as used in this part, are defined in 24 CFR 5.100.

(b) The definitions in 24 CFR 982.4 apply to this part. As used in

this part:

Corrective action plan means a HUD-required written plan that

addresses HA program management deficiencies or findings identified by

HUD through remote monitoring or on-site review, and that will bring

the HA to an acceptable level of performance.

HA means a Housing Agency.

MTCS means Multifamily Tenant Characteristics System. MTCS is the

Department's national database on participants and rental units in the

Section 8 rental certificate, rental voucher, and moderate

rehabilitation programs and in the Public and Indian Housing programs.

Performance indicator means a standard set for a key area of

Section 8 program management against which the HA's performance is

measured to show whether the HA administers the program properly and

effectively. (See Sec. 985.3.)

SEMAP certification means the HA's annual certification to HUD, on

the form prescribed by HUD, concerning its performance in key Section 8

program areas.

SEMAP deficiency means any rating of 0 points on a SEMAP

performance indicator.

SEMAP profile means a summary prepared by HUD of an HA's ratings on

each SEMAP indicator, its overall SEMAP score, and its overall

performance rating (high performer, standard, troubled).

Sec. 985.3 Indicators, HUD verification methods and ratings.

This section states the performance indicators that are used to

assess HA Section 8 management. HUD will use the verification method

identified for each indicator in reviewing the accuracy of an HA's

annual SEMAP certification. HUD will prepare a SEMAP profile for each

HA and will assign a rating for each indicator as shown. If the HUD

verification method for the indicator relies on data in MTCS and HUD

determines those data are insufficient to verify the HA's certification

on the indicator due to the HA's failure to adequately report family

data, HUD will assign a zero rating for the indicator. Similarly, if

the HUD verification method for the indicator relies on the HA's annual

audit report and HUD does not receive the audit report within the nine

month reporting period, HUD may assign a zero rating for the indicator.

An HA that expends less than $300,000 in Federal awards and whose

Section 8 programs are not audited by an independent auditor (IA), will

not be rated under the SEMAP indicators in paragraphs (a) through (g)

of this section for which the annual IA audit report is the HUD

verification method. For those HAs, the SEMAP score and overall

performance rating will be determined based only on the remaining

indicators in paragraphs (i) through (o) of this section as applicable.

Although the SEMAP performance rating will not be determined using the

indicators in paragraphs (a) through (g) of this section, HAs not

subject to Federal audit requirements must still complete the SEMAP

certification for these indicators and performance under the indicators

is subject to HUD confirmatory reviews.

(a) Selection from the Waiting List. (1) This indicator shows

whether the HA has written policies in its administrative plan for

selecting applicants from the waiting list and whether the HA follows

these policies when selecting applicants for admission from the waiting

list. (24 CFR 982.54(d)(1) and 982.204(a))

(2) HUD verification method: The latest independent auditor (IA)

annual audit report.

(3) Rating: (i) The latest IA audit report states that:

(A) The HA has written waiting list selection policies in its

administrative plan and,

(B) Based on randomly selected samples of applicants and

admissions, documentation shows that at least 98 percent of the

families in the samples of applicants and admissions were selected from

the waiting list for admission in accordance with these policies and

met the selection criteria that determined their places on the waiting

list and their order of selection. 15 points.

(ii) The latest IA audit report does not support the statement in

paragraph (a)(3)(i) of this section. 0 points.

(b) Reasonable Rent. (1) This indicator shows whether the HA has

and implements a reasonable written

[[Page 48556]]

method to determine and document for each unit leased that the rent to

owner is reasonable based on current rents for comparable unassisted

units: at the time of initial leasing; if there is any increase in the

rent to owner; and at the HAP contract anniversary if there is a 5

percent decrease in the published fair market rent (FMR) in effect 60

days before the HAP contract anniversary. The HA's method must take

into consideration the location, size, type, quality and age of the

units, and the amenities, housing services, and maintenance and

utilities provided by the owners in determining comparability and the

reasonable rent. (24 CFR 982.4, 24 CFR 982.54(d)(15), 982.158(f)(7) and

982.503)

(2) HUD verification method: The latest IA annual audit report.

(3) Rating: (i) The latest IA audit report states that:

(A) The HA has a reasonable written method to determine reasonable

rent which considers location, size, type, quality and age of the units

and the amenities, housing services, and maintenance and utilities

provided by the owners; and

(B) Based on a randomly selected sample of tenant files, the HA

follows its written method to determine reasonable rent and has

documented its determination that the rent to owner is reasonable in

accordance with Sec. 982.503 for at least 98 percent of units sampled

at the time of initial leasing, if there is any increase in the rent to

owner and, at the HAP contract anniversary if there is a 5 percent

decrease in the published FMR in effect 60 days before the HAP contract

anniversary. 20 points.

(ii) The latest IA audit report includes the statements in

paragraph (b)(3)(i) of this section, except that the HA documents its

determination of reasonable rent for only 80 to 97 percent of units

sampled at initial leasing, if there is any increase in the rent to

owner, and at the HAP contract anniversary if there is a 5 percent

decrease in the published FMR in effect 60 days before the HAP contract

anniversary. 15 points.

(iii) The latest IA audit report does not support the statements in

either paragraph (b)(3)(i) or (b)(3)(ii) of this section. 0 points.

(c) Determination of adjusted income. (1) This indicator shows

whether, at the time of admission and annual reexamination, the HA

verifies and correctly determines adjusted annual income for each

assisted family and, where the family is responsible for utilities

under the lease, the HA uses the appropriate utility allowances for the

unit leased in determining the gross rent. (24 CFR part 5, subpart F

and 24 CFR 982.516)

(2) HUD verification method: The latest IA annual audit report.

(3) Rating: (i) The latest IA audit report states that, based on a

randomly selected sample of tenant files, for at least 90 percent of

families:

(A) The HA obtains third party verification of reported family

annual income, the value of assets totalling more than $5,000, expenses

related to deductions from annual income, and other factors that affect

the determination of adjusted income, and uses the verified information

in determining adjusted income, and/or documents tenant files to show

why third party verification was not available;

(B) The HA properly attributes and calculates allowances for any

medical, child care, and/or disability assistance expenses; and

(C) The HA uses the appropriate utility allowances to determine

gross rent for the unit leased. 20 points.

(ii) The latest IA audit report includes the statements in

paragraph (c)(3)(i) of this section, except that the HA obtains and

uses independent verification of income, properly attributes

allowances, and uses the appropriate utility allowances for only 80 to

89 percent of families. 15 points.

(iii) The latest IA audit report does not support the statements in

either paragraph (c)(3)(i) or (c)(3)(ii) of this section. 0 points.

(d) Utility Allowance Schedule. (1) This indicator shows whether

the HA maintains an up-to-date utility allowance schedule. (24 CFR

982.517)

(2) HUD verification method: The latest IA annual audit report.

(3) Rating: (i) The latest IA audit report states that the auditor

has determined that the HA reviewed utility rate data within the last

12 months, and adjusted its utility allowance schedule if there has

been a change of 10 percent or more in a utility rate since the last

time the utility allowance schedule was revised. 5 points.

(ii) The latest IA audit report does not support the statement in

paragraph (d)(3)(i) of this section. 0 points.

(e) HQS quality control inspections. (1) This indicator shows

whether an HA supervisor or other qualified person reinspects a sample

of units under contract during the HA fiscal year, numbering at least 5

percent of the number of units under contract during the last completed

HA fiscal year (as determined by taking unit months under HAP contract

as shown on the HA's latest approved year end operating statement

divided by 12), for quality control of HQS inspections. The HA

supervisor's reinspected sample is to be drawn from recently completed

HQS inspections (i.e., performed during the 3 months preceding

reinspection) and is to be drawn to represent a cross section of

neighborhoods and the work of a cross section of inspectors. (24 CFR

982.405(b))

(2) HUD verification method: The latest IA annual audit report.

(3) Rating: (i) The latest IA audit report states that the auditor

has determined that an HA supervisor or other qualified person

performed quality control HQS reinspections during the HA fiscal year

for a sample of units under contract numbering at least 5 percent of

the number of units under contract during the last HA fiscal year. The

audit report also states that the reinspected sample was drawn from

recently completed HQS inspections (i.e., performed during the 3 months

preceding the quality control reinspection) and was drawn to represent

a cross section of neighborhoods and the work of a cross section of

inspectors. 5 points.

(ii) The latest IA audit report does not support the statements in

paragraph (e)(3)(i) of this section. 0 points.

(f) HQS enforcement. (1) This indicator shows whether, following

each HQS inspection of a unit under contract where the unit fails to

meet HQS, any cited life-threatening HQS deficiencies are corrected

within 24 hours from the inspection and all other cited HQS

deficiencies are corrected within no more than 30 calendar days from

the inspection or any HA-approved extension. In addition, if HQS

deficiencies are not corrected timely, the indicator shows whether the

HA stops (abates) housing assistance payments beginning no later than

the first of the month following the specified correction period or

terminates the HAP contract or, for family-caused defects, takes prompt

and vigorous action to enforce the family obligations. (24 CFR 982.404)

(2) HUD verification method: The latest IA annual audit report.

(3) Rating: (i) The latest IA audit report states that the review

of a randomly selected sample of case files with failed HQS inspections

shows that, for all cases sampled, any cited life-threatening HQS

deficiencies were corrected within 24 hours from the inspection and,

for at least 98 percent of cases sampled, all other cited HQS

deficiencies were corrected within no more than 30 calendar days from

the inspection or any HA-approved extension, or, if any life-

threatening HQS deficiencies were not corrected

[[Page 48557]]

within 24 hours and all other HQS deficiencies were not corrected

within 30 calendar days or any HA-approved extension, the HA stopped

(abated) housing assistance payments beginning no later than the first

of the month following the correction period, or took prompt and

vigorous action to enforce family obligations. 10 points.

(ii) The latest IA audit report does not support the statement in

paragraph (f)(3)(i) of this section. 0 points.

(g) Expanding housing opportunities. (1) This indicator applies

only to HAs with jurisdiction in metropolitan FMR areas. The indicator

shows whether the HA has adopted and implemented a written policy to

encourage participation by owners of units located outside areas of

poverty or minority concentration; informs rental voucher and

certificate holders of the full range of areas where they may lease

units both inside and outside the HA's jurisdiction; and supplies a

list of landlords or other parties who are willing to lease units or

help families find units, including units outside areas of poverty or

minority concentration. (24 CFR 982.54(d)(5), 982.301(a) and

982.301(b)(5) and 982.301(b)(13))

(2) HUD verification method: The latest IA annual audit report.

(3) Rating: (i) The latest IA audit report states that:

(A) The HA has a written policy in its administrative plan which

includes actions the HA will take to encourage participation by owners

of units located outside areas of poverty or minority concentration,

and which clearly delineates areas in its jurisdiction that the HA

considers areas of poverty or minority concentration;

(B) HA documentation shows that the HA has taken actions indicated

in its written policy to encourage participation by owners of units

located outside areas of poverty or minority concentration;

(C) The HA has prepared maps that show various areas with housing

opportunities outside areas of poverty or minority concentration both

within its jurisdiction and neighboring its jurisdiction; has assembled

information about the characteristics of those areas which may include

information about job opportunities, schools, transportation and other

services in these areas; and can demonstrate that it uses the maps and

area characteristics information when briefing rental voucher and

certificate holders about the full range of areas where they may look

for housing;

(D) The HA's information packet for rental voucher and certificate

holders contains either a list of owners who are willing to lease (or

properties available for lease) under the rental voucher or certificate

programs; or a current list of other organizations that will help

families find units and the HA can demonstrate that the list(s)

includes properties or organizations that operate outside areas of

poverty or minority concentration;

(E) The HA's information packet includes an explanation of how

portability works and includes a list of portability contact persons

for neighboring housing agencies, with the name, address and telephone

number of each, for use by families who move under portability; and

(F) HA documentation shows that the HA has analyzed whether rental

voucher and certificate holders have experienced difficulties in

finding housing outside areas of poverty or minority concentration and,

if such difficulties have been found, HA documentation shows that the

HA has analyzed whether it is appropriate to seek approval of area

exception rents in any part of its jurisdiction and has sought HUD

approval of exception rents when necessary. 5 points.

(ii) The latest audit report does not support the statement in

paragraph (g)(3)(i) of this section. 0 points.

(h) Deconcentration bonus. (1) Additional SEMAP points are

available to HAs that have jurisdiction in metropolitan FMR areas and

that choose to submit with their SEMAP certifications certain data, in

a HUD-prescribed format, on the percent of their tenant-based Section 8

families with children who live in, and who have moved during the HA

fiscal year to, low poverty census tracts in the HA's principal

operating area. For purposes of this indicator, the HA's principal

operating area is the geographic entity for which the Census tabulates

data that most closely matches the HA's geographic jurisdiction under

State or local law (e.g., city, county, metropolitan statistical area)

as determined by the HA, subject to HUD review. A low poverty census

tract is defined as a census tract where the poverty rate of the tract

is at or below 10 percent, or at or below the overall poverty rate for

the principal operating area of the HA, whichever is greater. The HA

determines the overall poverty rate for its principal operating area

using the most recent available decennial Census data. Family data used

for the HA's analysis must be the same information as reported to MTCS

for the HA's tenant-based Section 8 families with children. If HUD

determines that the quantity of MTCS data is insufficient for adequate

analysis, HUD will not award points under this bonus indicator. Bonus

points will be awarded if:

(i) Half or more of all Section 8 families with children assisted

by the HA in its principal operating area at the end of the last

completed HA fiscal year reside in low poverty census tracts;

(ii) The percent of Section 8 mover families with children who

moved to low poverty census tracts in the HA's principal operating area

during the last completed HA fiscal year is at least 2 percentage

points higher than the percent of all Section 8 families with children

who reside in low poverty census tracts at the end of the last

completed HA fiscal year; or

(iii) The percent of Section 8 families with children who moved to

low-poverty census tracts in the HA's principal operating area over the

last two completed HA fiscal years is at least 2 percentage points

higher than the percent of all Section 8 families with children who

resided in low poverty census tracts at the end of the second to last

completed HA fiscal year.

(iv) State and regional HAs that provide Section 8 rental

assistance in more than one metropolitan area within a State or region

make these determinations separately for each metropolitan area or

portion of a metropolitan area where the HA has assisted at least 20

Section 8 families with children in the last completed HA fiscal year.

(2) HUD verification method: HA data submitted for the

deconcentration bonus and latest IA annual audit report.

(3) Rating: (i) The data submitted by the HA for the

deconcentration bonus shows that the HA met the requirements for bonus

points in paragraph (h)(1)(i), (ii) or (iii) of this section, and the

latest IA audit report states that the auditor has determined that the

HA has on file documentation of its analysis of data which supports its

submission to HUD for bonus points under this indicator. 5 points.

(ii) The data submitted by the HA for the deconcentration bonus

does not show that the HA met the requirements for bonus points in

paragraph (h)(1)(i), (ii) or (iii) of this section, or the latest IA

audit report does not state that the auditor has determined that the HA

has on file documentation of its analysis of data which supports its

submission to HUD for bonus points under this indicator. 0 points.

(iii) HUD will rate metropolitan areas within State or regional HA

jurisdictions separately and the separate metropolitan area ratings

will then be weighted by the number of assisted families with children

in each area and

[[Page 48558]]

averaged to determine bonus points to be awarded to the State or

regional HA.

(i) Fair market rent (FMR) limit and payment standards. (1) This

indicator shows whether: at least 98 percent of the units newly leased

under the rental certificate program, other than over-FMR tenancies,

have initial gross rents at or below the applicable FMR or approved

exception rent limit; and whether the HA has adopted current payment

standards for the rental voucher program by unit size for each FMR area

in the HA jurisdiction, and, if applicable, for each HUD-approved

exception rent area within an FMR area, which payment standards do not

exceed the current applicable FMR or HUD-approved exception rent limits

and which are not less than 80 percent of the current FMR/exception

rent limit (unless a lower percent is approved by HUD). If the HA

administers either the rental certificate program or the rental voucher

program but not both, only the standard for the program which the HA

administers applies. (24 CFR 982.508(a) and 982.505(b)(3)).

(2) HUD verification method: HA data submitted on the SEMAP

certification form concerning payment standards and MTCS report--Shows

newly leased certificate units' gross rents (excluding over-FMR

tenancies) compared to the FMR or approved exception rent.

(3) Rating: (i) Excluding over-FMR tenancies, at least 98 percent

of the units newly leased under the rental certificate program have

initial gross rents at or below the applicable FMR or approved

exception rent limits, and the HA's current rental voucher program

payment standards do not exceed the current applicable FMR or HUD-

approved exception rent limits and are not less than 80 percent of the

current FMR/exception rent limit (unless a lower percent is approved by

HUD). 5 points.

(ii) Excluding over-FMR tenancies, more than 2 percent of rental

certificate program units have been newly leased at initial gross rents

that exceed the applicable FMR/exception rent limits, or the HA's

rental voucher program payment standards exceed the FMR/exception rent

limits or are less than 80 percent of the current FMR/exception rent

limit (unless a lower percent is approved by HUD). 0 points.

(j) Annual reexaminations. (1) This indicator shows whether the HA

completes a reexamination for each participating family at least every

12 months. (24 CFR 5.617).

(2) HUD verification method: MTCS report--Shows percent of

reexaminations that are more than 2 months overdue. The 2-month

allowance is provided only to accommodate a possible lag in the HA's

electronic reporting of the annual reexamination on Form HUD-50058 and

to allow the processing of the data into MTCS. The 2-month allowance

provided here for rating purposes does not mean that any delay in

completing annual reexaminations is permitted.

(3) Rating: (i) Fewer than 5 percent of all HA reexaminations are

more than 2 months overdue. 10 points.

(ii) 5 to 10 percent of all HA reexaminations are more than 2

months overdue. 5 points.

(iii) More than 10 percent of all HA reexaminations are more than 2

months overdue. 0 points.

(k) Correct tenant rent calculations. (1) This indicator shows

whether the HA correctly calculates tenant rent in the rental

certificate program and the family's share of the rent to owner in the

rental voucher program. (24 CFR 982 subpart K).

(2) HUD verification method: MTCS report--Shows percent of tenant

rent and family's share of the rent to owner calculations that are

incorrect based on data sent to HUD by the HA on Forms HUD-50058. The

MTCS data used for verification cover only regular certificate and

voucher program tenancies and do not include rent calculation

discrepancies for over-FMR tenancies in the rental certificate program,

for manufactured home owner rentals of manufactured home spaces, or for

proration of assistance under the noncitizen rule.

(3) Ratings: (i) 2 percent or fewer of HA tenant rent and family's

share of the rent to owner calculations are incorrect. 5 points.

(ii) More than 2 percent of HA tenant rent and family's share of

the rent to owner calculations are incorrect. 0 points.

(l) Pre-contract housing quality standards (HQS) inspections. (1)

This indicator shows whether newly leased units pass HQS inspection on

or before the beginning date of the assisted lease and HAP contract.

(24 CFR 982.305).

(2) HUD verification method: MTCS report--Shows percent of newly

leased units where the beginning date of the assistance contract is

before the date the unit passed HQS inspection.

(3) Rating: (i) 98 to 99 percent of newly leased units passed HQS

inspection before the beginning date of the assisted lease and HAP

contract. 5 points.

(ii) Fewer than 98 percent of newly leased units passed HQS

inspection before the beginning date of the assisted lease and HAP

contract. 0 points.

(m) Annual HQS inspections. (1) This indicator shows whether the HA

inspects each unit under contract at least annually. (24 CFR

982.405(a))

(2) HUD verification method: MTCS report--Shows percent of HQS

inspections that are more than 2 months overdue. The 2-month allowance

is provided only to accommodate a possible lag in the HA's electronic

reporting of the annual HQS inspection on Form HUD-50058, and to allow

the processing of the data into MTCS. The 2-month allowance provided

here for rating purposes does not mean that any delay in completing

annual HQS inspections is permitted.

(3) Rating: (i) Fewer than 5 percent of annual HQS inspections of

units under contract are more than 2 months overdue. 10 points.

(ii) 5 to 10 percent of all annual HQS inspections of units under

contract are more than 2 months overdue. 5 points.

(iii) More than 10 percent of all annual HQS inspections of units

under contract are more than 2 months overdue. 0 points.

(n) Lease-up. (1) This indicator shows whether the HA enters HAP

contracts for the number of units under budget for at least one year.

(2) HUD verification method: Percent of units leased during the

last completed HA fiscal year as determined by taking unit months under

HAP contract as shown on HA's latest approved year-end operating

statement divided by 12, and dividing by the number of units budgeted

as shown on the HA's approved budget for the same HA fiscal year.

(3) Rating: (i) The percent of units leased during the last HA

fiscal year was 98 percent or more. 20 points.

(ii) The percent of units leased during the last HA fiscal year was

95 to 97 percent. 15 points.

(iii) The percent of units leased during the last HA fiscal year

was less than 95 percent. 0 points.

(o) Family self-sufficiency (FSS) enrollment and escrow accounts.

(1) This indicator applies only to HAs with mandatory FSS programs. The

indicator consists of 2 components which show whether the HA has

enrolled families in the FSS program as required, and the extent of the

HA's progress in supporting FSS by measuring the percent of current FSS

participants with FSS progress reports entered in MTCS that have had

increases in earned income which resulted in escrow account balances.

(24 CFR 984.105 and 984.305)

(2) HUD verification method: MTCS report--Shows number of families

currently enrolled in FSS. This number

[[Page 48559]]

is divided by the number of mandatory FSS slots based on funding

reserved for the HA through the second to last completed Federal fiscal

year or based on a reduced number of mandatory slots under a HUD-

approved exception. An MTCS report also shows the percent of FSS

families with FSS progress reports who have escrow account balances.

HUD also uses information reported on the SEMAP certification by

initial HAs concerning FSS families enrolled in their FSS programs but

who have moved under portability to the jurisdiction of another HA.

(3) Rating: (i) The HA has filled 80 percent or more of its

mandatory FSS slots and 30 percent or more of FSS families have escrow

account balances. 10 points.

(ii) The HA has filled 60 to 79 percent of its mandatory FSS slots

and 30 percent or more of FSS families have escrow account balances. 8

points.

(iii) The HA has filled 80 percent or more of its mandatory FSS

slots, but fewer than 30 percent of FSS families have escrow account

balances. 5 points.

(iv) 30 percent or more of FSS families have escrow account

balances, but fewer than 60 percent of the HA's mandatory FSS slots are

filled. 5 points.

(v) The HA has filled 60 to 70 percent of its mandatory FSS slots,

but fewer than 30 percent of FSS families have escrow account balances.

3 points.

(vi) The HA has filled fewer than 60 percent of its mandatory FSS

slots and less than 30 percent of FSS families have escrow account

balances. 0 points.

Subpart B--Program Operation

Sec. 985.101 SEMAP certification.

(a) An HA must submit the HUD-required SEMAP certification form

within 60 calendar days after the end of its fiscal year.

(1) The certification must be approved by HA board resolution and

be signed by the board of commissioners chairperson and by the HA

executive director. If the HA is a unit of local government or a state,

a resolution approving the certification is not required, and the

certification must be executed by the Section 8 program director and by

the chief executive officer of the unit of government or his or her

designee.

(2) An HA that subcontracts administration of its program to one or

more subcontractors shall require each subcontractor to submit the

subcontractor's own SEMAP certification on the HUD-prescribed form to

the HA in support of the HA's SEMAP certification to HUD. The HA shall

retain subcontractor certifications for 3 years.

(3) An HA may include with its SEMAP certification any information

bearing on the accuracy or completeness of the information used by the

HA in providing its certification.

(b) Failure of an HA to submit its SEMAP certification within 60

calendar days after the end of its fiscal year will result in an

overall performance rating of troubled and the HA will be subject to

the requirements at Sec. 985.107.

(c) An HA's SEMAP certification is subject to HUD verification by

an on-site confirmatory review at any time. (Information collection

requirements in this section have been approved by the Office of

Management and Budget under control number 2577-0215)

Sec. 985.102 SEMAP profile.

Upon receipt of the HA's SEMAP certification, HUD will rate the

HA's performance under each SEMAP indicator in accordance with

Sec. 985.3. HUD will then prepare a SEMAP profile for each HA which

shows the rating for each indicator, sums the indicator ratings, and

divides by the total possible points to arrive at an HA's overall SEMAP

score. SEMAP scores shall be rounded off to the nearest whole percent.

Sec. 985.103 SEMAP score and overall performance rating.

(a) High performer rating. HAs with SEMAP scores of at least 90

percent shall be rated high performers under SEMAP. HAs that achieve an

overall performance rating of high performer may receive national

recognition by the Department and may be given competitive advantage

under notices of fund availability.

(b) Standard rating. HAs with SEMAP scores of 60 to 89 percent

shall be rated standard.

(c) Troubled rating. HAs with SEMAP scores of less than 60 percent

shall be rated troubled.

(d) Modified or withheld rating. (1) Notwithstanding an HA's SEMAP

score, HUD may modify or withhold an HA's overall performance rating

when warranted by circumstances which have bearing on the SEMAP

indicators such as an HA's appeal of its overall rating, adverse

litigation, a conciliation agreement under Title VI of the Civil Rights

Act of 1964, fair housing and equal opportunity monitoring and

compliance review findings, fraud or misconduct, audit findings or

substantial noncompliance with program requirements.

(2) Notwithstanding an HA's SEMAP score, if the latest IA report

submitted for the HA under the Single Audit Act indicates that the

auditor is unable to provide an opinion as to whether the HA's

financial statements are presented fairly in all material respects in

conformity with generally accepted accounting principals, or an opinion

that the schedule of expenditures of Federal awards is presented fairly

in all material respects in relation to the financial statements taken

as a whole, the HA will automatically be given an overall performance

rating of troubled and the HA will be subject to the requirements at

Sec. 985.107.

(3) When HUD modifies or withholds an overall performance rating

for any reason it shall explain in writing to the HA the reasons for

the modification or for withholding the rating.

Sec. 985.104 HA right of appeal of overall rating.

An HA may appeal its overall performance rating to HUD by providing

justification of the reasons for its appeal. An appeal made to a HUD

hub or program center or to the HUD Troubled Agency Recovery Center and

denied may be further appealed to the Assistant Secretary.

Sec. 985.105 HUD SEMAP responsibilities.

(a) Annual review. HUD shall assess each HA's performance under

SEMAP annually and shall assign each HA a SEMAP score and overall

performance rating.

(b) Notification to HA. No later than 120 calendar days after the

HA's fiscal year end, HUD shall notify each HA in writing of its rating

on each SEMAP indicator, of its overall SEMAP score and of its overall

performance rating (high performer, standard, troubled). The HUD

notification letter shall identify and require correction of any SEMAP

deficiencies (indicator rating of zero) within 45 calendar days from

date of HUD notice.

(c) On-site confirmatory review. HUD may conduct an on-site

confirmatory review to verify the HA certification and the HUD rating

under any indicator.

(d) Changing rating from troubled. HUD must conduct an on-site

confirmatory review of an HA's performance before changing any annual

overall performance rating from troubled to standard or high performer.

(e) Appeals. HUD must review, consider and provide a final written

determination to an HA on its appeal of its overall performance rating.

(f) Corrective action plans. HUD must review the adequacy and

monitor implementation of HA corrective action plans submitted under

Sec. 985.106(c) or Sec. 985.107(c) and provide technical

[[Page 48560]]

assistance to help the HA improve program management. If an HA is

assigned an overall performance rating of troubled, the HA's corrective

action plan must be approved in writing by HUD.

Sec. 985.106 Required actions for SEMAP deficiencies.

(a) When the HA receives the HUD notification of its SEMAP rating,

an HA must correct any SEMAP deficiency (indicator rating of zero)

within 45 calendar days from date of HUD notice.

(b) The HA must send a written report to HUD describing its

correction of any identified SEMAP deficiency.

(c) If an HA fails to correct a SEMAP deficiency within 45 calendar

days as required, HUD may then require the HA to prepare and submit a

corrective action plan for the deficiency within 30 calendar days from

the date of HUD notice.

(Information collection requirements in this section have been

approved by the Office of Management and Budget under control number

2577-0215)

Sec. 985.107 Required actions for HA with troubled performance rating.

(a) Required on-site review. Upon assigning an overall performance

rating of troubled, HUD must conduct an on-site review of HA program

management to assess the magnitude and seriousness of the HA's

noncompliance with performance requirements.

(b) HUD written report. HUD must provide the HA a written report of

its on-site review containing HUD findings of program management

deficiencies, the apparent reasons for the deficiencies, and

recommendations for improvement.

(c) HA corrective action plan. Upon receipt of the HUD written

report on its on-site review, the HA must write a corrective action

plan and submit it to HUD for approval. The corrective action plan

must:

(1) Specify goals to be achieved;

(2) Identify obstacles to goal achievement and ways to eliminate or

avoid them;

(3) Identify resources that will be used or sought to achieve

goals;

(4) Identify an HA staff person with lead responsibility for

completing each goal;

(5) Identify key tasks to reach each goal;

(6) Specify time frames for achievement of each goal, including

intermediate time frames to complete each key task; and

(7) Provide for regular evaluation of progress toward improvement.

(8) Be signed by the HA board of commissioners chairperson and by

the HA executive director. If the HA is a unit of local government or a

state, the corrective action plan must be signed by the Section 8

program director and by the chief executive officer of the unit of

government or his or her designee.

(d) Monitoring. The HA and HUD must monitor the HA's implementation

of its corrective action plan to ensure performance targets are met.

(e) Use of administrative fee reserve prohibited. Any HA assigned

an overall performance rating of troubled may not use any part of the

administrative fee reserve for other housing purposes (see 24 CFR

982.155(b)).

(f) Upgrading poor performance rating. HUD shall change an HA's

overall performance rating from troubled to standard or high performer

if HUD determines that a change in the rating is warranted because of

improved HA performance and an improved SEMAP score.

(Information collection requirements in this section have been

approved by the Office of Management and Budget under control number

2577-0215)

Sec. 985.108 SEMAP records.

HUD shall maintain SEMAP files, including certifications,

notifications, appeals, corrective action plans, and related

correspondence for at least 3 years.

(Information collection requirements in this section have been

approved by the Office of Management and Budget under control number

2577-0215)

Sec. 985.109 Default under the Annual Contributions Contract (ACC).

HUD may determine that an HA's failure to correct identified SEMAP

deficiencies or to prepare and implement a corrective action plan

required by HUD constitutes a default under the ACC.

Subpart C--Physical Assessment Component [Reserved]

2. Sections 985.102, 985.103, 985.105(a), (b), (d) and (e), and

985.107 are stayed until further notice.

Dated: August 28, 1998.

Deborah Vincent,

General Deputy Assistant Secretary for Public and Indian Housing.

[FR Doc. 98-23820 Filed 9-9-98; 8:45 am]

BILLING CODE 4210-33-P