Public Housing Assessment System (PHAS) Amendments to the PHAS

SUMMARY: This proposed rule would amend the Public Housing Assessment

System regulation at 24 CFR part 902 to provide additional information

and revise certain procedures and establish others for the assessment

of the physical condition, financial health, management operations and

resident service and satisfaction in public housing, including the

technical review of physical inspection results and appeals of PHAS

scores. The rule would also implement certain recently enacted

statutory amendments. The purpose of the Public Housing Assessment

System is to function as a comprehensive management tool that

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

that are objective, uniform and verifiable.

DATES: Comment Due Date: August 23, 1999.

ADDRESSES: Interested persons are invited to submit comments to the

Rules Docket Clerk, Office of the General Counsel, Room 10276,

Department of Housing and Urban Development, 451 Seventh Street, SW,

Washington, DC 20410-0500. Communications should refer to the above

docket number and title. Facsimile (FAX) responses are not acceptable.

A copy of each response will be available for public inspection and

copying during regular business hours (7:30 a.m. to 5:30 p.m. Eastern

Time at the above address).

FOR FURTHER INFORMATION CONTACT: For further information contact the

Real Estate Assessment Center (REAC), Attention: Wanda Funk, U. S.

Department of Housing and Urban Development, 1280 Maryland Avenue, SW,

Suite 800, Washington DC, 20024; telephone Customer Service Center at

(888)-245-4860 (this is 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. Additional

information is available from the REAC Internet Site, http://

www.hud.gov/reac. 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. Background

On September 1, 1998 (63 FR 46596), HUD published a final rule,

codified at 24 CFR part 902, that established a new system for the

assessment of America's public housing. The new system, the Public

Housing Assessment System (PHAS), 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 becomes effective for all PHAs with fiscal years ending on and

after September 30, 1999, and replaces the Public Housing Management

Assessment Program (PHMAP). HUD's Real Estate Assessment Center (REAC)

is charged with the responsibility for assessing and scoring the

performance of PHAs under the PHAS.

Under the PHAS, HUD evaluates a PHA based on the following four

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) the residents' assessment (through a resident

survey) of the PHA's performance. Each of the four PHAS indicators is

assigned a maximum value as follows:

(1) Physical Condition--maximum 30 points: the PHA's score is based

on the results of physical inspections of PHA properties performed by

REAC contractors. The results are electronically transmitted to the

REAC.

(2) Financial Condition--maximum 30 points: the PHA's score is

initially based on unaudited financial information prepared in

accordance with generally accepted accounting principles (GAAP) and

electronically submitted by the PHA to the REAC. The PHA's submission

is then audited by an Independent Public Accountant (IPA) and the audit

results are electronically transmitted to the REAC, which reassesses

the PHA's score based on the audit results. The financial condition of

the PHA is assessed on its entire operations.

(3) Management Operations--maximum 30 points: the PHA's score is

based on an electronic certification made by the PHA and verified by an

IPA. This performance indicator uses six of the same indicators as the

current Public Housing Management Assessment Program.

(4) Resident Service and Satisfaction--maximum 10 points: the PHA's

score is based, in part, on responses to a resident survey managed by

the PHA and collected by the REAC. The PHA's score is also based on the

survey results, the PHA's level of implementation of the resident

survey and the PHA's follow-up actions on survey results.

Implementation and follow-up plans are in the form of an electronic

certification made by the PHA. Follow-up plans may be verified by an

IPA.

With respect to PHAS Indicators #2, #3 and #4, a PHA is required to

electronically submit its year-end financial statements, and its

management operations and resident service and satisfaction

certifications, within two months after the end of its fiscal year.

Information necessary to conduct the physical condition assessment will

be obtained from HUD-contracted inspectors during the fiscal year being

assessed and scored through electronic transmission of the data.

On the basis of these four indicators, HUD's REAC calculates a

composite score for each PHA. The PHAS composite score represents a

single score for a PHA's entire operation under the four indicators.

The PHAS composite score will determine whether a PHA is performing

well or is not performing well. The PHAS composite score is derived

from the scores calculated for each of the four indicators. The

composite PHAS score will be issued by the REAC for each PHA one month

after the PHA submits its year-end financial data and certifications.

Adjustments to the PHAS score may be made after a PHA's audit

report for the year being assessed is transmitted to the REAC. If

material differences (as defined in GAAP guidance) are noted between

the unaudited and audited results, a PHA's PHAS score will be adjusted

in accordance with the audited results.

As provided in the PHAS final rule issued on September 1, 1998, a

PHA will be scored with a corresponding designation of high performer,

standard performer, or troubled performer, including troubled with

respect to a PHA's performance under the modernization component under

PHAS Indicator #3. (As discussed later in this preamble, the reference

to modernization assistance is replaced with a reference to Capital

Fund assistance.)

A PHA designated as troubled will be referred to the appropriate

HUD office, including but not limited to, HUD's Office of Troubled

Agency Recovery, for

[[Page 33349]]

oversight and remedial action. A PHA that does not correct identified

deficiencies within a maximum of two years from the date that the PHA

is designated as troubled will be referred to the Departmental

Enforcement Center (DEC) for further action.

High performer PHAs will be eligible for various incentives.

However, relief from any standard procedural requirement does not mean

that a PHA is relieved from compliance with the provisions of Federal

law and regulations and other handbook requirements.

This proposed rule would amend the PHAS regulation at 24 CFR part

902 to provide additional information, and revise certain procedures

and establish others for the assessment of the physical condition,

financial health, management operations and resident service and

satisfaction indicators and for the technical review of physical

inspection results, and appeals of PHAS scores.

II. Proposed Amendments to PHAS

Brief Overview

This rule would make the following amendments to the current PHAS

rule at 24 CFR part 902:

(A) Revise the PHAS rule to reflect conforming changes made

necessary by recently enacted statutory amendments.

(B) Reference a series of notices, published in the Federal

Register on May 13, 1999, that describe the scoring process for each of

the four PHAS Indicators, and describe the process for requesting and

granting a technical review of physical inspection results, or appeal

of an overall PHAS score.

(C) Add language, under PHAS Indicator #1, that would clarify that

vacant units not under lease at the time of inspection will not be

inspected.

(D) Modify the designation of ``troubled'' performer to provide a

subdesignation or category that identifies the particular performance

area (physical, financial, or management) in which a PHA is troubled.

A. Statutory Amendments Related to the PHAS

Sections 564 and 565 of the Quality Housing and Work Responsibility

Act of 1998 (Pub.L. 105-276, 112 Stat. 2461, approved October 21, 1998)

(Public Housing Reform Act) amend section 6(j) of the United States

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

authority for assessment of public housing. This rule would revise the

PHAS regulation at 24 CFR part 902 to incorporate these statutory

amendments, as discussed in this Section III of the preamble.

Capital Fund Assistance Replaces Modernization Assistance. Section

564 makes conforming changes to the 6(j) references to modernization

(mod) funding under section 14 of the 1937 Act by substituting ``the

Capital Fund under section 9(d)'' for ``section 14''. This rule makes

the appropriate conforming changes in part 902 to replace the

references to section 14 and modernization funding.

Utility Consumption Replaces Energy Consumption. The term ``energy

consumption'' in the indicator at section 6(j)(1)(D) was statutorily

changed to ``utility consumption'' and this rule amends part 902 to

reflect this change.

Four New Indicators for Assessment of PHAs. Section 564 adds four

new indicators for the evaluation of performance by public housing

agencies.

(1) The first of these indicators requires an evaluation of the

extent to which a public housing agency coordinates, promotes, or

provides effective programs and activities to promote the economic

self-sufficiency of public housing residents. This statutory amendment

is addressed under PHAS Indicator #3, Management Operations, by

including economic self-sufficiency grant goals in management sub-

indicator #6, security and economic self-sufficiency. Economic self-

sufficiency is assessed using comparable measurements as PHMAP

Indicator #7, subcomponent (a) (see 24 CFR 901.40).

(2) The second new indicator requires an evaluation to the extent

to which a public housing agency provides public housing residents with

opportunities for involvement in the administration of public housing.

The determination that residents are provided the opportunity for

involvement in the administration of public housing is provided for

under PHAS Indicator #4, Resident Service and Satisfaction. The

resident survey includes questions that address the statutory

amendment, including: (i) Involvement in a resident organization to

determine the percentage of residents involved in a PHAS recognized

resident organization, which is the primary vehicle of providing

opportunities for involvement in the administration of public housing;

(ii) issues communicated from a PHA to its resident population to

determine whether a PHA communicates to its residents issues that are

related to the administration of public housing; and (iii) the

responsiveness of a PHA to resident input to determine whether a PHA

acts upon the recommendations of residents regarding involvement in the

administration of public housing after such communication has taken

place. In addition, a PHA's follow-up plan, if applicable, will

specifically address a PHA's provision of opportunities for resident

involvement in the administration of public housing.

(3) The third new indicator added by section 564 of the Public

Housing Reform Act requires an assessment of the extent to which a

public housing agency implements effective screening and eviction

policies and other anticrime strategies; and coordinates with local

government officials and residents in the project on implementation of

such strategies. The effective policies and anticrime strategies

portion of this statutory indicator has already been implemented on a

discretionary basis in the security sub-indicator of PHAS Indicator #3,

Management Operations. Component #1 of the security sub-indicator

addresses this statutory requirement and provides for the maximum

amount of points to a PHA that coordinates with local government

officials and its residents on the implementation of anticrime

strategies.

(4) The fourth indicator added by section 564 examines the extent

to which the public housing agency is providing acceptable basic

housing conditions. This indicator is given additional emphasis by a

related requirement in the section 564 amendment to section 6(j) of the

1937 Act that provides that an agency ``that fails on a widespread

basis to provide acceptable basic housing conditions for its residents

shall be designated as a troubled public housing.'' HUD construes

``acceptable basic housing conditions'' to be synonymous with the

standards of decent, safe, sanitary and in good repair (DSS/GR). HUD

also finds that the statutory amendment is consistent with HUD's

existing PHAS regulation. Under PHAS, if an agency fails to receive a

passing score under PHAS Indicator #1, Physical Condition, the agency

is troubled.

Amendment to On-site, Independent Assessment Provision. Section 564

amends the 6(j) provision relating to on-site, independent assessments

of PHAs by striking the narrow exception that such an assessment will

not duplicate any ``review conducted under section 14(p)'' and

replacing it with a broader exception that the assessment will not

duplicate any ``comparable and recent review''. This amendment permits

HUD to conduct these assessments through a greater variety of sources,

including its HUBs and its Troubled Agency Recovery Centers (TARCs).

Review by Independent Auditor. The section 564 amendment provides

in relevant part that:

[[Page 33350]]

To the extent that the Secretary determines such action to be

necessary in order to ensure the accuracy of any certification made

under this section, the Secretary shall require an independent

auditor to review documentation or other information maintained by a

public housing agency pursuant to this section to substantiate each

certification submitted by the agency or corporation relating to the

performance of that agency or corporation.

This section also provides that: ``The Secretary may withhold, from

assistance otherwise payable to the agency or corporation under section

9, amounts sufficient to pay for the reasonable costs of any review

under this paragraph.'' Section 902.60 of the PHAS rule is amended to

reference HUD's authority to require an independent auditor to review

documentation or other information maintained by a PHA to substantiate

a certification.

Resident Management Corporations. The final provision of section

564 addressed by this rule provides, that, ``the Secretary shall apply

the provisions of this subsection to resident management corporations

in the same manner as applied to public housing agencies.'' This

provision is already implemented in the PHAS, under which RMCs are

scored for those functions which they contract to undertake.

Substantial Default. Section 565 of the Public Housing Reform Act

makes extensive amendments to the substantial default provisions of

section 6(j)(3) of the 1937 Act. These amendments, however, are

consistent with the existing PHAS regulation, or provide additional

options for HUD to take into account circumstances that constitute a

substantial default, and require no further regulatory implementation

by HUD. Section 565(d), titled ``Implementation'', specifically

provides that, ``The Secretary may administer the amendments made by

subsection (a) as necessary to ensure the efficient and effective

initial implementation of this section.''

B. PHAS Scoring Process, Technical Review of Physical Inspection

Results and PHAS Appeals

This proposed rule, as noted earlier, in this preamble, includes

information about the PHAS scoring process for each of the four PHAS

Indicators, and provides the procedures for requesting and granting a

technical review of physical inspection results and PHAS appeals,

generally. This information already was provided by HUD in notices

published on May 13, 1999 (64 FR 26160; 64 FR 26166; 64 FR 26218; 64 FR

26222; 64 FR 26232; and 64 FR 26236). Four of these notices discussed

in detail the scoring process for each of the four PHAS Indicators, and

the process for requesting and granting a technical review of physical

inspection results and PHAS appeals.

This preamble does not repeat the information provided in these

notices. They will be republished in the Federal Register of June 23,

1999. Any changes or clarifications to the May 13, 1999, notices will

be identified in the individual notices published in that issue. The

proposed regulatory text covers the technical review and appeal

processes discussed in the May 13, 1999 notice.

C. No Inspection for Vacant Units Not Under Lease

This proposed rule clarifies that vacant units not under lease at

the time of inspection will not be inspected under the PHAS. The

categories of vacant units not under lease are as follows:

(1) Units undergoing vacant unit turnaround--vacant units that are

in the routine process of turn over; i.e., the period between which one

resident has vacated a unit and a new lease takes effect;

(2) Units undergoing rehabilitation--vacant units that have

substantial rehabilitation needs already identified, and there is an

approved implementation plan to address the identified rehabilitation

needs and the plan is fully funded;

(3) Off-line units--vacant units that have repair requirements such

that the units cannot be occupied in a normal period of time

(considered to be between 5 and 7 days) and which are not included

under an approved rehabilitation plan.

D. Identification of a PHA's Performance Problems

The proposed rule modifies the designation of ``troubled''

performer to identify the particular performance area (physical,

financial, or management) in which a PHA is troubled. The proposed rule

provides that a PHA that achieves less than 60 percent of the points

under any one of three main PHAS Indicators (Indicator #1--Physical

Condition; Indicator #2--Financial Condition; or Indicator #3--

Management Operations) will be categorized as substandard physical,

substandard financial, or substandard management performer.

III. Section-by Section Overview of PHAS Amendments

For the convenience of the reader, the entire PHAS regulation is

being published in this proposed rule, although not every section of

the current PHAS regulation is being amended. The publication of the

entire rule allows the reader to see how the proposed amendments would

appear in the codified regulation. HUD is seeking comment on the

sections of the rule that are proposed to be amended. To assist the

reader in identifying those sections of the existing PHAS regulations

that are revised and the new sections that are being added, the

following provides section-by-section overview of the amendments being

proposed by this rule. If the section is not listed below, then this

means that no changes are proposed to be made by HUD to the section.

Subpart A--General Provisions

Section 902.3 (Scope). Only a minor editorial change is made to

this section. The last sentence which awkwardly begins with the words

``PHAs' adherence'' is changed to read ``A PHA's adherence.''

Section 902.7 (Definitions). This section is amended to revise the

following definitions: deficiency, improvement plan and work order

deferred for modernization. The following definitions are added to this

section: days and property. The definition of ``improvement plan'' is

revised to change ``indicator'' to ``sub-indicator'' and define the

acronym ``MOA.'' The definition of ``work order deferred for

modernization'' is revised to replace the word ``modernization'' with

``Capital Fund.'' Additionally, in this section, the references to

numbers are spelled out (for example ``3'' becomes ``three'').

Subpart B--PHAS Indicator #1: Physical Condition

Section 902.20 (Physical Condition Assessment). This section is

amended to include the section 564 language pertaining to ``acceptable

basic housing conditions'' (paragraph a) and to clarify that this

phrase is synonymous with HUD's physical condition standards of decent,

safe, sanitary and in good repair. This section also is revised to

exclude from physical condition assessment, vacant units not under

lease at the time of physical inspection (paragraph b).

Section 902.23 (Physical Condition Standards for Public Housing--

Decent, Safe, Sanitary and in Good Repair (DSS/GR)). This section is

amended by dividing existing paragraph (a) into two paragraphs. New

paragraph (b) lists the major inspectable areas of public housing.

Existing paragraph (b) which references Appendix A to part 902 (Areas

and Items to be Inspected) is removed. The areas and items to be

[[Page 33351]]

inspected are part of the Item Weights and Criticality Levels document,

which is referenced in this part. Former paragraph (a)(6) which

addresses health and safety concerns becomes new paragraph (c).

Section 902.24 (Physical Inspection of Properties). This new

section is added.

Section 902.25 (Physical Condition Scoring and Thresholds). This

section is amended to reference the scoring process described in the

PHAS Notice on the Physical Condition Scoring Process. A new paragraph

(c) is added to this section to define the overall PHA Physical

Condition Indicator score. Former paragraph (c) on Thresholds becomes

paragraph (d) and adds language that provides that if a PHA's physical

condition score falls below a minimum threshold of 60 percent of the

available points, the PHA shall be identified as a substandard physical

agency. (As noted below, similar changes are made to Secs. 902.33 and

902.45).

Section 902.26 (Physical Inspection Report). This new section is

added.

Subpart C--PHAS Indicator #2: Financial Condition

Section 902.30 (Financial Condition Assessment). Paragraph (b) of

this section is amended to cross-reference to the components of the

PHAS Financial Indicator listed in Sec. 902.33.

Section 902.33 (Financial Reporting Requirements). Paragraph (a) of

this section is amended to reference the Financial Data Schedule (FDS).

Paragraph (b) of this section is amended to provide that a PHA must

submit its unaudited financial information to HUD two months after the

end of the PHA's fiscal year. The PHA's audited financial information

must be submitted within nine months of the end of the PHA's fiscal

year. Additionally, the time periods designated in days were converted

to months.

Section 902.35 (Financial Condition Scoring and Thresholds).

Paragraph (a) of this section is amended to reference the scoring

process described in the PHAS Notice of the Financial Condition Scoring

Process. A new paragraph (b) is added to list the components of PHAS

Indicator #2, which are currently listed in paragraph (a) of the

existing regulation, and with the following revisions: ``utility

consumption'' replaces ``energy consumption''; and under the

``Occupancy Loss'' component, the phrase ``non-occupancy of dwelling

units'' replaces ``vacancy''. Existing paragraph (b) on Thresholds

becomes paragraph (c), and adds language concerning substandard

financial agency.

Subpart D--PHAS Indicator #3: Management Operations

Section 902.40 (Management Operations Assessment). Paragraph (b) of

this section is amended to remove the reference to inclusion of a non-

statutory indicator (security). This indicator is now statutory.

Section 902.43 (Management Operations Performance Standards).

Paragraph (a) of this section is amended to note that the components

and grades for each sub-indicator of the Management Operations

Indicator are the same as those for the corresponding indicator under

PHMAP, unless otherwise noted in this section. The term ``indicator''

used throughout this section is replaced by ``sub-indicator.''

Paragraph (a)(2) is amended to replace reference to modernization

assistance with the Capital Fund. Paragraph (a)(6) is amended to

reflect the new statutory indicators added by the Public Housing Reform

Act.

Paragraph (b) of this section is amended to clarify that the

reporting required under PHAS Indicator #3 is to be electronically

submitted to HUD.

Section 902.45 (Management Operations Scoring and Thresholds). This

section is revised to reference the PHAS Notice on the Management

Operations Scoring Process. Paragraph (b) on Thresholds is revised to

add the language concerning substandard management agency.

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

Section 902.50 (Resident Service and Satisfaction). The heading of

paragraph (b) of this section is amended. A new paragraph (c) is added

to clarify that the reporting required under PHAS Indicator #4 is to be

electronically submitted to HUD.

Section 902.51 (Updating of Resident Information). This new section

is added.

Section 902.52 (Distribution of Survey to Residents). This new

section is added.

Section 902.53 (Resident Service and Satisfaction Scoring and

Thresholds). Paragraph (a) is revised to organize the existing

information in a more logical fashion. Additionally, a new paragraph

(a)(2) is added to reference the PHAS Notice on the Resident Service

and Satisfaction Scoring Process.

Subpart F--PHAS Scoring

Section 902.60 (Data Collection). This section is amended to change

the references to days in this section to months (e.g, 60 days is

changed to two months). In paragraph (e) of this section the reference

to mod-troubled is replaced by reference to troubled with respect to

Capital Fund assistance. Paragraph (f) is amended to reflect HUD's

authority to require an independent auditor to review documentation or

other information maintained by a PHA to substantiate a certification.

Section 902.63 (PHAS Scoring). Paragraph (a) is revised to provide

that a PHAS score will be issued for each PHA one month after a PHA

submits its year-end financial data certifications, which replaces an

issuance date of 60 to 90 days after the end of the PHA's fiscal year.

Paragraph (d) of this section is revised to reference RMCs and AMEs.

Section 902.67 (Score and Designation Status). Paragraph (c) of

this section is amended to include language concerning identification

of the particular area in which a PHA is troubled (e.g., substandard

physical, substandard financial, substandard management). A new

paragraph (d) is added to provide that designations may be withheld

under certain circumstances.

Section 902.68 (Technical Review of Results of PHAS Indicators #1

or #4). This new section is added.

Section 902.69 (PHA Right of Petition and Appeal). Paragraph (a) is

revised to remove subparagraph (a)(2). A new paragraph (b) is added,

and existing paragraphs (c) and (d) become part of paragraph (b).

Subpart G--PHAs Incentives and Remedies

Section 902.71 (Incentives for High Performers). Existing paragraph

(a)(1) is subdivided into two paragraphs. Subparagraph (a)(1)(A)

contains the information currently found in existing paragraph (a)(1).

Subparagraph (a)(1)(B) provides relief for annual physical inspections

for high scoring PHAs.

Section 902.73 (Referral to an Area HUB/Program Center). In

paragraph (g) of this section, reference to remedies for substantial

default is added.

Section 902.75 (Referral to a TARC). The introductory paragraph of

this section is revised to provide that remedial action may include a

determination of priority of needs and referral the HUD/Program Center.

Paragraph (a) is revised to reflect that within 30 days of notification

to a PHA of troubled designation, HUD, not necessarily the TARC, will

take appropriate action. In paragraph (c)(6) the reference to mod-

troubled is removed and replaced with reference to the new Capital

Fund. Paragraph (d) is revised to reflect the new statutory language.

[[Page 33352]]

IV. Request for Comment

In addition to requesting public comment on this proposed rule, HUD

is specifically requesting comment on the following:

(1) HUD seeks comment on the four scoring process notices (the

Physical, Financial, Management and Resident Services and Satisfaction

scoring process scoring notices) published elsewhere in this issue of

the Federal Register;

(2) Although HUD proposes to inspect only occupied units, HUD is

concerned that PHAs make appropriate efforts to have as many units on

line and occupied as possible. For example, PHAs should be keeping

units unoccupied for modernization or unit turnover for the minimum

possible time. The rule addresses this concern to an extent in the PHAS

finance and management indicators. HUD requests comments whether this

concern should be addressed further, and seeks suggestions and

recommendations on ways to do address this matter in the PHAS rule or

elsewhere (e.g., other regulations).

(3) Although HUD has not proposed to penalize PHAs in the PHAS

score for missing or inoperable smoke detectors because of the extent

to which this may not be within a PHA's control, HUD is very concerned

about this issue in view of the critical importance of fire prevention.

Because of the safety risk presented by missing or inoperable smoke

detectors, HUD is considering whether the PHAS rule should provide, at

the final rule stage, some consequence to PHAs for missing or

inoperable smoke detectors (particularly if the number is high),

including possibly a reduction in a PHA's physical inspection score.

HUD requests comments on this option, and solicits suggestions how the

availability of working smoke detectors can be encouraged further,

either in the PHAS rule or elsewhere.

(4) HUD requests comments on ways of improving the economic self-

sufficiency sub-indicator so that it may be implemented more

effectively, and specifically seeks comments on whether the sub-

indicator is properly weighted and appropriately placed in the rule as

part of management sub-indicator #6 (see Sec. 902.43(a)(6)).

(5) HUD seeks comments on the consequences to PHAs of withholding

designation as provided in new paragraph (d)(2) of Sec. 902.67.

(6) HUD also requests comments on how PHAs should be assessed with

respect to their responsibility to submit occupancy data to the

Multifamily Tenant Characteristics System (MTCS) in an accurate,

complete and timely manner.

V. Findings and Certifications

Paperwork Reduction Act Statement

The information collection requirements for the PHAS regulation at

24 CFR part 902 were 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 2535-0106. This rule adds no

new information collection requirements to that rule. 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.

Regulatory Planning and Review

The Office of Management and Budget (OMB) reviewed this rule under

Executive Order 12866, Regulatory Planning and Review. OMB determined

that this rule is a ``significant regulatory action'' as defined in

section 3(f) of the Order (although not an economically significant

regulatory action under the Order). Any changes made to this rule as a

result of that review are identified in the docket file, which is

available for public inspection in the office of the Department's Rules

Docket Clerk, Room 10276, 451 Seventh Street, SW, Washington, DC 20410-

0500.

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 rule will 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

during regular business hours in the Office of the Rules Docket Clerk,

Office of General Counsel, Department of Housing and Urban Development,

Room 10276, 451 Seventh 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 rule

revises HUD's existing regulations for the assessment of public housing

at 24 CFR part 902, PHAS, to provide additional information on the PHAS

scoring process and to revise certain procedures and establish others

in accordance with recently enacted statutory requirements. The

additional information and the revision of certain procedures impose no

significant economic impact on a substantial number of small entities.

Notwithstanding HUD's determination that this rule will not have a

significant economic effect on a substantial number of small entities,

HUD specifically invites comments regarding any less burdensome

alternatives to this rule that will 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 rule will 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. This 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 rule will not create any new

significant requirements. As a result, the 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 902

Administrative practice and procedure, Public housing, Reporting

and recordkeeping requirements.

Accordingly, HUD proposes to revise part 902 of title 24 of the

Code of Federal Regulations to read as follows:

[[Page 33353]]

PART 902--PUBLIC HOUSING ASSESSMENT SYSTEM

Subpart A--General Provisions

Sec.

902.1 Purpose and general description.

902.3 Scope.

902.5 Applicability.

902.7 Definitions.

Subpart B--PHAS Indicator #1: Physical Condition

902.20 Physical condition assessment.

902.23 Physical condition standards for public housing--decent,

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

902.24 Physical inspection of PHA properties.

902.25 Physical condition scoring and thresholds.

902.26 Physical Inspection Report.

902.27 Physical condition portion of total PHAS points.

Subpart C--PHAS Indicator #2: Financial Condition

902.30 Financial condition assessment.

902.33 Financial reporting requirements.

902.35 Financial condition scoring and thresholds.

902.37 Financial condition portion of total PHAS points.

Subpart D--PHAS Indicator #3: Management Operations

902.40 Management operations assessment.

902.43 Management operations performance standards.

902.45 Management operations scoring and thresholds.

902.47 Management operations portion of total PHAS points.

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

902.50 Resident service and satisfaction assessment.

902.51 Updating of resident information.

902.52 Distribution of survey to residents.

902.53 Resident service and satisfaction scoring and thresholds.

902.55 Resident service and satisfaction portion of total PHAS

points.

Subpart F--PHAS Scoring

902.60 Data collection.

902.63 PHAS scoring.

902.67 Score and designation status.

902.68 Technical review of results of PHAS Indicators #1 or #4.

902.69 PHA right of petition and appeal.

Subpart G--PHAS Incentives and Remedies

902.71 Incentives for high performers.

902.73 Referral to an Area HUB/Program Center.

902.75 Referral to a TARC.

902.77 Referral to the Departmental Enforcement Center.

902.79 Substantial default.

902.83 Interventions.

902.85 Resident petitions for remedial action.

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

Subpart A--General Provisions

Sec. 902.1 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, 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 #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 October 1, 1998.

Sec. 902.3 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 Department-wide 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. A

PHA's adherence to these requirements will be monitored in accordance

with the applicable program regulations and the PHA's annual

contributions contract.

Sec. 902.5 Applicability.

(a) PHAs, RMCs, AMEs. (1) 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.

(2) This part is applicable beginning October 1, 1999.

(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. 902.7 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).

[[Page 33354]]

Alternative management entity (AME) is a receiver, private

contractor, private manager, or any other entity that is under contract

with a PHA, or that is otherwise duly appointed or contracted (for

example, by court order or agency action), to manage all or part of a

PHA's operations. Depending upon the scope of PHA management functions

assumed by the AME, in accordance with Sec. 902.5(c), the AME is

treated as a PHA or an RMC for purposes of this part and, as

appropriate, the terms PHA and RMC include AME.

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 in this part, unless otherwise specified refer to calendar

days.

Days Receivable Outstanding is Tenant Receivables divided by Daily

Tenant Revenue.

Deficiency means any PHAS score below 60 percent of the available

points in any indicator, sub-indicator or component. (In the context of

physical problem condition and physical inspection, deficiency refers

to a physical condition and is defined for purposes of subpart B of

this part in Sec. 902.24)

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 sub-indicators and

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

assessment when a Memorandum of Agreement (MOA) is not required.

Property is a project/development with a separate identifying

project number.

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) to the vacancy rate of that fiscal year two

years prior 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 three years is a comparison of the average time

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

immediate past fiscal year) to the average time nonemergency work

orders were active in that fiscal year two years prior 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 three 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 to the Capital Fund Program is any work order

that is combined with similar work items and completed within the

current PHAS assessment year, or will be completed in the following

year when there are less than three months remaining before the end of

the PHA fiscal year from the time the work order was generated, under

the PHA's Capital Fund program or other PHA capital improvements

program.

Subpart B--PHAS Indicator #1: Physical Condition

Sec. 902.20 Physical condition assessment.

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

to determine whether a PHA is meeting the standard of decent, safe,

sanitary, and in good repair (DSS/GR), as this standard is defined in

Sec. 902.23 (a standard that provides acceptable basic housing

conditions) and the level to which the PHA is maintaining its public

housing in accordance with this standard.

(b) Physical inspection under PHAS Indicator #1. To achieve the

objective of paragraph (a) of this section, REAC will provide for an

independent physical inspection of a PHA's property or properties that

includes, at minimum, a statistically valid sample of the units in the

PHA's public housing portfolio to determine the extent of compliance

with the DSS/GR standard. All occupied units will be inspected.

However, any vacant units not under lease at the time of the inspection

will not be inspected. The categories of vacant units not under lease

are as follows:

(1) Units undergoing vacant unit turnaround--vacant units that are

in the routine process of turn over; i.e., the period between which one

resident have vacated a unit and a new lease takes effect;

(2) Units undergoing rehabilitation--vacant units that have

substantial rehabilitation needs already identified, and there is an

approved implementation plan to address the identified rehabilitation

needs and the plan is fully funded;

(3) Off-line units--vacant units that have repair requirements such

that the units cannot be occupied in a normal period of time

(considered to be between 5 and 7 days) and which are not included

under an approved rehabilitation plan.

(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. 902.43(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. 902.23 Physical condition standards for public housing--decent,

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

(a) General. Public housing must be maintained in a manner that

meets the physical condition standards set forth in this part in order

to be considered decent, safe, sanitary and in good repair (standards

that constitute acceptable basic housing conditions). These standards

measure a PHA's performance in maintaining the major physical areas of

public housing (paragraph (b) of this section). These standards also

identify health and safety deficiencies that require correction

(paragraph (c) of this section).

(b) Major Inspectable Areas. The five major inspectable areas of

public housing are the following:

(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

[[Page 33355]]

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.

(c) 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 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

(e.g., propane, natural gas, methane gas), or other observable

deficiencies. The housing must comply with all regulations and

requirements related to the ownership of pets, and the evaluation and

reduction of lead-based paint hazards and have available proper

certifications of such (see 24 CFR part 35).

Sec. 902.24 Physical inspection of PHA properties.

(a) The inspection, generally. The score for PHAS Indicator

1 is based upon an independent physical inspection of a PHA's

properties provided by REAC and using HUD's uniform physical inspection

protocols.

(1) During the physical inspection of a property, an inspector

looks for deficiencies for each inspectable item within the inspectable

areas, such as holes (deficiencies) in the walls (item) of a dwelling

unit (area). The dwelling units inspected in a property are a randomly

selected, statistically valid sample of the units in the property,

excluding vacant units not under lease at the time of the physical

inspection.

(2) To ensure prompt correction of health and safety deficiencies

before leaving the site, the inspector gives the property

representative the list of every observed exigent/fire safety health

and safety deficiency that calls for immediate attention or remedy. The

property representative acknowledges receipt of the deficiency report

by signature.

(3) After the inspection is completed, the inspector transmits the

results to REAC where the results are verified for accuracy and then

scored in accordance with the procedures in this subpart.

(b) Definitions. The following definitions apply to the physical

condition scoring process in this subpart:

Criticality means one of five levels that reflect the relative

importance of the deficiencies for an inspectable item. (1) Based on

the importance of the deficiency, reflected in its criticality value,

points are deducted from the score for an inspectable area.

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

Criticality Level

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

Critical....................................................... 5

Very important................................................. 4

Important...................................................... 3

Contributes.................................................... 2

Slight contribution............................................ 1

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

(2) The Item Weights and Criticality Levels document lists all

deficiencies with their designated levels, which vary from 1 to 5, with

5 as the most critical, and the point values assigned to them.

Deficiencies means the specific problems, comparable to Housing

Quality Standards (HQS), such as a hole in a wall or a damaged

refrigerator in the kitchen, that can be recorded for inspectable

items.

Dictionary of Deficiency Definitions refers to the Dictionary of

Deficiency Definitions document published as an appendix to the PHAS

Notice on the Physical Condition Scoring Process that contains specific

definitions of each severity level for deficiencies under this subpart.

HUD will publish any significant proposed amendments to this document

for comment. After comments have been considered HUD will publish a

notice adopting the final Dictionary of Deficiency Definitions document

or the amendments to the document.

Inspectable area (or area) means any of the five major components

of the property that are inspected, which are: site; building

exteriors; building systems; common areas; and dwelling units.

Inspectable item means the individual parts, such as walls,

kitchens, bathrooms, and other things, to be inspected in an

inspectable area. The number of inspectable items varies for each area.

Weights are assigned to each item as shown in the Item Weights and

Criticality Levels document.

Item Weights and Criticality Levels Document refers to the Item

Weights and Criticality Levels document published as an appendix to the

PHAS Notice on the Physical Condition Scoring Process that contains a

listing of the inspectable items, item weights, observable

deficiencies, criticality levels and values, and severity levels and

values that apply to this subpart. HUD will publish any significant

proposed amendments to this document for comment. After comments have

been

[[Page 33356]]

considered HUD will publish a notice adopting the final Item Weights

and Criticality Levels document or the amendments to the document.

Normalized weights mean weights adjusted to reflect the inspectable

items or areas that are present to be inspected.

Score means a number on a scale of 0 to 100 that reflects the

physical condition of a property, inspectable area, or sub-area. To

record a health or safety deficiency, a specific designation (such as a

letter--a, b, or c) is added to the property score that highlights that

a health or safety deficiency (or deficiencies) exists. To note that

smoke detectors are inoperable or missing, another designation (such as

an asterisk (*)) is added to the property score. Although noted,

inoperable or missing smoke detectors do not reduce the score.

Severity means one of three levels, severe, major or minor, that

reflect the extent of the damage or problem associated with each

deficiency. The Item Weights and Criticality Levels document shows the

severity levels for each deficiency. Based on the severity of each

deficiency, the score is reduced. Points deducted are calculated as the

product of the item weight and the values for criticality and severity.

For specific definitions of each severity level, see the REAC's

``Dictionary of Deficiency Definitions''.

Sub-area means an inspectable area for one building. For example,

if a property has more than one building, each inspectable area for

each building in the property is treated as a sub-area.

(c) Compliance with Civil Rights/Nondiscrimination Requirements.

HUD will review certain elements during the physical inspection to

determine possible indications of noncompliance with the Fair Housing

Act (42 U.S.C. 3601-19) and section 504 of the Rehabilitation Act of

1973 (29 U.S.C. 794). A PHA will not be scored on those elements. Any

indication of possible noncompliance will be referred to HUD's Office

of Fair Housing and Equal Opportunity.

(d) HUD Access to PHA properties. PHAs are required by the Annual

Contributions Contract to provide the government with full and free

access to all facilities contained in the project. PHAs are required to

provide HUD or its representative with access to the project, all units

and appurtenances thereto in order to permit physical inspections under

this part. Access to the units must be provided whether or not the

resident is home or has installed additional locks for which the PHA

did not obtain keys. In the event that the PHA fails to provide access

as required by HUD or its representative, the PHA will be given ``0''

points for the project or projects involved which will be reflected in

the physical condition and overall PHAS score.

Sec. 902.25 Physical condition scoring and thresholds.

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

for the overall condition of a PHA's public housing portfolio following

the procedures described in the PHAS Notice on the Physical Condition

Scoring Process, issued on [insert date of final rule]. HUD will

publish any significant proposed amendments to this notice for comment.

After comments have been considered, HUD will publish a notice adopting

a final notice or amendment.

(b) Adjustment for physical condition (property 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 overall physical score

for a property 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

property or the overall depressed condition of the immediately

surrounding neighborhood. The intent of this adjustment is to not

unfairly penalize the PHA through appropriate application of the

adjustment.

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

property 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 property; 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 properties over 10 years old and

that have not received substantial rehabilitation in the last 10 years.

(ii) Neighborhood environment applies to properties located where

the immediate surrounding neighborhood (that is a majority of the

population that resides in the census tracts or census block groups on

all sides of the development) has at least 51 percent of families with

incomes below the poverty rate as documented by the latest census data.

(3) Adjustment is for physical condition (property age) and

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

property subject to both the physical condition (property 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 property, to which these conditions may apply. A

PHA is required to certify on form HUD-50072, PHAS Certification, 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 properties. The Date of Full Availability (DOFA)

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

buildings vary, to determine whether the properties have received

substantial rehabilitation within the past 10 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 property'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. Properties 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 properties

and the record of capital improvements, evidencing that these

particular

[[Page 33357]]

properties have not received capital funds.

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

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

(c) Overall PHA Physical Condition Indicator score. The overall

physical inspection score for a PHA is the weighted average of the

PHA's individual property physical inspection scores, where the weights

are the number of units in each property divided by the total number of

units in all properties for the PHA.

(d) Thresholds. (1) The physical inspection score is reduced to a

30 point basis for the PHAS Physical Condition Indicator.

(2) 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 percent of the available points under this

indicator. If the PHA fails to receive a passing score on the Physical

Condition Indicator, the PHA shall be categorized as a substandard

physical agency.

Sec. 902.26 Physical Inspection Report.

(a) Following the physical inspection and computation of the score

under this subpart, each PHA receives a Physical Inspection Report,

which allows the PHA to see the magnitude of the points lost by

inspectable area, and the impact on the score of the health and safety

(H&S) deficiencies.

(b) The following items are listed in the Physical Inspection

Report:

(1) Normalized weights as the ``possible points'' by area;

(2) The area scores, taking into account the points deducted for

observed deficiencies;

(3) The H&S deductions for site, buildings and units, with H&S

deductions for buildings combined for exteriors, systems and common

areas; a listing of all observed smoke detector deficiencies; and a

projection of the total number of H&S problems that the inspector

potentially would see in an inspection of all buildings and all units;

and

(4) The overall property score.

Sec. 902.27 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. 902.30 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 by measuring the PHA's entity-wide

performance in each of the components listed in Sec. 902.35, on the

basis of the annual financial report provided in accordance with

Sec. 902.33.

Sec. 902.33 Financial reporting requirements.

(a) Annual financial reports. PHAs must submit their unaudited and

audited financial data to HUD on an annual basis. The financial

information must be:

(1) Prepared in accordance with Generally Accepted Accounting

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

and

(2) Submitted electronically in the electronic format using the

Financial Data Schedule (FDS).

(b) Annual financial report filing dates. The unaudited financial

information to be submitted to HUD in accordance with paragraph (a) of

this section, must be submitted to HUD annually, no later than two

months after the end of the PHA's fiscal year for the reporting period.

A PHA must submit its audited data using the FDS within nine months of

the fiscal year end.

(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 two months after the PHA's fiscal

year end, and audited financial statements will 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. 902.35 Financial condition scoring and thresholds.

(a) Scoring. Under PHAS Indicator #2, REAC will calculate a score

based on the point values of financial condition components, as well as

audit and internal control flags. Each financial condition component

has several levels of performance, with different point values for each

level. A PHA's score for a financial condition component depends upon

both the level of the PHA's performance under a component, and the

PHA's size, based on the number of public housing and section 8 units

and other units the PHA operates. Under PHAS Indicator #2, the REAC

will calculate a score following the procedures described in the PHAS

Notice on the Financial Condition Scoring Process, issued on [insert

date of final rule]. HUD will publish any significant proposed

amendments to this notice for comment. After comments have been

considered, HUD will publish a notice adopting a final notice or

amendment.

(b) Components of PHAS Indicator #2. The components of PHAS

Indicator #2 are:

(1) Current Ratio is current assets divided by current liabilities.

(2) Number of Months Expendable Fund Balance is the number of

months a PHA can operate on the Expendable Fund Balance without

additional resources. The Expendable Fund Balance is the portion of the

fund balance representing expendable available financial resources,

that is, the unreserved and undesignated fund balance.

(3) Days Receivable Outstanding is the average number of days

tenant receivables are outstanding.

(4) Occupancy Loss is the loss of potential rent due to non-

occupancy of dwelling units.

(5) Net Income or Loss divided by the Expendable Fund Balance

measures how the year's operations have affected the PHA's viability.

(6) Expense Management/Utility Consumption is the expense per unit

for key expenses, including utility consumption, and other expenses

such as maintenance and security.

(c) Thresholds. (1) 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 percent of the available points

under this indicator. If the PHA fails to receive a passing score on

the Financial Condition Indicator, the PHA shall be categorized as a

substandard financial agency.

[[Page 33358]]

Sec. 902.37 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. 902.40 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, as provided

in Sec. 902.43.

Sec. 902.43 Management operations performance standards.

(a) Management operations sub-indicators. The following sub-

indicators listed in this section will be used to assess a PHA's

management operations. The components and grades for each sub-indicator

are the same as those for the corresponding indicator under the Public

Housing Management Assessment Program (PHMAP) at 24 CFR part 901,

except as may be otherwise noted in this subpart.

(1) Management sub-indicator #--vacancy rate and unit turnaround

time. This management sub-indicator examines the vacancy rate, a PHA's

progress in reducing vacancies, and unit turnaround time. Implicit in

this management sub-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 sub-indicator #2--Capital Fund. This management sub-

indicator examines the amount and percentage of funds provided to the

PHA from the Capital Fund under section 9(d) of the 1937 Act, which

remain unobligated by the PHA after three years, the timeliness of fund

obligation, the adequacy of contract administration, the quality of the

physical work, and the adequacy of budget controls. For funding under

the HOPE VI Program and the Vacancy Reduction Program, only components

#3, #4, and #5 of this sub-indicator are applicable. This management

sub-indicator is automatically excluded if the PHA does not have 9(d)

capital funding.

(3) Management sub-indicator #3--rents uncollected. This management

sub-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 sub-indicator #4--work orders. This management sub-

indicator examines the time it takes to complete or abate emergency

work orders, the average number of days nonemergency work orders were

active, and any progress a PHA has made during the preceding three

years to reduce the period of time nonemergency maintenance work orders

were active. Implicit in this management sub-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 sub-indicator #5--PHA annual inspection of units and

systems. This management sub-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 Capital Fund needs. This management

sub-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 sub-indicator #6--Security and Economic Self-

Sufficiency. (i) This management sub-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 other anticrime strategies; coordination

with local government officials and residents in the project on

implementation of such strategies; and as applicable, PHA performance

under any HUD drug prevention/crime reduction/economic self-sufficiency

grants.

(ii) Paragraph (a) of this section provides that the components and

grades for each sub-indicator are the same as those for the

corresponding indicator under PHMAP except as may be otherwise noted.

Instead of using the Grade A description in Component #1, Tracking and

Reporting Crime Related Problems, of PHMAP Indicator #8, Security, the

following will be used to describe a Grade of A: The PHA Board, by

resolution, has adopted policies and the PHA has implemented procedures

and can document that it:

(A) Tracks crime and crime-related problems in at least 90 percent

of its developments;

(B) Has a cooperative system for tracking and reporting incidents

of crime to local police authorities to improve law enforcement and

crime prevention; and

(C) Coordinates with local government officials and its residents

on the implementation of anticrime strategies.

(iii) The economic self-sufficiency sub-indicator measures the

PHA's efforts to coordinate, promote or provide effective programs and

activities to promote the economic self-sufficiency of residents. For

this sub-indicator, PHAs will be assessed for all the programs that the

PHA has HUD funding to implement. Also, PHAs will get credit for

implementation of programs through partnerships with non-PHA providers,

even if the programs are not funded by HUD or the PHA.

(b) Reporting on performance under the Management Operations

Indicator. A PHA is required to electronically submit a certification

of its performance under each of the management operations sub-

indicators.

(1) If a PHA does not have this capability in-house, the PHA should

consider utilizing local resources, such as the library or another

local government entity that has internet access. In the event local

resources are not available, a PHA may go to the nearest HUD Public and

Indian Housing program office and assistance will be given to the PHA

to transmit its management operations certification.

(2) If circumstances preclude a PHA from reporting electronically,

HUD will consider granting approval to allow a PHA to submit its

management operations certification manually. A PHA that seeks approval

to submit its certification manually must ensure that the REAC receives

a request for manual submission in writing 60 calendar days prior to

the submission due date of its Management Operations certification. The

written request must include the reasons why the PHA cannot submit its

certification electronically. The REAC will respond to such a request

and will manually forward its determination in writing to the PHA.

Sec. 902.45 Management operations scoring and thresholds.

(a) Scoring. The Management Operations Indicator score provides an

assessment of each PHA's management effectiveness. Under PHAS Indicator

#3,

[[Page 33359]]

REAC will calculate a score of the overall management operations of a

PHA that reflects weights based on the relative importance of the

individual management sub-indicators. Under PHAS Indicator #3, the REAC

will calculate a score following the procedures described in the PHAS

Notice on the Management Operations Scoring Process, issued on [insert

date of final rule]. HUD will publish any significant proposed

amendments to this notice for comment. After comments have been

considered, HUD will publish a notice adopting a final notice or

amendment.

(b) Thresholds. (1) 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 percent of the available points

under this PHAS Indicator #3. If the PHA fails to receive a passing

score on the Management Operations Indicator, the PHA shall be

categorized as a substandard management agency.

Sec. 902.47 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. 902.50 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) Method of assessment, generally. The assessment required under

PHAS Indicator #4 will be performed through the use of a resident

service and satisfaction survey. The survey process will be managed by

the PHA in accordance with a methodology prescribed by HUD. The PHA

will be responsible for developing a follow-up plan, if applicable, to

address issues resulting from the survey, subject to independent audit.

(c) PHA certification of completion of resident survey process. At

the completion of the resident survey process as described in this

subpart, a PHA must certify that the resident survey process has been

managed as directed by HUD. PHAs are required to electronically submit

their resident service and satisfaction certification.

(1) If a PHA does not have this capability in-house, the PHA should

consider utilizing local resources, such as the library or another

local government entity that has internet access.

(2) In the event local resources are not available, the PHA may go

to the nearest HUD PIH program office and assistance will be given to

the PHA to transmit its resident service and satisfaction

certification.

(3) If circumstances preclude the PHA from reporting

electronically, HUD will consider granting approval to allow a PHA to

submit its resident service and satisfaction certification manually. A

PHA that seeks approval to submit the certification manually must

ensure that the REAC receives the PHA's written request for manual

submission 60 calendar days before the submission due date of its

resident service and satisfaction certification. The written request

must include the reasons why the PHA cannot submit the certification

electronically. The REAC will respond to the PHA's request and will

manually forward its determination in writing to the PHA.

Sec. 902.51 Updating of resident information.

(a) Electronic updating. The scoring process for the Resident

Service and Satisfaction Indicator is dependent upon electronic

updating, submission and certification of resident and unit information

by PHAs.

(b) Unit address update and verification. The scoring process for

PHAS Indicator #4 begins with ensuring accurate information about the

PHA's units.

(1) PHAs will be required to electronically update unit address

information initially obtained by the REAC from the recently revised

form HUD 50058, Family Report. The REAC will supply a list of current

units (listed by development) to PHAs via the internet. PHAs will be

asked to make additions, deletions and corrections to their unit

address list.

(2) After updating the list, PHAs must verify that the list of unit

addresses under their jurisdiction is complete. Any incorrect or

obsolete address information will have a detrimental impact on the

survey results. A statistically valid number of residents cannot be

selected to participate in the survey if the unit addresses are

incorrect or obsolete. If a PHA does not verify the address information

within 30 calendar days of submission of the list of current units to

the PHA by the REAC, and the address information is not valid, the REAC

will not be able to conduct the survey at that PHA. Under those

conditions, the PHA would not receive any points for the PHAS Resident

Service and Satisfaction Indicator.

(c) Electronic updating of the address list. The preferred method

for updating a unit address list is electronic updating.

(1) If a PHA does not have this capability in-house, the PHA should

consider utilizing local resources, such as the library or another

local government entity that has internet access.

(2) In the event local resources are not available, the PHA may go

to the nearest HUD Public and Indian Housing (PIH) program office and

assistance will be given to transmit the unit address information. The

PIH office will assist the PHA in electronically updating and

transmitting its unit address list to the REAC.

(3) If circumstances preclude a PHA from updating and submitting

its unit address list electronically, HUD will consider granting

approval to allow a PHA to submit the updated unit address list

information manually. A PHA that seeks approval to update its unit

address list manually must ensure that the REAC receives the PHA's

written request for manual submission 30 calendar days before the

submission due date. The written request must include the reasons why

the PHA cannot update the list electronically. The REAC will respond to

the PHA's request within 15 calendar days of receipt of the request.

Sec. 902.52 Distribution of survey to residents.

(a) Sampling. A statistically valid number of residents will be

chosen to receive the Resident Service and Satisfaction survey. These

residents will be randomly selected based on the total number of

occupied and vacant units of the PHA. The Resident Service and

Satisfaction assessment takes into account the different properties

managed by a PHA by organizing the resident sampling based on the

resident representation of each development in relation to the size of

the entire PHA resident population.

(b) Survey distribution by third party organization. The Resident

Service and Satisfaction survey will be distributed to the randomly

selected sample of residents of each PHA by a third party organization

designated by HUD. The third party organization will also be

responsible for:

(1) Collecting, scanning and aggregating results of the survey;

(2) Transmitting the survey result to HUD for analysis and scoring;

and

(3) Keeping individual responses to the survey confidential.

[[Page 33360]]

Sec. 902.53 Resident service and satisfaction scoring and thresholds.

(a) Scoring. (1) Under the PHAS Indicator #4, REAC will calculate a

score based upon two components that receive points and a third

component that is a threshold requirement.

(i) One component will be the point score of the survey results.

The survey content will focus on resident evaluation of the overall

living conditions, to include basic constructs such as:

(A) Maintenance and repair (i.e., work order response);

(B) Communications (i.e, perceived effectiveness);

(C) Safety (i.e., perception of personal security);

(D) Services (i.e., recreation and personal programs); and

(E) Neighborhood appearance.

(ii) The second component will be a point score based on the level

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

results of the survey.

(iii) The final component, which is not scored for points, but

which is a threshold requirement, is verification that the survey

process was managed in a manner consistent with guidance provided by

HUD.

(2) Under PHAS Indicator #4, the REAC will calculate a score

following the procedures described in the PHAS Notice on the Resident

Service and Satisfaction Scoring Process, issued on [insert date of

final rule]. HUD will publish any significant proposed amendments to

this notice for comment. After comments have been considered, HUD will

publish a notice adopting a final notice or amendment.

(b) Thresholds. A PHA will not receive any points under PHAS

Indicator #4 if the survey process is not managed as directed by HUD or

the survey results are determined to be altered. A PHA will receive a

passing score on the Resident Service and Satisfaction Indicator if the

PHA receives at least 6 points, or 60 percent of the available points

under this PHAS Indicator #4.

Sec. 902.55 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. 902.60 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 (see

Sec. 902.1(e)).

(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 two months 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 Service and Satisfaction, of this part not later

than two months 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 three months past the due date, the

PHA will receive a presumptive rating of failure in all of the PHAS

indicators, sub-indicators and components certified to, which shall

result in a troubled designation or identification as troubled with

respect to the program for assistance from the Capital Fund under

section 9(d).

(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, including

review by an independent auditor as authorized by 42 U.S.C.

1437(d)(j)(6). 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), sub-indicator(s) and/or component(s) shall receive a

score of 0 for the relevant indicator(s), sub-indicator(s) and/or

component(s), and its overall PHAS score shall be lowered.

(3) A PHA's PHAS score under individual indicators, sub-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. 902.63 PHAS scoring.

(a) Issuance of score by HUD. An overall PHAS score will be issued

by REAC for each PHA one month after a PHA submits its year-end

financial data and certifications.

(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

[[Page 33361]]

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 (or RMC or AME

as the case may be) 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. 902.67 Score and designation status.

Designation status corresponding to score. A PHA will be scored

with a corresponding designation of status as follows:

(a) High Performer. A PHA that achieves a score of at least 60

percent 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 percent 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. High performers will

be afforded incentives that include relief from reporting and other

requirements, as described in Sec. 902.71.

(b) Standard Performer. A PHA that is not a high performer but

achieves a total PHAS score of not less than 60 percent shall be

designated a standard performer. All standard performers must correct

reported deficiencies. A PHA that achieves a total PHAS score of less

than 70 percent, but not less that 60 percent, is required by the HUB/

Program Center to submit an Improvement Plan to correct identified

deficiencies.

(c) Troubled Performer. (1) Overall troubled PHAs. A PHA that

achieves an overall PHAS score of less than 60 percent or achieves less

than 60 percent of the total points available under more than one of

the following indicators, PHAS Indicators #1, #2, or #3, shall be

designated as troubled (overall), and referred to the TARC as described

in Sec. 902.75.

(2) Troubled in one area. A PHA that achieves less than 60 percent

of the total points available under one of the following indicators,

PHAS Indicators #1, #2, or #3, shall be categorized as substandard

physical, substandard financial, or substandard management performer,

and referred to the TARC as described in Sec. 902.75.

(d) Withholding designation. (1) In exceptional circumstances, even

though a PHA has satisfied all of the PHAS Indicators for high or

standard performer designation, HUD may conduct any review as it may

determine necessary, and may deny or rescind incentives or high or

standard performer designation, 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

physical, financial or management performance of a PHA;

(iii) Is operating under a court order;

(iv) Demonstrates substantial evidence of fraud or misconduct,

including evidence that the PHA's certifications, submitted in

accordance with this part, are not supported by the facts, as evidenced

by such sources as a HUD review, routine reports, 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 of

a PHA's required compliance with applicable laws and regulations,

including areas not assessed under the PHAS. Areas of substantial

noncompliance include, but are not limited to, noncompliance with civil

rights, nondiscrimination and fair housing laws and regulations, or the

Annual Contributions Contract. Substantial noncompliance casts doubt on

the capacity of a PHA to preserve and protect its public housing

developments and operate them consistent with Federal laws and

regulations.

(2) If high performer designation is denied or rescinded, the PHA

shall be designated a standard performer. If standard performer

designation is denied or rescinded, the PHA shall be designated

troubled.

Sec. 902.68 Technical review of results of PHAS Indicator #1 or #4.

(a) Request for technical reviews. This section describes the

process for requesting and granting technical reviews of physical

inspection results and resident survey results.

(1) For both reviews, the burden of proof is on the PHA to show

that an error occurred.

(2) For both reviews, a request for technical review must be

submitted in writing to the Director of the Real Estate Assessment

Center and must be received by REAC no later than 15 days following the

issuance of the applicable results to the PHA (either the physical

inspection results or the resident survey results). The request must be

accompanied by the PHA's reasonable evidence that an error occurred.

(b) Technical review of physical inspection results. (1) For each

property inspected, the REAC will provide the results of the physical

inspection and a score for that property to the PHA. If the PHA

believes that an objectively verifiable and material error (or errors)

occurred in the inspection of an individual property, the PHA may

request a technical review of the inspection results for that property.

(2) For a technical review of physical inspection results, the

PHA's request must be accompanied by the PHA's evidence that an

objectively verifiable and material error has occurred. The

documentation submitted by the PHA may be photographic evidence,

written material from an objective source, such as a local fire marshal

or building code official, or other similar evidence. The evidence must

be more than a disagreement with the inspector's observations, or the

inspector's finding regarding the severity of the deficiency.

(3) A technical review of a property's physical inspection will not

be conducted based on conditions that were corrected subsequent to the

inspection, nor will the REAC consider a request for a technical review

that is based on a challenge to the inspector's findings as to the

severity of the deficiency (i.e., minor, major or severe).

(4) Upon receipt of a PHA's request for technical review of a

property's inspection results, the REAC will review the PHA's file and

any objectively verifiable evidence produced by the PHA. If the REAC's

review determines that an objectively verifiable and material error (or

errors) has been documented, then the REAC may take one or a

combination of the following actions:

(i) Undertake a new inspection;

(ii) Correct the physical inspection report;

(iii) Issue a corrected physical condition score;

(iv) Issue a corrected PHAS score.

(5) In determining whether a new inspection of the property is

warranted and a new PHAS score must be issued, the REAC will review the

PHA's file and evidence submitted to determine whether the evidence

supports that there may have been a significant contractor error in the

inspection which results in a significant change from the property's

original physical condition score and the PHAS designation assigned to

the PHA (i.e., high performer, standard performer, or troubled). If the

REAC determines that a new inspection is warranted, and the new

inspection results in a significant change from the original physical

condition score, and the PHA's PHAS

[[Page 33362]]

score and PHAS designation, the REAC shall issue a new PHAS score to

the PHA.

(6) Material errors are the only grounds for technical review of

physical inspection results. Material errors are those that exhibit

specific characteristics and meet specific thresholds. The three types

of material errors are:

(i) Building data error. A building data error occurs if the

inspection includes the wrong building or a building that was not owned

by the property, including common or site areas that were not a part of

the property. Incorrect building data that does not affect the score,

such as the address, building name, year built, etc., would not be

considered material, but is of great interest to HUD and will be

corrected upon notice to the REAC.

(ii) Unit count error. A unit count error occurs if the total

number of units considered in scoring is incorrect. Since scoring uses

total units, the REAC will examine instances where the participant can

provide evidence that the total units used is incorrect.

(iii) Non-existent deficiency error. A non-existent deficiency

error occurs if the inspection cites a deficiency that does not exist.

(7) A PHA's subsequent correction of deficiencies identified as a

result of a property's physical inspection cannot serve as the basis

for an appeal of the PHA's physical condition score.

(c) Technical review of resident survey results. The REAC will

consider conducting a technical review of a PHA's resident survey

results in cases where the contracted third party organization can be

shown by the PHA to be in error.

(1) The burden of proof rests with the PHA to provide objectively

verifiable evidence that a technical error occurred. Examples include,

but are not limited to, incorrect material being mailed to residents;

or the PHA's units addresses were incorrect due to the third party

organization's error, such as unit numbers being omitted from the

addresses. A PHA that does not update its unit address list as

described, above, will not be eligible for a technical review based on

incorrect addresses.

(2) Upon receipt of a PHA's request for technical review of a

resident survey results, the REAC will review the PHA's file and

evidence submitted by the PHA. If the REAC's review determines that an

error has been documented, the REAC may take one or a combination of

the following actions:

(i) Undertake a new survey;

(ii) Correct the resident survey results report;

(iii) Issue a corrected resident services and satisfaction score;

(iv) Issue a corrected PHAS score.

Sec. 902.69 PHA right of petition and appeal.

(a) Petition for removal of troubled designation and appeal of

refusal to remove troubled designation. A PHA may:

(1) Petition for removal of troubled designation; and

(2) Appeal any refusal to remove such designation.

(b) Appeal of PHAS score. (1) If a PHA believes that an objectively

verifiable and material error (or errors) exists in any of the scores

for its PHAS Indicators, which, if corrected, will result in a

significant change in the PHA's PHAS score and its designation (i.e.,

as troubled, standard, or high performer), the PHA may appeal its PHAS

score. A significant change in a PHAS score is a change that would

cause the PHA's PHAS score to increase, resulting in a higher PHAS

designation for the PHA (i.e., from troubled performer to standard

performer, or from standard performer to high performer).

(2) To request an appeal of its PHAS score, a PHA must submit its

request in writing to the Director of the Real Estate Assessment Center

and must be received by the REAC no later than 30 calendar days

following the issuance of the PHAS score to the PHA. The request for

appeal must be accompanied by the PHA's reasonable evidence that an

objectively verifiable and material error occurred. The REAC will

review the PHA's file and the evidence submitted by the PHA to support

that an error occurred. If the REAC determines that an objectively

verifiable and material error has been documented by the PHA, the REAC

may undertake a new inspection of the property, and/or a reexamination

of the financial information, management information, or resident

information (the components of the PHAS score), depending upon which

PHAS Indicator the PHA believes was scored erroneously and the type of

evidence submitted by the PHA to support its position that an error

occurred. An appeal submitted to the REAC without appropriate

documentation will not be considered and will be returned to the PHA.

(3) 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.

(4) 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. 902.71 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. (i) 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.

(ii) A PHA's project(s) that receives a physical inspection score

of 90 percent or greater shall be subject to a physical inspection of

that project(s) every other year rather than annually. For example,

project A received a physical inspection score of 94 percent and

project B received a physical inspection score of 78 percent. Project A

will receive a physical inspection every other year and project B will

receive a physical inspection annually.

(2) Public recognition. High-performer PHAs and RMCs that receive a

score of at least 60 percent of the points available under each of the

four PHAS Indicators and achieve an overall PHAS score of 90, 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

[[Page 33363]]

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 be conducted as circumstances may warrant.

Sec. 902.73 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 percent but not less than 60 percent 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 percent 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

percent 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, sub-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. An 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 percent 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, sub-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, sub-indicator and/or

component that 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 area

Troubled Agency Recovery Center (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, including

the remedies available for substantial default. In the case of a PHA's

failure to correct deficiencies within the time specified in an

Improvement Plan or such extensions as may be granted by HUD, if the

TARC determines that it is appropriate to refer the PHA to the

Departmental Enforcement Center (DEC), it will only do so after the PHA

has had one year since the issuance of the PHAS score (or, in the case

of an RMC, notification of its score from a PHA) to correct its

deficiencies.

Sec. 902.75 Referral to a Troubled Agency Recovery Center (TARC).

Upon a PHA's designation of troubled (including PHAs categorized as

substandard), 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, which may

include a determination of priority of needs and referral to the HUB/

Program Center. The actions to be taken by HUD and the PHA will include

actions statutorily required, and such other actions as may be

determined by HUD:

(a) Recovery Plan and Memorandum of Agreement (MOA). Within 30 days

of notification of the designation of a troubled PHA, HUD will take

action to develop a Recovery Plan or MOA. 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 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 HUD, and

discuss any recommended changes and target dates for improvement to be

incorporated in the final MOA. Unless the time period is extended by

HUD, the MOA is to be executed 15 days following issuance of the

preliminary MOA.

(c) Memorandum of Agreement. The final MOA is a binding contractual

[[Page 33364]]

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, sub-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, sub-indicator or

component 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 designation or troubled with respect to the program for

assistance from the Capital Fund under section 9(d) 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 controls by HUD, declaration of substantial default and

subsequent actions, including referral to the DEC for judicial

appointment of a receiver, limited denial of participation, suspension,

debarment, or other actions deemed appropriate by the DEC; 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. (1) Upon the expiration of the one-

year period beginning on the date on which the PHA receives initial

notice of troubled designation or substandard status, or October 21,

1998, whichever is later, the PHA shall improve its performance, as

measured by the PHAS Indicators, by at least 50 percent of the

difference between the most recent performance measurement and the

measurement necessary to remove the PHA's designation as troubled or

substandard status.

(2) Upon the expiration of the two-year period beginning on the

later of the date on which the PHA receives initial notice of troubled

or substandard status, or October 21, 1998, the PHA shall improve its

performance and achieve an overall PHAS score of at least 60 percent,

and/or achieve a score of at least 60 percent of the total points

available under each PHAS Indicator.

(e) Parties to the MOA. An MOA shall be executed by:

(1) The PHA Board Chairperson (supported 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 a 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 DEC, 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 an increase of at least 50 percent of the

points needed to achieve a passing PHAS score. The maximum period of

time for remaining in troubled status before being referred to the DEC

is two years.

(2) The following example illustrates the provisions of paragraph

(g)(1) of this section:

Example: A PHA receives a score of 50 percent; 60 percent 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 five-point increase, the PHA will be referred

to the DEC. The maximum period of time for remaining in troubled

status before being referred to the DEC is two years.

(h) To the extent feasible, while a PHA is under a referral to a

TARC, all services to residents will continue uninterrupted.

Sec. 902.77 Referral to the Departmental Enforcement Center.

(a) Failure of a troubled PHA to execute or meet the requirements

of a memorandum of agreement in accordance with Sec. 902.75 constitutes

a substantial default in accordance with Sec. 902.79 and shall result

in referral to the DEC. The DEC 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

DEC shall initiate the judicial appointment of a receiver or the

interventions provided in Sec. 902.83; and may initiate limited denial

of participation, suspension, debarment, the imposition of other

sanctions available to the DEC including referral to the appropriate

Federal government agencies or offices for the imposition of civil or

criminal sanctions.

(b) To the extent feasible, while a PHA is under a referral to the

DEC, all services to residents will continue uninterrupted.

Sec. 902.79 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. 902.75,

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. 902.75(g), in its PHAS score in 1 year following issuance of the

failed score is in substantial default.

[[Page 33365]]

(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 (including but not limited to the Office of Fair Housing

Enforcement, the Office of the Inspector General, a judicial referral

or a referral from a mayor or other official) 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 is 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 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. 902.83, and determined to be appropriate to remedy

the noncompliance, citing Sec. 902.83, 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. 902.83.

(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. 902.83 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 of any party, when the court determines

that all defaults have been cured or the public housing agency is

capable again of discharging its duties.

(e) HUD may take the actions described in this part sequentially or

simultaneously in any combination.

Sec. 902.85 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

[[Page 33366]]

organizations of residents whose membership must equal at least 20

percent of the PHA's residents.

Dated: June 15, 1999.

Harold Lucas,

Assistant Secretary for Public and Indian Housing.

Donald J. LaVoy,

Acting Director, Real Estate Assessment Center.

[FR Doc. 99-15735 Filed 6-21-99; 8:45 am]

BILLING CODE 4210-33-P