35672 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR PART 901

[Docket No. FR–4313–P–01]

RIN 2577–AB81

Public Housing Assessment System

AGENCY: Office of the Assistant

Secretary for Public and Indian

Housing, and Office of the Director of

the Real Estate Assessment Center,

HUD.

ACTION: Proposed rule.

SUMMARY: This proposed rule

establishes an entirely new system for

the assessment of public housing in the

United States. The nation’s public

housing system houses 1.2 million

families in 20,000 projects across the 50

States, Puerto Rico, Guam and the U.S.

Virgin Islands, operated by 3,400 public

housing agencies. The major

components of the new system include:

The rule provides for the first-ever

assessment of the physical condition,

financial health, and resident services in

public housing. For the first time, the

physical condition of every project in

the nation’s public housing inventory

will be inspected on a regular basis with

uniform standards to ensure that

residents receive decent, safe, and

sanitary housing. For the first time, the

financial condition of every public

housing agency will be assessed on

generally accepted accounting

principles. For the first time, resident

satisfaction with public housing

services will be measured and counted

in HUD’s assessment of public housing

agency management.

The rule provides for increased

flexibility for top performers. Public

housing agencies which score in the top

ten percent in their physical condition,

financial health, resident satisfaction,

and management operations will receive

substantial flexibility and bonus points

for funding competitions.

The rule provides for the

establishment of a Troubled Agency

Recovery Center to improve poor

performers. Public housing agencies

which perform unsuccessfully on these

factors will be referred to a new

Troubled Agency Recovery Center to

improve poor performers.

The rule provides for the

establishment of an Enforcement Center

and Receivership for agencies which fail

to improve performance. Public housing

agencies which fail to post significant

improvement within a year will be

automatically referred to the new HUD

Enforcement Center which will institute

proceedings for judicial receivership to

remove failed agency management.

The purpose of the new Public

Housing Assessment System is to

enhance public trust by creating a

comprehensive management tool that

effectively and fairly measures a PHA’s

performance based on standards that are

objective, uniform and verifiable, and

provides real rewards for high

performers and consequences for poor

performers. As more fully discussed in

the Supplementary Information section

of the preamble, the proposed rule was

developed with the assistance of public

housing agency officials, representatives

of public housing agency organizations,

and representatives of public housing

residents organizations.

DATES: Comment due date: July 30,

1998.

ADDRESSES: Interested persons are

invited to submit comments regarding

this interim rule to the Regulations

Division, Office of General Counsel,

Room 10276, Department of Housing

and Urban Development, 451 Seventh

Street, SW, Washington, DC 20410.

Communications should refer to the

above docket number and title.

Facsimile (FAX) comments are not

acceptable. A copy of each

communication submitted will be

available for public inspection and

copying between 7:30 a.m. and 5:30

p.m. weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: For

further information contact the Real

Estate Assessment Center, Attention

William Thorson, Department of

Housing and Urban Development, 4900

L’Enfant Plaza East, SW, Room 8204,

Washington, DC 20410; telephone (202)

755–0102 (this is not a toll-free

number). Persons with hearing or

speech impairments may access that

number via TTY by calling the Federal

Information Relay Service at (800) 877–

8339.

SUPPLEMENTARY INFORMATION:

I. HUD Constituents Participation in the

Proposed Rule

President Clinton’s Executive Order

on Regulatory Planning and Review

(E.O. 12866, issued September 30, 1993)

provides in section (6)(a) that:

Each agency shall (consistent with its own

rules, regulations, or procedures) provide the

public with meaningful participation in the

regulatory process. In particular, before

issuing a notice of proposed rulemaking,

each agency should, where appropriate, seek

the involvement of those who are intended

to benefit from and those expected to be

burdened by any regulation (including,

specifically, State, local and tribal officials).

Consistent with President Clinton’s

Executive and HUD’s own partnership

initiatives with its constituents and

clients, the new assessment system for

public housing was developed with

extensive discussion and consultation

with public housing agency (PHA)

officials, officials from PHA

representative organizations,

representatives of public housing

resident groups, experts in the fields of

finance and audit and physical

inspection of properties, and other

interested parties such as housing

advocacy groups and local government

representatives. These discussions and

consultations began in October 1997

and continued through April 1998. It

was important to HUD that these

entities and individuals have input in

the development of a proposal for a new

assessment system for public housing.

The consultation and discussions

with PHA agency officials and

representative groups will continue

through the final rulemaking process

and in the implementation of this new

system. During the transition period to

the new system, HUD will work closely

with PHAs and resident groups to make

any necessary refinements to the

system. HUD, PHAs and public housing

residents all want to see an effective and

efficient management system for public

housing, and will work together to make

this a successful system for all

concerned.

II. HUD 2020 Management Reforms

On June 26, 1997, HUD released its

plan, the ‘‘HUD 2020 Management

Reform Plan,’’ for significant

management reforms at HUD. HUD

published the plan in the Federal

Register on August 12, 1997 (62 FR

43204). The HUD 2020 Management

Reform Plan is directed to (1)

empowering people and communities to

improve themselves, and (2) restoring

HUD’s reputation and credibility by

improving the efficiency and

effectiveness of HUD’s programs,

operations, and delivery of services. To

improve the efficiency and effectiveness

of HUD’s programs, operations, and

delivery of services, the HUD 2020

Management Reform Plan calls for the

restructuring of HUD’s internal

operations to reallocate resources and

consolidate major functions.

Under the HUD 2020 Management

Reform Plan, resources will be allocated

in a way that is designed to align HUD’s

resources with its long-term mission of

empowering people and communities to

improve themselves and succeed in

today’s world. Consolidation of

functions is designed to avoid

duplication of effort, achieve
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules 35673

consistency and uniformity in the

performance of these functions, and

ensure fairness. With respect

specifically to HUD’s public housing

programs, the consolidation of certain

functions is critical to the survival of

public housing as an affordable housing

option for low-income persons. Those

consolidated functions that will

significantly impact and benefit public

housing operations include the

establishment of a Real Estate

Assessment Center, a Troubled Agency

Recovery Center (TARC) and an

Enforcement Center. These centers

provide the backbone of HUD’s new

system for Federal management of the

nation’s public housing. The following

provides a brief overview of the

functions of the three centers and their

relationship to public housing, as well

as to other HUD assisted properties.

A. Measuring Program Performance—

the Real Estate Assessment Center

The Real Estate Assessment Center

(the ‘‘Assessment Center’’ or ‘‘REAC’’) is

charged with the responsibility for

assessing and scoring the condition of

properties in which HUD has an interest

and the performance of entities that

manage and own those properties. Until

the establishment of the Assessment

Center, HUD’s Office of Housing and the

Office of Public and Indian Housing

independently operated separate real

estate assessment operations, yet the

administration of both organization’s

multifamily portfolios is a common

function of asset management. Under

the Assessment Center, the assessment

of all of the properties of the Office of

Housing and the Office of Public and

Indian Housing is consolidated and the

evaluation standards and procedures are

made uniform, to the greatest extent

feasible.

The establishment of the Assessment

Center marks an important change in

HUD’s way of doing business. Until the

establishment of the Assessment Center,

HUD has never had an effective and

comprehensive property assessment

system. Under HUD 2020 Management

Reform, for the first time in HUD’s

history, all properties will be physically

inspected and financially assessed using

a comprehensive and uniform protocol.

The Assessment Center will play a key

role in evaluating and scoring the

condition of public housing properties

and the performance of PHAs, and it

also will play a key role in evaluating

and scoring the condition of other HUDassisted housing and FHA-insured

properties, and the performance of the

entities that manage and own those

properties. The Assessment Center will

be staffed with individuals who are

experts in the areas of finance and audit,

real estate functions, and housing

management operations.

In order for the Assessment Center to

effectively perform its functions, certain

assessment tools—specifically, physical

condition standards for HUD properties,

and financial information from HUD

reporting entities—need to be made

uniform to the greatest extent possible.

As discussed later in this preamble,

establishment of uniform protocols for

assessing physical condition and

financial information is underway.

These new standardized protocols will

become significant diagnostic tools for

the Assessment Center. For public

housing, as will be discussed in more

detail later, these uniform protocols will

form part of the basis by which the

Assessment Center will analyze the

performance of public housing agencies

(PHAs) and assign a score. The score

assigned to a PHA will identify that

PHA as a high performer, standard

performer or troubled PHA. High

performers will receive increased

regulatory flexibility, bonus points and

other incentives. Those PHAs

designated as troubled will be referred

to the Troubled Agency Recovery Center

to improve performance.

The uniform protocols to be used by

the Assessment Center, although

standardized, will not be static. The

Assessment Center will provide an

ongoing analysis and evaluation of

assessment methods to determine the

accuracy, the effectiveness and the

relevance of inspection, management

and financial protocols, including

factors, scoring, weights, sampling and

algorithms. The Assessment Center will

keep the public and HUD program

participants advised of the findings

obtained through this ongoing analysis

and of any recommended changes to the

protocols and indicators through

issuance of Federal Register notice or

other appropriate notice.

One of HUD’s objectives under HUD

2020 Management Reform is not only to

identify where performance by program

participants fails to meet acceptable

standards, but to assist these

participants in raising their level of

performance. For PHAs, such assistance

will be provided either by the

appropriate HUD area HUB/Program

Center, or by the TARC if the PHA is

designated as troubled.

B. Assisting Troubled Public Housing

Agency Performers—Troubled Agency

Recovery Centers (TARCs)

The Troubled Agency Recovery

Centers established by HUD will assist

PHAs designated as troubled to reach

improved performance through the

development and implementation of

sustainable solutions. Upon designation

as troubled, a PHA will be referred to

the TARC for assistance. The TARC will

work with the PHA to develop and

implement an intervention strategy to

help raise the PHA’s level of

performance. The TARC will provide

technical assistance to troubled PHAs

on a variety of public housing operation

issues, including: property needs and

maintenance; occupancy procedures;

resident and applicant relations; and

financial management. One of the

principal objectives of the TARC is to

determine the appropriate course of

action for the troubled PHA to achieve

recovery, considering the resources and

the recovery period best suited for the

individual PHA, its community and the

families the PHA serves. If a troubled

PHA is found to be making substantial

progress toward addressing its

problems, consideration may be given to

allowing the PHA additional time to

continue the recovery effort. If a

troubled PHA’s problems are not

addressed within the period established

by this rule, the PHA will be referred to

the Enforcement Center.

C. Restoring Public Trust—the

Enforcement Center

The greatest breach of the public trust

at HUD is the waste, fraud and abuse in

HUD’s existing portfolio of millions of

housing units. Until recently, each of

HUD’s program offices (the Offices of

Public and Indian Housing, Housing,

and Community Planning and

Development) operated independent

enforcement functions, with different

standards and procedures. HUD has

combined non-civil rights enforcement

actions for the program offices into one

authority—the Enforcement Center. The

Enforcement Center is a fundamental

programmatic reform that HUD will take

to restore public trust in fulfilling its

mission to provide decent, safe and

sanitary housing for lower and moderate

income households. The Enforcement

Center is intended to be the central

Departmental focus for taking aggressive

action against owners of HUD’s troubled

assisted housing and public housing

portfolios. The Enforcement Center will

be responsible for correcting longstanding noncompliance issues with

HUD grantees, and will take action

against owners who do not cooperate

with HUD during any recovery process

or who may have put housing projects

in jeopardy by engaging in waste, fraud

or abuse.

With respect to public housing, the

Enforcement Center will be responsible

for troubled PHAs that fail to improve

their performance during the
35674 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

1The current Public Housing Management

Assessment Program (PHMAP), for which the

regulations are codified at 24 CFR part 901, was

established in accordance with section 502 of the

established time period. The actions

taken by the Enforcement Center against

such PHAs include judicial receivership

to remove failed management, and

referrals for the imposition of civil and

criminal sanctions to the applicable

Federal government agencies or offices,

where appropriate.

D. Achieving Fairness By Transferring

Responsibility to Independent Units

Each of the three centers, the

Assessment Center, the TARC, and the

Enforcement Center, will be separate

units, independent from traditional

HUD program areas and functions. This

separation from traditional program

areas reflects a key objective of HUD

2020 Management Reform and that is to

treat program participants and assess

program performance on the basis of

uniform standards, not on the basis of

which HUD program office administers

the assistance. Before the HUD 2020

Management Reforms, program office

staff all too often were handed

conflicting mandates. On the one hand,

staff were asked to provide assistance to

HUD program participants

(communities, housing agencies,

multifamily owners, etc.) to help them

meet their housing and urban

development needs; and on the other

hand, these employees were directed to

monitor the actions of the program

participants. HUD realizes that both

roles are important to HUD’s mission

and have a place in HUD, but the role

of facilitator and the role of monitor are

inherently in conflict. The creation of

the Assessment Center, the TARC and

the Enforcement Center as independent

units is designed to address the

inconsistent responsibilities previously

handled by program staff. Dividing the

important functions of community

facilitator and program monitor into

different offices is a critical step in

restoring public trust in HUD.

Restoring public trust not only will be

achieved through independence of the

Assessment Center, TARC and the

Enforcement Center, but in the

consistent uniform approach the centers

take to the performance of their

respective functions. As discussed

earlier, for the Assessment Center, a

consistent and fair approach to the

evaluation of HUD properties requires

uniform assessment standards in two

critical areas: (1) The physical condition

of properties receiving HUD financial

assistance; and (2) the financial

condition of the owners and managers

of these properties.

E. Standardization of Physical

Assessment of Properties—Uniform

Physical Condition Standards

As part of the HUD 2020 Management

Reform objective to create a uniform,

assessment process for all HUD assisted

properties, HUD is establishing uniform

physical conditions standards and

inspection procedures for its assisted

housing, FHA related properties and

public housing. These standards are

intended to ensure that such housing is

decent, safe, sanitary and in good

repair—the physical condition standard

to which HUD assisted housing always

has been subject. HUD’s Section 8

housing, public housing, HUD-insured

multifamily housing, and other HUD

assisted housing currently must undergo

an annual physical inspection to

determine that the housing qualifies as

decent, safe, sanitary and in good repair.

The description or components of what

constitutes acceptable physical housing

quality and the physical inspection

procedures by which the standards are

determined to be met, however, vary

from HUD program to HUD program. To

the extent possible, HUD believes that

housing assisted under its programs

should be subject to uniform physical

standards, regardless of the source of the

subsidy or assistance. Additionally, to

the extent feasible, HUD believes that

the physical inspection procedures by

which the standards will be assessed

should be uniform in the covered

programs. Therefore, for the physical

condition indicator of the Public

Housing Assessment System (PHAS),

this proposed rule provides for public

housing properties to be evaluated on

the basis of uniform physical condition

standards that ensure that the public

housing is decent, safe, and sanitary.

Through separate rulemaking, HUD will

propose to apply these uniform physical

condition standards to properties

assisted under other HUD housing

programs. These standards are

discussed in greater detail later in this

preamble.

F. Standardization of the Financial

Assessment of Program Participants—

Uniform Financial Reporting

The uniform assessment of HUD

properties under HUD 2020

Management Reform also includes a

uniform financial assessment process.

To achieve this objective, HUD is

establishing uniform standards for

annual financial reporting for HUD’s

public housing, Section 8 housing, and

multifamily insured housing programs,

and will require public housing

agencies, project owners, and managers

(if applicable) of HUD-assisted housing

to submit to HUD annually in an

electronic mode and standardized

format, to be established by HUD,

certain financial information, prepared

in accordance with generally accepted

accounting principles (GAAP), as

prescribed by the Governmental

Accounting Standards Board (GASB).

Electronic submission is necessary

because the manual submission of

annual financial information has

become a significant administrative

burden to PHAs, project owners, and

mortgagees, as well as to HUD. HUD is

developing a standardized format for the

reporting of the annual financial

information, which will be ready for

dissemination in sufficient time to allow

PHAs to comply with the provisions of

this rule. This format will be

substantially the same for all covered

programs, but the format may vary in

certain respects to reflect different types

of reporting entities (e.g., owners of

multifamily/Federal Housing

Administration (FHA)-related entities

vs. PHAs). The objective of the uniform

financial reporting requirements is to

standardize the annual financial

information submission process and,

through standardization, bring

consistency to the evaluation of the

financial condition of housing assisted

under HUD programs. Therefore, for the

financial condition indicator of the

PHAS, this proposed rule provides for

PHAs to submit electronically to HUD

annual financial reports prepared in

accordance with GASB GAAP. Through

separate rulemaking, HUD will propose

to apply these uniform financial

reporting requirements to program

participants in other HUD housing

programs. The financial reporting

requirements are discussed in greater

detail later in this preamble.

G. Enhancing Public Trust Through

Improved Assessment of Public Housing

and PHAs

The new Public Housing Assessment

(PHAS), proposed by this rule, is

designed to enhance public trust by

creating a comprehensive oversight tool

that effectively and fairly measures a

PHA based on standards that are

objective and uniform. The PHAS

represents a major rethinking of public

housing management. The parties most

involved in, and affected by, public

housing—PHAs and public housing

residents—have expressed concerns that

the existing system largely ignores the

physical conditions of public housing. 1
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules 35675

Cranston-Gonzalez National Affordable Housing

Act (Pub. L. 101–625, approved November 29, 1990)

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

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

Act).

2 The current regulatory provisions addressing

the physical condition of public housing projects

are found in several sections of HUD’s regulations

in Title IX of 24 CFR: §§ 901.30 (of the PHMAP

regulations), 941.203 (of the Public Housing

Development regulations), 965.704 (of the PHAOwned or Leased Projects regulations), and 968.315

(of the Comprehensive Improvement Program

Regulations).

3 As the proposed regulatory text will show, the

physical condition standards are referred to as

‘‘decent, safe, sanitary and in good repair.’’ As the

preamble discussion notes the statutory physical

condition standard for public housing is expressed

in terms of ‘‘decent, safe and sanitary.’’ For FHArelated properties, the statutory standard is

expressed in terms of ‘‘good repair and condition.’’

In adopting physical condition standards that are

applicable to both public housing and FHA-related

properties, HUD uses the descriptive term—

‘‘decent, safe, sanitary and in good repair.’’

Under the current system, a PHA’s

management performance may be

assessed as acceptable when its

residents are living in unacceptable

housing conditions. Other concerns are

that the current system is almost totally

dependent on PHA self-certification,

rather than on objective evidence or

third-party verification; does not focus

on basic real estate functions; and does

not provide for opportunity for input

from those directly served by the PHA—

the public housing residents. The new

PHAS responds to these concerns by

adding indicators that provide for

independent assessment and

specifically assess these components of

a PHA’s operation—physical condition

of the property; financial condition; and

resident feedback.

Under the PHAS, HUD will evaluate

a PHA based on the following

indicators: (1) the physical condition of

the PHA’s public housing properties; (2)

the PHA’s financial condition; (3) the

PHA’s management operations; and (4)

residents’ assessment (through a

resident survey) of the PHA’s

performance. The management indicator

of this new assessment system will

incorporate the majority of the existing

statutory management assessment

indicators (the remaining statutory

indicators will be part of the other

PHAS indicators). Each of these major

indicators is comprised of components.

The PHAS indicators are discussed in

further detail below. The PHAS,

although applicable only to public

housing, reflects HUD’s approach under

HUD 2020 Management Reform to all

properties assisted by HUD. HUD will

assess all HUD-related properties in a

manner similar to that outlined in this

proposed rule, utilizing uniform

financial and physical indicators, and

resident feedback.

III. The Public Housing Assessment

System (PHAS)

A. Overview of the PHAS

The new PHAS is designed to instill

trust in public housing as a cost

effective and affordable housing option

by demonstrating that there is in place

an assessment system that accurately

determines whether a PHA is doing an

outstanding, acceptable, or unacceptable

job in providing decent, safe and

sanitary housing to its residents. An

accurate assessment of a PHA’s

performance is critical because the

consequences of that assessment can be

significant. For PHAs determined to be

performing well, the consequences will

be less scrutiny and additional

flexibility. For PHAs determined not to

be performing well, the consequences

will be intensive technical assistance,

deadlines for improvement and possible

punitive actions for failure to improve

during established periods.

The approach provided by the PHAS

maximizes the best use of public funds

by concentrating resources on those

PHAs in most need of attention and

recognizing outstanding performers. The

system is fundamentally designed to

provide relevant and verifiable

measures that directly relate to PHA

performance. Additionally, the system

is designed to allow HUD to act upon

the findings produced from four

comprehensive indicators.

Under the PHAS, the Assessment

Center assumes responsibility from the

Office of Public and Indian Housing for

assessing the performance of PHAs. The

Assessment Center will examine four

essential areas of housing operations to

determine a PHA’s performance in

delivering HUD programs and services.

These indicators are: (1) the physical

condition of public housing (addressed

in subpart B of the rule); (2) the

financial condition of a PHA (addressed

in subpart C of the rule); (3) the

management operations capabilities of

PHAs, which will incorporate the

majority of the existing statutory

assessment requirements (addressed in

subpart D of the rule); and resident

service and satisfaction (addressed in

subpart E of the rule). To assess the

performance of a PHA on the basis of

the first two indicators, the Assessment

Center will utilize comprehensive and

standardized protocols to conduct

physical inspections of public housing

properties, as described above, and to

assess the financial condition of PHAs.

For the Management Operations

Indicator and the Resident Service and

Satisfaction Indicator, the Assessment

Center will gather and analyze data and

information provided by the PHA.

In order to determine a composite

score for each PHA, the four indicators

of the PHAS will be individually scored

and then combined to present a

composite score that reflects the overall

performance of PHAs for a total of 100

possible points. The 100 points are

distributed as follows:

30 total points for the physical

condition;

30 total points for the financial

condition;

30 total points for management

operations; and

10 total points for resident service and

satisfaction.

The following discussion presents a

brief overview of each of the four

indicators to be used under the PHAS.

1. PHAS Indicator #1—Physical

Condition of Public Housing Properties

Subpart B of part 901 of this proposed

rule addresses the Physical Condition

Indicator. This indicator provides for

the assessment of the physical condition

of a PHA’s public housing. A PHA must

maintain its housing in decent, safe, and

sanitary condition.

Statutory Standard of Decent, Safe

and Sanitary. This well established and

longstanding physical condition

standard has several statutory sources,

including section 3(b)(1) of the 1937

Act, which provides in relevant part as

follows:

The term ‘‘low-income housing’’ means

decent, safe, and sanitary dwellings assisted

under this Act. The term ‘‘public housing’’

means low-income housing, and all

necessary appurtenances thereto, assisted

under this Act other than under section 8.

Section 14 of the 1937 Act, which

addresses public housing

modernization, also emphasizes a

decent, safe, and sanitary housing

standard. Section 14(j)(2) provides, in

relevant part, that ‘‘the Secretary shall

issue rules and regulations establishing

standards which provide for decent,

safe, and sanitary living conditions in

low-rent public housing projects.

* * *’’ 2 In adopting uniform physical

condition standards for public housing,

this proposed rule would not alter the

statutory standard for maintaining

public housing. Instead, the proposed

rule, by using the statutory terminology,

clearly acknowledges that public

housing must be maintained in ‘‘decent,

safe, and sanitary’’ condition.3

No Preemption of State and Local

Building and Maintenance Codes. The

new uniform physical condition

standards established by HUD do not

supersede or preempt State and local

building and maintenance codes with
35676 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

which the PHA’s public housing must

comply. PHAs must continue to adhere

to these codes.

Uniform Physical Condition

Standards. The uniform physical

standards being established would set

parameters under which public housing

(as well as other HUD assisted housing)

must be maintained and will be

evaluated. These standards are designed

to analyze, score, and rank the overall

and general physical condition of a

project. This evaluation would not focus

on a single element, but would take into

consideration significant observable

deficiencies and score compliance taken

as a whole. A single critical element

with a major defect (for example, an

inoperable heating system), however,

could have a significant impact on a

project’s overall evaluation. The

standards address six major areas of the

housing to be evaluated: (1) site; (2)

building exterior; (3) building systems;

(4) dwelling units; (5) common areas;

and (6) health and safety. The standards

emphasize health and safety

considerations as essential to housing

that is decent, safe, and sanitary.

Appendix A to the proposed rule lists

the items to be inspected within each of

the six major areas.

Physical Inspection of Public Housing.

Public housing is not only currently

subject to a standard of decent, safe and

sanitary, there is also an obligation on

the PHA to ‘‘inspect’’ public housing

units. Section 6(j)(1)(G) of the 1937 Act

requires the PHA to inspect units to

ascertain ‘‘maintenance or

modernization needs.’’ This

corresponding regulatory requirement is

found in HUD’s regulations at 24 CFR

901.30. Section 901.30, captioned

‘‘Indicator #5, Annual Inspection of

Units and Systems,’’ provides in

relevant part that: ‘‘All occupied units

are required to be inspected.’’ This rule

would not change the current

requirement for an annual inspection.

That requirement remains and is

provided for under subpart D of this

proposed rule, Management Operations.

Under this proposed rule, an

assessment of the physical condition of

a PHA’s properties would be

determined by an independent

inspection of the properties by HUD.

Consistent with HUD’s responsibilities

under the Assessment Center, HUD

intends to conduct independent

physical inspections, using a new

uniform, objective, and computerized

inspection software developed by HUD,

of a statistically valid number of public

housing units for each PHA, in order to

confirm compliance with the uniform

physical condition standards. The

determination of whether public

housing meets the standard of decent,

safe, and sanitary would be based on a

review of observable deficiencies of the

site, the building exterior, the building

systems, the dwelling units, the

common areas, and the health and

safety conditions of such housing. The

computer program will generate a score

for these components. The scores will

allow HUD to assess the overall physical

condition of the public housing as

determined by the computer-based

inspection.

To ensure the independence of the

physical inspection, HUD intends to

contract with private inspection firms to

perform the inspections. All inspectors

will be trained under HUD auspices in

the use of the inspection protocol. Upon

being certified, inspectors will obtain

their PHA inspection assignment from

the Assessment Center. The inspector

will download property profile

information on the selected PHA’s

projects via the Internet from the HUD

Home page. The inspector will complete

the inspection using a hand-held

computer that uses the HUD software.

After the inspection is completed, the

inspector will upload the inspection

results to HUD’s central information

data repository (CIDR) where it will be

verified for accuracy and then scored

using predetermined weights based on

the relative importance of the property

areas inspected and factual observed

deficiencies identified during the

inspection. HUD will exercise quality

control procedures over the contractor

inspections to assure the validity and

quality of the inspections.

Total Points for PHAS Indicator #1.

The total point value of the Physical

Condition Indicator is 30 of the 100

points available under the PHAS. In

order to receive a passing score on the

Physical Condition Indicator, a PHA

must receive a score of at least 60

percent of the 30 points available.

2. PHAS Indicator #2—Financial

Condition

Subpart C of this proposed rule

addresses the Financial Condition

Indicator and would establish the

process for the assessment of a PHA’s

financial condition. The rule would

require PHAs to submit to HUD, on an

annual basis, certain financial

information, prepared in accordance

with generally accepted accounting

principles (GAAP), as those principles

are prescribed by the Governmental

Accounting Standards Board (GASB).

The rule also requires that the annual

financial report due to HUD must be

submitted electronically and in a

uniform format, with the electronic

mode and format to be determined by

HUD. The objective of the Financial

Condition Indicator is to measure the

financial condition of PHAs for the

purpose of evaluating whether they

have sufficient financial resources and

are managing those financial resources

effectively to support the provision of

decent, safe, and sanitary housing.

Generally Accepted Accounting

Principles (GAAP). Accounting and

reporting in accordance with GAAP

would bring much needed consistency

to HUD program evaluation. GAAP

requires the participant to manage its

accounting and reporting in accordance

with a standard set of rules published

by auditing and accounting

professionals and recognized both

within and outside of government. The

use of GAAP, therefore, would enable

HUD and program participants to

account for transactions and report

results of operations using widely

accepted protocols. The audit process

would be enhanced by the use of GAAP,

reducing audit costs. The resulting

reports are widely accepted by industry

and government and are, therefore,

widely understood. The relative

consistency of GAAP would allow HUD

to perform analysis on its large housing

portfolio in ways that assure the overall

reliability and validity of the results.

The discussions that HUD had with

PHAs, PHA representatives, residents

and other interested parties about the

new PHAS included conversion of PHA

financial reports to GAAP. From these

discussions, HUD has learned that

GAAP accounting and reporting is more

meaningful than present HUD

accounting, and that the majority of

PHAs seek the benefits of the change. A

number of PHAs already have begun

using GAAP or are in the process of

converting to GAAP. At least two States

(Louisiana and Tennessee) require that

all PHAs in those States convert their

HUD basis of accounting financial

statements to a GAAP basis for State

reporting purposes. Therefore, PHAs, as

well as the accountants and auditors in

those two States, have experience with

the GAAP conversion process.

Additionally, several large PHAs (New

York, Chicago, Denver, Seattle, and

Baltimore, for example) have already

converted to GAAP. Further, it is

expected that many PHAs have

quantified the effect of the differences

between GAAP and the HUD basis of

accounting because of the guidance

given in the Public and Indian Housing

Low Rent Technical Accounting Guide

and because of other business and

operating needs (e.g., the need to fund

liabilities for sick and vacation leave).

For those PHAs that may not be

familiar with GAAP or that have not had
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules 35677

occasion to prepare GAAP financial

reports for other submissions (for

example, reports that may be required to

be submitted to State or local

governments), accounting support

services are an eligible expense under

the Performance Funding System (PFS).

To ease the conversion, the current PHA

accounting guide and chart of accounts

will not be modified except to add those

additional accounts needed to record

new transactions in accordance with

GAAP or to enhance the existing chart

of accounts to address current business

operation requirements. Some

illustrative examples of these new

accounts are: (1) an allowance for

uncollectible receivables and the related

bad debt expense; (2) an allowance for

depreciation of buildings, structures and

equipment and the related depreciation

expense; and (3) liability and expense

accounts for probable losses expected

from litigation, claims, and other

contingencies. While a PHA’s

accounting staff will have to quantify

the amounts to be recorded in these new

accounts, the PHA’s independent public

accountants can provide guidance on

GAAP. HUD also will offer guidance for

purposes of standardizing the

conversion results. Since HUD funds all

audit costs as an add-on to the

performance funding system (PFS),

PHAs should not bear any increase in

the costs of an audit that may result in

converting to GAAP.

Electronic Submission. HUD is aware

that automated systems are being used

more extensively among the various

entities that participate in HUD

programs, and the use of such systems

is expanding within HUD itself. Vice

President Gore’s Report of the National

Performance Review has, as a stated

objective, the expanded use of new

technologies and telecommunications to

create an electronic government.

(September 7, 1993, Report of the Vice

President’s National Performance

Review, pp. 113–117, Ref. 2). Requiring

the electronic submission of financial

data in HUD housing programs is

another step in implementing the Vice

President’s objective. The electronic

submission of information results in

significant benefits, such as increasing

the speed of information preparation

and exchange, cost savings from

reduced need for storage space,

improved product because electronic

preparation generally results in reduced

errors, and faster HUD review and

analysis.

This rule would require PHAs to

submit their financial reports to HUD

electronically, via the Internet, rather

than through tape, diskette, or paper.

HUD, however, may approve

transmission of the data by tape or

diskette if HUD determines that the cost

of electronic Internet transmission

would be excessive. HUD anticipates

that the instances in which covered

entities will not be able to comply with

submission of financial data

electronically via Internet will be very

few. This rule would help to bring HUD

up to speed with its program partners in

terms of modern technology.

Assessing Financial Condition. The

key indicators used to distinguish PHAs

in strong financial condition from those

which may be financially troubled

include: (1) A measure of liquidity, the

Current Ratio (defined as current assets

divided by current liabilities), and (2) a

measure of viability, the Number of

Months Expendable Fund Balance

(defined as the Expendable Fund

Balance divided by monthly Operating

Expenditures); (3) Days Receivable

Outstanding (defined as the average

number of days tenant receivables are

outstanding); (4) Vacancy Loss (defined

as the loss of potential rental income

due to vacancy); (5) Expense

Management/Energy Consumption

(defined as expense per unit for key

expenses); and (6) Net Income or Loss

divided by the Expendable Fund

Balance (defined as the net income or

loss, if any, for the operating year,

divided by the expendable fund

balance).

The liquidity measure is evidence of

the property’s ability to cover its near

term obligations with resources

available in the near term. The viability

measure is evidence of the PHA’s ability

to operate using its expendable fund

balance without relying on additional

funding. Prudent financial management

practices, appropriate to the PHA

environment, suggest that these

components be maintained at certain

levels, although a range may be

acceptable for peer groups of PHAs.

The Days Receivable Outstanding

component measures the ability of the

PHA to collect its tenant receivables in

a timely fashion. The inability to collect

tenant receivables in a timely fashion

might help explain poor performance in

the liquidity and viability measures.

The Vacancy Loss component

measures the extent to which the PHA

is maximizing its revenue from

operations.

The Expense Management/Energy

Consumption component, adjusted for

size and region, and includes energy

consumption expenses as well as any

other factors that would reasonably

contribute to differences in expense

ratios, will provide a measure of the

PHA’s ability to maintain its expense

ratios at a reasonable level relative to its

peers.

Net Income or Loss divided by the

Expendable Fund Balance will provide

a measure of how the year’s operations

have affected the PHA’s viability to a

substantial degree.

Total Points for PHAS Indicator #2.

The total point value of the Financial

Condition Indicator is 30 of the 100

points available under the PHAS. In

order to receive a passing score on the

Financial Condition Indicator, a PHA

must receive a score of at least 60

percent of the 30 points available.

Financial Reporting Compliance

Dates. HUD intends that the

requirement of electronic submission of

GAAP-based financial reports, in the

manner and in the format prescribed by

HUD, will begin with those PHAs with

fiscal years ending September 30, 1999

and later. This compliance schedule

will allow sufficient conversion time for

PHAs that are not currently using

GAAP. Unaudited financial statements

will be required 60 days after the PHA’s

fiscal year end (i.e., November 30,

1999), and audited financial statements

will then be required no later than 9

months after the PHA’s fiscal year end,

in accordance with the Single Audit Act

and OMB Circular A–133. A PHA with

a fiscal year ending September 30, 1999

that elects to submit its unaudited

financial report earlier than the due date

of November 30, 1999 must submit its

report electronically and prepared in

accordance with GAAP, in the manner

and in the format prescribed by HUD, as

provided by this rule. On or after

September 30, 1998 but prior to

November 30, 1999 (except for a PHA

with its fiscal year ending September

30, 1999), PHAs may submit their

financial reports in accordance with the

financial reporting requirements of this

rule, but would not be required to do so.

3. PHAS Indicator #3—Management

Operations

Subpart D of this proposed rule

addresses the Management Operations

Indicators of PHAs and provides for the

assessment of a PHA’s management

operations. PHAS Indicator #3

(Management Operations) basically

reflects the requirements of the existing

PHMAP system.

The PHAS preserves the statutory

indicators found in section 6(j) of the

1937 Act, with some minor

reorganization (from that in the existing

system) which is designed to reflect

their integration into the broader PHAS

assessment and to establish their new

point values within the PHAS. The

statutory indicators are: (1) Vacancy

rate; (2) unexpended Section 14 (of the
35678 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

1937 Act) funds; (3) rents uncollected;

(4) energy consumption; (5) unit turnaround time; (6) outstanding work

orders; and (7) annual inspection of

units. The Management Operations

Indicator of the PHAS incorporates the

seven statutory indicators. As is

currently the case under the existing

system, statutory indicators (1) and (5)

are combined under the new PHAS. The

statutory energy consumption indicator

is part of PHAS Indicator 2 (Financial

Condition), just as it was folded into the

financial management indicator of

existing system. The energy/utility

consumption expenses faced by a PHA

on an annual basis will be part of the

PHA’s annual financial report to HUD.

With respect to non-statutory

indicators, the security indicator

remains part of the Management

Operations assessment under the PHAS.

The resident services and community

building indicator is now replaced by a

separate indicator (PHAS Indicator #4—

Resident Service and Satisfaction).

Similarly, the financial condition

indicator is now replaced by a separate

indicator (PHAS Indicator #2—Financial

Condition).

The analysis of the individual

statutory management indicators will

not deviate significantly from the

existing assessment system. Scores will

continue to be based on a PHA’s

certification to the various management

operations indicators. For example,

under Management Indicator #1

(Vacancy Rate and Unit Turnaround

Time), a low vacancy rate will score

higher than a high vacancy rate. Under

Management Indicator #4 (Work Orders)

a high percentage of emergency work

orders completed or abated within 24

hours or less will score better than a

lower percentage of emergency work

orders completed or abated within 24

hours or less.

As under the existing system, for the

Management Operations Indicator of the

PHAS, a PHA will continue to submit

certifications as to its performance

under each of the management

indicators, and a PHA’s certifications

will be subject to independent

verification. Appropriate sanctions for

intentional false certification will be

imposed, including civil penalties,

suspension or debarment of the

signatories.

Total Points for PHAS Indicator #3.

The total point value of the Management

Operations Indicator is 30 of the 100

points available under the PHAS. In

order to receive a passing score on the

Indicator #3 (Management Operations),

a PHA must receive a score of at least

60 percent of the 30 points available.

4. PHAS Indicator #4—Resident Service

and Satisfaction

Subpart E of this rule addresses PHAS

Indicator #4, Resident Service and

Satisfaction. This indicator assesses the

level of resident satisfaction with PHA

housing and services. This assessment

would consist of existing PHMAP

Indicator #7, resident services and

community building, revised to (1) be

consistent with the framework of the

new PHAS, and (2) provide a separate

resident services satisfaction survey.

The objective of this Indicator #4 is to

seek input from all public housing

residents. To achieve an acceptable

score under this indicator, a PHA must

obtain a response from a statistically

significant sample of public housing

residents. The PHA will be responsible

for maintaining original copies of

completed survey data, subject to

independent audit, and for developing a

follow-up plan to address issues

resulting from the survey.

The resident service and satisfaction

assessment score will include three

components of the survey process.

The first component will be the score

of the survey results. The survey content

will focus on resident evaluation of

overall living conditions to include

topics such as: (1) Resident

organizations; (2) program activities; (3)

surrounding environment; (4)

management responsiveness; (5) safety;

(6) involvement; (7) resources; and (8)

communication.

The second component will be a score

based on the PHA’s level of

implementation and its follow-up or

corrective actions based on the results of

the survey.

The third component is verification

that the data collection, tabulation and

submission was undertaken consistent

with guidelines to be provided by HUD.

HUD reserves the right to conduct the

survey at any time on its own.

Total Points for PHAS Indicator #4.

The total point value of the Resident

Service and Satisfaction Indicator is 10

of the 100 points available under the

PHAS. A PHA will not receive any

points if the survey is not conducted in

accordance with HUD prescribed

methodology or if the survey results are

determined to be altered by the PHA.

5. Scoring Performance Under the PHAS

and Consequences of the Score

Issuance of the PHAS Score. An

overall PHAS score will be issued by

HUD for each PHA 60 to 90 days after

the end of the PHA’s fiscal year. As

discussed earlier in this preamble, each

of the four PHAS indicators will be

graded individually and these four

indicators will then be used to

determine an overall score for the PHA.

Components within each of the four

PHAS indicators will be graded

individually and will be used to

determine a single score for the major

indicator. Based on the score, a PHA

will fall into one of three categories:

High Performer PHAs. A PHA that

achieves a score of at least 60% of the

points available for each of the four

indicators and achieves an overall score

of 90% or greater shall be designated as

a high performer. A PHA shall not be

designated as a high performer if it

scores below the threshold established

for any of the four indicators. High

performers will be afforded incentives

and include relief from reporting and

other requirements as described in the

rule.

Standard Performer PHAs. A PHA

that achieves a total score of less than

90% but not less than 60% shall be

designated as a standard performer. All

standard performers must correct

reported deficiencies. A standard

performer PHA that receives a score of

less than 70% but not less than 60%

shall be referred to the appropriate HUD

area HUB/Program Center and will be

required to submit an improvement plan

to correct and eliminate deficiencies in

the PHA’s performance. Standard

performers that receive a score over

70% may also be required to submit an

improvement plan to correct or

eliminate any deficiency.

Troubled Performer PHAs. A PHA

that receives a total score of less than

60% shall be designated as a troubled

performer. Upon designation as

troubled, in accordance with the

requirements of section 6(j)(2)(B) of the

1937 Act and in accordance with the

requirements of this rule, the PHA shall

be referred to the TARC for longer term

intensive assistance in raising its

performance level.

The actions that HUB/Program

Centers and the TARC with respect to

PHAs receiving low or failing scores

under the PHAS are discussed further in

the following section.

6. Consequences of a PHAS Score

As under the existing system, PHAS

scores will be made public. PHAs

designated as high performers will be

relieved of certain HUD requirements,

effective upon notification of a high

performer designation. Additionally,

high performer PHAs may be eligible for

bonus points for funding competitions,

where permissible by the statute and

regulations governing the grant program.

High performer PHAs also will receive

a Certificate of Commendation from

HUD and public recognition of their
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules 35679

outstanding performance.

Representatives of high performer PHAs

may be requested to serve on HUD

working groups that will advise HUD in

such areas as troubled PHAs and

performance standards for all PHAs.

Referral to the HUB Program Center.

PHAs that are designated as standard

performer and have a score of less than

70% but not less than 60% will be

referred to HUD’s area HUB/Program

Center. The HUB/Program Center will

work with the PHA to correct any

deficiency indicated in its assessment

within a period of 90 days, as described

in the Improvement Plan to be

submitted to HUD. The Improvement

Plan will, among other things, describe

the procedures that the PHA will follow

to correct the deficiencies. If the PHA

fails to submit an acceptable

Improvement Plan or correct

deficiencies within the time specified in

an Improvement Plan, the HUB/Program

Center will refer the PHA to the TARC

for appropriate action.

Referral to the TARC. PHAs that are

designated as troubled are referred to

the TARC. The TARC will require the

troubled PHA to prepare and execute a

Memorandum of Agreement (MOA), a

binding contractual agreement by which

the PHA will commit to take certain

action that will lead to its recovery from

a troubled status. The scope of the MOA

may vary depending upon the extent of

the problems present in the PHA, but

shall include, among other things,

annual and quarterly performance

targets and strategies to be used by the

PHA in achieving the performance

targets. The TARC may impose budget

and/or management controls on a PHA

referred to the TARC.

Referral to the Enforcement Center. A

troubled PHA that fails to execute or

meet the requirements of the MOA will

be referred to the Enforcement Center.

The Enforcement Center shall initiate

judicial appointment of a receiver, and

where appropriate, the Enforcement

Center may investigate the PHA and

seek the imposition of civil or criminal

penalties through the appropriate

Federal government agencies or offices.

The purpose of the referral to one of

the three centers discussed above is to

provide for a more effective, efficient

and expeditious resolution of a PHA’s

problems than is currently the case

under the existing assessment system.

The HUB/Program Center and the TARC

will work with PHAs to quickly address

performance deficiencies. The

Enforcement Center will seek quick

action to replace the management of

PHAs that fail or refuse to address their

performance deficiencies.

Appeal of ‘‘Troubled’’ Designation. As

provided by section 6(j) of the 1937 Act,

a PHA may appeal designation as a

trouble agency (including designation as

troubled with respect to the

modernization program); petition for

removal of such designation; and appeal

any refusal to remove such designation

as permitted under section 6(j)(2)(A)(iii)

of the 1937 Act. The appeal shall be

submitted by a PHA to the Assessment

Center within 30 days of a PHA’s receipt

of its score, and shall include

supporting documentation and

justification of the reasons for the

appeal. Appeals submitted to the

Assessment Center without appropriate

documentation will not be considered

and will be returned to the PHA. Upon

receipt of an appeal from a PHA, the

Assessment Center will convene a Board

of Review (the Board) to evaluate the

appeal and its merits for purpose of

determining whether a reassessment of

the PHA is warranted. Board

membership will be comprised of a

representative from REAC, the Office of

Public and Indian Housing, and such

other office or representative as the

Secretary may designate (excluding,

however, representation from the

TARC).

HUD will make final decisions of

appeals within 30 days of receipt of an

appeal, and may extend this period an

additional 30 days if further inquiry is

necessary. Failure by a PHA to submit

requested information within the time

period provided is grounds for denial of

an appeal.

7. Timeline for Implementation of

Inspection and Reporting Dates Under

the PHAS

The new PHAS is proposed to become

effective for PHAs with fiscal years

ending September 1999 and later.

Financial reports due for PHAs’ fiscal

years ending in September, 1999 and

later must be prepared on a GAAP basis.

The first scores under the new PHAS

will be issued not later than December,

1999 for PHAs with FYs ending in

September, 1999. Thus, PHAs will have

at least one year before the new PHAS

scores are issued. Until September 30,

1999, PHAs will continue to be scored

under the current PHMAP. During this

one year transition period, advisory

scores for physical condition and

financial management may be issued to

provide guidance to PHAs. The

implementation schedule for inspection

of public housing properties and

reporting is as described in the

following table:

REAL ESTATE ASSESSMENT CENTER (REAC)

[Assessment Periods and Reporting Dates]

REAC assessment results Financial reporting Physical inspection Management operationsResident survey

Score issued Period covered fiscal

year end (1) Due date (2) Inspection dates (3) Submission due date

(4)

Survey dates (5)

12/1999 9–30–99 11–30–99 7/99–9/99 11–30–99 4/99–9/99

03/2000 12–31–99 2–28–2000 10/99–12/99 2–28–2000 10/99–12/99

06/2000 3–31–2000 5–31–2000 1/2000–3/2000 5–31–2000 1/2000–3/2000

09/2000 6–30–2000 8–31–2000 4/2000–6/2000 8–31–2000 4/2000–6/2000

12/2000 9–30–2000 11–30–2000 7/2000–9/2000 11–30–2000 7/2000–9/2000

Notes:

1. The period covered for each indicator will be the PHA’s entire fiscal year ending on dates shown above. Once the new PHAS is effective, a

PHA cannot change its fiscal year for a period of three years.

2. PHAs with fiscal years ending 9–30–99 and later must provide GAAP financial reports. These reports must be provided by electronic submission not later than 60 days after the end of the PHA’s FY. Audited GAAP reports (due 9 months after the close of the FY in accordance with

the Single Audit Act and OMB Circular A–133) will be used to update and confirm unaudited financial results. If significant differences are noted

between unaudited and audited results, scoring penalties will apply. For those PHAs that spend less than $300,000 of Federal funds, HUD cannot require or pay for an audit in accordance with the Single Audit Act. HUD, however, can require and pay for an ‘‘Agreed-Upon Procedures’’ report that could be specifically directed at verifying calculations.

3. Physical inspections will be scheduled to approximate the new PHAS calculation dates; i.e. within the final quarter of the PHA’s fiscal year.
35680 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

4. The certifications and supporting documentation required for the Management Operations Indicator will be due 60 days after the end of the

PHA’s fiscal year.

5. Resident surveys will be required to be conducted during the course of a PHA’s fiscal year and will be required to be submitted by a PHA at

the time that the PHA submits the certifications required under the Management Operations Indicator.

8. Other Issues Related to the New

PHAS

PHA Fiscal Year for First Three Years

of the new PHAS. As noted in footnote

1 to the chart, to allow for a period of

consistent assessments to refine and

make necessary adjustments to the new

PHAS, a PHA is not permitted to change

its fiscal year for the first three full fiscal

years following the effective date of the

PHAS.

Compliance with Other

Departmentwide and Program Specific

Requirements. The PHAS is a strategic

measure of a PHA’s essential housing

operations. The PHAS, however, does

not evaluate a PHA’s compliance with

every departmentwide or program

specific requirement. For example, a

PHA must comply with fair housing and

equal opportunity requirements,

requirements under Section 504 of the

Rehabilitation Act of 1973, and

requirements of programs under which

the PHA is receiving assistance. A

PHA’s adherence to these requirements

will be monitored in accordance with

the applicable program regulations and

the PHA’s annual contributions

contract.

Adding, Subtracting and Modifying

Indicators. HUD reserves the right to

add new indicators or components of

indicators, or remove indicators or

modify indicators of the new PHAS if

HUD believes that such action will

contribute to a comprehensive and more

accurate assessment of a PHA’s

performance. For example, HUD may

include in the Management Operations

Indicator a component on verification of

tenant income by a PHA. PHAs and the

public will be notified of any change in

indicators or components through

issuance of the appropriate type of

notice.

Streamlining of Regulation.

Consistent with Executive Order 12866

on Regulatory Planning and Review,

HUD reviews its regulations to

determine, among other things, whether

the regulations are redundant or

duplicative of other HUD or other

agency regulations, and should therefore

be streamlined or consolidated. As part

of this review, streamlining or

consolidation changes may be made to

this rule at the final rule stage.

IV. Justification for 30-Day Comment

Period

In general, it is HUD’s policy that

notices of proposed rulemaking are to

afford the public not less than 60 days

for submission of comments, in

accordance with its regulations on

rulemaking in 24 CFR part 10. However,

HUD has determined that there is good

cause to reduce the public comment

period for this proposed rule to 30 days.

As discussed in more detail earlier in

this preamble, the announcement,

through this proposed rule, of HUD’s

new PHAS has been developed with the

participation of PHAs, PHA

representatives, residents,

representatives from resident

organizations, and experts in the field of

finance and real estate. Therefore, the

proposal of a new assessment system,

and the fundamental concepts and

components of this new system are not

unfamiliar to PHAs and public housing

residents. As discussed earlier in the

preamble and in this section, the

diagnostic tools (physical assessment,

financial assessment and resident

services and satisfaction) that are added

to the current ‘‘management’’

assessment of the existing system are

requirements and standards familiar to

PHAs.

With respect to the uniform standards

for physical condition and financial

reporting, the components of these

standards are not significantly ‘‘new.’’

HUD’s physical condition standards

closely resemble the Section 8 housing

quality standards and, are therefore,

standards that the PHAs are familiar

with. The financial reporting

requirements, as discussed earlier in

this preamble, provide for a new

submission format, electronic and in a

uniform format prescribed by HUD, but

the overall content of the report largely

includes the financial information that

PHAs are already submitting in their

annual financial reports. The

requirement to prepare the financial

reports in accordance with GAAP will

be a change for some PHAs, but many

PHAs are already preparing GAAP

financial reports. The rule provides a

sufficient period for PHAs to convert to

GAAP. HUD also will offer guidance for

purposes of standardizing the

conversion results, and since HUD

funds audit costs, PHAs should bear

minimal, if any, increase in the costs of

an audit that may result in converting to

GAAP.

With respect to the Management

Operations Indicator, this is

substantially the same as in existing

PHMAP, and therefore already familiar

to PHAs.

With respect to the new Resident

Service and Satisfaction Indicator, this

indicator builds on the existing resident

indicator in PHMAP.

For the above reasons, HUD has

determined that the 30-day comment

period for this proposed rule should

provide sufficient notice and

opportunity for interested entities to

comment. In order to provide the fullest

and most expedient access to the

provisions of this proposed rule, HUD

will make it available on the HUD Home

Page on the World Wide Web at http:/

/www.hud.gov, on the date of

publication in the Federal Register.

V. Findings and Certifications

Paperwork Reduction Act Statement

The proposed information collection

requirements contained at

§§ 901.25(b)(3) (Certification of the

extent to which the physical condition

and neighborhood environment

adjustment applies; 901.25(b)(5)

(Maintenance of supporting

documentation for physical condition

and neighborhood environment

adjustment); 901.33(a) (Annual financial

reports); 901.50(b) (Reporting

information on resident service and

satisfaction); 901.60 (Data collection);

901.63 (Exclusion request); 901.69 (PHA

right of petition and appeal); 901.75

(MOA); 901.77 (Improvement Plan); and

901.81 (Notice and response), of this

rule have been submitted to the Office

of Management and Budget (OMB) for

review, under section 3507(d) of the

Paperwork Reduction Act of 1995 (44

U.S.C. Chapter 35).

(a) In accordance with 5 CFR

1320.5(a)(1)(iv), HUD is setting forth the

following concerning the proposed

collection of information:

(1) Title of the information collection

proposal:

Public Housing Assessment System

(PHAS)

(2) Summary of the collection of

information:

PHAs shall be required to maintain

certain records and submit certain

information, as specified in the rule

text, for the purpose of HUD review.

The HUD review will result in a

numerical score and the designation of

a PHA’s status. A PHA’s status may

result in: the award of recognition and

incentives from HUD, the requirement
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules 35681

to design and implement a plan to

increase the PHAS score, or the referral

of the PHA for enforcement action. The

PHA may petition or appeal certain

aspects of the scoring and designation,

and is provided an opportunity to

respond before the imposition of

enforcement actions.

(3) Description of the need for the

information and its proposed use:

The information is needed to assess

the performance of a PHA in essential

housing operations. The information

will be used to reward good

performance and improve or correct

deficient performance.

(4) Description of the likely

respondents, including the estimated

number of likely respondents, and

proposed frequency of response to the

collection of information:

Respondents will be PHAs. The

estimated number of respondents is

included in paragraph (5), immediately

below. The proposed frequency of

responses is once annually.

(5) Estimate of the total reporting and

recordkeeping burden that will result

from the collection of information:

REPORTING AND RECORDKEEPING BURDEN

Section reference Number of

parties

Annual freq. of

requirement

Est. avg. time

for requirement (hours)

Est. annual

burden (hours)

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

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

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

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

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

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

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

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

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

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

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

Total Reporting and Recordkeeping Burden (Hours) ................................. ...................... ........................ ........................ 728,267

(b) In accordance with 5 CFR

1320.8(d)(1), HUD is soliciting

comments from members of the public

and affected agencies concerning the

proposed collection of information to:

(1) Evaluate whether the proposed

collection of information is necessary

for the proper performance of the

functions of the agency, including

whether the information will have

practical utility;

(2) Evaluate the accuracy of the

agency’s estimate of the burden of the

proposed collection of information;

(3) Enhance the quality, utility, and

clarity of the information to be

collected; and

(4) Minimize the burden of the

collection of information on those who

are to respond; including through the

use of appropriate automated collection

techniques or other forms of information

technology, e.g., permitting electronic

submission of responses.

Interested persons are invited to

submit comments regarding the

information collection requirements in

this proposal. Comments must be

received within sixty (60) days from the

date of this proposal. Comments must

refer to the proposal by name and

docket number (FR–4313) and must be

sent to:

Joseph F. Lackey, Jr., UD Desk Officer,

Office of Management and Budget,

New Executive Office Building,

Washington, DC 20503

and

Reports Liaison Officer, Office of the

Assistant Secretary for Public and

Indian Housing, Department of

Housing & Urban Development, 451—

7th Street, SW, Room 4244,

Washington, DC 20410

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates

Reform Act of 1995 establishes

requirements for Federal agencies to

assess the effects of their regulatory

actions on State, local, and tribal

governments and the private sector.

This proposed rule would not impose

any Federal mandates on any State,

local, or tribal governments or the

private sector within the meaning of the

Unfunded Mandates Reform Act of

1995.

Environmental Review

A Finding of No Significant Impact

with respect to the environment was

made in accordance with HUD

regulations in 24 CFR part 50 that

implement section 102(2)(C) of the

National Environmental Policy Act of

1969 (42 U.S.C. 4223). The Finding is

available for public inspection between

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

Office of the Rules Docket Clerk, Office

of General Counsel, Room 10276,

Department of Housing and Urban

Development, 451 7th Street, SW,

Washington, DC 20410.

Impact on Small Entities

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

605(b)), has reviewed and approved this

rule, and in so doing certifies that this

rule is not anticipated to have a

significant economic impact on a

substantial number of small entities.

This proposed rule would revise HUD’s

existing regulations for the assessment

of public housing (PHMAP). The new

the PHAS incorporates the statutory

indicators of PHMAP, and adds three

additional indicators. One of the new

indicators—physical condition—would

assess the extent to which PHAs are

providing public housing that is decent,

safe, and sanitary. As explained above,

public housing has always been subject

to a statutory standard of ‘‘decent, safe,

and sanitary.’’ This rule proposes to

simply provide a clear and objective

statement of the standard. This indicator

would also entail an annual

independent HUD inspection of public

housing, but it would not impose

additional inspection requirements

upon PHAs. The clarity and consistency

of this new indicator would provide a

fair, accurate, and reliable assessment of

the physical condition of the large

public housing portfolio. However,

since this proposed rule would not alter

the statutory standard for physical

condition, nor impose additional

inspection obligations, the new physical

condition indicator would not have a
35682 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

significant economic impact on a

substantial number of small entities.

The second indicator—financial

condition—would assess the financial

condition of PHAs, requiring them to

submit financial reports to HUD

electronically and in accordance with

GAAP. HUD estimates that electronic

submission of financial information will

be less burdensome to PHAs, since

many PHAs are making more extensive

use of automated systems. This

proposed rule would allow exceptions if

the cost of electronic submission would

be excessive. GAAP-based accounting

reports, which are widely accepted and

recognized, are not substantially

different than the reports that PHAs are

currently submitting. A number of PHAs

are already required to use GAAP or are

otherwise using GAAP, and the majority

of the PHAs with which HUD has

consulted support the change to GAAP.

For those PHAs that are not yet using

GAAP, HUD is taking several steps to

ease the conversion, including making

only simple additions to the current

PHA accounting guide and chart of

accounts, and providing other

conversion guidance and training,

particularly to small entities. Increasing

the speed of information exchange

(through electronic submission) and the

consistency and accuracy of the

information (through GAAP) would

greatly enhance the assessment of a

PHA’s financial condition. However,

this new indicator would not have a

significant economic impact on a

substantial number of small entities.

The fourth indicator—resident service

and satisfaction—entails a new resident

service and satisfaction survey. This

survey is key to obtaining input from

public housing residents, which is an

important aspect of assessing public

housing. HUD intends that this survey

will be conducted through an automated

process, and accordingly, will present a

minimal administrative burden for

PHAs in terms of administering and

evaluating the survey. HUD intends to

provide the survey format and the

electronic reporting format, as well as

software specifications. Therefore, this

survey would not have a significant

economic impact on a substantial

number of small entities.

HUD is also seeking to minimize any

burden on PHAs by allowing a

significant transition period for

converting to the new PHAS. PHAs will

have at least one year before new scores

are issued under the PHAS. During that

transition period, HUD intends to issue

advisory scores regarding physical

condition and financial management to

provide guidance to PHAs and to ease

the conversion to the new PHAS.

The new PHAS is fundamentally

designed to provide relevant and

verifiable measures that directly relate

to a PHA’s performance and that result

in an accurate and reliable score. This

improved assessment process will allow

HUD to target its oversight resources on

those PHAs most in need of attention;

high-performing PHAs will receive

recognition, along with reduced HUD

scrutiny and additional flexibility. Since

the revised assessment system in this

rule would not impose any significant

new requirements upon PHAs, and

since HUD will assist PHAs in their

conversion to the system, this rule

would not have a significant economic

impact on a substantial number of small

entities. However, HUD specifically

invites comments regarding any less

burdensome alternatives to this

proposed rule that would meet HUD’s

objectives as described in this preamble.

Federalism

The General Counsel, as the

Designated Official under Executive

Order 12612, Federalism, has

determined that the policies contained

in this proposed rule would not have

substantial direct effects on States or

their political subdivisions, on the

relationship between the Federal

Government and the States, or on the

distribution of power and

responsibilities among the various

levels of government. The proposed rule

is intended to promote good

management practices by including, in

HUD’s relationship with PHAs,

continuing review of PHAs’ compliance

with already existing requirements. The

proposed rule would not create any new

significant requirements. As a result, the

proposed rule is not subject to review

under the Order.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic

Assistance numbers for Public Housing

is 14.850.

List of Subjects in 24 CFR Part 901

Administrative practice and

procedure, Public housing, reporting

and recordkeeping requirements.

Accordingly, part 901 of title 24 of the

Code of Federal Regulations is proposed

to be revised to read as follows:

PART 901—PUBLIC HOUSING

ASSESSMENT SYSTEM

Subpart A—General Provisions

Sec.

901.1 Purpose and general description.

901.3 Scope.

901.5 Applicability.

901.7 Definitions.

Subpart B—PHAS Indicator #1: Physical

Condition

901.20 Physical condition assessment.

901.23 Physical condition standards for

public housing—decent, safe, sanitary

and in good repair (DSS/GR).

901.25 Physical condition scoring and

thresholds.

901.27 Physical condition portion of total

PHAS points.

Subpart C—PHAS Indicator #2: Financial

Condition

901.30 Financial condition assessment.

901.33 Financial reporting requirements.

901.35 Financial condition scoring and

thresholds.

901.37 Financial condition portion of total

PHAS points.

Subpart D—PHAS Indicator #3:

Management Operations

901.40 Management operations assessment.

901.43 Management operations

performance standards.

901.45 Management operations scoring and

thresholds.

901.47 Management operations portion of

total PHAS points.

Subpart E—PHAS Indicator #4: Resident

Service and Satisfaction

901.50 Resident service and satisfaction

assessment.

901.53 Resident service and satisfaction

scoring and thresholds.

901.55 Resident service and satisfaction

portion of total PHAS points.

Subpart F—PHAS Scoring

901.60 Data collection.

901.63 PHAS scoring.

901.67 Score and designation status.

901.69 PHA right of petition and appeal.

Subpart G—PHAS Incentives and Remedies

901.71 Incentives for high performers.

901.73 Referral to an Area HUB/Program

Center.

901.75 Referral to a TARC.

901.77 Referral to the Enforcement Center.

901.79 Substantial default.

901.83 Interventions.

901.85 Resident petitions for remedial

action.

Appendix A to Part 901—Areas and Items to

be Inspected

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

3535(d).

Subpart A—General Provisions

§ 901.1 Purpose and general description.

(a) Purpose. The purpose of the Public

Housing Assessment System (PHAS) is

to enhance trust in the public housing

system among public housing agencies

(PHAs), public housing residents, HUD

and the general public by providing a

comprehensive management tool for

effectively and fairly measuring the

performance of a public housing agency

in essential housing operations,
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including rewards for high performers

and consequences for poor performers.

(b) Responsible office for PHAS

assessments. The Real Estate

Assessment Center (REAC) is

responsible for assessing and scoring the

performance of PHAs.

(c) PHAS indicators of a PHA’s

performance. REAC will assess and

score a PHA’s performance based on the

following four indicators:

(1) PHAS Indicator (Apprentice)#1—

the physical condition of a PHA’s

properties (addressed in subpart B of

this part);

(2) PHAS Indicator #2—the financial

condition of a PHA (addressed in

subpart C of this part);

(3) PHAS Indicator #3—the

management operations of a PHA

(addressed in subpart D of this part);

and

(4) PHAS Indicator #4—the resident

service and satisfaction feedback on a

PHA’s operations (addressed in subpart

E of this part).

(d) Assessment tools. REAC will make

use of uniform and objective protocols

for the physical inspection of properties

and the financial assessment of the

PHA, and will gather relevant data from

the PHA on the management operations

indicator and the resident service and

satisfaction indicator. On the basis of

this data, REAC will assess and score

the results, advise PHAs of their scores

and identify low scoring and failing

PHAs so that these PHAs will receive

the appropriate attention and assistance.

(e) Limitation of change of PHA’s

fiscal year. To allow for a period of

consistent assessment of the PHAS

indicators, a PHA is not permitted to

change its fiscal year for the first three

full fiscal years following [effective date

of final rule to be inserted at final rule

stage].

§ 901.3 Scope.

The PHAS is a strategic measure of a

PHA’s essential housing operations. The

PHAS, however, does not evaluate a

PHA’s compliance with or response to

every departmentwide or program

specific requirement or objective.

Although not specifically referenced in

this part, PHAs remain responsible for

complying with such requirements as

fair housing and equal opportunity

requirements, requirements under

section 504 of the Rehabilitation Act of

1973 (29 U.S.C. 794) and requirements

of programs under which the PHA is

receiving assistance. PHAs’ adherence

to these requirements will be monitored

in accordance with the applicable

program regulations and the PHA’s

annual contributions contract.

§ 901.5 Applicability.

(a) PHAs, RMCs, AMEs. This part

applies to PHAs, Resident Management

Corporations (RMCs) and Alternate

Management Entities (AMEs). The

management assessment of an RMC/

AME differs from that of a PHA.

Because an RMC/AME enters into a

contract with a PHA to perform specific

management functions on a

development-by-development or

program basis, and because the scope of

the management that is undertaken

varies, not every indicator that applies

to a PHA would be applicable to each

RMC/AME.

(b) PHA ultimate responsible entity

under ACC. Due to the fact that the PHA

and not the RMC/AME is ultimately

responsible to HUD under the Annual

Contributions Contract (ACC), the PHAS

score of a PHA will be based on all of

the developments covered by the ACC,

including those with management

operations assumed by an RMC or AME

(pursuant to a court ordered

receivership agreement, if applicable).

(c) Assumption of management

operations by AME. When a PHA’s

management operations have been

assumed by an AME:

(1) If the AME assumes only a portion

of the PHA’s management operations,

the provisions of this part that apply to

RMCs apply to the AME (pursuant to a

court ordered receivership agreement, if

applicable); or

(2) If the AME assumes all, or

substantially all, of the PHA’s

management functions, the provisions

of this part that apply to PHAs apply to

the AME (pursuant to a court ordered

receivership agreement, if applicable).

§ 901.7 Definitions.

As used in this part:

Adjustment for physical condition

(project age) and neighborhood

environment is a total of three

additional points added to PHAS

Indicator #1 (Physical Condition). The

three additional points, however, shall

not result in a total point value over the

total points available for PHAS Indicator

#1 (established in subpart B of this part).

Assessed fiscal year is the PHA fiscal

year that has been assessed under the

PHAS.

Average number of days

nonemergency work orders were active

is calculated:

(1) By dividing the total of—

(i) The number of days in the assessed

fiscal year it takes to close active

nonemergency work orders carried over

from the previous fiscal year;

(ii) The number of days it takes to

complete nonemergency work orders

issued and closed during the assessed

fiscal year; and

(iii) The number of days all active

nonemergency work orders are open in

the assessed fiscal year, but not

completed;

(2) By the total number of

nonemergency work orders used in the

calculation of paragraphs (1)(i), (ii) and

(iii) of this definition.

Days Receivable Outstanding is

Tenant Receivables divided by Daily

Tenant Revenue.

Deficiency means any PHAS score

below 60% of the available points in an

indicator or component.

Improvement plan is a document

developed by a PHA, specifying the

actions to be taken, including

timetables, that shall be required to

correct deficiencies identified under any

of the indicators and components

within the indicator(s), identified as a

result of the PHAS assessment when an

MOA is not required.

Reduced actual vacancy rate within

the previous three years is a comparison

of the vacancy rate in the PHAS

assessed fiscal year (the immediate past

fiscal year) with the vacancy rate of that

fiscal year which is two years previous

to the assessed fiscal year. It is

calculated by subtracting the vacancy

rate in the assessed fiscal year from the

vacancy rate in the earlier year. If a PHA

elects to certify to the reduction of the

vacancy rate within the previous three

years, the PHA shall retain justifying

documentation to support its

certification for HUD post review.

Reduced the average time

nonemergency work orders were active

during the previous 3 years is a

comparison of the average time

nonemergency work orders were active

in the PHAS assessment year (the

immediate past fiscal year) with the

average time nonemergency work orders

were active in that fiscal year that is 2

years previous to the assessment year. It

is calculated by subtracting the average

time nonemergency work orders were

active in the PHAS assessment year

from the average time nonemergency

work orders were active in the earlier

year. If a PHA elects to certify to the

reduction of the average time

nonemergency work orders were active

during the previous 3 years, the PHA

shall retain justifying documentation to

support its certification for HUD post

review.

Vacancy loss is vacant unit potential

rent divided by gross potential rent.

Work order deferred for

modernization is any work order that is

combined with similar work items and

completed within the current PHAS

assessment year, or will be completed in
35684 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

the following year if there are less than

three months remaining before the end

of the PHA fiscal year when the work

order was generated, under the PHA’s

modernization program or other PHA

capital improvements program.

Subpart B—PHAS Indicator #1:

Physical Condition

§ 901.20 Physical condition assessment.

(a) Objective. The objective of the

Physical Condition Indicator is to

determine whether a PHA is

maintaining its public housing in a

condition that is decent, safe, sanitary

and in good repair (DSS/GR), as this

standard is defined § 901.23.

(b) Physical inspection under PHAS

Indicator #1. REAC will provide for an

independent physical inspection of, at

minimum, a statistically valid sample of

the units in the PHA’s public housing

portfolio to determine compliance with

DSS/GR standard.

(c) PHA physical inspection

requirement. The HUD-conducted

physical inspections required by this

part do not relieve the PHA of the

responsibility to inspect public housing

units as provided in section 6(j)(1) of the

U.S. Housing Act of 1937 (42 U.S.C.

1437d(j)(1)), and § 901.43(a)(5).

(d) Compliance with State and local

codes. The physical condition standards

in this subpart do not supersede or

preempt State and local building and

maintenance codes with which the

PHA’s public housing must comply.

PHAs must continue to adhere to these

codes.

§ 901.23 Physical condition standards for

public housing—decent, safe, sanitary and

in good repair (DSS/GR).

(a) Public housing must be

maintained in a manner that meets the

physical condition standards set forth in

this section in order to be considered

decent, safe, sanitary and in good repair.

These standards address the major areas

of public housing: the site; the building

exterior; the building systems; the

dwelling units; the common areas; and

health and safety considerations.

(1) Site. The site components, such as

fencing and retaining walls, grounds,

lighting, mailboxes/project signs,

parking lots/driveways, play areas and

equipment, refuse disposal, roads, storm

drainage and walkways must be free of

health and safety hazards and be in

good repair. The site must not be subject

to material adverse conditions, such as

abandoned vehicles, dangerous walks or

steps, poor drainage, septic tank backups, sewer hazards, excess

accumulations of trash, vermin or

rodent infestation or fire hazards.

(2) Building exterior. Each building on

the site must be structurally sound,

secure, habitable, and in good repair.

Each building’s doors, fire escapes,

foundations, lighting, roofs, walls, and

windows, where applicable, must be

free of health and safety hazards,

operable, and in good repair.

(3) Building systems. Each building’s

domestic water, electrical system,

elevators, emergency power, fire

protection, HVAC, and sanitary system

must be free of health and safety

hazards, functionally adequate,

operable, and in good repair.

(4) Dwelling units. (i) Each dwelling

unit within a building must be

structurally sound, habitable, and in

good repair. All areas and aspects of the

dwelling unit (for example, the unit’s

bathroom, call-for-aid, ceiling, doors,

electrical systems, floors, hot water

heater, HVAC (where individual units

are provided), kitchen, lighting, outlets/

switches, patio/porch/balcony, smoke

detectors, stairs, walls, and windows)

must be free of health and safety

hazards, functionally adequate,

operable, and in good repair.

(ii) Where applicable, the dwelling

unit must have hot and cold running

water, including an adequate source of

potable water.

(iii) If the dwelling unit includes its

own sanitary facility, it must be in

proper operating condition, usable in

privacy, and adequate for personal

hygiene and the disposal of human

waste.

(iv) The dwelling unit must include at

least one battery-operated or hard-wired

smoke detector, in proper working

condition, on each level of the unit.

(5) Common areas. The common areas

must be structurally sound, secure, and

functionally adequate for the purposes

intended. The basement/garage/carport,

restrooms, closets, utility, mechanical,

community rooms, day care, halls/

corridors, stairs, kitchens, laundry

rooms, office, porch, patio, balcony, and

trash collection areas, if applicable,

must be free of health and safety

hazards, operable, and in good repair.

All common area ceilings, doors, floors,

HVAC, lighting, outlets/switches, smoke

detectors, stairs, walls, and windows, to

the extent applicable, must be free of

health and safety hazards, operable, and

in good repair.

(6) Health and safety concerns. All

areas and components of the housing

must be free of health and safety

hazards. These areas include, but are

not limited to, air quality, electrical

hazards, elevators, emergency/fire exits,

flammable materials, garbage and

debris, handrail hazards, infestation,

and lead-based paint. For example, the

buildings must have fire exits that are

not blocked and are accessible to all

residents, and have hand rails that are

undamaged and have no other

observable deficiencies. The housing

must have no evidence of infestation by

rats, mice, or other vermin, or of garbage

and debris. The housing must have no

evidence of electrical hazards, natural

hazards, or fire hazards. The dwelling

units and common areas must have

proper ventilation and be free of mold,

odor, or other observable deficiencies.

The housing must comply with all

requirements related to the evaluation

and reduction of lead-based paint

hazards and have available proper

certifications of such (see 24 CFR part

35).

(b) Appendix A to this part lists the

areas to be inspected and the items in

each area to be inspected.

§ 901.25 Physical condition scoring and

thresholds.

(a) Scoring. Under PHAS Indicator #1,

REAC will calculate a score of the

overall condition of the PHA’s public

housing portfolio which reflects weights

based on the relative importance of the

individual inspectable areas and the

deficiencies observed.

(b) Adjustment for physical condition

(project age) and neighborhood

environment. In accordance with

section 6(j)(1)(I)(2) of the 1937 Act (42

U.S.C. 1437d(j)(1)(I)(2)), the physical

score for a project will be upwardly

adjusted to the extent that negative

conditions are caused by situations

outside the control of the PHA. These

situations are related to the poor

physical condition of the project or the

overall depressed condition of the

immediately surrounding neighborhood.

The intent of this adjustment is to not

unfairly penalize the PHA, and to

appropriately apply the adjustment.

(1) Adjustments in three areas.

Adjustments to the PHA physical

project score will be made in three

factually observed and assessed areas

(inspectable areas):

(i) Physical condition of the site;

(ii) Physical condition of the common

areas on the project; and

(iii) Physical condition of the building

exteriors.

(2) Definitions. Definitions and

application of physical condition and

neighborhood environment factors are:

(i) Physical condition applies to

projects over ten years old and that have

not been had substantial rehabilitation

in the last 10 years.

(ii) Neighborhood environment

applies to projects located where the

immediate surrounding neighborhood

(that is a majority of the census tracts or
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules 35685

census block groups on all sides of the

development) has at least 51% of

families with incomes below the

poverty rate as documented by the latest

census data.

(3) Adjustment is for physical

condition (project age) neighborhood

environment. HUD will adjust the

physical score of a PHA’s project subject

to both the physical condition (project

age) and neighborhood environment

conditions. The adjustments will be

made to the scores assigned to the

applicable inspectable areas so as to

reflect the difficulty in managing. In

each instance where the actual physical

condition of the inspectable area (site,

common areas, building exterior) is

rated below the maximum score for that

area, 1 point will be added, but not to

exceed the maximum number of points

available to that inspectable area.

(i) These extra points will be added to

the score of the specific inspectable

area, by project, to which these

conditions may apply. A PHA is

required to certify on form HUD–50072,

PHAS Certification (which is available

from the Department of Housing and

Urban Development, HUD Custom

Service Center, 451 Seventh Street, SW,

Room B–102, Washington, DC 20410;

telephone (800) 767–7468), the extent to

which the conditions apply, and to the

inspectable area the extra scoring point

should be added.

(ii) A PHA that receives the maximum

potential weighted points on the

inspectable areas may not claim any

additional adjustments for physical

condition and/or neighborhood

environments for the respective

inspectable area(s). In no circumstance

shall a PHA’s score for the inspectable

area, after any adjustment(s) for physical

condition and/or neighborhood

environments, exceed the maximum

potential weighted points assigned to

the respective inspectable area(s).

(4) Scattered site projects. The Date of

Full Availability (DOFA) shall apply to

scattered site projects, where the age of

units and buildings vary, to determine

whether the projects have received

substantial rehabilitation within the

past ten years and are eligible for an

adjusted score for the Physical

Condition Indicator.

(5) Maintenance of supporting

documentation. PHAs shall maintain

supporting documentation to show how

they arrived at the determination that

the project’s score is subject to

adjustment under this section.

(i) If the basis was neighborhood

environments, the PHA shall have on

file the appropriate maps showing the

census block groups surrounding the

development(s) in question with

supporting census data showing the

level of poverty. Projects that fall into

this category but which have already

been removed from consideration for

other reasons (permitted exemptions

and modifications and/or exclusions)

shall not be counted in this calculation.

(ii) For the physical condition factor,

a PHA would have to maintain

documentation showing the age and

condition of the projects and the record

of capital improvements, indicating that

these particular projects have not

received modernization funds.

(iii) PHAs shall also document that in

all cases, projects that were exempted

for other reasons were not included in

the calculation.

(c) Thresholds. In order to receive a

passing score under the Physical

Condition Indicator, the PHA’s score

must fall above a minimum threshold of

18 points or 60% of the available points

under this indicator. Further, in order to

receive an overall passing score under

the PHAS, the PHA must receive a

passing score on the Physical Condition

Indicator.

§ 901.27 Physical condition portion of total

PHAS points.

Of the total 100 points available for a

PHAS score, a PHA may receive up to

30 points based on the Physical

Condition Indicator.

Subpart C—PHAS Indicator #2:

Financial Condition

§ 901.30 Financial condition assessment.

(a) Objective. The objective of the

Financial Condition Indicator is to

measure the financial condition of a

PHA for the purpose of evaluating

whether it has sufficient financial

resources and is capable of managing

those financial resources effectively to

support the provision of housing that is

decent, safe, sanitary and in good repair.

(b) Financial reporting standards. A

PHA’s financial condition will be

assessed under this indicator on the

basis of the annual financial report

provided in accordance with § 901.33.

§ 901.33 Financial reporting requirements.

(a) Annual financial reports. PHAs

must provide to HUD, on an annual

basis, such financial information, as

required by HUD. The financial

information must be:

(1) Prepared in accordance with

Generally Accepted Accounting

Principles (GAAP) as further defined by

HUD in supplementary guidance;

(2) Submitted electronically in the

electronic format designated by HUD;

and

(3) Submitted in such form and

substance prescribed by HUD.

(b) Annual financial report filing

dates. The financial information to be

submitted to HUD in accordance with

paragraph (a) of this section, must be

submitted to HUD annually, no later

than 60 days after the end of the fiscal

year of the reporting period, and as

otherwise provided by law.

(c) Reporting compliance dates. The

requirement for compliance with the

financial reporting requirements of this

section begins with PHAs with fiscal

years ending September 30, 1999 and

thereafter. Unaudited financial

statements will be required 60 days after

the PHA’s fiscal year end, and audited

financial statements will then be

required no later than 9 months after the

PHA’s fiscal year end, in accordance

with the Single Audit Act and OMB

Circular A–133 (See 24 CFR 84.26). A

PHA with a fiscal year ending

September 30, 1999 that elects to submit

its unaudited report earlier than the due

date of November 30, 1999 must submit

its financial report as required in this

section. On or after September 30, 1998,

but prior to November 30, 1999 (except

for a PHA with its fiscal year ending

September 30, 1999), PHAs may submit

their financial reports in accordance

with this section.

§ 901.35 Financial condition scoring and

thresholds.

(a) Scoring. Under PHAS Indicator #2,

REAC will calculate a score that relies

on the key components of financial

health and management as well as audit

and internal control flags.

(1) The key components of PHAS

Indicator #2 include:

(i) Current Ratio—current assets

divided by current liabilities;

(ii) Number of Months Expendable

Fund Balance—number of months a

PHA can operate on the Expendable

Fund Balance without additional

resources; Expendable Fund Balance is

the portion of the fund balance

representing expendable available

financial resources; unreserved and

undesignated fund balance;

(iii) Days Receivable Outstanding—

average number of days tenant

receivables are outstanding;

(iv) Vacancy Loss—loss of potential

rent due to vacancy;

(v) Expense Management/Energy

Consumption—expense per unit for key

expenses, including energy

consumption; and

(vi) Net Income or Loss divided by the

Expendable Fund Balance—measures

how the year’s operations have affected

the PHA’s viability.

(2) Additional components.

Additional components may be used to

identify circumstances in which there
35686 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

exists the possibility of higher risk of

waste, fraud and abuse. These

components will be used to detect fraud

and will be used to generate ‘‘flags’’ that

will signal field staff, Enforcement

Center staff, or fraud investigators to

take appropriate action. These

components will primarily relate to

financial management, but may also be

used to provide a PHA with

benchmarking information to allow the

PHA to measure its own performance

against its peers.

(b) Thresholds. In order to receive a

passing score under the Financial

Condition Indicator, the PHA’s score

must fall above a minimum threshold of

18 points or 60% of the available points

under this indicator. Further, in order to

receive an overall passing score under

the PHAS, the PHA must receive a

passing score on the Financial

Condition Indicator.

§ 901.37 Financial condition portion of

total PHAS points.

Of the total 100 points available for a

PHAS score, a PHA may receive up to

30 points based on the Financial

Condition Indicator.

Subpart D—PHAS Indicator #3:

Management Operations

§ 901.40 Management operations

assessment.

(a) Objective. The objective of the

Management Operations Indicator is to

measure certain key management

operations and responsibilities of a PHA

for the purpose of assessing the PHA’s

management operations capabilities.

(b) Management assessment. PHAS

Indicator #3 pertaining to Management

Operations incorporates the majority of

the statutory indicators of section 6(j) of

the U.S. Housing Act of 1937, and an

additional non-statutory indicator

(security) as provided in § 901.43.

§ 901.43 Management operations

performance standards.

(a) Management operations

indicators. The following indicators will

be used to assess a PHA’s management

operations:

(1) Management Indicator #1—

Vacancy rate and unit turnaround time.

This management indicator examines

the vacancy rate, a PHA’s progress in

reducing vacancies, and unit

turnaround time. Implicit in this

management indicator is the adequacy

of the PHA’s system to track the

duration of vacancies and unit

turnaround, including down time, make

ready time, and lease up time.

(2) Management Indicator #2—

Modernization. This management

indicator is automatically excluded if a

PHA does not have a modernization

program. This management indicator

examines the amount of unexpended

funds over three Federal fiscal years

(FFY) old, the timeliness of fund

obligation, the adequacy of contract

administration, the quality of the

physical work, and the adequacy of

budget controls. All components of this

management indicator #2 apply to the

Comprehensive Grant Program (CGP),

the Comprehensive Improvement

Assistance Program (CIAP), the HOPE

VI assistance, vacancy reduction, and

lead based paint risk assessment

funding (1992–1995), and any successor

program(s) to the CGP or the CIAP.

(3) Management Indicator #3—Rents

uncollected. This management indicator

examines the PHA’s ability to collect

dwelling rents owed by residents in

possession during the immediate past

fiscal year by measuring the balance of

dwelling rents uncollected as a

percentage of total dwelling rents to be

collected.

(4) Management Indicator #4—Work

orders. This management indicator

examines the time it takes to complete

or abate emergency work orders, the

average number of days non-emergency

work order were active, and any

progress a PHA has made during the

preceding three years to reduce the

period of time non-emergency

maintenance work orders were active.

Implicit in this management indicator is

the adequacy of the PHA’s work order

system in terms of how a PHA accounts

for and controls its work orders, and its

timeliness in preparing/issuing work

orders.

(5) Management Indicator #5—PHA

annual inspection of units and systems.

This management indicator examines

the percentage of units that a PHA

inspects on an annual basis in order to

determine short-term maintenance

needs and long-term modernization

needs. This management indicator

requires a PHA’s inspection to utilize

the HUD uniform physical condition

standards set forth in subpart B of this

part. All occupied units are required to

be inspected.

(6) Management Indicator #6—

Security. This management indicator

evaluates the PHA’s performance in

tracking crime related problems in their

developments, reporting incidence of

crime to local law enforcement agencies,

the adoption and implementation,

consistent with section 9 of the Housing

Opportunity Program Extension Act of

1996 (One-Strike and You’re Out) (42

U.S.C. 1437d(r)), of applicant screening

and resident eviction policies and

procedures, and, as applicable, PHA

performance under any HUD drug

prevention or crime reduction grant(s).

A PHA may receive credit for

performance under non-HUD funded

programs if it provides auditable

financial and statistical documentation

for these programs. A PHA with fewer

than 250 units will not be assessed

under this management indicator unless

it provides auditable financial and

statistical documentation for these

programs.

(b) Reporting on performance under

the Management Operations Indicator.

Each PHA will provide to HUD a

certification on its performance under

each of the management indicators in

paragraph (a) of this section. The

certifications shall comply with the

requirements of § 901.60.

§ 901.45 Management operations scoring

and thresholds.

(a) Scoring. Under PHAS Indicator #3,

REAC will calculate a score of the

overall management operations of a

PHA which reflects weights based on

the relative importance of the individual

management indicators.

(b) Thresholds. In order to receive a

passing score under the Management

Operations Indicator, the PHA’s score

must fall above a minimum threshold of

18 points or 60% of the available points

under this PHAS Indicator #3. Further,

in order to receive an overall passing

score under the PHAS, the PHA must

receive a passing score on the

Management Operations Indicator.

§ 901.47 Management operations portion

of total PHAS points.

Of the total 100 points available for a

PHAS score, a PHA may receive up to

30 points based on the Management

Operations Indicator.

Subpart E—PHAS Indicator #4:

Resident Service and Satisfaction

§ 901.50 Resident service and satisfaction

assessment.

(a) Objective. The objective of the

Resident Service and Satisfaction

Indicator is to measure the level of

resident satisfaction with living

conditions at the PHA.

(b) Reporting information on resident

service and satisfaction. The assessment

will be performed through the use of a

resident service and satisfaction survey

to be administered by the PHA in

accordance with a methodology

prescribed by HUD. The PHA will be

responsible for maintaining original

copies of completed survey data, subject

to independent audit, and for

developing a follow-up plan to address

issues resulting from the survey.
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules 35687

§ 901.53 Resident service and satisfaction

scoring and thresholds.

(a) Scoring. Under PHAS Indicator #4,

REAC will calculate a score that

includes three components of the survey

process. One component will be the

score of the survey results. The survey

content will focus on resident

evaluation of overall living conditions,

to include topics such as: resident

organizations; program activities;

surrounding environment; management

responsiveness; safety; involvement;

resources; and communication. The

second component will be a score based

on the level of implementation and

follow-up or corrective actions based on

the results of the survey. The final

component is verification that the data

collection, tabulation and submission

was conducted in a manner consistent

with guidance provided by HUD.

(b) Thresholds. A PHA will not

receive any points under this PHAS

Indicator if the survey is not conducted

in accordance with a HUD prescribed

methodology or the survey results are

determined to be altered by the PHA. A

PHA will receive a passing score on the

Resident Service and Satisfaction

Indicator if it receives at least 6 points,

or 60% of the available points under

this PHAS Indicator #4.

§ 901.55 Resident service and satisfaction

portion of total PHAS points.

Of the total 100 points available for a

PHAS score, a PHA may receive up to

10 points based on the Resident Service

and Satisfaction Indicator.

Subpart F—PHAS Scoring

§ 901.60 Data collection.

(a) Fiscal Year Reporting Period—

limitation on changes after PHAS

effectiveness. An assessed fiscal year for

purposes of the PHAS corresponds to a

PHA’s fiscal year. To allow for a period

of consistent assessments to refine and

make necessary adjustments to the

PHAS, a PHA is not permitted to change

its fiscal year for the first three full fiscal

years following the effective date of this

part.

(b) Physical Condition information.

Information necessary to conduct the

physical condition assessment under

subpart B of this part will be obtained

from HUD inspectors during the fiscal

year being scored through electronic

transmission of the data.

(c) Financial Condition information.

Year-end financial information to

conduct the assessment under subpart

C, Financial Condition, of this part will

be submitted by a PHA through

electronic transmission of the data to

HUD not later than 60 days after the end

of the PHA’s fiscal year. An audited

report of the year-end financial

information is due not later than 9

months after the end of the PHA’s fiscal

year.

(d) Management Operations and

Resident Service and Satisfaction

Information. A PHA shall provide

certification to HUD as to data required

under subpart D, Management

Operations, of this part and subpart E,

Resident Services Satisfaction, of this

part not later than 60 days after the end

of the PHA’s fiscal year.

(1) The certification shall be approved

by PHA Board resolution, and signed

and attested to by the Executive

Director.

(2) PHAs shall maintain

documentation for three years verifying

all certified indicators for HUD on-site

review.

(e) Failure to submit data by due date.

If a PHA without a finding of good cause

by HUD does not submit its

certifications or year-end financial

information, required by this part, or

submits its certifications or year-end

financial information more than 15 days

past the due date, appropriate sanctions

may be imposed, including a reduction

of 1 point in the total PHAS score for

each 15 day period past the due date. If

all certifications or year-end financial

information are not received within 90

days past the due date, the PHA will

receive a presumptive rating of failure

in all of the PHAS indicators and

components certified to, which shall

result in troubled and mod-troubled

designations.

(f) Verification of information

submitted. (1) A PHA’s certifications,

year-end financial information and any

supporting documentation are subject to

verification by HUD at any time.

Appropriate sanctions for intentional

false certification will be imposed,

including civil penalties, suspension or

debarment of the signatories, the loss of

high performer designation, a lower

score under individual PHAS indicators

and a lower overall PHAS score.

(2) A PHA that cannot provide

justifying documentation to REAC, or to

the PHA’s independent auditor for the

assessment under any indicator(s) or

component(s) shall receive a score of 0

for the relevant indicator(s) or

component(s), and its overall PHAS

score shall be lowered.

(3) A PHA’s PHAS score under

individual indicators or components, or

its overall PHAS score, may be changed

by HUD pursuant to the data included

in the independent audit report, or

obtained through such sources as HUD

on-site review, investigations by HUD’s

Office of Fair Housing and Equal

Opportunity, or reinspection by REAC,

as applicable.

(g) Management operations assumed

by an RMC. For those developments of

a PHA where management operations

have been assumed by an RMC, the

PHA’s certification shall identify the

development and the management

functions assumed by the RMC. The

PHA shall obtain a certified

questionnaire from the RMC as to the

management functions undertaken by

the RMC. Following verification of the

RMC’s certification, the PHA shall

submit the RMC’s certified

questionnaire along with its own. The

RMC’s certification shall be approved by

its Executive Director or Chief Executive

Officer or responsible party.

§ 901.63 PHAS scoring.

(a) Issuance of score by HUD. An

overall PHAS score will be issued by

REAC for each PHA 60 to 90 days after

the end of the PHA’s fiscal year.

(b) Computing the PHAS score. Each

of the four PHAS indicators in this part

will be scored individually, and then

will be used to determine an overall

score for the PHA. Components within

each of the four PHAS indicators will be

scored individually, and the scores for

the components will be used to

determine a single score for each of the

PHAS indicators.

(c) Adjustments to the PHAS score.

Adjustments to the score may be made

after a PHA’s audit report for the year

being assessed is transmitted to HUD. If

significant differences (as defined in

GAAP guidance materials provided to

PHAs) are noted between unaudited and

audited results, a PHA’s PHAS score

will be raised or lowered, as applicable,

in accordance with the audited results.

(d) Posting and publication of PHAS

scores. Each PHA shall post a notice of

its final PHAS score and status in

appropriate conspicuous and accessible

locations in its offices within two weeks

of receipt of its final score and status. In

addition, HUD will publish every PHA’s

score and status in the Federal Register.

§ 901.67 Score and designation status.

(a) Designation status corresponding

to score. A PHA will be scored with a

corresponding designation of status as

follows:

(1) High Performer. A PHA that

achieves a score of at least 60% of the

points available under each of the four

PHAS Indicators (addressed in subparts

B through E of this part) and achieves

an overall PHAS score of 90% or greater

shall be designated a high performer. A

PHA shall not be designated a high

performer if it scores below the

threshold established for any indicator.
35688 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

High performers will be afforded

incentives that include relief from

reporting and other requirements, as

described in § 901.71.

(2) Standard Performer. A PHA that

achieves a total PHAS score of less than

90% but not less than 60% shall be

designated a standard performer. All

standard performers must correct

reported deficiencies. A standard

performer that receives a score less than

70% but not less than 60% shall be

subject to other oversight, as described

in § 901.73. A PHA that achieves a score

of less than 60% of the total points

available under PHAS Indicators 1, 2 or

3 shall not be designated a standard

performer, but shall be designated a

troubled performer, as provided in

paragraph (a)(3) of this section.

(3) Troubled Performer. A PHA that

achieves a total PHAS score of less than

60%, or achieves a score of less than

60% of the total points available under

PHAS Indicators 1, 2, or 3, shall be

designated as troubled, and referred to

the TARC as described in § 901.75. In

accordance with section 6(j)(2) of the

1937 Act, a PHA that receives less than

60% of the maximum calculation for the

modernization indicator under PHAS

Indicator #3 (Management Operations,

subpart D of this part) may be subject to

the following sanctions: under the

Comprehensive Grant Program to a

reduction of formula allocation or other

sanctions (24 CFR part 968, subpart C);

under the Comprehensive Improvement

Assistance Program to disapproval of

new funding or other sanctions (24 CFR

part 968, subpart B); or disapproval of

funding under the HOPE VI Program.

(b) Exceptional circumstances of high

performer or standard performer—(1)

Independent reviews, rescission of

incentives or status. In exceptional

circumstances, even though a PHA has

received designation as a high performer

or standard performer, the HUB/

Program Center may conduct any review

as necessary, and deny or rescind

incentives or high performer or standard

performer status in the case of a PHA

that:

(i) Is operating under a special

agreement with HUD;

(ii) Is involved in litigation that bears

directly upon the management of a

PHA;

(iii) Is operating under a court order;

(iv) Demonstrates substantial

evidence of fraud or misconduct,

including evidence that the PHA’s

certification of indicators is not

supported by the facts, resulting from

such sources as an independent review,

routine reports and reviews, an Office of

Inspector General investigation/audit,

an independent auditor’s audit or an

investigation by any appropriate legal

authority; or

(v) Demonstrates substantial

noncompliance in one or more areas

(including areas not assessed by the

PHAS). Areas of substantial

noncompliance include, but are not

limited to, noncompliance with statutes

(e.g., Fair Housing and Equal

Opportunity statutes); regulations (e.g.,

24 CFR part 85); or the Annual

Contributions Contract (ACC) (e.g., the

ACC, form HUD–53012A, Section 4,

Mission of the PHA). Substantial

noncompliance would cast doubt on the

PHA’s capacity to preserve and protect

its public housing developments and

operate them consistent with Federal

law and regulations.

(2) When a HUB/Program Center acts

for any of the reasons stated in

paragraph (b)(1) of this section, the

HUB/Program Center will send written

notification to the PHA with a specific

explanation of the reasons. An

informational copy will be forwarded to

the Assistant Secretary for Public and

Indian Housing.

§ 901.69 PHA right of petition and appeal.

(a) Appeal of troubled designation

and petition for removal. As permitted

under section 6(j)(2)(A)(iii), a PHA may:

(1) Appeal designation as a troubled

agency (including designation as

troubled with respect to the

modernization program);

(2) Petition for removal of such

designation; and

(3) Appeal any refusal to remove such

designation.

(b) Appeal process. The appeal shall

be submitted by a PHA to the REAC

within 30 days of a PHA’s receipt of its

score, and shall include supporting

documentation and justification of the

reasons for the appeal. Appeals

submitted to the REAC without

appropriate documentation will not be

considered and will be returned to the

PHA.

(c) Consideration of appeal by REAC.

Upon receipt of an appeal from a PHA,

the REAC will convene a Board of

Review (the Board) to evaluate the

appeal and its merits for the purpose of

determining whether a reassessment of

the PHA is warranted. Board

membership will be comprised of a

representative from REAC, the Office of

Public and Indian Housing, and such

other office or representative as the

Secretary may designate (excluding,

however, representation from the

Troubled Agency Recovery Center). For

purposes of reassessment, the REAC

will schedule a reinspection and/or

acquire audit services, as determined by

the Board, and a new score will be

issued, if appropriate.

(d) Final appeal decisions. HUD will

make final decisions of appeals within

30 days of receipt of an appeal, and may

extend this period an additional 30 days

if further inquiry is necessary. Failure

by a PHA to submit requested

information within the 30-day period or

any additional period granted by HUD

is grounds for denial of an appeal.

Subpart G—PHAS Incentives and

Remedies

§ 901.71 Incentives for high performers.

(a) Incentives for high-performer

PHAs. A PHA that is designated a high

performer will be eligible for the

following incentives:

(1) Relief from specific HUD

requirements. A PHA that is designated

high performer will be relieved of

specific HUD requirements (for

example, fewer reviews and less

monitoring), effective upon notification

of high performer designation.

(2) Public recognition. High-performer

PHAs and RMCs that receive a score of

at least 90% on each of the indicators

for which they are assessed, will receive

a Certificate of Commendation from

HUD as well as special public

recognition, as provided by the HUB/

Program Center.

(3) Bonus points in funding

competitions. A high-performer PHA

will be eligible for bonus points in

HUD’s funding competitions, where

such bonus points are not restricted by

statute or regulation governing the

funding program.

(b) Compliance with applicable

Federal laws and regulations. Relief

from any standard procedural

requirement that may be provided under

this section, does not mean that a PHA

is relieved from compliance with the

provisions of Federal law and

regulations or other handbook

requirements. For example, although a

high performer or standard performer

may be relieved of requirements for

prior HUD approval for certain types of

contracts for services, the PHA must

still comply with all other Federal and

State requirements that remain in effect,

such as those for competitive bidding or

competitive negotiation (see 24 CFR

85.36).

(c) Audits and reviews not relieved by

designation. A PHA designated as a high

performer or standard performer

remains subject to:

(1) Regular independent auditor (IA)

audits.

(2) Office of Inspector General (OIG)

audits or investigations will continue to
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules 35689

be conducted as circumstances may

warrant.

(d) HUB/Program Center to impose

requirements. The HUB/Program Center

will have discretion to subject a PHA to

any requirement that would otherwise

be omitted under the specified relief, in

accordance with § 901.67(b)(1).

§ 901.73 Referral to an Area HUB/Program

Center.

(a) Standard performers will be

referred to the HUB/Program Center for

appropriate action. A standard

performer that receives a total score of

less than 70% but not less than 60%

shall be required to submit an

Improvement Plan to eliminate

deficiencies in the PHA’s performance.

A standard performer that receives a

score of not less than 70% may be

required, at the discretion of the

appropriate area HUB/Program Center,

to submit an Improvement Plan to

address specific deficiencies.

(b) Submission of an Improvement

Plan. (1) Within 30 days after a PHAS

score is issued, a standard performer

with a score less than 70% is required

to submit an Improvement Plan, which

includes the information stated in

paragraph (d) of this section and

determined acceptable by the HUB/

Program Center, for each indicator and/

or component identified as deficient as

well as other performance and/or

compliance deficiencies as may be

identified as a result of an on-site

review of the PHA’s operations. A RMC

that is required to submit an

Improvement Plan must develop the

plan in consultation with its PHA and

submit the Plan to the HUB/Program

Center through its PHA.

(2) The HUB/Program Center may

require, on a risk management basis, a

standard performer with a score of not

less than 70% to submit within 30 days

after receipt of its PHAS score an

Improvement Plan, which includes the

information stated in paragraph (d) of

this section, for each indicator and/or

component of a PHAS indicator

identified as deficient.

(c) Correction of deficiencies—(1)

Time period for correction. After a

PHA’s receipt of its PHAS score and

designation as a standard performer or,

in the case of an RMC, notification of its

score from a PHA, a PHA or RMC shall

correct any deficiency indicated in its

assessment within 90 days, or within

such period as provided in the HUD

approved Improvement Plan if an

Improvement Plan is required.

(2) Notification and report to HUB/

Program Center. A PHA shall notify the

HUB/Program Center of its action to

correct a deficiency. A PHA shall also

forward to the HUB/Program Center an

RMC’s report of its action to correct a

deficiency.

(d) Improvement Plan. An

Improvement Plan shall:

(1) Identify baseline data, which

should be raw data but may be the

PHA’s score under each individual

PHAS indicator and/or component

which was identified as a deficiency;

(2) Describe the procedures that will

be followed to correct each deficiency;

(3) Provide a timetable for the

correction of each deficiency; and

(4) Provide for or facilitate technical

assistance to the PHA.

(e) Determination of acceptability of

Improvement Plan (1) The HUB/

Program Center will approve or deny a

PHA’s (or RMC’s Improvement Plan

submitted to the HUB/Program Center

through the RMC’s PHA), and notify the

PHA of its decision. A PHA that submits

an RMC’s Improvement Plan must

notify the RMC in writing, immediately

upon receipt of the HUB/Program

Center notification, of the HUB/Program

Center approval or denial of the RMC’s

Improvement Plan.

(2) An Improvement Plan that is not

approved will be returned to the PHA

with recommendations from the HUB/

Program Center for revising the

Improvement Plan to obtain approval.

(f) Submission of revised

Improvement Plan. A revised

Improvement Plan shall be resubmitted

by the PHA within 30 calendar days of

its receipt of the HUB/Program Center

recommendations.

(g) Failure to submit acceptable

Improvement Plan. If a PHA fails to

submit an acceptable Improvement

Plan, or to correct deficiencies within

the time specified in an Improvement

Plan or such extensions as may be

granted by HUD, the HUB/Program

Center will notify the PHA of its

noncompliance. The PHA (or the RMC

through the PHA) will provide the HUB/

Program Center its reasons for lack of

progress in submitting or carrying out

the Improvement Plan within 30

calendar days of its receipt of the

noncompliance notification. HUD will

advise the PHA as to the acceptability

of its reasons for lack of progress and,

if unacceptable, will notify the PHA that

it will be referred to the TARC for

remedial actions or such actions as the

TARC may determine appropriate in

accordance with the provisions of the

ACC, this part and other HUD

regulations.

§ 901.75 Referral to a TARC.

Upon designation of a PHA as

troubled, in accordance with the

requirements of section 6(j)(2)(B) of the

1937 Act and in accordance with this

part, the REAC shall refer each troubled

PHA to the PHA’s area TARC for

remedial action. The actions to be taken

by the TARC and the PHA shall be as

follows:

(a) Recovery plan and MOA. Within

30 days of notification of the

designation of a troubled PHA within its

area, the appropriate TARC will deploy

an on-site team to develop a Recovery

Plan. The Recovery Plan shall include

recommendations for improvements to

correct or eliminate deficiencies that

resulted in a failing PHAS score and

designation as troubled. The Recovery

Plan will incorporate a memorandum of

agreement (MOA) as described in

paragraph (c) of this section.

(b) PHA review of recovery plan and

MOA. The PHA will have 10 days to

review the recovery plan and the MOA.

During this 10-day period, the PHA

shall resolve any claimed discrepancies

in the plan with its area TARC, and

discuss any recommended changes and

target dates for improvement to be

incorporated in the final MOA. Unless

the time period is extended by the

TARC, the MOA is to be executed 15

days following issuance of the

preliminary MOA.

(c) Memorandum of Agreement

(MOA). The final MOA is a binding

contractual agreement between HUD

and a PHA. The scope of the MOA may

vary depending upon the extent of the

problems present in the PHA, but shall

include:

(1) Baseline data, which should be

raw data but may be the PHA’s score in

each of the PHAS indicators or

components identified as a deficiency;

(2) Annual and quarterly performance

targets, which may be the attainment of

a higher score within an indicator that

is a problem, or the description of a goal

to be achieved;

(3) Strategies to be used by the PHA

in achieving the performance targets

within the time period of the MOA;

(4) Technical assistance to the PHA

provided or facilitated by HUD, for

example, the training of PHA employees

in specific management areas or

assistance in the resolution of

outstanding HUD monitoring findings;

(5) The PHA’s commitment to take all

actions within its control to achieve the

targets;

(6) Incentives for meeting such

targets, such as the removal of troubled

or mod-troubled designation and

Departmental recognition for the most

improved PHAs;

(7) The consequences of failing to

meet the targets, including, but not

limited to, such sanctions as the

imposition of budget and management
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controls by the TARC, declaration of

substantial default and subsequent

actions, including referral to the

Enforcement Center for judicial

appointment of a receiver, limited

denial of participation, suspension,

debarment, or other actions deemed

appropriate by the Enforcement Center;

and

(8) A description of the involvement

of local public and private entities,

including PHA resident leaders, in

carrying out the agreement and

rectifying the PHA’s problems. A PHA

shall have primary responsibility for

obtaining active local public and private

entity participation, including the

involvement of public housing resident

leaders, in assisting PHA improvement

efforts. Local public and private entity

participation should be premised upon

the participant’s knowledge of the PHA,

ability to contribute technical expertise

with regard to the PHA’s specific

problem areas and authority to make

preliminary/tentative commitments of

support, financial or otherwise.

(d) Maximum recovery period. Unless

extended by the TARC and documented

in the MOA, the maximum recovery

period for a troubled PHA is the first

full fiscal year following execution of

the MOA.

(e) Parties to the MOA. An MOA shall

be executed by:

(1) The PHA Board Chairperson and

accompanied by a Board resolution, or

a receiver (pursuant to a court ordered

receivership agreement, if applicable) or

other AME acting in lieu of the PHA

Board;

(2) The PHA Executive Director, or a

designated receiver (pursuant to a court

ordered receivership agreement, if

applicable) or other AME-designated

Chief Executive Officer;

(3) The Director of the area TARC; and

(4) The appointing authorities of the

Board of Commissioners, unless

exempted by the HUB/Program Center.

(f) Involvement of resident leadership

in the MOA. HUD encourages the

inclusion of the resident leadership in

the execution of the MOA.

(g) Failure to execute MOA or make

substantial improvement under MOA.

(1) If a troubled PHA does not execute

an MOA within the period provided in

paragraph (b) of this section, or the

TARC determines that the PHA does not

show a substantial improvement toward

a passing PHAS score following the

issuance of the failing PHAS score by

the REAC, the TARC shall refer the PHA

to the Enforcement Center, which shall

initiate proceedings for judicial

appointment of a receiver, and other

sanctions as may be appropriate. For

purposes of this paragraph (g),

substantial improvement is defined as

50% of the points needed to achieve a

passing score.

(2) The following example illustrates

the provisions of paragraph (g)(1) of this

section:

Example. A PHA receives a score of 50; 60

is a passing score. The PHA is referred to the

TARC. Within one year after the score is

issued to the PHA, the PHA must achieve a

five point increase to continue recovery

efforts in the TARC. If the PHA fails to

achieve the 5 point increase, the PHA will be

referred to the Enforcement Center.

§ 901.77 Referral to the Enforcement

Center.

Failure of a troubled PHA to execute

or meet the requirements of a

memorandum of agreement in

accordance with § 901.75 constitutes a

substantial default in accordance with

§ 901.79 and shall result in referral to

the Enforcement Center. The

Enforcement Center is officially

responsible for recommending to the

Assistant Secretary for Public and

Indian Housing that a troubled

performer PHA be declared in

substantial default. The Enforcement

Center shall initiate the judicial

appointment of a receiver or the

interventions provided in § 901.83; and

may initiate limited denial of

participation, suspension, debarment,

the imposition of other sanctions

available to the Enforcement Center

including referral to the appropriate

Federal government agencies or offices

for the imposition of civil or criminal

sanctions.

§ 901.79 Substantial default.

(a) Events or conditions that

constitute substantial default. The

following events or conditions shall

constitute substantial default.

(1) HUD may determine that events

have occurred or that conditions exist

that constitute a substantial default if a

PHA is determined to be in violation of

Federal statutes, including but not

limited to, the 1937 Act, or in violation

of regulations implementing such

statutory requirements, whether or not

such violations would constitute a

substantial breach or default under

provisions of the relevant ACC.

(2) HUD may determine that a PHA’s

failure to satisfy the terms of a

Memorandum of Agreement entered

into in accordance with § 901.75 , or to

make reasonable progress to execute or

meet requirements included in a

Memorandum of Agreement, are events

or conditions that constitute a

substantial default.

(3) HUD shall determine that a PHA

that has been designated as troubled and

does not show substantial improvement,

as defined in § 901.75(h), in its PHAS

score in one year following issuance of

the failed score is in substantial default;

(4) HUD may declare a substantial

breach or default under the ACC, in

accordance with its terms and

conditions.

(5) HUD may determine that the

events or conditions constituting a

substantial default are limited to a

portion of a PHA’s public housing

operations, designated either by

program, by operational area, or by

development(s).

(b) Notification of substantial default

and response. If information from an

annual assessment or audit, or any other

credible source indicates that there may

exist events or conditions constituting a

substantial breach or default, HUD shall

advise a PHA of such information. HUD

is authorized to protect the

confidentiality of the source(s) of such

information in appropriate cases. Before

taking further action, except in cases of

apparent fraud or criminality, and/or in

cases where emergency conditions exist

posing an imminent threat to the life,

health, or safety of residents, HUD shall

afford the PHA a timely opportunity to

initiate corrective action, including the

remedies and procedures available to

PHAs designated as ‘‘troubled PHAs,’’

or to demonstrate that the information is

incorrect.

(1) Form of notification. Upon a

determination or finding that events

have occurred or that conditions exist

that constitute a substantial default, the

Assistant Secretary shall provide

written notification of such

determination or finding to the affected

PHA. Written notification shall be

transmitted to the Executive Director,

the Chairperson of the Board, and the

appointing authority(ies) of the Board,

and shall include, but are not limited to:

(i) Identification of the specific

covenants, conditions, and/or

agreements under which the PHA is

determined to be in noncompliance;

(ii) Identification of the specific

events, occurrences, or conditions that

constitute the determined

noncompliance;

(iii) Citation of the communications

and opportunities to effect remedies

afforded pursuant to paragraph (a) of

this section;

(iv) Notification to the PHA of a

specific time period, to be not less than

10 calendar days, except in cases of

apparent fraud or other criminal

behavior, and/or under emergency

conditions as described in paragraph (a)

of this section, nor more than 30

calendar days, during which the PHA

shall be required to demonstrate that the
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules 35691

determination or finding is not

substantively accurate; and

(v) Notification to the PHA that,

absent a satisfactory response in

accordance with paragraph (b) of this

section, HUD will refer the PHA to the

Enforcement Center, using any or all of

the interventions specified in § 901.83,

and determined to be appropriate to

remedy the noncompliance, citing

§ 901.83, and any additional authority

for such action.

(2) Receipt of notification. Upon

receipt of the notification described in

paragraph (b)(1) of this section, the PHA

must demonstrate, within the time

period permitted in the notification,

factual error in HUD’s description of

events, occurrences, or conditions, or

show that the events, occurrences, or

conditions do not constitute

noncompliance with the statute,

regulation, or covenants or conditions to

which the PHA is cited in the

notification.

(3) Waiver of notification. A PHA may

waive, in writing, receipt of explicit

notice from HUD as to a finding of

substantial default, and voluntarily

consent to a determination of

substantial default. The PHA must

concur on the existence of substantial

default conditions which can be

remedied by technical assistance, and

the PHA shall provide HUD with

written assurances that all deficiencies

will be addressed by the PHA. HUD will

then immediately proceed with

interventions as provided in § 901.83.

(4) Emergency situations. In any

situation determined to be an

emergency, or in any case where the

events or conditions precipitating the

intervention are determined to be the

result of criminal or fraudulent activity,

the Secretary or the Secretary’s designee

is authorized to intercede to protect the

residents’ and HUD’s interests by

causing the proposed interventions to be

implemented without further appeals or

delays.

§ 901.83 Interventions.

(a) Interventions under this part

(including an assumption of operating

responsibilities) may be limited to one

or more of a PHA’s specific operational

areas (e.g., maintenance, modernization,

occupancy, or financial management) or

to a single development or a group of

developments. Under this limited

intervention procedure, HUD could

select, or participate in the selection of,

an AME to assume management

responsibility for a specific

development, a group of developments

in a geographical area, or a specific

operational area, while permitting the

PHA to retain responsibility for all

programs, operational areas, and

developments not so designated.

(b) Upon determining that a

substantial default exists under this

part, HUD may initiate any

interventions deemed necessary to

maintain decent, safe, and sanitary

dwellings for residents. Such

intervention may include:

(1) Providing technical assistance for

existing PHA management staff;

(2) Selecting or participating in the

selection of an AME to provide

technical assistance or other services up

to and including contract management

of all or any part of the public housing

developments administered by a PHA;

(3) Assuming possession and

operational responsibility for all or any

part of the public housing administered

by a PHA;

(4) Entering into agreements,

arrangements, and/or contracts for or on

behalf of a PHA, or acting as the PHA,

and expending or authorizing the

expenditure of PHA funds, irrespective

of the source of such funds, to remedy

the events or conditions constituting the

substantial default;

(5) The provision of intervention and

assistance necessary to remedy

emergency conditions;

(6) After the solicitation of

competitive proposals, select an

administrative receiver to manage and

operate all or part of the PHA’s housing;

and

(7) Petition for the appointment of a

receiver to any District Court of the

United States or any court of the State

in which real property of the PHA is

located.

(c) The receiver is to conduct the

affairs of the PHA in a manner

consistent with statutory, regulatory,

and contractual obligations of the PHA

and in accordance with such additional

terms and conditions that the court may

provide.

(d) The appointment of a receiver

pursuant to this section may be

terminated upon the petition to the

court by the PHA, the receiver, or HUD,

and upon a finding by the court that the

circumstances or conditions that

constituted substantial default by the

PHA no longer exist and that the

operations of the PHA will be

conducted in accordance with

applicable statutes and regulations, and

contractual covenants and conditions to

which the PHA and its public housing

programs are subject.

(e) HUD may take the actions

described in this part sequentially or

simultaneously in any combination.

§ 901.85 Resident petitions for remedial

action.

The total number of residents that

petition HUD to take remedial action

pursuant to sections 6(j)(3)(A)(i) through

(iv) of the 1937 Act must equal at least

20 percent of the residents, or the

petition must be from an organization or

organizations of residents whose

membership must equal at least 20

percent of the PHA’s residents.

Appendix A to Part 901—Areas and

Items To Be Inspected

AREA: Site

Items

Fencing and Retaining Walls

Grounds

Lighting

Mail Boxes/Project Signs

Market Appeal

Parking Lots/Driveways

Play Areas and Equipment

Refuse Disposal

Roads

Storm Drainage

Walkways

AREA: Building Exterior

Items

Doors

Fire Escapes

Foundations

Lighting

Roofs

Walls

Windows

AREA: Building Systems

Items

Domestic Water

Electrical System

Elevators

Emergency Power

Fire Protection

HVAC

Sanitary System

AREA: Dwelling Unit

Items

Bathroom

Call-for-Aid

Ceiling

Doors

Electrical System

Floors

Hot Water Heater

HVAC System

Kitchen

Lighting

Outlets/Switches

Patio/Porch/Balcony

Smoke Detector

Stairs

Walls

Windows

AREA: Common Areas

Items

Basement/Garage/Carport

Closets/Utility/Mechanical

Community Room

Day Care
35692 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Proposed Rules

Halls/Corridors/Stairs

Kitchen

Laundry Room

Lobby

Office

Other Community Spaces

Patio/Porch/Balcony

Pools and Related Structures

Restroom

Storage

Trash Collection Areas

AREA: Health and Safety

Items

Air Quality

Electrical Hazards

Elevator

Emergency/Fire Exits

Fire Escapes

Flammable Materials

Garbage and Debris

Ground Fault Interrupters

Handrails

Hazards

Hot Water Heater

Infestation

Lead Paint

Pools and Related Structures

Smoke Detectors

Dated: June 5, 1998.

Deborah Vincent,

General Deputy Assistant Secretary for Public

and Indian Housing.

Donald J. LaVoy,

Director, Real Estate Assessment Center.

[FR Doc. 98–17302 Filed 6–29–98; 8:45 am]

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