49544 Federal Register / Vol. 73, No. 163 / Thursday, August 21, 2008 / Proposed Rules 

DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

24 CFR Parts 901, 902 and 907 

[Docket No. FR–5094–P–01] 

RIN 2577–AC68 

Public Housing Evaluation and 

Oversight: Changes to the Public 

Housing Assessment System (PHAS) 

and Determining and Remedying 

Substantial Default 

AGENCY: Office of the Assistant 

Secretary for Public and Indian 

Housing, HUD. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

make two sets of amendments to 

improve evaluation and oversight of 

public housing agencies (PHAs). First, 

this proposed rule would amend HUD’s 

Public Housing Assessment System 

(PHAS) regulations for the purposes of: 

Consolidating the regulations governing 

assessment of a PHA’s program in one 

part of the Code of Federal Regulations 

(CFR); revising certain PHAS 

regulations based on the Department’s 

experience with PHAS since it was 

established as the new system for 

evaluating a PHA in 1998; and updating 

certain PHAS procedures to reflect 

recent changes in public housing 

operations from conversion by PHAs to 

asset management, including updating 

and revising the PHAS scoring. PHAS is 

designed to improve the delivery of 

services in public housing and to 

enhance trust in the public housing 

system among PHAs, public housing 

residents, and the general public, by 

providing a management tool for 

effectively and fairly measuring the 

performance of a PHA in essential 

housing operations of its projects, based 

on standards that are uniform and 

verifiable. The changes proposed by this 

rule are intended to enhance the 

efficiency and utility of PHAS. 

Second, the proposed rule would 

establish, in a separate part of the CFR, 

the regulations that would specify the 

actions or inactions by which a PHA 

would be determined to be in 

substantial default, the procedures for a 

PHA to respond to such a determination 

or finding, and the sanctions available 

to HUD to address and remedy 

substantial default by a PHA. To date, 

such regulations have been included in 

the PHAS regulations, but the actions or 

inactions that constitute substantial 

default are not limited to failure to 

comply with PHAS regulations. 

Accordingly, the proposed regulations 

applicable to substantial default are 

more appropriately codified in a 

separate CFR part. 

This proposed rule is also publishing 

the scoring processes for each of the 

PHAS scoring categories as appendices 

to part 902. Although these scoring 

processes are proposed as appendices, it 

is also possible that, at the final rule 

stage, they will be published as separate 

notices as has been HUD’s practice to 

this point. 

DATES: Comment Due Date: October 20, 

2008. 

ADDRESSES: Interested persons are 

invited to submit comments regarding 

this proposed rule to the Regulations 

Division, Office of General Counsel, 

Department of Housing and Urban 

Development, 451 Seventh Street, SW., 

Room 10276, Washington, DC 20410– 

0500. Communications must refer to the 

above docket number and title. There 

are two methods for submitting public 

comments. All submissions must refer 

to the above docket number and title. 

1. Submission of Comments by Mail. 

Comments may be submitted by mail to 

the Regulations Division, Office of 

General Counsel, Department of 

Housing and Urban Development, 451 

Seventh Street, SW., Room 10276, 

Washington, DC 20410–0500. 

2. Electronic Submission of 

Comments. Interested persons may 

submit comments electronically through 

the Federal eRulemaking Portal at 

www.regulations.gov. HUD strongly 

encourages commenters to submit 

comments electronically. Electronic 

submission of comments allows the 

commenter maximum time to prepare 

and submit a comment, ensures timely 

receipt by HUD, and enables HUD to 

make them immediately available to the 

public. Comments submitted 

electronically through the 

www.regulations.gov Web site can be 

viewed by other commenters and 

interested members of the public. 

Commenters should follow the 

instructions provided on that site to 

submit comments electronically. 

Note: To receive consideration as public 

comments, comments must be submitted 

through one of the two methods specified 

above. Again, all submissions must refer to 

the docket number and title of the rule. 

No Facsimile Comments. Facsimile 

(FAX) comments are not acceptable. 

Public Inspection of Public 

Comments. All properly submitted 

comments and communications 

submitted to HUD will be available for 

public inspection and copying between 

8 a.m. and 5 p.m. weekdays at the above 

address. Due to security measures at the 

HUD Headquarters building, an advance 

appointment to review the public 

comments must be scheduled by calling 

the Regulations Division at 202–402– 

3055 (this is not a toll-free number). 

Individuals with speech or hearing 

impairments may access this number 

via TTY by calling the Federal 

Information Relay Service, toll-free, at 

800–877–8339. Copies of all comments 

submitted are available for inspection 

and downloading at 

www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: 

Contact Wanda Funk, Senior Advisor, 

Department of Housing and Urban 

Development, Office of Public and 

Indian Housing, Real Estate Assessment 

Center (REAC), 550 12th Street, SW., 

Suite 100, Washington, DC 20410; or the 

REAC Technical Assistance Center at 

888–245–4860 (this is a toll-free 

number). Persons with hearing or 

speech impairments may access this 

number through TTY by calling the tollfree Federal Information Relay Service 

at 800–877–8339. Additional 

information is available from the REAC 

Internet site at http://www.hud.gov/ 

offices/reac/. 

SUPPLEMENTARY INFORMATION: 

I. Changes to the PHAS 

A. Background on PHAS 

PHAS was established by a final rule 

published on September 1, 1998 (63 FR 

46596). Prior to 1998, a PHA was 

evaluated by HUD with respect only to 

its management operations. PHAS 

expanded assessment of a PHA to four 

key areas of a PHA’s operations: (1) The 

physical condition of the PHA’s 

properties; (2) the PHA’s financial 

condition; (3) the PHA’s management 

operations; and (4) the residents’ service 

and satisfaction assessment (through a 

resident survey). On the basis of these 

four indicators, a PHA receives a 

composite score that represents a single 

score for a PHA’s entire operation and 

a corresponding performance 

designation. PHAs that are designated 

high performers receive public 

recognition and relief from some HUD 

requirements. PHAs that are designated 

standard performers may be required to 

take corrective action to remedy 

identified deficiencies. PHAs that are 

designated substandard performers are 

required to take corrective action to 

remedy identified deficiencies. PHAs 

that are designated troubled performers 

are subject to remedial action. 

By final rule published on January 11, 

2000 (65 FR 1712), HUD amended the 

PHAS regulations to, among other 

things, elaborate on some PHAS 

procedures; revise the mechanism for 

obtaining technical review of physical 

inspections results and resident survey 


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results, and for appealing PHAS scores; 

and implement statutory changes 

resulting from enactment of the Quality 

Housing and Work Responsibility Act of 

1998 (Pub. L. 105–276, October 21, 

1998). 

B. Public Housing Operating Fund 

Program 

The regulations governing the Public 

Housing Operating Fund program are of 

key relevance to the proper operation of 

PHAs and, consequently, to PHAS. 

Operating funds are made available to a 

PHA for the operation and management 

of public housing; therefore, the 

regulations applicable to a PHA’s 

operation and management of public 

housing must be considered in any 

changes proposed to PHAS. The 

regulations for the Public Housing 

Operating Fund program are found at 24 

CFR part 990; were published on 

September 19, 2005 (70 FR 54983), 

which was followed by a correction 

published on October 24, 2005 (70 FR 

61366); and became effective on 

November 18, 2005. 

Subpart H of the part 990 regulations 

(§§ 990.255 to 990.290), as revised by 

the September 2005 rule, establishes the 

requirements regarding asset 

management. Under § 990.260(a), PHAs 

that own and operate 250 or more 

dwelling rental units must operate using 

an asset management model consistent 

with the subpart H regulations. PHAs 

with fewer than 250 dwelling rental 

units may elect to transition to asset 

management, but are not required to do 

so. HUD’s Fiscal Year (FY) 2008 

appropriations, provided in Title IV of 

Division K of the Consolidated 

Appropriations Act, 2008 (Pub. L. 110–

161, approved December 26, 2007), 

state, in administrative provision 

section 225, that PHAs that own or 

operate 400 or fewer public housing 

units may elect to be exempt from any 

asset management requirement imposed 

by HUD in connection with HUD’s 

operating fund rule, with one exception: 

A PHA seeking discontinuance of a 

reduction of subsidy under the 

operating fund formula shall not be 

exempt from asset management 

requirements. Since requirements in 

appropriations acts, unless otherwise 

indicated, apply only to the fiscal year 

to which the appropriations act is 

directed, HUD’s proposed rule to revise 

PHAS does not reflect this one-year 

provision. PHAs are required to 

implement project-based management, 

project-based budgeting, and projectbased accounting, which are all defined 

in the regulations of 24 CFR part 990, 

subpart H, and are essential components 

of asset management. 

C. Proposed Amendments to PHAS 

The proposed amendments to PHAS 

retain the basic structure of the existing 

regulations. PHAs will continue to be 

scored based on evaluation in four 

indicators: Physical condition, financial 

condition, management operations, and 

the PHA’s management of its Capital 

Fund program. PHAS would continue to 

rely on information that is verifiable by 

a third party, wherever possible. 

Overview of Proposed Changes to PHAS 

This proposed rule modifies PHAS 

primarily to conform to the new 

regulations on the Public Housing 

Operating Fund program and the 

conversion by PHAs to asset 

management, including project-based 

budgeting, project-based accounting, 

and project-based performance 

evaluation. Highlights of some of the 

major changes proposed to each of the 

four current PHAS indicators are as 

follows: 

Physical. The physical inspection 

indicator would remain largely 

unchanged. Independent physical 

inspections would continue to be 

conducted on each public housing 

project, although the frequency of 

inspections would depend on the scores 

of individual projects, not the score for 

the entire PHA. For example, if a 

specific project scored below 80 points, 

it would be inspected the following 

year, regardless of whether the overall 

physical score for the PHA, based on all 

projects, was 80 points or higher (as is 

the case in the currently codified PHAS 

regulations). If a PHA’s overall physical 

score is less than 80 points, and one or 

more projects score 80 points or above, 

those projects that score 80 points or 

above would be inspected every other 

year. 

Financial. The financial assessment 

system would be modified to include an 

assessment of the financial condition of 

each project. A PHA would continue to 

submit an annual Financial Data 

Schedule (FDS) to HUD that contains 

financial information on all major 

programs and business activities. 

However, for purposes of PHAS, the 

PHA would be scored on the financial 

condition of each project, and these 

scores would be the basis for a programwide score. 

Subindicators that are currently 

available through financial reports but 

are more appropriately measures of 

management performance (e.g., bad 

debt, tenant accounts receivables, and 

occupancy loss) would be removed from 

this indicator and moved to the 

management operations indicator. HUD 

considered the option of allowing these 

items to remain as part of the financial 

condition indicator. HUD now has 10 

years of experience with PHAS, and, 

based on that experience, believes that 

bad debt, accounts receivables, and 

occupancy loss are more properly 

measures of management operations, as 

is currently the prevailing view in the 

multifamily industry. Even after these 

items were moved from their original 

location as part of the management 

operations assessment, they were 

tracked in both the financial condition 

and management operations indicators. 

The fact that these items continued to be 

tracked as management operationsrelated even after they were moved to 

the financial condition indicator 

demonstrates that they are, in fact, 

closely related to management 

operations. The U.S. Housing Act of 

1937 (1937 Act) itself, in section 6(j), 42 

U.S.C. 1437d(6)(j), associates items in 

these categories with management 

operations (see 42 U.S.C. 1437d(j)(1)(A)) 

(vacancy rate, that is, occupancy loss) 

and (j)(1)(C) (percentage of rents 

collected, related to tenant accounts 

receivable and bad debt), both of which 

are referred to by the statute as 

examples of ‘‘indicators to assess the 

management performance.’’ For these 

reasons, HUD has decided to move these 

factors to management operations, 

where HUD, based on multifamily 

industry practice and its own 

experience, believes they belong. 

Management. The current 

management operations assessment 

system relies on PHA submission of a 

range of information that is selfcertified. Under the proposed rule, this 

current system would be replaced with 

management reviews conducted of each 

project by HUD staff (or, where 

applicable, HUD’s agents). Preferably, 

such reviews would be conducted 

annually, consistent with the standards 

for HUD’s subsidized housing programs. 

As part of this project management 

review process, HUD would examine a 

PHA’s performance in the area of 

resident programs and participation, 

thereby eliminating a separate resident 

satisfaction survey. 

Resident Satisfaction Surveys. A 

PHA’s performance in the area of 

resident programs and participation 

would be evaluated as part of the project 

management review, thus eliminating 

the need for a separate indicator on 

resident satisfaction and, therefore, a 

separate satisfaction survey. The project 

management review would include a 

subindicator that would measure efforts 

to coordinate, promote, or provide 

effective programs and activities to 

promote economic self-sufficiency of 

residents, and measure the extent to 


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which residents are provided with 

opportunities for involvement in the 

administration of the public housing. 

This subindicator would include all of 

the elements regarding economic selfsufficiency and resident participation 

that are included in section 6(j) of the 

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

Separately, HUD may perform resident 

surveys at different frequencies that 

would be used as diagnostic tools that 

would assess residents’ satisfaction with 

their living conditions and not be made 

part of a PHA’s score. 

The current survey instrument has 

been in place since 1999. In evaluating 

the results of the survey, HUD has found 

strong indications that the survey is not 

useful. Even some of the more troubled 

projects have received high resident 

satisfaction scores. As the table below 

shows, the average satisfaction rate is 

82.57 percent. For the period from FY 

2002 through FY 2006, the satisfaction 

rate has varied by no greater than 1.88 

percent for the entire 5-year period. The 

services survey area has consistently 

been in the 90th percentile, while the 

lowest-scoring survey area, 

communication, has an average 

satisfaction rate of 75.68 percent. Given 

the actual condition of some of the 

projects surveyed, it is highly unlikely 

that these results are accurately 

reflecting resident satisfaction. 

RESIDENT SATISFACTION

Survey area FY 2002 

% 

FY 2003 

% 

FY 2004 

% 

FY 2005 

% 

FY 2006 

% 

Average 

% 

Maintenance & Repair ............................. 89.25 89.11 85.16 86.62 88.50 87.73 

Communication ........................................ 76.35 76.31 74.80 75.61 75.35 75.68 

Safety ....................................................... 74.40 82.31 80.69 81.24 80.13 79.75 

Services ................................................... 92.32 92.24 91.90 91.78 91.99 92.05 

Appearance .............................................. 77.12 78.63 76.66 78.29 77.39 77.62 

Average ............................................. 81.89 83.72 81.84 82.71 82.67 82.57 

The response rate for the survey has 

also remained relatively static, as the 

following table shows. 

RESIDENT SURVEY RESPONSE RATES

FY 2002 

% 

FY 2003 

% 

FY 2004 

% 

FY 2005 

% 

FY 2006 

% 

40.33 37.12 39.15 42.40 39.06 

Average Response Rate: 39.61 

At some of the smaller PHAs, 

residents have complained that they are 

answering the same questions year after 

year. Industry groups have also 

indicated that they believe the survey 

instrument needs to be revised. 

As an alternative to the resident 

survey, the new management review 

format for public housing projects 

includes two areas that take into 

consideration resident participation: 

Economic self-sufficiency and resident 

involvement in project administration. 

These two areas assess the percentage of 

adults with some form of employment 

income, the percentage of adults 

participating in self-sufficiency, the 

number of self-sufficiency opportunities 

offered at the project, and the number of 

resident involvement opportunities 

offered by a project. In addition, as 

much as possible, the management 

operations subindicators focus on 

residents. For example, the work order 

subindicator measures tenant-generated 

work orders rather than emergency and 

nonemergency work orders. The 

advantage of these management 

subindicators is that they measure 

objective results rather than subjective 

satisfaction, and also that they are not 

dependent on voluntary participation 

but rather are determined by actual 

reviews and site visits. 

HUD invites comments on whether 

the survey should be retained in some 

form, how it might be improved, and 

whether HUD’s proposed solution is 

sufficient to gather resident feedback on 

resident satisfaction. 

Capital Fund. HUD proposes to 

establish a new indicator, which 

previously was part of the management 

operations indicator, that measures a 

PHA’s performance with respect to the 

obligation and expenditure of Capital 

Fund program grants. This Capital Fund 

program indicator is statutory, required 

by section 6(j) of the 1937 Act (42 U.S.C. 

1437d(j)(1)(B)), and can be measured 

only at the agency level. 

In addition to the changes in the four 

indicators, discussed above, the rule 

would modify the score adjustment for 

physical condition and neighborhood 

environment. This adjustment would be 

applied to the management operations 

indicator on a project-by-project basis 

rather than to the physical condition 

indicator. The statutory language states 

that HUD should reflect in the weights 

assigned to the various indicators the 

differences in the difficulty in managing 

individual projects that result from their 

physical condition and neighborhood 

environment. The application of the 

adjustment to the management 

operations indicator would specifically 

address the difficulty in managing 

individual projects, and would also 

result in a true physical condition score 

without any adjustments outside of the 

physical condition inspection results. 

HUD believes the changes proposed to 

the PHAS regulations by this rule offer 

the following advantages: 

• HUD and PHAs would be better 

able to identify and measure the 

performance of individual projects, 

which is necessary for asset 

management. 

• The new system conforms to HUD’s 

performance monitoring protocols and 

regulations in the area of multifamily 

housing. 

• The new system would be much 

simpler for PHAs and HUD to 


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administer. PHAs would only be 

required to submit their FDS schedule 

and would no longer need to submit a 

management certification. Moreover, 

PHAs would have greater flexibility in 

developing internal monitoring systems. 

• The new system would focus more 

on performance than process. 

Additional changes to PHAS proposed 

by this rule include: 

• Corrective Action Plans are 

proposed to replace current 

Improvement Plans. 

• References to the Troubled Agency 

Recovery Center (TARC), an area center 

to which troubled PHAs were referred 

for oversight, monitoring, or other 

remedial action, have been removed 

since the TARCs no longer exist. The 

duties and responsibilities of the TARCs 

were transferred to and assumed by 

HUD’s field offices. 

D. Section-by-Section Overview of PHAS 

Amendments 

The following section-by-section 

overview does not describe each and 

every change made to the PHAS 

regulation, but provides an overview of 

some of the key changes proposed by 

this rule. 

1. Part 901, Public Housing Management 

Assessment Program (PHMAP) 

This proposed rule would remove 

part 901, which contains the PHMAP 

regulations. When HUD issued the final 

PHAS rule in September 1998, the 

preamble to the final rule noted that the 

PHMAP regulations in part 901 would 

be retained because PHAS would not be 

implemented until October 1999, one 

year after the September 1998 rule 

became effective. The preamble advised 

PHAs that they would continue to 

comply with the PHMAP regulations 

until the implementation of PHAS in 

October 1999. This proposed rule will 

consolidate all public housing 

assessment regulations in the PHAS 

regulations in part 902, and part 901 

will be removed. 

2. Part 902, PHAS 

Subpart A—General Provisions 

Section 902.1 (Purpose, scope, and 

general matters). Proposed § 902.1 

would consolidate the purpose, scope, 

and applicability sections into a single 

introductory section to better capture 

the overall objectives of PHAS in one 

regulatory location. 

Proposed § 902.1(a) is unchanged 

from the purpose paragraph of the 

currently codified regulations. 

Proposed § 902.1(b) remains similar to 

currently codified § 902.3. 

Proposed § 902.1(c) briefly describes 

PHAS indicators. 

Proposed § 902.1(d) would be revised 

to include the project assessment 

approach, which is now the relevant 

assessment as PHAs convert to asset 

management. With the proposed 

removal of the resident survey, to be 

discussed more fully later in this 

preamble, a reference to gathering data 

from residents would be removed. 

Material concerning HUD data systems 

would be added. 

Currently codified § 902.1(e) 

pertaining to changes in a PHA’s fiscal 

year end would be moved to a revised 

§ 902.60(a). New proposed § 902.1(e) 

would provide for a PHA with fewer 

than 250 units that does not convert to 

asset management to be considered a 

single project. 

Proposed § 902.1(f) would revise 

currently codified § 902.1(b) to reflect 

that REAC is now part of HUD’s Office 

of Public and Indian Housing (PIH). 

Section 902.3 (Definitions). Currently 

codified § 902.3 would be revised to 

include the definitions of additional 

important terms used in the regulations. 

In the currently codified regulations, the 

definitions are found in both 24 CFR 

902.7 and 24 CFR 902.24, where 

definitions used in the physical 

condition indicator are presented. HUD 

proposes to place all definitions in one 

section for greater convenience. 

Currently codified § 902.3 would be 

revised to remove the following 

definitions that are no longer applicable 

or are not referenced in the regulations: 

average number of days non-emergency 

work orders were active; improvement 

plan; occupancy loss; property; reduced 

actual vacancy rate within the previous 

3 years; reduced average time 

nonemergency work orders were active; 

tenant receivables outstanding; unit 

months available; unit months leased; 

and work orders deferred to the Capital 

Fund program. 

The following definitions would be 

added to this section: Assistant 

Secretary; Corrective Action Plan; 

decent, safe, sanitary and in good repair 

(DSS/GR); memorandum of agreement 

(MOA); Alternative Management Entity 

(AME); Resident Management 

Corporation (RMC); Direct Funding 

RMC; and unit-weighted average. In 

addition, the following definitions from 

currently codified § 902.24 are proposed 

to be added to this section: criticality; 

deficiencies; dictionary of deficiency 

definitions; inspectable areas; 

inspectable item; item weights and 

criticality levels document; normalized 

weight; score; severity; and subarea. 

Section 902.5 (Applicability). To 

allow sufficient time for PHAs to adjust 

to PHAS, as proposed to be revised by 

this rule, proposed § 902.5(b)(1) would 

change applicability to commence with 

PHAs with fiscal years ending on and 

after June 30, 2009. The information in 

currently codified § 902.5(b), pertaining 

to the issuance of PHAS advisory scores, 

would be removed because it is no 

longer applicable. 

Proposed § 902.5(b)(2) would address 

transition scores and the fiscal-year-end 

dates for transition scores. 

Section 902.9 (PHAS scoring). This 

proposed section would address the 

PHAS scoring system. (Those parts of 

currently codified § 902.9 that address 

the frequency of PHAS scoring would be 

incorporated into proposed § 902.13.) 

Proposed § 902.9(a) would briefly 

describe the PHAS indicators, which 

would include the new Capital Fund 

program indicator that replaces the 

current resident service and satisfaction 

indicator. 

Proposed § 902.9(b) would provide 

information about the weights of the 

four indicators. 

Proposed § 902.9(c) would provide for 

PHAS scores to be calculated in 

accordance with appendices A–D. 

Accordingly, repetitive information 

about scoring is removed from the 

regulations governing individual 

indicators. No further changes to any of 

the scoring processes will be 

implemented until after they are 

published for public comment in the 

Federal Register. The currently codified 

PHAS regulations provide for this notice 

and comment process, and HUD does 

not propose to change that process by 

this rule. 

The proposed scoring documents that 

correspond to this proposed rule are 

published as appendices to this 

proposed rule. 

Section 902.11 (PHAS performance 

designation). Proposed § 902.11 would 

address PHAS performance designation 

information. The performance 

designations would be high performer, 

standard performer, substandard 

performer, and troubled performer 

(except for the new ‘‘substandard’’

designation, these are the designations 

provided in currently codified § 902.67). 

Proposed §§ 902.11(a) and (b) would 

amend the performance requirements 

for PHAS designations that are currently 

codified in §§ 902.67(a) and (b). 

Proposed § 902.11(a) would state that a 

high performer must achieve an overall 

PHAS score of 90 percent, in contrast to 

currently codified § 902.67(a), which 

requires at least a 60 percent score in 

each PHAS indicator. 

Proposed § 902.11(a)(2) would 

provide that a PHA would not be 

designated a high performer if more 

than 10 percent of the PHA’s total units 

are in projects that fail the physical 


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condition, financial, or management 

operations indicators. Proposed 

§ 902.11(c) would explain the new 

substandard designation. Generally, a 

PHA’s overall PHAS score determines 

its designation. 

The ‘‘substandard’’ designation, 

however, would be calculated 

differently. A substandard designation 

would be based on a PHA achieving a 

PHAS score of at least 60 percent and 

a score of less than 60 percent under 

one or more of the physical condition, 

financial, or management operations 

indicators. In the proposed rule, to 

avoid confusion, ‘‘substandard’’ would 

not be used to mean a subcategory of 

troubled performer. 

Section 902.13 (Frequency of PHAS 

assessments). Proposed § 902.13 would 

be added to address the revised 

frequency of PHAS assessments, and 

would incorporate, in § 902.13(a), the 

information in currently codified 

§ 902.9, with the exception that a small 

PHA with fewer than 250 units would 

not be able to elect an annual 

assessment. As the PHAS regulations 

are proposed to be revised by this rule, 

the frequency of physical condition 

assessments would be based on the size 

of the PHA and the performance of the 

PHA under the physical condition 

indicator. 

Proposed § 902.13(b) would provide 

that a project that scores 80 points or 

higher for the physical condition 

indicator would be inspected every 

other year. 

Proposed § 902.13(c) would require a 

PHA to submit the unaudited and 

audited financial information to HUD 

every year, whether or not the PHA 

receives a PHAS assessment. 

Subpart B—Physical Condition 

Indicator 

Section 902.20 (Physical condition 

assessment). Proposed § 902.20 would 

address the basic components of the 

physical condition assessment. 

Proposed § 902.20(b) would provide for 

independent physical inspections in 

accordance with HUD’s physical 

condition standards for decent, safe, and 

sanitary housing as codified at 24 CFR 

5.703–5.705. 

Section 902.21 (Physical condition 

standards for public housing). Proposed 

§ 902.21 would be similar to currently 

codified § 902.23, and summarizes the 

standards that the five major inspectable 

areas are required to meet. The five 

major inspectable areas are site, 

building exterior, building systems, 

dwelling units, and common areas. The 

main difference between this proposed 

rule and the currently codified 

regulations is that where the currently 

codified section incorporates provisions 

directly from HUD’s physical conditions 

standards at 24 CFR 5.703, the proposed 

section would cross-reference to § 5.703 

where necessary, resulting in a more 

concise and streamlined regulatory 

provision. 

Section 902.22 (Physical inspection of 

PHA projects). The information in 

proposed § 902.22(a) would be similar 

to currently codified § 902.24(a), but it 

would add a specific reference to HUD’s 

standards for decent, safe, and sanitary 

housing. Proposed new § 902.22(b)(1) 

would address how HUD would achieve 

the objectives of paragraph (a) and 

provides for an inspection of a 

‘‘statistically valid’’ sample of units. 

Proposed § 902.22(d) would clarify 

the differences between health and 

safety deficiencies and exigent health 

and safety deficiencies. Proposed 

§ 902.22(d)(1) would contain the 

information in currently codified 

§ 902.24(a)(2), but would add that the 

project or PHA should correct exigent 

health and safety deficiencies within 24 

hours, and that the PHA must certify the 

correction to HUD within 3 business 

days. 

Section 902.23 (Adjustment for 

physical condition and neighborhood 

environment). HUD proposes to remove 

this section because physical condition 

and neighborhood environment would 

be assessed under the management 

operations indicator in the proposed 

rule. See new proposed § 902.44. 

Section 902.24 (Database adjustment). 

Proposed § 902.24 would contain the 

information currently codified in 

§ 902.25(c) and would be designated as 

a separate section for the purpose of 

greater clarity. The section would be 

revised to be consistent with projectbased assessment. 

Section 902.25 (Physical condition 

scoring and thresholds). Proposed 

§ 902.25(a) revises currently codified 

§ 902.25(a) to reflect the project-based 

approach to administration of public 

housing, and to remove material 

regarding scoring, which would be 

consolidated in proposed § 902.9(c) 

rather than being restated as to each 

indicator. 

Proposed new § 902.25(b) provides 

similar information as found in 

currently codified § 902.25(d), but with 

further explanation of how the weighted 

scores are calculated. 

Proposed new § 902.25(c) would 

include new information regarding the 

conversion of a project score from a 100- 

point scale to a 30-point scale for the 

overall PHAS physical condition 

indicator, and provide the number of 

points required for a passing score and 

the score at which a PHA would be 

considered a substandard performer. 

Section 902.26 (Physical inspection 

report). Currently codified §§ 902.26(a) 

and (a)(3) would be slightly revised by 

this proposed rule to be consistent with 

project-based assessment. Sections 

902.26(a)(2) and (a)(5) would be revised 

to make the deadline for a request for 

reinspection 30 days after a PHA’s 

receipt of the physical inspection report. 

Current § 902.27 (Physical condition 

portion of total PHAS points). HUD 

proposes to remove this section and 

instead provide for the number of points 

assigned to each indicator in § 902.9(b). 

Subpart C—Financial Condition 

Indicator 

Section 902.30 (Financial condition 

assessment). Proposed § 902.30 is 

similar to currently codified § 902.30. 

The section would be revised to reflect 

individual project assessment. 

Section 902.33 (Financial reporting 

requirements). Proposed § 902.33(b) 

pertains to unaudited financial 

information and contains the same 

information in currently codified 

§ 902.33(b). As proposed to be revised, 

this section removes a reference to the 

Uniform Financial Reporting Standards 

in 24 CFR part 5, subpart H, and 

removes reference to the information 

regarding an automatic 1-month 

extension, which no longer applies. 

Proposed § 902.33(b) also includes the 

same unaudited reporting deadlines 

included in currently codified 

§ 902.33(c). 

Proposed § 902.33(c) contains 

information related to audited financial 

statements that is contained in currently 

codified § 902.33(c). 

Section 902.35 (Financial condition 

scoring and thresholds). Proposed 

§ 902.35(a)(1) would be similar to 

currently codified § 902.35(a), but 

would remove the repetitive 

information about scoring that, in the 

codified regulations, is provided in each 

section addressing a PHAS indicator. 

This section also would provide a 

reference to individual projects. 

Proposed § 902.35(a)(2) contains 

information regarding the basis for the 

financial condition score. Currently 

codified § 902.35(a)(2) would be 

removed because the information 

regarding advisory scores and high 

liquidity would no longer be applicable. 

Proposed § 902.35(b) lists the new 

financial condition subindicators under 

asset management and replaces the 

financial management components 

listed in the current § 902.35(b). 

Proposed § 902.35(c) would explain 

how the overall financial condition 

score is calculated. This score would be 


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a unit-weighted average of the 

individual project scores on this 

indicator. 

Proposed § 902.35(d) would address 

the maximum points and scoring 

thresholds, similar in function to 

currently codified § 902.35(c). 

Current § 902.37 (Financial condition 

portion of total PHAS points). HUD 

proposes to remove this section and 

instead provide for the number of points 

assigned to each indicator in § 902.9(b). 

Subpart D—Management Operations 

Indicator 

Section 902.40 (Management 

operations assessment). Proposed 

§ 902.40(a) would be revised to more 

comprehensively address the 

management operations assessment of 

projects, given the removal of 24 CFR 

part 901. 

Section 902.43 (Management 

operations performance standards). 

Proposed § 902.43(a) would list the 

statutory subindicators that must be 

utilized in this assessment. This section, 

as proposed, would also reference the 

asset management review form that 

would be used to assess a PHA’s 

management operations and a PHA’s 

individual project management 

operations, and the subindicators are 

included in appendix C. Specifically, 

new proposed §§ 902.43(a)(1) through 

(a)(6) would list the statutory 

subindicators that are not addressed 

elsewhere in PHAS, and would replace 

the currently codified §§ 902.43(a)(1) 

through (a)(6). Paragraphs (a)(7) through 

(a)(9) of § 902.43 would address the 

following subindicators, respectively: 

security, economic self-sufficiency, and 

resident involvement in project 

management. 

Proposed § 902.43(b) would provide 

that a project management review be 

used to assess this indicator, supported 

by other data available to HUD. 

Currently codified §§ 902.43(b)(1) and 

(b)(2) would be removed because PHAs 

would no longer certify to the 

management operations information and 

because manual submissions are no 

longer necessary. 

Section 902.44 (Adjustment for 

physical condition and neighborhood 

environment). A proposed § 902.44 

would be added and the adjustment for 

physical condition and neighborhood 

environment would apply to the 

management operations indicator. 

Proposed § 902.44(a) would include the 

new definitions for physical condition 

and neighborhood environment, and 

§ 902.44(b) would describe the 

application of the adjustment. 

Section 902.45 (Management 

operations scoring and thresholds). 

Proposed § 902.45(a) would be similar 

to currently codified § 902.45(a), except 

that projects, as well as PHAs, would 

receive a management operations score. 

Proposed § 902.45(b) would provide 

information regarding the overall 

indicator score. 

Proposed § 902.45(c) would be similar 

to currently codified § 902.45(b), and 

would provide information regarding 

the maximum points for this indicator 

and scoring thresholds. The section 

removes a reference to sanctions under 

section 6(j)(4) of the 1937 Act (42 U.S.C. 

1437d(j)(4)). 

Current § 902.47 (Management 

operations portion of total PHAS 

points). HUD proposes to remove this 

section and instead provide for the 

number of points assigned to each 

indicator in § 902.9(b). 

Subpart E—Capital Fund Program 

Indicator 

Proposed new subpart E addresses the 

Capital Fund program indicator, and 

would replace the current subpart E, 

resident services and satisfaction 

indicator. HUD is removing the resident 

services and satisfaction indicator 

because, after almost 10 years of 

experience, this indicator has not 

yielded the degree of feedback that HUD 

hoped to obtain from this indicator. 

HUD has determined that PHAs expend 

considerable effort to obtain resident 

input on the PHA’s performance, but 

with little change in the response rate 

over the past 5 years. HUD will examine 

alternatives to obtain resident feedback, 

possibly through funding for Resident 

Opportunities and Supportive Services 

(ROSS) provided annually through its 

notice of funding availability (NOFA). 

HUD specifically welcomes comment on 

proposals to improve resident feedback 

on a PHA’s performance and to measure 

resident satisfaction. 

Section 902.50 (Capital Fund program 

assessment). Proposed § 902.50(a) 

would provide for assessment of a 

PHA’s Capital Funds that remain 

unexpended after 4 years and 

unobligated after 2 years. 

Proposed § 902.50(b) would provide 

that this indicator would not apply to 

PHAs that choose not to participate in 

the Capital Fund program, and would 

only be applicable on a PHA-wide basis, 

rather than a project basis. Section 9(j) 

of the 1937 Act (42 U.S.C. 1437g(9)(j)(1) 

and (5)) makes the obligation to expend 

funds in a timely manner applicable to 

PHAs. 

Proposed § 902.50(c) would provide 

that information for this indicator 

would be derived through an analysis of 

HUD’s electronic Line of Credit Control 

System (e-LOCCS) (or its successor 

system). Proposed §§ 902.50(c)(1) and 

(c)(2) would address a PHA’s 

responsibility to submit Capital Fund 

program information in a timely manner 

and appeal restrictions, respectively. 

Section 902.53 (Capital Fund program 

scoring and thresholds). This proposed 

section would explain the scoring and 

thresholds for this indicator, overall 

points, and passing score. 

Subpart F—PHAS Scoring 

Section 902.60 (Data collection). This 

proposed section would completely 

revise currently codified § 902.60. 

Currently codified § 902.60(a), 

pertaining to fiscal year reporting 

periods, would be revised to provide 

that a PHA would not be permitted to 

change its fiscal year for the first 3 full 

fiscal years following June 30, 2009, 

unless such change is approved by HUD 

for good cause. The moratorium on 

changing fiscal years is consistent with 

the currently codified PHAS 

regulations, which provide for a halt to 

fiscal year changes commencing with 

the year new HUD regulations are to be 

implemented. Proposed § 902.60(b) 

would address extensions for submitting 

unaudited financial information. The 

information in currently codified 

§ 902.60(c), pertaining to the 

submissions of financial information, 

would be revised to include information 

about weighting and applicability of the 

Single Audit Act (codified at 31 U.S.C. 

7501 et seq.) and be moved to proposed 

§§ 902.9(b) and 902.33. 

Proposed § 902.60(c) would address 

waivers of the due date for submitting 

audited financial information to HUD. 

Proposed § 902.60(d) would address 

rejection and resubmission of a PHA’s 

unaudited year-end financial 

information submission. The 

requirement in currently codified 

§ 902.60(d)(2) pertaining to the retention 

of documentation would be 

incorporated in proposed § 902.3(b). 

Information in currently codified 

§ 902.60(e)(2) and (f) would be moved to 

proposed § 902.62, with some revisions. 

Certifications referenced in currently 

codified §§ 902.60(e)(2) and (f), and 

material regarding the performance 

designation of a PHA as ‘‘troubled’’ in 

currently codified § 902.60(e)(2) would 

no longer be included. 

Section 902.62 (Failure to submit 

data). Proposed § 902.62 addresses 

penalties for failing to submit required 

information. Much of this material is 

similar to that in currently codified 

§ 902.60(e). 

Section 902.64 (PHAS scoring and 

audit reviews). Proposed § 902.64(a) 

would be similar to currently codified 

§ 902.63(b). 


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Proposed § 902.64(b) would be similar 

to currently codified § 902.63(c), except 

that references to certifications would 

be removed. 

Proposed § 902.64(c) would include 

the material on the review of audits in 

currently codified § 902.63(d), along 

with certain revisions. The revised 

material includes standards and 

procedures for determining if an audit is 

deficient. 

Section 902.66 (Withholding, denying, 

and rescinding designation). Proposed 

§ 902.66 would provide that, in limited 

circumstances, HUD may deny or 

rescind a high or standard performer 

designation. Denial or rescission may 

occur in cases of fraud or misconduct, 

litigation cases that bear directly on the 

performance of the PHA, where the PHA 

is operating under a court order, or 

where the PHA demonstrates substantial 

evidence of noncompliance with 

applicable laws or regulations. HUD 

action taken in accordance with this 

section may be appealed under 

§ 902.69(d). 

Section 902.68 (Technical review of 

results of PHAS physical condition 

indicator). Proposed § 902.68 largely 

retains the information regarding 

physical inspection technical reviews as 

provided in currently codified § 902.68, 

and removes reference to technical 

reviews for the resident survey and 

satisfaction indicator, which will no 

longer be an indicator. Proposed 

§ 902.68(b)(7) would be included to 

provide that HUD’s decision on a 

technical review is final agency action. 

Section 902.69 (PHA right of petition 

and appeal). Proposed § 902.69 has 

been revised to elaborate on the rights 

of appeal, petition, and the appeal of 

any refusal of a petition to remove a 

troubled performer designation. 

Proposed § 902.69(a) would revise the 

current section to provide for four 

categories of appeals and one type of 

petition. 

Currently codified § 902.69(b) would 

be designated § 902.69(b)(1) in this 

proposed rule, and revised to take into 

account the new designation of 

‘‘substandard performer.’’ Proposed 

§ 902.69(b)(2) would provide that a PHA 

may not appeal its physical condition 

score based on the subsequent 

correction of deficiencies identified as 

the result of a physical inspection or 

technical review items for which a 

decision has been previously rendered 

through the technical review process. 

Proposed § 902.69(b)(3) would specify 

procedures for appealing the score for 

the Capital Fund program indicator. 

Proposed § 902.69(c)(1) would be 

revised to address only the appeal and 

petition procedures in currently 

codified § 902.69(c)(1). As proposed to 

be revised, § 902.69(c)(2) would specify 

the procedures for the appeal of the 

refusal of a petition to remove troubled 

performer designation, which is 

addressed in currently codified 

§ 902.69(c)(1). Proposed § 902.69(c)(3) 

would provide that an appeal or petition 

must be submitted in writing to the Real 

Estate Assessment Center, Attention: 

Technical Review. The address is: Real 

Estate Assessment Center, 550 12th 

Street, SW., Suite 100, Washington, DC 

20024–2135. Proposed § 902.69(c)(4) 

would include information in currently 

codified §§ 902.69(c)(1) and (c)(2) that 

requires the inclusion of appropriate 

supporting information. 

Proposed § 902.69(d) would establish 

an appeal process for cases of denial, 

withholding, or rescission of a PHAS 

performance designation. Upon receipt 

of a request for reinstatement, the 

evidence submitted by the PHA will be 

reviewed to determine whether a 

reinstatement of the designation is 

warranted. 

Proposed § 902.69(e) would establish 

a process for consideration of an appeal 

of an overall PHAS score, a troubled 

performer designation, or a petition to 

remove a troubled performer 

designation. HUD would evaluate the 

appeal and determine whether a 

reassessment of the PHA is warranted. 

There would no longer be a Board of 

Review as in the currently codified 

regulation. 

Proposed § 902.69(e)(2) addresses the 

appeal of refusal to remove a troubled 

performer designation and provides that 

the decision-making officials would be 

different individuals than those that 

evaluated the petition to remove a 

troubled performer designation. 

Proposed § 902.69(f) would provide 

for final appeal decisions similar to the 

provisions in currently codified 

§ 902.69(e), but with some differences. 

Proposed § 902.69(f) would specify the 

remedies available to HUD if HUD 

grants an appeal, including undertaking 

a new inspection, arranging for audit 

services, or other reexamination of the 

results of assessment of a PHA’s 

financial, management, or Capital Fund 

program performance, as appropriate. 

Following such reassessment, HUD will 

issue a new score and performance 

designation. The proposed rule would 

remove the option available to HUD to 

extend the deadline for HUD’s decision 

to an additional 30 days. Finally, the 

rule would provide that HUD’s decision 

is final agency action. 

Subpart G—PHAS Incentives and 

Remedies 

Section 902.71 (Incentives for high 

performers). Proposed § 902.71 would 

be largely the same as currently codified 

§ 902.71. The proposed rule would 

remove the material in § 902.71(a)(1)(ii) 

concerning the frequency of physical 

inspection, because the remainder of the 

rule provides sufficient flexibility to 

relieve high-performing PHAs of 

monitoring requirements. 

Section 902.73 (PHAs with 

deficiencies). The heading of this 

section would be changed from the 

section heading for currently codified 

§ 902.73 to more accurately reflect the 

content in this section. This proposed 

section would remove the concept of the 

Improvement Plan and replace it with 

the concept of the Corrective Action 

Plan. This concept is consistent with the 

Corrective Action Plan terminology that 

is used in other program areas. If the 

PHA, under a Corrective Action Plan, 

fails to correct its deficiencies within 

the time period specified, HUD may 

take additional action, including, but 

not limited to, the remedies for 

substantial default. 

Section 902.75 (Troubled performers). 

The heading of this section would be 

changed from the section heading for 

currently codified § 902.75 (Referral to a 

Troubled Agency Recovery Center 

(TARC)). Proposed § 902.75(a) removes 

the references to 24 CFR part 901 and 

the TARCs, because this proposed rule 

and accompanying proposed scoring 

documents will replace part 901, and 

because the TARCs, as noted previously, 

no longer exist. Their duties and 

responsibilities were transferred and 

assumed by HUD field offices in 2003. 

Proposed §§ 902.75(b) and (c) cover 

the same subjects as currently codified 

§§ 902.75(b) and (c); that is, remedial 

measures for troubled performers—

albeit with revisions. Proposed 

§ 902.75(b) would specify that a 

memorandum of agreement (MOA) is 

required for a troubled performer. 

Proposed § 902.75(b)(3) would require 

identification of the party responsible 

for meeting each target. Proposed 

§ 902.75(b)(7) would: (1) Eliminate a 

reference to the Departmental 

Enforcement Center, which is now part 

of HUD’s Office of General Counsel; and 

(2) add cross-references to HUD’s 

statutory and regulatory remedial 

authority in place of the current 

summary. 

Proposed §§ 902.75(d)(1) and (d)(2) 

would clarify the time frames in 

currently codified §§ 902.75(d)(1) and 

(d)(2) by providing that the first- and 

second-year recovery periods are at least 


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12 months after issuance of the initial 

notice of troubled performer 

designation, and at least 24 months after 

issuance of the initial notice of troubled 

performer designation, respectively. 

Proposed §§ 902.75(e) and (f) would 

largely be the same as the currently 

codified §§ 902.75(e) and (f). However, 

proposed § 902.75(e) would remove the 

reference in § 902.75(e)(3) to the 

Director of the area TARC, which would 

be replaced by reference to the regional 

or field office Public Housing Director. 

Proposed §§ 902.75(g) and (h) would 

be largely the same as the current 

§§ 902.75(g) and (h), with the exception 

of proposed revisions to the example in 

§ 902.75(g)(3), to be consistent with the 

proposed definitions of the one- and 

two-year recovery periods in proposed 

§ 902.75(d). Proposed paragraph (i) 

would remove the reference to the 

TARCs. 

Section 902.79 (Verification and 

records). Proposed § 902.79 would 

provide for the document retention and 

verification requirements applicable to 

PHAs. The section would provide for 

penalties for failure to maintain the 

required documentation for the required 

time period. 

Section 902.81 (Resident petitions for 

remedial actions). Proposed § 902.81 is 

based on currently codified § 902.85 and 

would specify that residents of a PHA 

designated as troubled may petition 

HUD in writing for remedial action. The 

section would retain the requirement 

that 20 percent of the residents must 

support the petition, as is required in 

currently codified § 902.85. The section 

would retain the reference to HUD’s 

discretion over the determination as to 

whether a substantial default has 

occurred, and provide for HUD to 

respond in writing to a petition. The 

response would include the planned 

course of action and, where the action 

differs from that proposed by the 

residents, the reasons for the difference. 

Section 902.83 (Sanctions for troubled 

performer PHAs). Proposed § 902.83 

would provide for differing sanctions 

for small and large PHAs. If a PHA that 

is designated as troubled and has less 

than 1,250 units fails to make 

substantial improvement within the 

recovery periods specified in proposed 

§ 902.75(d), HUD has the option of 

petitioning for the appointment of a 

receiver or taking possession of all or a 

portion of the PHA or a PHA project. In 

the case of a PHA with 1,250 or more 

units that similarly fails, HUD shall 

petition for the appointment of a 

receiver. If a troubled performer PHA 

fails to execute the required MOA under 

§ 902.75, or fails to meet the 

requirements of the MOA, the PHA may 

be declared to be in substantial default. 

In this case, all the remedies under this 

rule and the 1937 Act are available. 

Failure to execute the MOA, however, is 

not the only basis for a finding of 

substantial default. A violation of the 

law, regulations, or the annual 

contributions contract (ACC) can also be 

a predicate for such a finding, in which 

case all available remedies would 

equally be available. The procedures 

applicable to a finding of substantial 

default are now provided in new part 

907. 

Current § 902.85 (Resident petitions 

for remedial action). This section is 

redesignated as § 902.81, with only 

minor wording changes made. 

II. New Part 907—Substantial Default 

by a Public Housing Agency 

This proposed rule would establish, 

in new part 907, the regulations 

governing the determination of, and 

remedies for, substantial default. The 

regulations applicable to substantial 

default are currently codified in HUD’s 

PHAS regulations. However, a 

determination of substantial default is 

not limited to troubled performance or 

violation of PHAS requirements. 

Therefore, it is more appropriate for 

substantial default regulations to be 

codified in a separate CFR part. The 

following provides a section-by-section 

overview of new part 907. 

Section 907.1 (Purposed and scope). 

Proposed § 907.1 would provide that the 

purpose of this part is to establish the 

regulations for determination of, and 

remedies for, substantial default. This 

section would clarify that nothing in 

this part limits the discretion of HUD to 

take any action available under section 

6(j)(3)(A) of the 1937 Act (42 U.S.C. 

1437d(j)(3)(A)) to remedy a substantial 

default. HUD has flexible discretion 

both to determine substantial default 

and to apply the available remedies in 

any combination or order. 

Section 907.3 (Bases for substantial 

default). Proposed § 907.3 would 

describe the violations of laws and 

agreements, and the failures to act on 

the part of the PHA that may result in 

a declaration of substantial default. 

Section 907.5 (Procedures for 

declaring substantial default). Proposed 

§ 907.5(a) would describe the process 

for notification of substantial default. 

Section 907.5(b) would describe the 

opportunity of a PHA to respond or cure 

the default, except in cases of fraud, 

criminality, or an emergency posing an 

imminent threat to life and health. 

Proposed § 907.5(c) would provide for 

a PHA to waive written notification of 

substantial default by HUD. 

Proposed § 907.5(d) (Emergency 

situations) would describe the situations 

in which HUD may proceed to issue a 

default determination without giving 

the PHA an opportunity to respond. 

Section 907.7 (Remedies for 

substantial default). Proposed § 907.7 

would list the actions that may be taken 

by HUD against a PHA upon a 

determination of substantial default. 

III. Cost and Benefits of This Proposed 

Rule 

This proposed rule would 

significantly streamline PHAS by 

eliminating several PHA submissions, 

data collection requirements, and 

related processes. Through such 

streamlining, this proposed rule would 

reduce costs incurred by PHAs in 

compiling and submitting this 

information to HUD. In addition, the 

systems put in place to substitute for the 

data compilation and submissions 

would improve the assessment process, 

which would benefit PHAs, public 

housing residents, and taxpayers 

overall. The proposed rule would 

eliminate the requirement for PHAs to 

submit a management operation 

certification and to undertake resident 

satisfaction surveys, including pre- and 

post-survey administrative 

requirements. HUD is replacing these 

submission requirements with a system 

of on-site management reviews. Rather 

than requiring a PHA to prepare a 

detailed submission of various 

management indicators (inspections, 

work orders, security, etc.), HUD will 

assess conditions through an on-site 

review, consistent with the process 

utilized by HUD for its multifamily 

housing programs. Similarly, 

information obtained from the on-site 

reviews will better gauge the 

effectiveness of PHA efforts in the area 

of resident self-sufficiency and 

participation. Moreover, the current 

system of PHA self-certification requires 

HUD to conduct certification reviews. 

The proposed rule would eliminate the 

need for these certification reviews. 

Additionally, the new system of on-site 

management reviews are intended to 

consolidate into one assessment tool 

what today are multiple reviews. 

Through these measures, the proposed 

rule reduces administrative costs 

associated with PHAS, while improving 

the accuracy of PHAS assessments. 

In seeking comment on this proposed 

rule, the Department would like to 

highlight the following: 

Vacancy rates. The Department 

believes that one of the primary 

responsibilities of a PHA is to provide 

housing opportunities by maintaining 

high occupancy levels. As a result, a 


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high weight is assigned in the 

management review to a project’s nonapproved vacancy rate (the lower the 

rate, the higher the score). The 

Department seeks comment on the 

adequacy of the weight assigned to a 

project’s vacancy rate. The Department 

also seeks comment on whether the 

measure should be improved or another 

measure added to encompass all 

vacancies, both approved and nonapproved. Presently, the non-approved 

vacancies are less than 4 percent, but all 

vacancies are around 9 percent. A 

measure of all vacancies could provide 

a broader focus for efforts to maximize 

the number of decent, safe, and sanitary 

units available for tenants. The 

‘‘approved’’ vacancies are defined under 

24 CFR 990.145. 

Resident satisfaction surveys. As 

indicated, the Department believes that 

the on-site management review is a 

better vehicle than the current resident 

survey to measure both project 

performance and resident satisfaction, 

consistent with the norms in HUD’s 

own multifamily housing programs. 

However, the Department is particularly 

interested in views on practical methods 

for providing feedback to the PHA and 

assessing resident satisfaction, through 

surveys or other means. 

Unrestricted program balances and 

reserves. Presently, PHAs have on the 

order of $2.7 billion in public housing 

program reserves (also known as 

‘‘unrestricted current net assets’’). The 

Department is concerned with high 

program balances in light of industry 

concerns over the backlog of capital and 

maintenance needs. On the other hand, 

the Department wants adequate cash 

balances at PHAs to cope with potential 

unexpected events, such as a downturn 

in tenant rental payments. The 

Department has decided to make this 

trade-off in favor of high cash balances. 

For example, the Department proposes a 

very conservative quick ratio standard 

of $1 of cash/cash equivalents for $1 of 

current liabilities. The Department seeks 

comment as to whether the PHAS 

scoring system should encourage the 

use of these reserves and suggested 

ways to do that. 

Capital Fund Indicator. As previously 

indicated, the proposed rule only 

includes scoring on Capital Fund 

obligations and expenditures. It does 

not include scoring related to other 

areas of Capital Fund program 

management, e.g., quality of contract 

administration or effective capital 

planning. The Department believes that 

such issues are best addressed through 

on-site program assessments. The 

Department, however, seeks comment as 

to whether other items should be added 

to the Capital Fund indicator. 

Verification of Tenant Income. The 

Department is strongly committed to the 

proper reporting of tenant income for 

eligibility and rent determinations and 

has developed various tools to assist 

PHAs in this process. The Department 

has chosen not to include any scoring 

related to the income verification 

process. Although important, income 

verification would be one of many 

‘‘compliance’’ areas to which PHAs are 

subject. As with other similar areas, the 

Department has chosen not to score, for 

PHAS purposes, areas of compliance. 

Instead, performance is measured on 

more traditional real estate management 

indicators. Compliance items are 

considered separately and could be a 

source of corrective action; however, 

they are not scored. The Department 

seeks comment on this approach, 

specifically, to income verifications and, 

more broadly, on matters of compliance. 

IV. Findings and Certifications 

Information Collection Requirements 

The information collection 

requirements contained in this proposed 

rule have been submitted to the Office 

of Management and Budget (OMB) 

under the Paperwork Reduction Act of 

1995 (44 U.S.C. 3501–3520). In 

accordance with the Paperwork 

Reduction Act, an agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information, unless the collection 

displays a currently valid OMB control 

number. 

The burden of the information 

collections in this proposed rule is 

estimated as follows: 

REPORTING AND RECORDKEEPING BURDEN

Section reference Number of 

respondents 

Number of 

responses 

per respondent 

Estimated 

average time 

for requirement 

(in hours) 

Estimated 

annual burden 

(in hours) 

24 CFR 902.24 Database adjustment ............................................................. 125 1 5.2 650 

24 CFR 902.68 Technical review .................................................................... 167 1 5.2 868 

24 CFR 902.69 Appeals .................................................................................. 53 1 5.2 276 

Totals ........................................................................................................ 345 ........................ ........................ 1,794 

In accordance with 5 CFR 

1320.8(d)(1), HUD is soliciting 

comments from members of the public 

and affected agencies concerning this 

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 rule. Comments must refer to the 

proposal by name and docket number 

(FR–5094–P–01) and must be sent to: 

HUD Desk Officer, Office of 

Management and Budget, New 

Executive Office Building, 

Washington, DC 20503, Fax number: 

202–395–6947, 

and 

Mary Schulhof, Reports Liaison Officer, 

Office of Public and Indian Housing, 

Department of Housing and Urban 

Development, 451 Seventh Street, 

SW., Room 4116, Washington, DC 

20410–8000. 

Regulatory Planning and Review 

OMB reviewed this rule under 

Executive Order 12866, Regulatory 


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Planning and Review. OMB determined 

that this rule is a ‘‘significant regulatory 

action’’ as defined in section 3(f) of the 

Order (although not an economically 

significant regulatory action under the 

Order). The docket file is available for 

public inspection in the Regulations 

Division, Office of General Counsel, 

Department of Housing and Urban 

Development, 451 Seventh Street, SW., 

Room 10276, Washington, DC 20410–

0500. Due to security measures at the 

HUD Headquarters building, an advance 

appointment to review the public 

comments must be scheduled by calling 

the Regulations Division at 202–402–

3055 (this is not a toll-free number). 

Unfunded Mandates Reform Act 

Title II of the Unfunded Mandates 

Reform Act of 1995 (UMRA) establishes 

requirements for federal agencies to 

assess the effects of their regulatory 

actions on state, local, and tribal 

governments and the private sector. 

This rule will not impose any federal 

mandates on any state, local, or tribal 

governments or the private sector within 

the meaning of UMRA. 

Environmental Review 

A Finding of No Significant Impact 

with respect to the environment has 

been 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. 4332). The Finding is 

available for public inspection during 

regular business hours in the 

Regulations Division, Office of General 

Counsel, Department of Housing and 

Urban Development, 451 Seventh Street, 

SW., Room 10276, Washington, DC 

20410–0500. Due to security measures 

at the HUD Headquarters building, 

please schedule an appointment to 

review the Finding by calling the 

Regulations Division at 202–402–3055 

(this is not a toll-free number). 

Impact on Small Entities 

The Regulatory Flexibility Act (RFA) 

(5 U.S.C. 601 et seq.) generally requires 

an agency to conduct a regulatory 

flexibility analysis of any rule subject to 

notice and comment rulemaking 

requirements, unless the agency certifies 

that the rule will not have a significant 

economic impact on a substantial 

number of small entities. This rule 

revises HUD’s existing PHAS 

regulations for the assessment of public 

housing at 24 CFR part 902, to revise the 

PHAS regulations to elaborate upon 

certain procedures, to conform the 

PHAS regulations to current public 

housing operations, and to conform to 

certain statutory changes. These 

revisions impose no significant 

economic impact on a substantial 

number of small entities. Therefore, the 

undersigned certifies that this rule will 

not have a significant impact on a 

substantial number of small entities. 

Notwithstanding HUD’s belief that 

this rule will not have a significant 

effect on a substantial number of small 

entities, HUD specifically invites 

comments regarding any less 

burdensome alternatives to this rule that 

will meet HUD’s objectives as described 

in this preamble. 

Executive Order 13132, Federalism 

Executive Order 13132 (entitled 

‘‘Federalism’’) prohibits an agency from 

publishing any rule that has federalism 

implications if the rule either imposes 

substantial direct compliance costs on 

state and local governments and is not 

required by statute, or the rule preempts 

state law, unless the agency meets the 

consultation and funding requirements 

of section 6 of the Executive Order. This 

final rule does not have federalism 

implications and does not impose 

substantial direct compliance costs on 

state and local governments nor 

preempt state law within the meaning of 

the Executive Order. 

Catalog of Federal Domestic Assistance 

The Catalog of Federal Domestic 

Assistance number for Public Housing is 

14.850. 

List of Subjects 

24 CFR Part 901 

Administrative practice and 

procedures, Public housing, Reporting 

and recordkeeping requirements. 

24 CFR Part 902 

Administrative practice and 

procedures, Public housing, Reporting 

and recordkeeping requirements. 

24 CFR Part 907 

Administrative practice and 

procedures, Public housing, Reporting 

and recordkeeping requirements. 

Accordingly, under the authority of 

42 U.S.C. 3535d, HUD proposes to 

remove 24 CFR part 901, revise part 902, 

and add a new part 907, as follows: 

PART 901—[REMOVED] 

1. Remove and reserve 24 CFR part 

901. 

2. Revise 24 CFR part 902 to read as 

follows: 

PART 902—PUBLIC HOUSING 

ASSESSMENT SYSTEM 

Subpart A—General Provisions 

Sec. 

902.1 Purpose, scope, and general matters. 

902.3 Definitions. 

902.5 Applicability. 

902.9 PHAS scoring. 

902.11 PHAS performance designation. 

902.13 Frequency of PHAS assessments. 

Subpart B—Physical Condition Indicator 

902.20 Physical condition assessment. 

902.21 Physical condition standards for 

public housing—decent, safe, and 

sanitary housing in good repair (DSS/ 

GR). 

902.22 Physical inspection of PHA projects. 

902.24 Database adjustment. 

902.25 Physical condition scoring and 

thresholds. 

902.26 Physical Inspection Report. 

Subpart C—Financial Condition Indicator 

902.30 Financial condition assessment. 

902.33 Financial reporting requirements. 

902.35 Financial condition scoring and 

thresholds. 

Subpart D—Management Operations 

Indicator 

902.40 Management operations assessment. 

902.43 Management operations 

performance standards. 

902.44 Adjustment for physical condition 

and neighborhood environment. 

902.45 Management operations scoring and 

thresholds. 

Subpart E—Capital Fund Program Indicator 

902.50 Capital Fund program assessment. 

902.53 Capital Fund program scoring and 

thresholds. 

Subpart F—PHAS Scoring 

902.60 Data collection. 

902.62 Failure to submit data. 

902.64 PHAS scoring and audit reviews. 

902.66 Withholding, denying and 

rescinding designation. 

902.68 Technical review of results of PHAS 

physical condition indicator. 

902.69 PHA right of petition and appeal. 

Subpart G—PHAS Incentives and Remedies 

902.71 Incentives for high performers. 

902.73 PHAs with deficiencies. 

902.75 Troubled performers. 

902.79 Verification and records. 

902.81 Resident petitions for remedial 

action. 

902.83 Sanctions for troubled performer 

PHAs. 

Appendix A to Part 902—Physical Condition 

Scoring. 

Appendix B to Part 902—Financial Condition 

Scoring. 

Appendix C to Part 902—Management 

Operations Scoring. 

Appendix D to Part 902—Capital Fund 

Scoring. 

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

3535(d). 

Subpart A—General Provisions 

§ 902.1 Purpose, scope, and general 

matters. 

(a) Purpose. The purpose of the Public 

Housing Assessment System (PHAS) is 


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to improve the delivery of services in 

public housing and enhance trust in the 

public housing system among public 

housing agencies (PHAs), public 

housing residents, and the general 

public, by providing a management tool 

for effectively and fairly measuring the 

performance of a PHA in essential 

housing operations of projects, on a 

program-wide basis and individual 

project basis, and providing rewards for 

high performers and remedial 

requirements for poor performers. 

(b) Scope. PHAS is a strategic measure 

of the essential housing operations of 

projects and PHAs. PHAS does not 

evaluate the compliance of a project or 

PHA with every HUD-wide or programspecific requirement or objective. 

Although not specifically evaluated 

through PHAS, 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 other federal 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 (ACC). 

(c) PHAS indicators. HUD will assess 

and score the performance of projects 

and PHAs based on the indicators, 

which are more fully addressed in 

§ 902.9: Physical condition, financial 

condition, management operations, and 

Capital Fund. 

(d) Assessment tools. HUD will make 

use of uniform and objective criteria for 

the physical inspection of projects and 

PHAs and the financial assessment of 

projects and PHAs, and will use data 

from appropriate agency data systems 

and project management reviews to 

assess management operations. For the 

Capital Fund program indicator, HUD 

will use information provided in the 

electronic Line of Credit Control System 

(e-LOCCS) (or its successor) system. On 

the basis of this data, HUD will assess 

and score the results, advise PHAs of 

their scores, and identify low-scoring 

and poor-performing projects and PHAs 

so that these projects and PHAs will 

receive the appropriate attention and 

assistance. 

(e) Small PHAs. A PHA with fewer 

than 250 units that does not convert to 

asset management will be considered as 

one project by HUD. 

§ 902.3 Definitions. 

As used in this part: 

Act means the U.S. Housing Act of 

1937 (42 U.S.C. 1437 et seq.) 

Alternative management entity (AME) 

is a receiver, private contractor, private 

manager, or any other entity that is 

under contract with a PHA, under a 

management agreement with a PHA, or 

that is otherwise duly appointed or 

contracted (for example, by court order 

or agency action), to manage all or part 

of a PHA’s operations. 

Assessed fiscal year is the PHA fiscal 

year that has been assessed under 

PHAS, the most recent assessment of 

record, or the period of time, as defined 

in each management operations 

subindicator or component. 

Assistant Secretary means the 

Assistant Secretary for Public and 

Indian Housing. 

Corrective Action Plan means a plan, 

as provided in § 902.73(a), that is 

developed by a PHA that specifies the 

actions to be taken, including 

timetables, that shall be required to 

correct deficiencies identified under any 

of the PHAS subindicators, and 

identified as a result of a PHAS 

assessment, when a memorandum of 

agreement (MOA) is not required. 

Criticality means one of five levels 

that reflect the relative importance of 

the deficiencies for an inspectable item. 

(1) Based on the importance of the 

deficiency, reflected in its criticality 

value, points are deducted from the 

score for an inspectable area. 

Criticality Level 

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

Very Important ...................... 4 

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

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

Slight Contribution ................ 1 

(2) The Item Weights and Criticality 

Levels document lists all deficiencies 

with their designated levels, which vary 

from 1 to 5, with 5 as the most critical, 

and the point values assigned to them. 

Days mean calendar days, unless 

otherwise specified. 

Decent, safe, sanitary housing and in 

good repair (DSS/GR) is HUD’s standard 

for acceptable basic housing conditions 

and the level to which a PHA is 

required to maintain its public housing. 

Deficiency means any finding or 

determination that requires corrective 

action, or any score below 60 percent of 

the available points in any indicator or 

subindicator. In the context of physical 

condition and physical inspection in 

subpart B of this part, ‘‘deficiency’’

means a specific problem, as described 

in the Dictionary of Deficiency 

Definitions, such as a hole in a wall or 

a damaged refrigerator in the kitchen 

that can be recorded for inspectable 

items. 

Dictionary of Deficiency Definitions 

means the Dictionary of Deficiency 

Definitions document that contains 

specific definitions of each severity 

level for deficiencies under this subpart. 

The Dictionary of Deficiency Definitions 

that is currently in effect can be found 

at HUD’s Web site at http:// 

www.hud.gov/offices/reac/pdf/ 

pass_dict2.3.pdf or a hard copy may be 

obtained from HUD by calling 888–245–

4860 (this is a toll-free number). 

Direct Funded RMC means a Resident 

Management Corporation to which HUD 

directly provides operating and capital 

assistance under the provisions of 24 

CFR 964.225(h). 

Inspectable areas (or area) mean any 

of the five major components of public 

housing that are inspected, which are: 

Site, building exteriors, building 

systems, dwelling units, and common 

areas. 

Inspectable item means the individual 

parts, such as walls, kitchens, 

bathrooms, and other things, to be 

inspected in an inspectable area. The 

number of inspectable items varies for 

each area. Weights are assigned to each 

item as shown in the Item Weights and 

Criticality Levels document. 

Item Weights and Criticality Levels 

document means the Item Weights and 

Criticality Levels document that 

contains a listing of the inspectable 

items, item weights, observable 

deficiencies, criticality levels and 

values, and severity levels and values 

that apply to this subpart. The Item 

Weights and Criticality Levels 

document that is currently in effect can 

be found at HUD’s Web site at http:// 

www.hud.gov/offices/reac/library/ 

documents/fr-notice20011126.pdf or a 

hard copy may be obtained from HUD 

by calling 888–245–4860 (this is a tollfree number). 

Memorandum of Agreement (MOA) is 

defined in § 902.75(b) of this part. 

Normalized weights mean weights 

adjusted to reflect the inspectable items 

or areas that are present to be inspected. 

Resident Management Corporation 

(RMC) is defined in 24 CFR 964.7. 

Score for a project means a number on 

a scale of 0 to 100 that reflects the 

physical condition of a project, 

inspectable area, or subarea. To record 

a health or safety deficiency, a specific 

designation (such as a letter—a, b, or c) 

is added to the project score that 

highlights that a health or safety 

deficiency (or deficiencies) exists. If 

smoke detectors are noted as inoperable 

or missing, another designation (such as 

an asterisk (*)) is added to the project 

score. Although inoperable or missing 

smoke detectors do not reduce the score, 

they are fire safety hazards and are 


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included in the Notification of Exigent 

and Fire Safety Hazards Observed 

Deficiency list that the inspector gives 

the PHA’s project representative. 

Severity means one of three levels, 

level 1 (minor), level 2 (major), and 

level 3 (severe), that reflect the extent of 

the damage or problem associated with 

each deficiency. The Item Weights and 

Criticality Levels document shows the 

severity levels for each deficiency. 

Based on the severity of each deficiency, 

the score is reduced. Points deducted 

are calculated as the product of the item 

weight and the values for criticality and 

severity. Specific definitions of each 

severity level are found in the 

Dictionary of Deficiency Definitions. 

Subarea means an inspectable area for 

one building. For example, if a project 

has more than one building, each 

inspectable area for each building in the 

project is treated as a subarea. 

Unit-weighted average means the 

average of the PHA’s individual 

indicator scores, weighted by the 

number of units in each project, divided 

by the total number of units in all of the 

projects of the PHA. In order to compute 

a unit-weighted average, an individual 

project score for a particular indicator is 

multiplied by the number of units in 

each project to determine a ‘‘weighted 

value.’’ For example, for a PHA with 

two projects, one with 200 units and a 

score of 90, and the other with 100 units 

and a score of 60, the unit-weighted 

average score for the indicator would be 

(200 × 90 + 100 × 60)/300 = 80. 

§ 902.5 Applicability. 

(a) PHAs, RMCs, AMEs. This part 

applies to PHAs, Resident Management 

Corporations (RMCs), and AMEs. This 

part is also applicable to RMCs that 

receive direct funding (DF–RMCs) from 

HUD in accordance with section 20 of 

the Act. 

(1) Scoring of RMCs and AMEs. (i) 

RMCs and DF–RMCs will be assessed 

and issued their own numeric scores 

under PHAS based on the public 

housing or portions of public housing 

that they manage and the 

responsibilities they assume that can be 

scored under PHAS. References in this 

part to PHAs include RMCs, unless 

stated otherwise. References in this part 

to RMCs include DF–RMCs, unless 

stated otherwise. 

(ii) AMEs are not issued PHAS scores. 

The performance of the AME 

contributes to the PHAS score of the 

project(s)/PHA(s) for which they 

assumed management responsibilities. 

(2) ACC. The ACC makes a PHA 

legally responsible for all public 

housing operations, except where DF–

RMC assumes management operations. 

(i) Because the PHA and not the RMC 

or AME is ultimately responsible to 

HUD under the ACC, the PHAS score of 

a PHA will be based on all of the 

projects covered by the ACC, including 

those with management operations 

assumed by an RMC or AME (including 

a court-ordered or administrative 

receivership agreement, if applicable). 

(ii) A PHA’s PHAS score will not be 

based on projects managed by a DF–

RMC. 

(3) This rule does not apply to 

Moving-to-Work (MTW) agencies that 

are specifically exempted in their grant 

agreement. 

(b) Implementation of PHAS. The 

regulations in this part are applicable to 

PHAs with fiscal years ending on and 

after June 30, 2009. 

§ 902.9 PHAS scoring. 

(a) Indicators and subindicators. Each 

PHA will receive an overall PHAS score, 

rounded to the nearest whole number, 

based on the four indicators: physical 

condition, financial condition, 

management operations, and Capital 

Fund program. Each of these indicators 

contains subindicators, and the scores 

for the subindicators are used to 

determine a single score for each of 

these PHAS indicators. Individual 

project scores are used to determine a 

single score for the physical condition, 

financial condition, and management 

operations indicators. The Capital Fund 

program indicator score is entity-wide. 

(b) Overall PHAS score and 

indicators. The overall PHAS score is 

derived from a weighted average of 

score values for the four indicators, as 

follows: 

(1) The physical condition indicator is 

weighted 30 percent (30 points) of the 

overall PHAS score. The score for this 

indicator is obtained as indicated in 

subpart B of this part. 

(2) The financial condition indicator 

is weighted 20 percent (20 points) of the 

overall PHAS score. The score for this 

indicator is obtained as indicated in 

subpart C of this part. 

(3) The management operations 

indicator is weighted 40 percent (40 

points) of the overall PHAS score. The 

score for this indicator is obtained as 

indicated in subpart D of this part. 

(4) The Capital Fund program 

indicator is weighted 10 percent (10 

points) of the overall PHAS score for all 

Capital Fund program grants for which 

fund balances remain during the 

assessed fiscal year. The score for this 

indicator is obtained as indicated in 

subpart E of this part. 

(c) Scoring procedures. (1) The scores 

for each PHAS indicator will be 

calculated in accordance with the 

scoring procedures described in 

appendices A–D. 

(2) HUD will publish for public 

comment any significant proposed 

amendments to these scoring 

procedures. After comments have been 

considered, HUD will publish final 

documents. 

§ 902.11 PHAS performance designation. 

All PHAs that receive a PHAS 

assessment shall receive a performance 

designation. The performance 

designation is based on the overall 

PHAS score and the four indicator 

scores, as set forth below. 

(a) High performer. (1) A PHA that 

achieves an overall PHAS score of 90 

percent or greater shall be designated a 

high performer, except that such a PHA 

shall not be designated a high performer 

if more than 10 percent of its total units 

are in projects that fail the physical, 

financial, or management operations 

indicator. 

(2) High performers will be afforded 

incentives that include relief from 

reporting and other requirements, as 

described in § 902.71 of this part. 

(b) Standard performer. (1) A PHA 

that is not a high performer shall be 

designated a standard performer if the 

PHA achieves an overall PHAS score of 

at least 60 percent and at least 60 

percent under each of the four PHAS 

indicators. 

(2) At HUD’s discretion, a standard 

performer may be required by the 

regional/field office to submit and 

operate under a Corrective Action Plan. 

(c) Substandard performer. A PHA 

will be designated a substandard 

performer if a PHA achieves a total 

PHAS score of at least 60 percent and 

achieves a score of less than 60 percent 

under one or more of the physical 

condition, financial condition, or 

management operations indicators. The 

PHA will be designated as substandard 

physical, substandard financial, or 

substandard management, respectively. 

The HUD office with jurisdiction over 

the PHA may require a Corrective 

Action Plan if the deficiencies have not 

already been addressed in a current 

Corrective Action Plan. 

(d) Troubled performer. (1) A PHA 

that achieves an overall PHAS score of 

less than 60 percent shall be designated 

as a troubled performer. 

(2) In accordance with section 

6(j)(2)(A)(i) of the Act (42 U.S.C. 

1437d(j)(2)(A)(i)), a PHA that receives 

less than 60 percent under the Capital 

Fund program indicator under subpart E 

of this part will be designated as a 

troubled performer and subject to the 

sanctions provided in section 6(j)(4) of 

the Act (42 U.S.C. 1437(d)(j)(4)). 


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§ 902.13 Frequency of PHAS assessments. 

The frequency of a PHA’s PHAS 

assessments is determined by the size of 

the PHA’s Low-Rent program and its 

PHAS designation. 

(a) Small PHAs. HUD will assess and 

score the performance of a PHA with 

fewer than 250 public housing units 

every other PHA fiscal year, unless the 

PHA is designated as troubled, in 

accordance with § 902.75 of this part. 

(b) Frequency of scoring for PHAs 

with 250 units or more. 

(1) All PHAs, other than stated in 

paragraph (a) of this section, may be 

assessed on an annual basis. 

(2) The physical condition score for 

each project will determine the 

frequency of inspections of each project. 

For projects with a physical condition 

score of 80 points or higher, physical 

inspections will be conducted every 2 

years at the project. The physical 

condition score of 80 points or higher 

will be carried over to the next 

assessment year and averaged with the 

other project physical condition score(s) 

for the next assessment year for an 

overall PHAS physical condition 

indicator score. For projects whose 

physical condition score for a project is 

less than 80 points, physical inspections 

will be conducted annually at the 

project. 

(c) Financial submissions. HUD shall 

not issue a PHAS score for the 

unaudited and audited financial 

information in the years that a PHA is 

not being assessed under PHAS. 

Although HUD shall not issue a PHAS 

score under such circumstances, a PHA 

shall comply with the requirements for 

submission of annual unaudited and 

audited financial statements in 

accordance with subpart C of this part 

and 24 CFR 5.801. 

Subpart B—Physical Condition 

Indicator 

§ 902.20 Physical condition assessment. 

(a) Objective. The objective of the 

physical condition indicator is to 

determine whether a PHA is meeting the 

standard of decent, safe, sanitary 

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

standard is defined in 24 CFR 5.703. 

(b) Method of assessment. The 

physical condition assessment is based 

on an independent physical inspection 

of a PHA’s projects provided by HUD 

and performed by contract inspectors, 

and conducted using HUD’s Uniform 

Physical Condition Standards (UPCS) 

under 24 CFR part 5, subpart G. 

(c) Method of transmission. After the 

inspection is completed, the inspector 

transmits the results to HUD, where the 

results are verified for accuracy and 

then scored in accordance with the 

procedures in this subpart B. 

(d) PHA physical inspection 

requirements. The physical inspections 

conducted under this part do not relieve 

the PHA of the responsibility to inspect 

public housing units, as provided in 

section 6(f)(3) of the Act (42 U.S.C. 

1437d(f)(3)). 

(e) Compliance with state and local 

codes. The physical condition standards 

in this part 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. 

(f) HUD access to PHA projects. All 

PHAs are required by the ACC to 

provide HUD or its representative with 

full and free access to all facilities in its 

projects. All PHAs are required to 

provide HUD or its representative with 

access to its projects and to all units and 

appurtenances in order to permit 

physical inspections, monitoring 

reviews, and quality assurance reviews 

under this part. Access to the units shall 

be provided whether or not the resident 

is home or has installed additional locks 

for which the PHA did not obtain keys. 

In the event that the PHA fails to 

provide access as required by HUD or its 

representative, the PHA shall be given a 

physical condition score of zero for the 

project or projects involved. This score 

of zero shall be used to calculate the 

physical condition indicator score and 

the overall PHAS score. 

§ 902.21 Physical condition standards for 

public housing—decent, safe, and sanitary 

housing in good repair (DSS/GR). 

(a) General. Public housing must be 

maintained in a manner that meets the 

physical condition standards set forth in 

this part in order to be considered DSS/ 

GR (standards that constitute acceptable 

basic housing conditions). These 

standards address the major physical 

areas of public housing: Site, building 

exterior, building systems, dwelling 

units, and common areas (see paragraph 

(b) of this section). These standards also 

identify health and safety 

considerations (see paragraph (c) of this 

section). These standards address 

acceptable basic housing conditions, not 

the adornment, de ́cor, or other cosmetic 

appearance of the housing. 

(b) Major inspectable areas. (1) Site. 

The site includes the components and 

must meet the requirements of 24 CFR 

5.703(a). 

(2) Building exterior. The building 

exterior includes the components and 

must meet the standards stated in 24 

CFR 5.703(b). 

(3) Building systems. The building’s 

systems include components such as 

domestic water, electrical system, 

elevators, emergency power, fire 

protection, heating/ventilation/air 

conditioning (HVAC), and sanitary 

system. Each building’s systems must 

meet the standards of 24 CFR 5.703(c). 

(4) Dwelling units. Each dwelling unit 

within a building must meet the 

standards of 24 CFR 5.703(d). 

(5) Common areas. Each common area 

must meet the standards of 24 CFR 

5.703(e). 

(c) Health and safety concerns. All 

areas and components of the housing 

must be free of health and safety 

hazards, as provided in 24 CFR 5.703(f). 

§ 902.22 Physical inspection of PHA 

projects. 

(a) The inspection, generally. The 

PHA’s score for the physical condition 

indicator is based on an independent 

physical inspection of a PHA’s project(s) 

provided by HUD and using HUD’s 

UPCS inspection protocols to ensure 

projects meet DSS/GR standards that 

constitute acceptable basic housing 

conditions. 

(b) Physical inspection under the 

PHAS physical condition indicator. (1) 

To achieve the objective of paragraph (a) 

of this section, HUD will provide for an 

independent physical inspection of a 

PHA’s project(s) that includes, at a 

minimum, a statistically valid sample of 

the units in the PHA’s projects to 

determine the extent of compliance with 

the DSS/GR standard. 

(2) Only occupied units will be 

inspected as dwelling units (except 

units approved by HUD for nondwelling 

purposes, e.g., daycare or meeting 

rooms, which are inspected as common 

areas). Vacant units that are not under 

lease at the time of the physical 

inspection will not be inspected, but 

vacant units are assessed under the 

management operations indicator. The 

categories of vacant units not under 

lease that are exempted from physical 

inspection are as follows: 

(i) Units undergoing vacant unit 

turnaround—vacant units that are in the 

routine process of turnover; i.e., the 

period between which one resident has 

vacated a unit and a new lease takes 

effect; 

(ii) Units undergoing rehabilitation—

vacant units that have substantial 

rehabilitation needs already identified, 

and there is an approved 

implementation plan to address the 

identified rehabilitation needs and the 

plan is fully funded; 

(iii) Off-line units—vacant units that 

have repair requirements such that the 

units cannot be occupied in a normal 


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period of time (considered to be 

between 5 and 7 days) and which are 

not included under an approved 

rehabilitation plan. 

(c) Observed deficiencies. During the 

physical inspection of a project, an 

inspector looks for deficiencies for each 

inspectable item within the inspectable 

areas, such as holes (deficiencies) in the 

walls (item) of a dwelling unit (area). 

The dwelling units inspected in a 

project are a randomly selected, 

statistically valid sample of the units in 

the project, excluding vacant units not 

under lease at the time of the physical 

inspection, as provided in paragraph 

(b)(2) of this section. 

(d) Exigent health and safety (EHS) 

deficiencies and health and safety 

(H&S) deficiencies—(1) EHS 

deficiencies. To ensure prompt 

correction of EHS deficiencies, before 

leaving the site the inspector gives the 

project representative a Notification of 

Exigent and Fire Safety Hazards 

Observed Deficiency form that calls for 

immediate attention or remedy. The 

project representative acknowledges 

receipt of the deficiency report by 

signature. The project or PHA shall 

correct or remedy all EHS deficiencies 

cited in the deficiency report within 24 

contiguous hours of the project 

representative’s receipt of the 

Notification of Exigent and Fire Safety 

Hazards Observed Deficiency form. In 

addition, the project or PHA must 

certify to HUD within 3 business days 

of the project representative’s receipt of 

the Notification of Exigent and Fire 

Safety Hazards Observed Deficiency 

form, that all EHS deficiencies were 

corrected or remedied within 24 

contiguous hours. 

(2) H&S deficiencies. The project or 

the PHA, or both, as appropriate, is 

required to correct all H&S deficiencies 

within 72 contiguous hours of the 

project representative’s receipt of the 

Notification of Exigent and Fire Safety 

Hazards Observed Deficiency form. 

(e) Compliance with civil rights/ 

nondiscrimination requirements. 

Elements related to accessibility will be 

reviewed during the physical inspection 

to determine possible indications of 

noncompliance with the Fair Housing 

Act (42 U.S.C. 3601–19) and section 504 

of the Rehabilitation Act of 1973 (29 

U.S.C. 794). A PHA will not be scored 

on those elements. Any indication of 

possible noncompliance will be referred 

to HUD’s Office of Fair Housing and 

Equal Opportunity. 

§ 902.24 Database adjustment. 

(a) Adjustments for factors not 

reflected or inappropriately reflected in 

physical condition score. Under 

circumstances described in this section, 

HUD may determine it is appropriate to 

review the results of a project’s physical 

inspection that are unusual or incorrect 

due to facts and circumstances affecting 

the PHA’s project that are not reflected 

in the inspection or that are reflected 

inappropriately in the inspection. 

(1) The circumstances described in 

this section are not the circumstances 

that may be addressed by the technical 

review process described in § 902.68 of 

this part. The circumstances addressed 

in this paragraph (a)(1) may include 

inconsistencies between local code 

requirements and the HUD physical 

inspection protocol; conditions that are 

permitted by local variance or license or 

which are preexisting physical features 

that do not conform to, or are 

inconsistent with, HUD’s physical 

condition protocol; or the project or 

PHA having been scored for elements 

(e.g., roads, sidewalks, mail boxes, 

resident-owned appliances, etc.) that it 

does not own and is not responsible for 

maintaining. To qualify for an 

adjustment on this basis, the project or 

PHA must have notified the proper 

authorities regarding the deficient 

element. 

(2) An adjustment due to these 

circumstances may be initiated by a 

project or PHA’s notification to the 

applicable HUD regional or field office, 

and such notification shall include 

appropriate proof of the reasons for the 

unusual or incorrect result. Projects and 

PHAs may submit the request for this 

adjustment either prior to or after the 

physical inspection has been concluded. 

If the request is made after the 

conclusion of the physical inspection, 

the request must be made within 30 

days of issuance of the project’s or 

PHA’s physical condition score. Based 

on the recommendation of the 

applicable HUD office following its 

review of the project evidence or 

documentation submitted by the project 

or PHA, HUD may determine that a 

reinspection and rescoring of the project 

or PHA is necessary. 

(b) Adjustments for adverse 

conditions beyond the control of the 

PHA. Under certain circumstances, 

HUD may determine that certain 

deficiencies that adversely and 

significantly affect the physical 

condition score of the project were 

caused by circumstances beyond the 

control of the PHA. The correction of 

these conditions, however, remains the 

responsibility of the PHA. 

(1) The circumstances addressed by 

this paragraph (b)(1) may include, but 

are not limited to, damage caused by 

third parties (such as a private entity or 

public entity undertaking work near a 

public housing project that results in 

damage to the project) or natural 

disasters. (The circumstances addressed 

in paragraph (b)(1) are not those 

addressed by the technical review 

process in § 902.68.) 

(2) To adjust a physical condition 

score based on circumstances addressed 

in this paragraph, the PHA must submit 

a request to the applicable HUD 

regional/field office requesting a 

reinspection of the PHA’s project(s). The 

request must be submitted within 30 

days of the issuance of the physical 

condition score to the PHA and must be 

accompanied by a certification that all 

deficiencies identified in the original 

report have been corrected. Based on the 

recommendation of the applicable HUD 

office following its review of the 

project’s or PHA’s evidence or 

documentation, HUD may determine 

that a reinspection and rescoring of the 

PHA’s project(s) is necessary. 

(c) Adjustments for modernization 

work in progress. HUD may determine 

that an occupied dwelling unit or other 

areas of a PHA’s project, subject to 

physical inspection under this subpart, 

and are undergoing modernization 

work, requires an adjustment to the 

physical condition score. 

(1) An occupied dwelling unit or 

other areas of a PHA’s project 

undergoing modernization are subject to 

physical inspection; the unit(s) and 

other areas of the PHA’s project are not 

exempt from physical inspection. All 

elements of the unit or of the other areas 

of the PHA’s project that are subject to 

inspection and are not undergoing 

modernization at the time of the 

inspection (even if modernization is 

planned) will be subject to HUD’s 

physical inspection protocol without 

adjustment. For those elements of the 

unit or of the project that are undergoing 

modernization, deficiencies will be 

noted in accordance with HUD’s 

physical inspection protocol, but the 

project or PHA may request adjustment 

of the physical condition score as a 

result of modernization work in 

progress. 

(2) An adjustment due to 

modernization work in progress may be 

initiated by a project’s or PHA’s 

notification to the applicable HUD 

office, and the notification shall include 

supporting documentation of the 

modernization work under way at the 

time of the physical inspection. A 

project or PHA may submit the request 

for this adjustment either prior to or 

after the physical inspection has been 

concluded. If the request is made after 

the conclusion of the physical 

inspection, the request must be made 

within 30 days of issuance of the 


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physical condition score. Based on the 

recommendation of the applicable HUD 

office, HUD may determine that a 

reinspection and rescoring of the PHA’s 

project(s) are necessary. 

§ 902.25 Physical condition scoring and 

thresholds. 

(a) Scoring. Under the physical 

condition indicator, a score will be 

calculated for the overall condition of a 

PHA’s public housing portfolio, as well 

as for individual projects, following the 

procedures described in the separate 

scoring document. 

(b) Overall PHA physical condition 

indicator score. The overall physical 

condition indicator score is a unitweighted average of project scores. The 

sum of the unit-weighted values is 

divided by the total number of units in 

the PHA’s portfolio to derive the overall 

physical condition indicator score. 

(c) Thresholds. (1) The project(s) 100- 

point physical condition score is 

converted to a 30-point basis for the 

overall physical condition indicator 

score. The project scores on the 100- 

point basis are multiplied by 30 in order 

to derive a 30-point equivalent score to 

compute the overall physical condition 

score and overall PHAS score. 

(2) In order to receive a passing score 

under the physical condition indicator, 

the PHA must achieve a score of at least 

18 points, or 60 percent. 

(3) A PHA that receives fewer than 18 

points will be categorized as a 

substandard physical condition agency. 

§ 902.26 Physical Inspection Report. 

(a) Following the physical inspection 

of each project and the computation of 

the score(s) under this subpart, the PHA 

receives a Physical Inspection Report. 

The Physical Inspection Report allows 

the PHA to see the magnitude of the 

points lost by inspectable area, and the 

impact on the score of the H&S and EHS 

deficiencies. 

(1) If EHS items are identified in the 

report and were not corrected under the 

provisions of § 902.22(d), the PHA shall 

correct all EHS deficiencies within 24 

contiguous hours and may request a 

reinspection. 

(2) The request for reinspection must 

be made within 30 days of the PHA’s 

receipt of the Physical Inspection 

Report. The request for reinspection 

must be accompanied by the PHA’s 

identification of the EHS deficiencies 

that have been corrected, and by the 

PHA’s certification that all such 

deficiencies identified in the report 

have been corrected. 

(3) If HUD determines that a 

reinspection is appropriate, it will 

arrange for a complete reinspection of 

the project(s) in question, not just the 

deficiencies previously identified. The 

reinspection will constitute the final 

physical inspection for the project, and 

HUD will issue a new inspection report 

(the final inspection report). 

(4) If any of the previously identified 

EHS deficiencies that the PHA certified 

were corrected are found during the 

reinspection not to have been corrected, 

the score in the final inspection report 

will reflect a point deduction of triple 

the value of the original deduction, up 

to the maximum possible points for the 

unit or area, and the PHA must 

reimburse HUD for the cost of the 

reinspection. 

(5) If a request for reinspection is not 

made within 30 days after the date that 

the PHA receives the Physical 

Inspection Report, the Physical 

Inspection Report issued to the PHA 

will be the final Physical Inspection 

Report. 

(b) A Physical Inspection Report 

includes the following items: 

(1) Normalized weights as the 

‘‘possible points’’ by area; 

(2) The area scores, taking into 

account the points deducted for 

observed deficiencies; 

(3) The H&S (nonlife threatening) and 

EHS (life threatening) deductions for 

each of the five inspectable areas; a 

listing of all observed smoke detector 

deficiencies; and a projection of the 

total number of H&S and EHS problems 

that the inspector potentially would see 

in an inspection of all buildings and all 

units; and 

(4) The overall project score. 

Subpart C—Financial Condition 

Indicator 

§ 902.30 Financial condition assessment. 

(a) Objective. The objective of the 

financial condition indicator is to 

measure the financial condition of each 

public housing project within a PHA’s 

public housing portfolio for the purpose 

of evaluating whether there are 

sufficient financial resources to support 

the provision of housing that is DSS/GR. 

Individual project scores for financial 

condition, as well as overall financial 

condition scores, will be issued. 

(b) Financial reporting standards. A 

PHA’s financial condition will be 

assessed under this indicator by 

measuring the combined performance of 

all public housing projects in each of 

the subindicators listed in § 902.35, on 

the basis of the annual financial report 

provided in accordance with § 902.33. 

§ 902.33 Financial reporting requirements. 

(a) Annual financial report. All PHAs 

must submit their unaudited and 

audited financial data to HUD on an 

annual basis. The financial information 

must be: 

(1) Prepared in accordance with 

Generally Accepted Accounting 

Principles (GAAP), as further defined by 

HUD in supplementary guidance; and 

(2) Submitted electronically in the 

format prescribed by HUD using the 

Financial Data Schedule (FDS). 

(b) Annual unaudited financial 

information report filing dates. The 

unaudited financial information to be 

submitted to HUD in accordance with 

paragraph (a) of this section must be 

submitted to HUD annually, no later 

than 2 months after the PHA’s fiscal 

year end, with no penalty applying until 

the 16th day of the 3rd month after the 

PHA’s fiscal year end, in accordance 

with § 902.62. 

(c) Annual audited financial 

information compliance dates. Audited 

financial statements will be required no 

later than 9 months after the PHA’s 

fiscal year end, in accordance with the 

Single Audit Act and OMB Circular A–

133 (see 24 CFR 85.26). 

(d) Year-end audited financial 

information. All PHAs that meet the 

federal assistance threshold stated in the 

Single Audit Act and OMB Circular A–

133 must also submit year-end audited 

financial information. 

(e) Submission of information. In 

addition to the submission of 

information required by paragraph (a) of 

this section, a PHA shall provide one 

copy of the completed audit report 

package and the Management Letter 

issued by the Independent Auditor to 

the local HUD regional/field office 

having jurisdiction over the PHA. 

§ 902.35 Financial condition scoring and 

thresholds. 

(a) Scoring. (1) Under the financial 

condition indicator, a score will be 

calculated for each project based on the 

values of financial condition 

subindicators and an overall financial 

condition score, as well as audit and 

internal control flags. Each financial 

condition subindicator has several 

levels of performance, with different 

point values for each level. 

(2) The financial condition score for 

projects and PHAs will be based on the 

Low-Rent and Capital Fund program 

information, consistent with 

§ 990.280(a) of the Public Housing 

Operating Fund program regulation. 

(3) Under the financial condition 

indicator, a score will be calculated 

following the procedures described in 

appendix B. 

(b) Subindicators of the financial 

condition indicator. The subindicators 

of financial condition indicator are: 


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(1) Quick Ratio (QR). The QR 

compares quick assets to current 

liabilities. Quick assets are cash and 

assets that are easily convertible to cash 

and do not include inventory. Current 

liabilities are those liabilities that are 

due within the next 12 months. A QR 

of less than one indicates that the 

project’s ability to make payments on a 

timely basis may be at risk. 

(2) Months Expendable Net Assets 

Ratio (MENAR). The MENAR measures 

a project’s ability to operate using its net 

available, unrestricted resources 

without relying on additional funding. 

In particular, this ratio compares the net 

available unrestricted resources to the 

average monthly operating expenses. 

The result of this calculation shows how 

many months of operating expenses can 

be covered with currently available, 

unrestricted resources. 

(3) Debt Service Coverage Ratio 

(DSCR). The DSCR is a measure of net 

operating income available to make debt 

payments to the amount of the debt 

payments. This subindicator is used if 

the PHA has taken on long-term 

obligations. A DSCR of less than one 

would indicate that the project would 

have difficulty generating sufficient 

cash flow to cover both its expenses and 

its debt obligations. 

(c) Overall PHA financial condition 

indicator score. The overall financial 

condition indicator score is a unitweighted average of project scores. The 

sum of the weighted values is then 

divided by the total number of units in 

the PHA’s portfolio to derive the overall 

financial condition indicator score. 

(d) Thresholds. (1) The PHA’s 

financial condition score is based on a 

maximum of 20 points. 

(2) In order for a PHA to receive a 

passing score under the financial 

condition indicator, the PHA must 

achieve a score of at least 12 points, or 

60 percent of the available points under 

this indicator. 

(3) A PHA that receives fewer than 12 

points available under this indicator 

will be categorized as a substandard 

financial condition agency. 

Subpart D—Management Operations 

Indicator 

§ 902.40 Management operations 

assessment. 

(a) Objective. The objective of the 

management operations indicator is to 

measure the PHA’s performance of 

management operations through the 

management performance of each 

project. 

(b) Management assessment. The 

management operations indicator 

incorporates the majority of the 

statutory indicators of section 6(j) of the 

Act (42 U.S.C. 1437d(j)). (The remaining 

statutory indicators are addressed under 

the other PHAS indicators.) 

§ 902.43 Management operations 

performance standards. 

(a) Management operations 

component. The following statutory 

subindicators listed in this section, as 

well as the project management review, 

will be used to assess the management 

operations of projects and PHAs, 

consistent with section 6(j)(1) of the Act 

(42 U.S.C. 1437d(j)(1)). Individual 

project scores for management 

operations, as well as overall PHA 

management operations scores, will be 

issued. The components and scoring for 

each subindicator and the project 

management review are in appendix C. 

(1) Vacancy rate and percentage. This 

component measures the adjusted 

vacancy rate and the progress that a 

project has made within the previous 3 

fiscal years to reduce such vacancies. 

Implicit in this component is that the 

project has an adequate system for 

tracking vacancy days. 

(2) Rent collection. This component 

measures the percentage of rent 

collected by a project against the rent 

charged. 

Implicit in this component is that a 

project has an adequate system to track 

and document total rents charged and 

total rents collected. 

(3) Utility consumption. This 

component examines a project’s energy 

conservation/utility consumption. 

(4) Turnaround time. This component 

examines the amount of time it takes a 

project to turn around the units that 

were released within the assessment 

period. Implicit in this component is 

that the project has an adequate system 

for tracking vacant unit turnaround 

time. 

(5) Work orders. This component 

measures the average number of days 

that tenant-generated work orders are 

outstanding, and any progress a project 

has made during the preceding 3 fiscal 

years to reduce the period of time 

tenant-generated work orders are 

outstanding. Implicit in this component 

is the adequacy of the project’s system 

for tracking work orders and ensuring 

the thoroughness and quality of the 

project’s needed repairs. 

(6) Unit inspection. This component 

measures the percentage of units that a 

project inspected during the assessment 

period. Projects are required to inspect 

their property in accordance with the 

HUD-prescribed physical inspection 

procedures as set forth in 24 CFR part 

5, subpart G. 

(i) Adequacy of inspection program. 

This component requires that projects 

adequately track inspections, ensuring 

the thoroughness and quality of the 

project’s inspections. 

(ii) Units to be inspected. All 

occupied units and units available for 

occupancy are required to be inspected 

annually, consistent with section 6(f)(3) 

of the Act (42 U.S.C. 1437d(f)(3)). This 

includes units used for nondwelling 

purposes, those occupied by an 

employee, and those used for resident 

services. 

(7) Security. This component 

evaluates a project’s performance in 

tracking crime-related problems in the 

project; the adoption and 

implementation of applicant screening 

and resident eviction policies and 

procedures, and other anticrime 

strategies; and coordination with local 

government officials and residents in 

the project and PHA on implementation 

of such strategies. 

(8) Economic self-sufficiency. This 

component evaluates the selfsufficiency opportunities provided for 

adult residents. 

(9) Resident involvement in project 

administration. This component 

evaluates the opportunities for resident 

involvement in project administration. 

(b) Assessment under the 

management operations indicator. 

Projects will be assessed under this 

indicator through management 

operations information that is 

electronically submitted to HUD, such 

management data as is available through 

the FDS, project management reviews 

conducted by HUD, and other HUD data 

systems, such as the Subsidy and Grant 

Information System. 

§ 902.44 Adjustment for physical condition 

and neighborhood environment. 

(a) General. In accordance with 

section 6(j)(1)(I)(2) of the Act (42 U.S.C. 

1437d(j)(1)(I)(2)), the overall 

management operations score for a 

project will be adjusted upward to the 

extent that negative conditions are 

caused by situations outside the control 

of the project. These situations are 

related to the poor physical condition of 

the project or the overall depressed 

condition of the major census tract in 

which a project is located. The intent of 

this adjustment is to avoid penalizing 

such projects, through appropriate 

application of the adjustment. 

(b) Definitions. Definitions and 

application of physical condition and 

neighborhood environment factors are: 

(1) Physical condition adjustment 

applies to projects at least 28 years old, 

based on the unit-weighted average Date 

of Full Availability (DOFA) date. 


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(2) Neighborhood environment 

adjustment applies to projects located in 

census tracts where at least 40 percent 

of the families have an income below 

the poverty rate, as documented by the 

most recent census data. If a project is 

located in more than one census tract, 

the census data for the census tract 

where the majority of the project’s units 

are located shall be used. 

(c) Adjustment for physical condition 

and neighborhood environment. HUD 

will adjust the management operations 

score of a project subject to one or both 

of the physical condition and 

neighborhood environment conditions. 

The adjustments will be made to the 

overall management operations score for 

each project so as to reflect the difficulty 

in managing the projects. In each 

instance where the actual management 

operations score is rated below the 

maximum score of 40 points, one point 

each will be added for physical 

condition and neighborhood 

environment, but not to exceed the 

maximum number of 40 points available 

for the management operations 

indicator. 

(d) Application of adjustment. The 

adjustment for physical condition and 

neighborhood environment will be 

calculated by HUD and applied to all 

eligible projects. 

§ 902.45 Management operations scoring 

and thresholds. 

(a) Scoring. Under the management 

operations indicator, a score will be 

calculated for each project, as well as for 

the overall management operations of a 

PHA, that reflects weights based on the 

relative importance of the individual 

management subindicators. Under the 

management operations indicator, HUD 

will calculate a score following the 

procedures described in the separate 

PHAS Management Operations Scoring 

document. 

(b) Overall PHA management 

operations indicator score. The overall 

management operations indicator score 

is a unit-weighted average of project 

scores. The sum of the weighted values 

is divided by the total number of units 

in the PHA’s portfolio to derive the 

overall management operations 

indicator score. 

(c) Thresholds. (1) The PHA’s 

management operations score is based 

on a maximum of 40 points. 

(2) In order to receive a passing score 

under the management operations 

indicator, a PHA must achieve a score 

of at least 24 points or 60 percent. 

(3) A PHA that receives fewer than 24 

points will be categorized as a 

substandard management operations 

agency. 

Subpart E—Capital Fund Program 

Indicator 

§ 902.50 Capital Fund program 

assessment. 

(a) Objective. The Capital Fund 

program indicator examines the period 

of time taken by a PHA to obligate funds 

and expend funds in relation to 

statutory deadlines for obligation and 

expenditure for all Capital Fund 

program grants for which fund balances 

remain during the assessed fiscal year. 

Funds from the Capital Fund program 

under section 9(d) of the Act (42 U.S.C. 

1437g(d)) do not include HOPE VI 

program funds. 

(b) Applicability. This indicator is 

applicable on a PHA-wide basis, and not 

to individual projects. This indicator is 

not applicable to PHAs that choose not 

to participate in the Capital Fund 

program under section 9(d) of the Act. 

(c) Method of assessment. The 

assessment required under the Capital 

Fund program indicator will be 

performed through analysis of obligated 

and expended amounts in HUD’s eLOCCS (or its successor) for all Capital 

Fund program grants that were open 

during the assessed fiscal year. This 

indicator measures the statutory 

requirements for the Capital Fund 

program. Other aspects of the Capital 

Fund program will be monitored by 

HUD through other types of reviews. 

(1) PHAs are responsible to ensure 

that their Capital Fund program 

information is submitted to e-LOCCS by 

the submission due date. 

(2) A PHA may not appeal its PHAS 

score, Capital Fund program score, or 

both, based on the fact that it did not 

submit its Capital Fund program 

information to e-LOCCS by the 

submission due date. 

§ 902.53 Capital Fund program scoring 

and thresholds. 

(a) Scoring. The Capital Fund program 

indicator score provides an assessment 

of a PHA’s ability to obligate and 

expend Capital Fund program grants in 

a timely manner. Under the Capital 

Fund program indicator, a score will be 

calculated following the procedures 

described in the separate PHAS Capital 

Fund program Scoring document. 

(b) Thresholds. (1) The PHA’s Capital 

Fund program score is based on a 

maximum of 10 points. 

(2) In order to receive a passing score 

under the Capital Fund program 

indicator, a PHA must achieve a score 

of at least 6 points, or 60 percent. 

Subpart F—PHAS Scoring 

§ 902.60 Data collection. 

(a) Fiscal year reporting period—

limitation on changes after PHAS 

effective date. To allow for a period of 

consistent assessments to refine and 

make necessary adjustments to PHAS, a 

PHA is not permitted to change its fiscal 

year for the first 3 full fiscal years 

following June 30, 2009, unless such 

change is approved by HUD for good 

cause. 

(b) Request for extension of time to 

submit unaudited financial information. 

In the event of extenuating 

circumstances, a PHA may request 

extensions of time to submit its 

unaudited financial information. To 

receive an extension, a PHA must 

ensure that HUD receives the extension 

request electronically 15 days before the 

submission due date. The PHA’s 

electronic extension request must 

include an objectively verifiable 

justification as to why the PHA cannot 

submit the information by the 

submission due date. PHAs shall submit 

their requests for extensions of time for 

the submission of unaudited financial 

information through the FASS Secure 

Systems Web site. HUD shall forward its 

determination electronically to the 

requesting PHA. 

(c) Request for waiver of due date for 

PHA submission of audited financial 

information. (1) HUD, for good cause, 

may grant PHAs a waiver of the due 

date of the submission of audited 

financial information to HUD. HUD 

shall consider written requests from 

PHAs for a waiver of the report 

submission due date (established by 

OMB as no later than 9 months after the 

end of the fiscal year). The PHA’s 

written request for a waiver of the due 

date of the submission of audited 

financial information must include an 

objectively verifiable justification as to 

why the PHA cannot submit the 

information by the submission due date. 

A PHA shall submit its written request 

for such a waiver, 30 days prior to the 

submission due date, to the Assistant 

Secretary for Public and Indian 

Housing, Department of Housing and 

Urban Development, 451 Seventh Street, 

SW., Washington, DC 20410–2135. HUD 

shall forward its written determination 

of the waiver request to the PHA and, 

if appropriate, establish a new 

submission due date for the audited 

financial information. 

(2) A waiver of the due date for the 

submission of audited financial 

information to HUD does not relieve a 

PHA of its responsibility to submit its 

audited information to the Federal 

Audit Clearinghouse, as established by 


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OMB no later than 9 months after the 

end of its fiscal year. 

(d) Rejected unaudited financial 

submissions. When HUD rejects a PHA’s 

year-end unaudited financial 

information after the due date, a PHA 

shall have 15 days from the date of the 

rejection to resubmit the information 

without a penalty being applied, in 

accordance with § 902.62. 

§ 902.62 Failure to submit data. 

(a) Failure to submit data by due date. 

(1) If a PHA without a finding of good 

cause by HUD does not submit its yearend financial information, required by 

this part, or submits its unaudited yearend financial information more than 15 

days past the due date, appropriate 

sanctions may be imposed, including a 

reduction of one point in the total PHAS 

score for each 15-day period past the 

due date. 

(2) If the unaudited year-end financial 

information is not received within 3 

months past the due date, or extended 

due date, the PHA will receive a 

presumptive rating of failure for its 

unaudited information and shall receive 

zero points for its unaudited financial 

information and the final financial 

condition indicator score. The 

subsequent timely submission of 

audited information does not negate the 

score of zero received for the unaudited 

year-end financial information 

submission. 

(3) The PHA’s audited financial 

statement must be received no later than 

9 months after the PHA’s fiscal yearend, in accordance with OMB Circular 

A–133 (see § 902.33(c)). If the audited 

financial statement is not received by 

that date, the PHA will receive a 

presumptive rating of failure for the 

financial condition indicator. 

(b) Verification of information 

submitted. (1) A PHA’s year-end 

financial information and any 

supporting documentation are subject to 

review by an independent auditor, as 

authorized by section 6(j)(6) of the Act 

(42 U.S.C. 1437(d)(j)(6)). Appropriate 

sanctions for intentional false 

certification will be imposed, including 

civil penalties, suspension or debarment 

of the signatories, the loss of high 

performer designation, a lower score 

under the financial condition indicator, 

and a lower overall PHAS score. 

(2) A PHA that cannot provide 

justifying documentation to HUD for the 

assessment under any indicator(s), 

subindicator(s), or component(s) shall 

receive a score of zero for the relevant 

indicator(s), subindicator(s), or 

component(s), and its overall PHAS 

score shall be lowered accordingly. 

§ 902.64 PHAS scoring and audit reviews. 

(a) Adjustments to PHAS score. (1) 

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 adjusted (e.g., reduced in points) 

in accordance with the audited results. 

(2) A PHA’s PHAS score under 

individual indicators, subindicators, or 

components, or its overall PHAS score, 

may be changed by HUD in accordance 

with data included in the audit report, 

or obtained through such sources as 

HUD project management and other 

reviews, investigations by HUD’s Office 

of Fair Housing and Equal Opportunity, 

investigations or audits by HUD’s Office 

of Inspector General, or reinspection by 

HUD, as applicable. 

(b) Issuance of a score by HUD. An 

overall PHAS score will be issued for 

each PHA after the later of one month 

after the submission due date for 

financial data or one month after 

submission by the PHA of its financial 

data. The overall PHAS score becomes 

the PHA’s final PHAS score after any 

adjustments requested by the PHA and 

determined necessary under the 

processes provided in §§ 902.25(d), 

902.35(a), and 902.68; any adjustments 

resulting from the appeal process 

provided in § 902.69; and any 

adjustments determined necessary as a 

result of the independent public 

accountant (IPA) audit. 

(c) Review of audit—(1) Quality 

control review. HUD may undertake a 

quality control review of the audit work 

papers or as part of the Department’s 

ongoing quality assurance process. 

(2) Determination of deficiency. If 

HUD determines that the PHA’s 

financial statements, electronic financial 

submission, or audit are deficient, it 

shall notify the PHA of such 

determination in writing. The PHA will 

have 30 days in which to respond to the 

notice of deficiency and to establish that 

the determination is erroneous. 

Following consideration of any PHA 

response, HUD will issue a final 

determination in writing to the PHA. 

(i) Deficient financial statements. 

Deficient financial statements are 

statements that are not presented, in 

some material respect, in accordance 

with accounting principles generally 

accepted in the United States, as set 

forth by the Government Accounting 

Standards Board, or if applicable, the 

Financial Accounting Standards Board. 

(ii) Deficient electronic submission. A 

deficient electronic financial 

submission is a filing that was not 

made, in some material respect, in 

accordance with HUD requirements or 

attested to in accordance with the 

Standards for Attestation Engagements 

issued by the American Institute of 

Certified Public Accountants or 

Generally Accepted Government 

Auditing Standards. 

(iii) Deficient audit. A deficient audit 

is one that was not performed, in some 

material respect, in compliance with 

Generally Accepted Government 

Auditing Standards; Generally Accepted 

Auditing Standards; OMB Circular A–

133, when applicable; or HUD 

requirements. 

(3) HUD actions. If HUD determines 

that the financial statements, electronic 

financial submission, or audit are 

deficient, HUD may adjust the financial 

indicator score to zero and/or reduce the 

overall PHAS score in accordance with 

the provisions of this section. 

Additionally, if HUD determines that 

the audit is deficient, HUD may, at its 

discretion, elect to serve as the audit 

committee for the PHA for the next 

fiscal year and select the audit firm that 

will perform the audit in question. 

§ 902.66 Withholding, denying, and 

rescinding designation. 

(a) Withholding designation. In 

exceptional circumstances, even though 

a PHA has satisfied all of the PHAS 

indicators for high performer or 

standard performer designation, HUD 

may conduct any review as it may 

determine necessary, and may deny or 

rescind incentives or high performer 

designation or standard performer 

designation, in the case of a PHA that: 

(1) Is operating under a special 

agreement with HUD (e.g., a civil rights 

compliance agreement); 

(2) Is involved in litigation that bears 

directly upon the physical, financial, or 

management performance of a PHA; 

(3) Is operating under a court order; 

(4) Demonstrates substantial evidence 

of fraud or misconduct, including 

evidence that the PHA’s certifications, 

submitted in accordance with this part, 

are not supported by the facts, as 

evidenced by such sources as a HUD 

review, routine reports, an Office of 

Inspector General investigation/audit, 

an independent auditor’s audit, or an 

investigation by any appropriate legal 

authority; or 

(5) Demonstrates substantial 

noncompliance in one or more areas of 

a PHA’s required compliance with 

applicable laws and regulations, 

including areas not assessed under 

PHAS. Areas of substantial 

noncompliance include, but are not 

limited to, noncompliance with civil 

rights, nondiscrimination and fair 


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housing laws and regulations, or the 

ACC. Substantial noncompliance casts 

doubt on the capacity of a PHA to 

preserve and protect its public housing 

projects and operate them consistent 

with federal laws and regulations. 

(b) High performer designation. If a 

high performer designation is denied or 

rescinded, the PHA shall be designated 

either a standard performer, 

substandard performer, or troubled 

performer, depending on the nature and 

seriousness of the matter or matters 

constituting the basis for HUD’s action. 

If a standard performer designation is 

denied or rescinded, the PHA shall be 

designated as a substandard performer 

or troubled performer. 

(c) Effect on score. The denial or 

rescission of a designation of high 

performer or standard performer shall 

not affect the PHA’s numerical PHAS 

score, except where the denial or 

rescission is under paragraph (a)(4) of 

this section. 

§ 902.68 Technical review of PHAS 

physical condition indicator. 

(a) Request for technical reviews. This 

section describes the process for 

requesting and granting technical 

reviews of physical inspection results. 

(1) For these reviews, the burden of 

proof is on the PHA to show that an 

error occurred. 

(2) A request for technical review 

must be submitted in writing to the Real 

Estate Assessment Center, Attention: 

Technical Review, and must be received 

by HUD no later than 30 days following 

the issuance of the applicable results to 

the PHA. 

(b) Technical review of results of 

physical inspection results. (1) For each 

project inspected, the results of the 

physical inspection and a score for that 

project will be provided to the PHA. If 

the PHA believes that an objectively 

verifiable and material error(s) occurred 

in the inspection of an individual 

project, the PHA may request a 

technical review of the inspection 

results for that project. Material errors 

are the only grounds for technical 

review of physical inspection results. 

(2) A PHA’s request for a technical 

review must be accompanied by the 

PHA’s evidence that an objectively 

verifiable and material error(s) has 

occurred. The documentation submitted 

by the PHA may be photographic 

evidence; written material from an 

objective source, such as a local fire 

marshal or building code official; or 

other similar evidence. The evidence 

must be more than a disagreement with 

the inspector’s observations, or the 

inspector’s finding regarding the 

severity of the deficiency. 

(3) A technical review of a project’s 

physical inspection will not be 

conducted based on conditions that 

were corrected subsequent to the 

inspection, nor will a request for a 

technical review be considered if the 

request is based on a challenge to the 

inspector’s findings as to the severity of 

the deficiency (i.e., minor, major, or 

severe). 

(4) Upon receipt of a PHA’s request 

for technical review of a project’s 

inspection results, the PHA’s file will be 

reviewed, including any objectively 

verifiable evidence produced by the 

PHA. If HUD’s review determines that 

an objectively verifiable and material 

error(s) has been documented, then one 

or a combination of the following 

actions may be taken by HUD: 

(i) Undertake a new inspection; 

(ii) Correct the physical inspection 

report; 

(iii) Issue a corrected physical 

condition score; and 

(iv) Issue a corrected PHAS score. 

(5) In determining whether a new 

inspection of the project is warranted 

and a new PHAS score must be issued, 

the PHA’s file will be reviewed, 

including any evidence submitted, to 

determine whether the evidence 

supports that there may have been a 

material contractor error in the 

inspection that results in a significant 

change from the project’s original 

physical condition score and the PHAS 

designation assigned to the PHA (i.e., 

high performer, standard performer, 

substandard performer, or troubled 

performer). If HUD determines that a 

new inspection is warranted, and the 

new inspection results in a significant 

change from the original physical 

condition score, and from the PHA’s 

PHAS score and PHAS designation, the 

PHA shall be issued a new PHAS score. 

(6) Material errors are those that 

exhibit specific characteristics and meet 

specific thresholds. The three types of 

material errors are: 

(i) Building data error. A building 

data error occurs if the inspection 

includes the wrong building or a 

building that was not owned by the 

PHA, including common or site areas 

that were not a part of the project. 

Incorrect building data that does not 

affect the score, such as the address, 

building name, year built, etc., would 

not be considered material, but will 

nonetheless be corrected upon notice to 

HUD. 

(ii) Unit count error. A unit count 

error occurs if the total number of 

public housing units considered in 

scoring is incorrect. Since scoring uses 

total public housing units, HUD will 

examine instances where the participant 

can provide evidence that the total units 

used is incorrect. 

(iii) Nonexistent deficiency error. A 

nonexistent deficiency error occurs if 

the inspection cites a deficiency that 

does not exist. 

(7) HUD’s decision on a request for 

technical review is final and may not be 

further appealed under the 

administrative process in § 902.69. 

§ 902.69 PHA right of petition and appeal. 

(a) Appeal of troubled performer 

designation and petition for removal of 

troubled performer designation. A PHA 

may take any of the following actions: 

(1) Appeal its troubled performer 

designation (including Capital Fund 

program troubled performer 

designation); 

(2) Appeal its final overall PHAS 

score; 

(3) Petition for removal of troubled 

performer designation; 

(4) Appeal any refusal of a petition to 

remove troubled performer designation; 

and 

(5) Appeal actions under § 902.66. 

(b) Appeal of PHAS score. (1) If a PHA 

believes that an objectively verifiable 

and material error(s) exists in any of the 

scores for its PHAS indicators, which, if 

corrected, will result in a significant 

change in the PHA’s PHAS score and its 

designation (i.e., as troubled performer, 

substandard performer, standard 

performer, or high performer), the PHA 

may appeal its PHAS score in 

accordance with the procedures of 

paragraphs (c), (d), and (e) of this 

section. A significant change in a PHAS 

score is a change that would cause the 

PHA’s PHAS score to increase, resulting 

in a higher PHAS designation for the 

PHA (i.e., from troubled performer to 

substandard performer or standard 

performer, or from standard performer 

to high performer). 

(2) A PHA may not appeal its PHAS 

score, physical condition score, or both, 

based on the subsequent correction of 

deficiencies identified as a result of a 

project’s physical inspection or the 

denial of a technical review request. 

(3) A PHA may not appeal its PHAS 

score, Capital Fund program score, or 

both, based on the fact that it did not 

submit its Capital Fund program 

information to e-LOCCS by the 

submission due date. 

(c) Appeal and petition procedures. 

(1) To appeal a troubled performer 

designation or a final overall PHAS 

score, a PHA must submit a request in 

writing to the Deputy Assistant 

Secretary of the Real Estate Assessment 

Center, which must be received by HUD 

no later than 30 days following the 

issuance of the overall PHAS score to 


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the PHA. To petition the removal of a 

troubled performer designation, a PHA 

must submit its request in writing to the 

Deputy Assistant Secretary of the Real 

Estate Assessment Center. 

(2) To appeal the denial of a petition 

to remove a troubled performer 

designation, a PHA must submit a 

written request to the Deputy Assistant 

Secretary of the Real Estate Assessment 

Center, which must be received by HUD 

no later than 30 days after HUD’s 

decision to refuse to remove the PHA’s 

troubled performer designation. 

(3) To appeal the petition for the 

removal of a troubled performer 

designation, or appeal the denial of a 

petition to remove a troubled performer 

designation, a PHA shall submit its 

request in writing to the Deputy 

Assistant Secretary of the Real Estate 

Assessment Center. 

(4) An appeal of a troubled performer 

designation, the petition for removal of 

a troubled performer designation, or the 

appeal of a refusal of a petition to 

remove a troubled performer 

designation must include the PHA’s 

supporting documentation and reasons 

for the appeal or petition. An appeal of 

a PHAS score must be accompanied by 

the PHA’s evidence that a material error 

occurred. An appeal or petition 

submitted to HUD without supporting 

documentation will not be considered 

and will be returned to the PHA. 

(d) Denial, withholding, or rescission. 

A PHA that disagrees with the basis for 

denial, withholding, or rescission of its 

designation under § 902.66 may make a 

written request for reinstatement within 

30 days of notification by HUD of the 

denial or rescission of the designation to 

the Assistant Secretary, and the request 

shall include reasons for the 

reinstatement. 

(e) Consideration of petitions and 

appeals. (1) Consideration of a petition 

or the appeal of a final overall PHAS 

score, of a troubled performer 

designation, or of a petition to remove 

troubled performer designation. Upon 

receipt of such an appeal or a petition 

from a PHA, HUD will evaluate the 

appeal and its merits for purposes of 

determining whether a reassessment of 

the PHA is warranted. HUD will review 

the PHA’s file and the evidence 

submitted by the PHA to determine 

whether an error occurred. 

(2) Consideration of an appeal of 

refusal to remove a troubled performer 

designation. Upon receipt of an appeal 

of refusal to remove a troubled 

performer designation, HUD will 

evaluate the appeal and its merits for 

the purposes of determining whether a 

reassessment of the PHA is warranted. 

The officials evaluating an appeal of 

refusal to remove a troubled performer 

designation will not be the same 

officials who evaluated the PHA’s 

petition to remove the troubled 

performer designation. 

(f) Notice and finality of decisions. (1) 

If HUD determines that one or more 

objectively verifiable and material error 

has occurred, HUD will undertake a 

new inspection of the project, arrange 

for audit services, adjust the PHA’s 

score, or perform other reexamination of 

the financial, management, or Capital 

Fund program information, as 

appropriate in light of the nature of the 

error that occurred. A new score will be 

issued and an appropriate performance 

designation made by HUD. HUD’s 

decision on appeal of a PHAS score, 

issuance of a troubled performer 

designation, or refusal to remove a 

troubled performer designation will be 

final agency action. No reconsideration 

will be given by HUD of such decisions. 

(2) HUD will issue a written decision 

on all appeals and petitions made under 

this section. 

Subpart G—PHAS Incentives and 

Remedies 

§ 902.71 Incentives for high performers. 

(a) Incentives for high performer 

PHAs. A PHA that is designated a high 

performer will be eligible for the 

following incentives, and such other 

incentives that HUD may determine 

appropriate and permissible under 

program statutes or regulations. 

(1) Relief from specific HUD 

requirements. A PHA that is designated 

a high performer will be relieved of 

specific HUD requirements (e.g., will 

receive fewer reviews and less 

monitoring), effective upon notification 

of a high performer designation. 

(2) Public recognition. High performer 

PHAs and RMCs that receive a score of 

at least 60 percent of the points 

available under each of the four PHAS 

Indicators and achieve an overall PHAS 

score of 90 percent, and no more than 

10 percent of the total units are in 

projects that fail any physical, financial, 

or management indicator, will receive a 

Certificate of Commendation from HUD, 

as well as special public recognition, as 

provided by the regional/field office. 

(3) Bonus points in funding 

competitions. A high performer PHA 

may 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 and are provided in 

the relevant notice of funding 

availability. 

(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 

audits; 

(2) Office of Inspector General audits 

or investigations as circumstances may 

warrant; and 

(3) Reviews identified by the regional 

or field office in its current Risk 

Assessment of PHAs and projects. 

§ 902.73 PHAs with deficiencies. 

(a) Oversight and action. Standard 

and substandard performers will be 

referred to the regional/field office for 

appropriate oversight and action. 

(1) A standard performer that receives 

a total score of at least 60 percent shall 

be required to correct the deficiencies in 

performance within the time period for 

correction, as stated in § 902.73(c). If the 

PHA fails to correct the deficiencies, 

HUD may either require the PHA to 

enter into a Corrective Action Plan, or 

HUD may take other action, as 

appropriate. 

(2) A substandard performer, i.e., a 

PHA that achieves a score of less than 

60 percent of the total points available 

under one or more of the physical 

condition, management, or financial 

condition PHAS indicators, shall be 

required to correct the deficiencies in 

performance within the time period for 

correction. If the PHA fails to correct the 

deficiencies, HUD may require the PHA 

to enter into a Corrective Action Plan, 

or take other action, as appropriate. 

(3) A PHA with a project(s) that 

receives less than 60 percent of the 

points available for any indicator or 

subindicator shall be required to correct 

the deficiencies in performance within 

the time period for correction, as stated 

in § 902.73(b). If the PHA fails to correct 

the deficiencies within the time period 

allowed, HUD may either require the 

PHA to enter into a Corrective Action 

Plan, or take other action, as 

appropriate. 

(b) Correction of deficiencies—(1) 

Time period for correction. After a 


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PHA’s (or DF–RMC’s) receipt of its final 

overall PHAS score and designation as: 

A standard performer, within the range 

described in § 902.73(a)(1); or 

substandard performer, within the range 

described in § 902.73(a)(2), or, in the 

case of an RMC, after 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 HUDexecuted Corrective Action Plan, if 

required. 

(2) Notification and report to regional 

or field office. A PHA shall notify the 

regional or field office of its action to 

correct a deficiency. A PHA shall also 

forward to the regional or field office an 

RMC’s report of its action to correct a 

deficiency. A DF–RMC shall forward 

directly to the regional or field office its 

report of its action to correct a 

deficiency. 

(c) Failure to correct deficiencies. (1) 

If a PHA (or DF–RMC or RMC) fails to 

correct deficiencies within the time 

period noted in paragraph (b) of this 

section, or to correct deficiencies within 

the time specified in a Corrective Action 

Plan, or within such extensions as may 

be granted by HUD, the regional/field 

office will notify the PHA of its 

noncompliance. 

(2) The PHA (or DF–RMC or RMC) 

will provide the regional/field office 

with its reasons for lack of progress in 

negotiating, executing, or carrying out 

the Corrective Action Plan, within 30 

days of the PHA’s receipt of the 

noncompliance notification. HUD will 

advise the PHA as to the acceptability 

of its reasons for lack of progress. 

(3) If HUD finds the PHA’s (or DF–

RMC or RMC) reasons for lack of 

progress unacceptable, HUD will notify 

the PHA (or DF–RMC or RMC) that it 

will take such actions as it may 

determine appropriate in accordance 

with the provisions of the 1937 Act and 

other statutes, the ACC, this part, and 

other HUD regulations, including, but 

not limited to, the remedies available for 

substantial default. 

§ 902.75 Troubled performers. 

(a) General. Upon a PHA’s 

designation as a troubled performer, in 

accordance with the requirements of 

section 6(j)(2)(B) of the Act (42 U.S.C. 

1437d(j)(2)(B) and in accordance with 

this part, HUD must notify the PHA and 

shall refer each troubled performer PHA 

to the PHA’s regional/field office, or 

other designated office(s) at HUD, for 

remedial action, oversight, and 

monitoring. The actions to be taken by 

HUD and the PHA will include actions 

statutorily required, and such other 

actions as may be determined 

appropriate by HUD. 

(b) Memorandum of agreement 

(MOA). Within 30 days of notification of 

a PHA’s designation as a troubled 

performer, HUD will initiate activities to 

negotiate and develop an MOA. An 

MOA is required for a troubled 

performer. 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. It shall 

include, but not be limited to: 

(1) Baseline data, which should be 

data without adjustments or weighting 

but may be the PHA’s score in each of 

the PHAS indicators, subindicators, 

components identified as a deficiency; 

(2) Performance targets for such 

periods specified by HUD (e.g., annual, 

semiannual, quarterly, monthly), which 

may be the attainment of a higher score 

within an indicator, subindicator, or 

component that is a problem, or the 

description of a goal to be achieved; 

(3) Strategies to be used by the PHA 

in achieving the performance targets 

within the time period of the MOA, 

including the identification of the party 

responsible for the completion of each 

task and for reporting progress; 

(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 a 

troubled performer designation or 

troubled with respect to the program for 

assistance from the Capital Fund 

program under section 9(d) of the Act 

(42 U.S.C. 1437g(d)) and HUD 

recognition for the most-improved 

PHAs; 

(7) The consequences of failing to 

meet the targets, which include, but are 

not limited to, the interventions stated 

in 24 CFR part 907 and in section 6(j)(3) 

of the Act (42 U.S.C. 1437d(j)(3)); 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 commitments of support, 

financial or otherwise. 

(c) PHA review of MOA. The PHA will 

have 10 days to review the MOA. 

During this 10-day period, the PHA 

shall resolve any claimed discrepancies 

in the MOA with HUD, and discuss any 

recommended changes and target dates 

for improvement to be incorporated in 

the final MOA. Unless the time period 

is extended by HUD, the MOA is to be 

executed 15 days following issuance of 

the draft MOA. 

(d) Maximum recovery period—(1) 

Expiration of the first-year improvement 

period. Upon the expiration of the oneyear period that started on the date on 

which the PHA receives initial notice of 

a troubled performer designation, the 

PHA shall, by the next PHAS 

assessment that is at least 12 months 

after the initial notice of the troubled 

performer designation, improve its 

performance by at least 50 percent of the 

difference between the initial PHAS 

assessment score that led to the troubled 

performer status and the score necessary 

to remove the PHA’s designation as a 

troubled performer. 

(2) Expiration of 2-year recovery 

period. Upon the expiration of the 2- 

year period that started on the date on 

which the PHA received the initial 

notice of a troubled performer 

designation, the PHA shall, by the next 

PHAS assessment that is at least 24 

months after the initial notice of the 

troubled performer designation, 

improve its performance and achieve an 

overall PHAS score of at least 60 percent 

of the total points available. 

(e) Parties to the MOA. An MOA shall 

be executed by: 

(1) The PHA Board Chairperson 

(supported by a Board resolution), or a 

receiver (pursuant to a court-ordered 

receivership agreement, if applicable) or 

other AME acting in lieu of the PHA 

Board; 

(2) The PHA Executive Director, or a 

designated receiver (pursuant to a courtordered receivership agreement, if 

applicable), or other AME-designated 

Chief Executive Officer; 

(3) The regional or field office Public 

Housing Director; and 

(4) The appointing authorities of the 

Board of Commissioners, if required by 

the regional/field office Public Housing 

Director. 

(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 performer PHA fails or 


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refuses to execute an MOA within the 

period provided in paragraph (c) of this 

section, or a troubled performer PHA 

operating under an executed MOA does 

not show a substantial improvement, as 

provided in paragraph (d) of this 

section, toward a passing PHAS score 

following the issuance of the failing 

PHAS score by HUD, the regional/field 

office Public Housing Director shall 

refer the PHA to the Assistant Secretary 

to determine such remedial actions, 

consistent with the provisions of the 

ACC and other HUD regulations, 

including, but not limited to, remedies 

available for substantial default. 

(2) For purposes of paragraph (g) of 

this section, substantial improvement is 

defined as the improvement required by 

paragraph (d) of this section. The 

maximum period of time for remaining 

in troubled performer status before 

being referred to the Assistant Secretary 

is 2 years after the initial notification of 

the troubled performer designation. 

Therefore, the PHA must make 

substantial improvement in each year of 

this 2-year period. 

(3) The following example illustrates 

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

section: 

Example: A PHA receives a score of 50 

points; 60 points is a passing score. Upon the 

expiration of the one-year period that started 

on the date on which the PHA received the 

initial notification of the troubled performer 

designation, the PHA must achieve at least 55 

points (50 percent of the 10 points necessary 

to achieve a passing score of 60 points) to 

continue recovery efforts. In the second year, 

the PHA must achieve a minimum score of 

60 points (a passing score). If, in the first year 

that started on the date on which the PHA 

received the initial notification of the 

troubled designation, the PHA fails to 

achieve the 5-point increase, or if the PHA 

achieves the 5-point increase within the first 

year that started on the date on which the 

PHA received the initial notification of the 

troubled designation, but fails to achieve the 

minimum passing score of 60 points after the 

second year after the initial notification, HUD 

will notify the PHA that it will take such 

actions as it may determine appropriate in 

accordance with the provisions of the ACC 

and other HUD regulations, including, but 

not limited to, the remedies available for 

substantial default. 

(h) Audit review. For a PHA 

designated as a troubled performer, 

HUD may perform an audit review and 

may, at its discretion, select the audit 

firm that will perform the audit of the 

PHA; and HUD may, at its discretion, 

serve as the audit committee for the 

audit in question. 

(i) Continuation of services to 

residents. To the extent feasible, while 

a PHA is in a troubled performer status, 

all services to residents will continue 

uninterrupted. 

§ 902.79 Verification and records. 

All project and PHA certifications, 

year-end financial information, and 

supporting documentation are subject to 

HUD verification at any time, including 

review by an independent auditor. All 

PHAs must retain supporting 

documents for any certifications and for 

asset management reviews for at least 3 

years. Failure to maintain and provide 

supporting documentation for a period 

of 3 years for any indicator(s), 

subindicator(s), or other methods used 

to assess performance shall result in a 

score of zero for the indicator(s) or 

subindicator(s), and a lower overall 

PHAS score for the applicable 

assessment period. 

§ 902.81 Resident petitions for remedial 

action. 

Residents of a PHA designated as 

troubled pursuant to section 6(j)(2)(A) of 

the Act (42 U.S.C. 1437d(j)(2)(A)), may 

petition HUD in writing to take one or 

more of the actions referred to in section 

6(j)(3)(A) of the Act (42 U.S.C. 

1437d(j)(3)(A)). HUD will consider any 

petition from a group of residents 

totaling at least 20 percent of the PHA’s 

residents, or from an organization or 

organizations of residents whose 

membership equals at least 20 percent 

of the PHA’s residents. HUD shall 

respond to such petitions in a timely 

manner with a written description of the 

actions, if any, HUD plans to take and, 

where applicable, the reasons why such 

actions differ from the course proposed 

by the residents. Nothing in this section 

shall limit HUD’s discretion to 

determine whether a substantial default 

has occurred or to select the appropriate 

intervention upon such determination. 

§ 902.83 Sanctions for troubled performer 

PHAs. 

(a) If a troubled performer PHA fails 

to make substantial improvement, as set 

forth in § 902.75(d), HUD shall: 

(1) In the case of a troubled performer 

PHA with 1,250 or more units, declare 

substantial default in accordance with 

§ 907.3(b)(3) and petition for the 

appointment of a receiver pursuant to 

section 6(j)(3)(A)(ii) of the Act (42 

U.S.C. 1437d(j)(3)(A)(ii)); or 

(2) In the case of a troubled performer 

PHA with fewer than 1,250 units, 

declare substantial default in 

accordance with § 907.3(b)(3) and either 

petition for the appointment of a 

receiver pursuant to section 6(j)(3)(A)(ii) 

of the Act (42 U.S.C. 1437d(j)(3)(A)(ii)), 

or take possession of the PHA 

(including all or part of any project or 

program of the PHA) pursuant to section 

6(j)(3)(A)(iv) of the Act (42 U.S.C. 

1437d(j)(3)(A)(iv)), and appoint, on a 

competitive or noncompetitive basis, an 

individual or entity as an administrative 

receiver to assume the responsibilities 

of HUD for the administration of all or 

part of the PHA (including all or part of 

any project or program of the PHA). 

(3) In the case of substantial default 

by a troubled performer PHA, nothing in 

this section shall be construed to limit 

the courses of action available to HUD 

under this part, 24 CFR part 907, or 

section 6(j)(3)(A) of the Act (42 U.S.C. 

1437d(j)(3)(A)) for any other substantial 

default by a PHA. 

(b) If a troubled performer PHA fails 

to execute or meet the requirements of 

an MOA in accordance with § 902.75, 

other than as specified in paragraph (a) 

of this section, the PHA may be deemed 

to be in substantial default by HUD and 

any remedy available therefore may be 

invoked in the discretion of HUD. 

Appendix A to Part 902—Physical 

Condition Scoring 

I. Purpose of This Appendix 

This appendix describes the physical 

condition scoring process under the 

proposed revisions to the PHAS regulation 

and prescribes the frequency of individual 

project inspections. 

II. Purpose of the PHAS Physical Condition 

Assessment 

The purpose of the PHAS physical 

condition assessment is to ensure that public 

housing units are decent, safe, sanitary and 

in good repair, as determined by an 

inspection conducted in accordance with 

HUD’s Uniform Physical Condition 

Standards (UPCS) codified at 24 CFR part 5, 

subpart G. The physical condition 

assessment under the PHAS utilizes uniform 

physical inspection procedures to determine 

compliance with uniform standards and is an 

important indicator of performance for a 

project and a PHA. All projects will be 

assessed under the Physical Condition 

Indicator, even if a PHA has not converted 

to asset management. 

The Physical Condition Indicator score is 

based on a maximum of 30 points. In order 

to receive a passing score under this 

indicator, a project must achieve at least 18 

points or 60 percent of the points available 

under this indicator. Under the PHAS 

Physical Condition Indicator, REAC will 

calculate a score for each project, as well as 

for the overall physical condition of a PHA. 

The physical condition score, based on a 30- 

point scale, is included in each PHA’s 

aggregate PHAS score. 

III. Transition to Asset Management and 

Frequency of Inspections 

The number of units in a PHA’s Low-Rent 

program and the PHAS designation for small 

PHAs will determine the frequency of 

physical inspections during and after the 

transition to asset management. Deregulation 

of small PHAs provides that PHAs with less 

than 250 public housing units are assessed 

and scored every other year, unless 


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designated a PHAS troubled performer. PHAs 

with less than 250 units that are designed 

troubled will be assessed every year. The 

score of a project in a PHA with less than 250 

units will not affect the frequency of 

inspections for either that project or the 

associated PHA, unless the PHA has a single 

project resulting in the project score equating 

to the overall physical inspection indicator 

score. The frequency of physical inspections 

for small PHAs will be determined based 

upon the PHAS designation. 

For PHAs with 250 or more units of any 

PHAS designation, the inspection score of 

each project (not the overall physical 

indicator score) will determine the frequency 

of inspections for that project. Projects that 

score 80 points or higher based on a possible 

100-point project score will be inspected 

every other year. Projects that score less than 

80 points based on the possible 100-point 

project score will be inspected annually. The 

performance incentive, to be inspected every 

other year, will change from PHA-based to 

project-based. A troubled physical PHAS 

designation will not affect the frequency of 

project inspections for such PHAs. Project 

inspections for PHAs with 250 or more units 

will be based on the project’s prior year 

inspection score. 

Projects of overall troubled PHAs with 250 

or more units that score 80 points or higher 

based on a possible 100-point project score 

will be inspected every other year. Projects 

that score less than 80 points based on the 

possible 100-point project score will then be 

inspected annually. PHAs with 249 or less 

units, inspected and designated as troubled, 

will be inspected again the next year. PHAs 

of 250 units or more with unit-weighted 

project scores from 2 different years will have 

all their prior year scores of 80 and above 

(and current year scores for each project that 

was inspected), multiplied by 30 percent, 

totaled together, and rounded to produce an 

overall physical indicator score. 

IV. Item Weights and Criticality Levels and 

Dictionary of Deficiency Definitions 

The Item Weights and Criticality Levels 

tables and the Dictionary of Deficiency 

Definitions currently in use are available in 

HUD’s REAC Physical Inspection Library 

Internet site at: http://www.hud.gov/offices/ 

reac/library/lib_phyi.cfm#FEDERAL. 

V. Validity and Reliability of the Physical 

Inspection Protocols 

The Conference Report (H.R. Conf. Rep. 

106–988; October 18, 2000) accompanying 

HUD’s FY 2001 Appropriations Act (Pub. L. 

106–377, approved October 27, 2000) 

directed HUD to continue to assess the 

accuracy and effectiveness of the PHAS 

system, in particular the physical condition 

inspection protocol. HUD was also directed 

to perform a statistically valid test of PHAS, 

conduct a thorough analysis of the results, 

and have the methodology and results 

reviewed by an independent expert before 

taking any adverse action against a PHA 

based solely on its PHAS score. HUD 

retained the Louis Berger Group (the 

contractor) to conduct the review of the 

methodology and results of the statistically 

valid test. 

The findings of the contractor’s study 

concluded that the physical condition 

inspection protocol is repeatable and reliable. 

A report addressing the issues raised in the 

Conference Report, entitled the Review and 

Assessment of the REAC Study of the 

Physical Assessment Sub-System (PASS) 

Process, was provided to the House and 

Senate Committees on Appropriations on 

March 1, 2001. 

VI. The Physical Inspection Scoring Process 

The PHAS physical inspection generates 

comprehensive results, including physical 

inspection scores reported at the project 

level, area level scores for each of the five 

physical inspection areas, as applicable, and 

observations of deficiencies recorded 

electronically by the inspector at the time of 

the inspection. 

1. Definitions 

The following are the definitions of the 

terms used in the physical condition scoring 

process: 

Criticality means one of five levels that 

reflect the relative importance of the 

deficiencies for an inspectable item. 

Appendix 1 lists all deficiencies with their 

designated criticality levels, which vary from 

1 to 5, with 5 being the most critical. Based 

on the criticality level, each deficiency has 

an assigned value that is used in scoring. 

Those values are as follows: 

Criticality Level Value 

Critical ............................... 5 5.00 

Very Important .................. 4 3.00 

Important ........................... 3 2.25 

Contributes ....................... 2 1.25 

Slight Contribution ............ 1 0.50 

Based on the importance of the deficiency 

as reflected by its criticality value, points are 

deducted from the project score. For 

example, a clogged drain in the kitchen is 

more critical than a damaged surface on a 

counter top. Therefore, more points will be 

deducted for a clogged drain than for a 

damaged surface. 

Deficiencies refer to specific problems that 

are recorded for inspectable items, such as a 

hole in a wall or a damaged refrigerator in 

the kitchen. 

Inspectable area means any of the five 

major components of the project: Site, 

building exteriors, building systems, 

common areas, and dwelling units. 

Inspectable items refer to walls, kitchens, 

bathrooms, and other features that are 

inspected in an inspectable area. The number 

of inspectable items varies for each 

inspectable area from 8 to 17. Weights are 

assigned to each item to reflect their relative 

importance and are shown in the Item 

Weights and Criticality Levels tables. The 

tables refer to the weight of each item as the 

nominal item weight, which is also known as 

the amenity weight. 

Normalized area weight represents weights 

used with area scores to calculate projectlevel scores. The weights are adjusted to 

reflect the inspectable items actually present 

at the time of the inspection. These weights 

are proportional, as follows: 

• For dwelling units, the area score is the 

weighted average of sub-area scores for each 

unit, weighted by the total of item weights 

present for inspection in each unit, which is 

referred to as the amenity weight. 

• For common areas, the area score is the 

weighted average of sub-area common area 

scores weighted by the total weights for items 

available for inspection (or amenity weight) 

in each residential building common area or 

common building. Common buildings refer 

to any inspectable building that contains no 

dwelling units. All common buildings are 

inspected. 

• For building exteriors or building 

systems, the area scores are weighted 

averages of sub-area scores. 

• For sites, the area score is calculated as 

follows: (1) The amenity weights found on a 

site, (2) minus deductions for deficiencies, 

and (3) normalized to a 100-point scale. 

Normalized sub-area weight means the 

weight used with sub-area scores to compute 

an inspectable area score. These weights are 

proportional: 

• For dwelling units, the item weight of 

amenities available in the unit at the time of 

inspection is the amenity weight. 

• For common areas, the common area 

amenity weight is divided by a building’s 

probability of being selected for inspection. 

All residential buildings with common areas 

may not be selected for inspection; however, 

all buildings with common areas are selected 

to determine the amenity weight. 

• For building exterior and building 

systems, the building exterior or building 

system amenity weight is multiplied by the 

building’s size (number of units) and then 

divided by its probability of being selected 

for inspection. 

• For the site, there is no sub-area score. 

For each project, there is a single site. 

Note that dividing by a building’s 

probability of being selected for inspection is 

the same as multiplying by the probability 

weight, since the probability weight is 1 

divided by the probability of being selected 

for inspection. 

Project is used synonymously with the 

term ‘‘property.’’

Severity means one of three levels that 

reflect the extent of damage associated with 

each deficiency, with values assigned as 

follows: 

Severity level Value 

3 ........................................................ 1.00 

2 ........................................................ 0.50 

1 ........................................................ 0.25 

The Item Weights and Criticality Levels 

tables show the severity levels that are 

possible for each deficiency. Based on the 

severity of each deficiency, the score is 

reduced. Points deducted are calculated by 

multiplying the item weight by the values for 

criticality and severity, as described below. 

For specific definitions of each severity level, 

see the Dictionary of Deficiency Definitions, 

which is available from REAC’s Physical 

Inspection Library Internet site at: http:// 

www.hud.gov/offices/reac/library/ 

lib_phyi.cfm#FEDERAL. 

Score means a number between 0 and one 

hundred (100) that reflects the physical 


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condition of a project, inspectable area, 

dwelling area, or sub-area. A property score 

includes both an alphabetical and a 

numerical component. The number 

represents an overall score for the basic 

physical condition of a property, including 

points deducted for health and safety 

deficiencies other than those associated with 

smoke detectors. The letter code specifically 

indicates whether health and safety 

deficiencies were detected, as shown in the 

chart below: 

Physical inspection score alphanumeric codes 

No health and 

safety 

deficiencies 

Health and safety deficiencies 

Non-life 

threatening 

(NLT) 

Life threatening (LT)/exigent health 

and safety 

(EHS) 

Fire safety 

No smoke 

detector 

problems 

Smoke detector problems 

a ........................................................................................... X ........................ ........................ X ........................

a* .......................................................................................... X ........................ ........................ ........................ X 

b ........................................................................................... ........................ X ........................ X ........................

b* .......................................................................................... ........................ X ........................ ........................ X 

c ........................................................................................... ........................ ........................ X X ........................

c* .......................................................................................... ........................ ........................ X ........................ X 

To record a health or safety problem, a 

letter is added to the project score (a, b, or 

c); and to note that one or more smoke 

detectors are inoperable or missing, an 

asterisk (*) is added to the project score. 

Sub-area means an area that will be 

inspected for all inspectable areas except the 

site. For example, the building exterior for 

building ‘‘2’’ is a sub-area of the building 

exterior area. Likewise, unit ‘‘5’’ would be a 

sub-area of the dwelling units area. Each 

inspectable area for each building in a 

property is treated as a sub-area. 

2. Scoring Protocol 

To generate accurate scores, the inspection 

protocol includes a determination of the 

appropriate relative weights of the various 

components of the inspection; that is, which 

components are the most important, the next 

most important, and so on. For example, in 

the building exterior area, a blocked or 

damaged fire escape is more important than 

a cracked window, which is more important 

than a broken light fixture. The Item Weights 

and Criticality Levels tables provide the 

nominal weight of observable deficiencies by 

inspectable item for each area/sub-area. The 

Dictionary of Deficiency Definitions provides 

a definition for the severity of each 

deficiency in each area/sub-area. 

3. Equity Principles 

In addition to determining the appropriate 

relative weights, consideration is also given 

to several issues concerning equity between 

properties so that scores fairly assess all 

types of properties: 

Proportionality. The scoring methodology 

includes an important control that does not 

allow any sub-area scores to be negative. If 

a sub-area, such as the building exterior for 

a given building, has so many deficiencies 

that the sub-area score would be negative, the 

score is set to zero. This control mechanism 

ensures that no single building or dwelling 

unit can affect the overall score more than its 

proportionate share of the whole. 

Configuration of project. The scoring 

methodology takes into account different 

numbers of units in buildings. To fairly score 

projects with different numbers of units in 

buildings, the area scores are calculated for 

building exteriors and systems by using 

weighted averages of the sub-area scores, 

where the weights are based on the number 

of units in each building and on the 

building’s probability of being selected for 

inspection. In addition, the calculation for 

common areas includes the amenities 

existing in the residential common areas and 

common buildings at the time of inspection. 

Differences between projects. The scoring 

methodology also takes into account that 

projects have different features and 

amenities. To ensure that the overall score 

reflects only items that are present to be 

inspected, weights to calculate area and 

project scores are adjusted depending on how 

many items are actually there to be 

inspected. 

4. Deficiency Definitions 

During a physical inspection of a project, 

the inspector looks for deficiencies for each 

inspectable item within the inspectable areas, 

such as the walls (the inspectable item) of a 

dwelling unit (the inspectable area). Based on 

the observed condition, the Dictionary of 

Deficiency Definitions defines up to the three 

levels of severity for each deficiency: Level 

1 (minor), Level 2 (major), and Level 3 

(severe). The associated values were shown 

earlier in the first chart of Section VI. A 

specific criticality level, with associated 

values as shown in that chart, is also 

assigned to each deficiency. The criticality 

level reflects the importance of the deficiency 

relative to all other possible observable 

deficiencies for the inspectable area. 

5. Health and Safety Deficiencies 

The UPCS physical inspection emphasizes 

health and safety (H&S) deficiencies because 

of their crucial impact on the well-being of 

residents. A subset of H&S deficiencies is 

exigent health and safety (EHS) deficiencies. 

These are life threatening (LT) and require 

immediate action or remedy. EHS 

deficiencies can substantially reduce the 

overall project score. As noted in the 

definition for the word ‘‘score’’ in the 

Definitions section, all H&S deficiencies are 

highlighted by the addition of a letter to the 

numeric score. The Item Weights and 

Criticality Levels tables list all H&S 

deficiencies with an LT designation for those 

that are EHS deficiencies and an NLT 

designation for those that are non-life 

threatening. The LT and NLT designations 

apply only to severity level 3 deficiencies. 

To ensure prompt correction of H&S 

deficiencies, the inspector gives the project 

representative a deficiency report identifying 

every observed EHS deficiency before the 

inspector leaves the site. The project 

representative acknowledges receipt of the 

deficiency report by signature. The inspector 

also transmits the deficiency report to HUD 

no later than the morning of the first business 

day after completing the inspection. HUD 

makes available to all PHAs an inspection 

report that includes information about all of 

the H&S deficiencies recorded by the 

inspector. The report shows: 

• The number of H&S deficiencies (EHS 

and NLT) that the inspector observed; 

• All observed smoke detector 

deficiencies; and 

• A projection of the total number of H&S 

problems that the inspector potentially 

would see in an inspection of all buildings 

and all units. 

Problems with smoke detectors do not 

currently affect the overall score. When there 

is an asterisk indicating that the project has 

at least one smoke detector deficiency, that 

part of the score may be identified as ‘‘risk;’’

for example, ‘‘93a, risk’’ for 93a*, and ‘‘71c, 

risk’’ for 71c*. There are six distinct letter 

grade combinations based on the H&S 

deficiencies and smoke detector deficiencies 

observed: a, a*, b, b*, c, and c*. For example: 

• A score of 90c* means that the project 

contains at least one EHS deficiency to be 

corrected, including at least one smoke 

detector deficiency, but is otherwise in 

excellent condition. 

• A score of 40b* means the project is in 

poor condition, has at least one non-life 

threatening deficiency, and has at least one 

missing or inoperable smoke detector. 

• A score of 55a means that the project is 

in poor condition, even though there are no 

H&S deficiencies. 

• A project in excellent physical condition 

with no H&S deficiencies would have a score 

of 90a to 100a. 

6. Scoring Process Elements 

The physical condition scoring process is 

based on three elements within each project: 

(1) Five inspectable areas (site, exterior, 

systems, common areas, and dwelling units); 

(2) inspectable items in each inspectable 

area; and (3) observed deficiencies. In broad 


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terms, the score for a property is the 

weighted average of the five inspectable area 

scores, where area weights are adjusted to 

account for all of the inspectable items that 

are actually present to be inspected. In turn, 

area scores are calculated by using weighted 

averages of sub-area scores (e.g., building 

area scores for a single building or unit scores 

for a single unit) for all sub-areas within an 

area. 

7. Scoring Using Weighted Averages 

For all areas except the site, normalized 

sub-area weights are determined using the 

size of sub-areas, the items available for 

inspection, and the sub-area’s probability of 

selection for inspection. Sub-area scores are 

determined by deducting points for 

deficiencies based on the importance 

(weight) of the item, the criticality of the 

deficiency, and the severity of the deficiency. 

The maximum deduction for a single 

deficiency will not calculate a score of less 

than zero. Points will be deducted only for 

one deficiency of the same kind within a subarea. For example, if multiple deficiencies for 

broken windows are recorded, only the most 

severe deficiency observed (or one of the 

most severe, if there are multiple deficiencies 

with the same level of severity) will result in 

a point deduction. 

8. Essential Weights and Levels 

The process of scoring a project’s physical 

condition depends on the weights, levels, 

and associated values of the following 

quantities: 

• Weights for the 5 inspectable areas (site, 

building exteriors, building systems, 

common areas, and dwelling units). 

• Weights for inspectable items within 

inspectable areas (8 to 17 per area). 

• Criticality levels (critical, very 

important, important, contributes, and slight 

contribution) plus their associated values for 

deficiencies within areas inspected. 

• Severity levels (3, 2, and 1) and their 

associated values for deficiencies. 

• Health and safety deductions (exigent/ 

fire safety and non-life threatening for all 

inspectable areas). 

9. Area Weights 

Area weights are used to obtain a weighted 

average of area scores. A project’s overall 

physical condition score is a weighted 

average of all inspectable area scores. The 

approximate relative weights are: 

Inspectable area Weight 

(percent) 

Site ................................................ 15 

Building Exterior ........................... 15 

Building Systems .......................... 20 

Common Areas ............................. 15 

Dwelling Units ............................... 35 

These weights are assigned for all 

inspections when all inspectable items are 

present for each area and for each building 

and unit. All of the inspectable items may 

not be present in every inspectable area. 

When items are missing in an area, the area 

weights are modified to reflect the missing 

items so that within that area they will add 

up to 100 percent. Area weights are 

recalculated when some inspectable items 

are missing in one or more area(s). 

Although rare, it is possible that an 

inspectable area could have no inspectable 

items available; for example, there could be 

no common areas in the inspected residential 

buildings and no common buildings. In this 

case, the weight of the ‘‘common areas’’

would be 0 percent and its original 15 

percent weight would be equitably 

redistributed to the other inspectable areas, 

as shown in the example below: 

Inspectable area Normal weight 

(percent) 

Missing common areas 

(percent) 

Adjustment 

Adjusted 

weight 

(percent) 

Site ..................................................................................................................... 15 15 .15/.85 = ...... 18 

Building Exterior ................................................................................................. 15 15 .15/.85 = ...... 18 

Building Systems ................................................................................................ 20 20 .20/.85 = ...... 23 

Common Areas .................................................................................................. 15 0 ..................... 0 

Dwelling Units ..................................................................................................... 35 35 .35/.85 = ...... 41 

Total ............................................................................................................ 100 85 ..................... 100 

The original 15 percent weight for the 

common areas is redistributed by totaling the 

weights of other inspectable areas (100 

percent minus 15 percent = 85 percent) and 

dividing the weights of each other area by 

that amount (0.85). The modified weights 

would then be 18 percent for site, 18 percent 

for building exterior, 23 percent for building 

systems, 0 percent for common areas, 41 

percent for dwelling units, and again be 

equal to (be normalized to) 100 percent. 

10. Area and Sub-Area Scores 

For inspectable areas with sub-areas (all 

areas except sites), the inspectable area score 

is a weighted average of the sub-area scores 

within that area. The scoring protocol 

determines the amenity weight for the site 

and each sub-area as noted in Section VI.1 

under the definition for normalized sub-area 

weight. For example, a property with no 

fencing or gates in the inspectable area of the 

site would have an amenity weight of 90 

percent or 0.9 (100 percent minus 10 percent 

for lack of fencing and gates), and a single 

dwelling unit with all items available for 

inspection except a call-for-aid would have 

an amenity weight of 0.98 or 98 percent (100 

percent minus 2 percent for lack of call-foraid). 

The amenity weight excludes all health 

and safety items. Each deficiency as weighted 

and normalized are subtracted from the subarea or site-weighted amenity score. Sub-area 

and site area scores are further reduced for 

any observed health and safety deficiencies. 

These deductions are taken at the site, 

building, or unit level. At this point, a 

control is applied to prevent a negative site, 

building, or unit score. The control ensures 

that no single building or unit can affect an 

area score more than its weighted share. 

11. Overall Project Score 

The overall project score is the weighted 

average of the five inspectable area scores, 

with the five areas weighted by their 

normalized weights. Normalized area weights 

reflect both the initial weights and the 

relative weights between areas of inspectable 

items actually present. For reporting 

purposes, the number of possible points is 

the normalized area weight adjusted by 

multiplying by 100 so that the possible 

points for the five areas add up to 100. In the 

Physical Inspection Report for each project 

that is sent to the PHA, the following items 

are listed: 

• Normalized weights as the ‘‘possible 

points’’ by area; 

• The area scores, taking into account the 

points deducted for observed deficiencies; 

• The deductions for H&S for each 

inspectable area; and 

• The overall project score. 

The Physical Inspection Report allows the 

PHA and the project manager to see the 

magnitude of the points lost by inspectable 

area and the impact on the score of the H&S 

deficiencies. 

12. Examples of Physical Condition Score 

Calculations 

The physical inspection scoring is 

deficiency based. All projects start with 100 

points. Each deficiency observed reduces the 

score by an amount dependent on the 

importance and severity of the deficiency, 

the number of buildings and units inspected, 

the inspectable items actually present to be 

inspected, and the relative weights between 

inspectable items and inspectable areas. 

The calculation of a physical condition 

score is illustrated in the examples below. 

The examples go through a number of 

interim stages in calculating the score, 

illustrating how sub-area scores are 

calculated for a single project, how the subarea scores are rolled up into area scores, and 

how area scores are combined to calculate 

the overall project score. One particular 


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deficiency is carried through the examples 

showing the end result. 

As will be seen, the deduction starts out as 

a percent of the sub-area. Then the area score 

is considerably decreased in the final overall 

project score because the deduction is 

averaged across other sub-areas and then 

averaged across the five inspectable areas. 

Although interim results in the examples are 

rounded, only the final results are rounded 

for actual calculations. 

To illustrate how physical condition scores 

are calculated, three examples are provided 

below. Following this section, another 

example is given specifically for public 

housing projects to show how project scores 

are rolled up into the PHAS physical 

indicator score for the PHA as a whole. 

Example #1 illustrates how the score for a 

sub-area of building systems is calculated. 

Consider a 10-unit residential building in 

which the five inspectable areas are present. 

During the inspection, damaged vents in the 

roof are observed. This deficiency reflected a 

severity level of 1, which has a severity 

weight of 0.25; a criticality level of 4, which 

has a criticality weight of 3; and an item 

weight of 16.0. The amount of the points 

deducted is the item weight, multiplied by 

the criticality weight multiplied by the 

severity value. This is illustrated in the table 

below. 

Area: Building Exterior. 

Item: Roof. 

Deficiency: Damaged Vents. 

Criticality Level: 4, Severity Level: 1. 

Element Associated value 

Item Weight ..................................................................................................................................................................... 16 

Criticality Weight ............................................................................................................................................................. 3.0 

Severity Weight ............................................................................................................................................................... 0.25 

Calculation of Points Deducted for Deficiency ............................................................................................................... 16 × 3 × 0.25 = 12 

If this building exterior has all inspectable 

items except for a fire escape, the amenity 

weight for the first building exterior adds up 

to 84 percent (100 percent starting point 

minus 16 percent for the lack of a fire escape, 

excluding H&S items). If the damaged roof 

vents were the only deficiency observed, 

then the initial proportionate score for this 

sub-area (Building Exterior #1) would be the 

amenity score minus the deficiency points 

and then normalized to a 100-point basis, as 

shown below. Additional deficiencies or H&S 

deficiencies (calculated in the same manner) 

would further decrease the sub-area score, 

and if the score dropped below zero, it would 

be set to zero. 

Element Associated value 

Amenity Score ................................................................................................................................................................ 84 

Deficiency Points ............................................................................................................................................................ 12 

Calculation for the Initial Proportionate Score ................................................................................................................ 84 ¥ 12 = 72 

Normalizing Factor .......................................................................................................................................................... 100 

Calculation for the Initial Sub-Area Score ......................................................................................................................

Building Exterior #1 ........................................................................................................................................................

(72/84) × 100 = 85.7 

Example #2 illustrates how the area score 

is calculated. Consider a property with two 

buildings with the following characteristics: 

• Building #1 (from Example #1, above): 

—10 units 

—84 percent amenity weight for items that 

are present to be inspected in the building 

exterior 

—Building exterior score is 85.7 points 

• Building #2: 

—20 units 

—100 percent amenity weight for items that 

are present to be inspected in the building 

exterior 

—Building exterior score is 69.1 points 

The building exterior score for the building 

exterior area is the weighted average of the 

individual scores for each building exterior. 

Each building exterior score is weighted by 

the number of units and the percent of the 

weight for items present to be inspected in 

the building exterior. 

Building Number of 

units × Amenity weight = 

Unit 

weighted 

average 

/ 

Sum of the 

building 

weights 

× 

Initial 

proportionate 

score 

= 

Building 

exterior 

area score 

#1 ......................................... 10 0.84 08.4 28.4 85.7 25.3 

#2 ......................................... 20 1.00 20.0 28.4 69.1 48.7 

Total .............................. 30 .................... .... 28.4 .................... .......................... 74.0 

Example #3 illustrates how the overall 

weighted average for the building exterior 

area amenity weight is calculated. The 

separate amenity weights for buildings #1 

and #2, above, are used in conjunction with 

the total units to calculate the building 

exterior area amenity weight. Each building 

amenity weight is multiplied by the number 

of units in that building and then divided by 

the total number of units for all buildings, as 

shown below. For purposes of the next 

example, the Overall Building Exterior Area 

Amenity Weight of 94.7 was rounded to 95. 

Building exterior Number of 

units × Amenity weight = 

Unit 

weighted 

average 

/ Total units × 

Normalized to 

a 100 point 

basis 

= 

Overall 

building exterior area 

weighted average amenity 

weight 

#1 ....................................... 10 0.84 08.4 30 100 28.0 

#2 ....................................... 20 1.00 20.0 30 100 66.7 


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Building exterior Number of 

units × Amenity weight = 

Unit 

weighted 

average 

/ Total units × 

Normalized to 

a 100 point 

basis 

= 

Overall 

building exterior area 

weighted average amenity 

weight 

Total ............................ 30 .................... 28.4 .................... ........................ 94.7 

Example #4 illustrates how the score for a 

property is calculated. Consider a property 

with the following characteristics: 

• Site: 

—Score: 90 points 

—100 percent amenity weight 

—Nominal weight: 15 percent 

• Building Exteriors (from example #2 and 

#3, above): 

—Score: 74 points 

—95 percent weighted average amenity 

weight 

—Nominal weight: 15 percent 

• Building Systems: 

—Score: 70 points 

—80 percent weighted average amenity 

weight 

—Nominal weight: 20 percent 

• Common Areas: 

—Score: 60 points 

—30 percent weighted average amenity 

weight 

—Nominal weight: 15 percent 

• Dwelling Units: 

—Score: 80 points 

—90 percent weighted average amenity 

weight 

—Nominal weight: 35 percent 

To continue the scoring protocol, the 

adjusted area weights for all five inspectable 

areas are determined. For purposes of this 

example, the adjusted weights and maximum 

possible points for each of the five 

inspectable areas are shown in the table 

below. All of the values in this table, except 

for the values for building exteriors, are 

presumed. The values for building exteriors 

were calculated as part of this ongoing 

example. 

Inspectable area Area weight × Amenity 

weight = 

Amenity 

weighted 

average 

/ 

Total 

adjusted 

weight 

× 

Normalized to 

100 point 

scale 

= Maximum possible points 

Site ..................................... 15 1.00 15.0 81.2 100 18.5 

Building Exterior ................ 15 0.95 14.2 81.2 100 17.5 

Building Systems ............... 20 0.80 16.0 81.2 100 19.7 

Common Areas .................. 15 0.30 04.5 81.2 100 05.5 

Dwelling Units .................... 35 0.90 31.5 81.2 100 38.8 

Total ............................ .................... .................... 81.2 .................... ........................ 100.0

The nominal possible points for each 

inspectable area is multiplied by the amenity 

weight, divided by the total adjusted amenity 

weight, and normalized to a 100-point basis 

to produce the possible points for the 

inspectable area. The property score is the 

sum of all weighted area scores for that 

property. The sample shown below reflects 

how the deficiency from example #1 in the 

building exterior area impacts the overall 

property score. The property score of 77.8 is 

rounded to 78 for the final example. 

Inspectable area Area points × Area score / 

Normalized to 

a 100 point 

scale 

= 

Project #1 

weighted area 

scores 

Site ............................................................................................ 18.5 90 100 16.7 

Building Exterior ........................................................................ 17.5 74 100 13.0 

Building Systems ...................................................................... 19.7 70 100 13.8 

Common Areas ......................................................................... 05.5 60 100 03.3 

Dwelling Units ........................................................................... 38.8 80 100 31.0 

Total ................................................................................... 100.0 ........................ ........................ 77.8 

13. Computing the PHAS Physical Inspection 

Score 

The overall physical inspection score for 

the PHAS for a PHA is the weighted average 

of the PHA’s individual project physical 

inspection scores, where the weights are the 

number of units in each project divided by 

the total number of units in all projects for 

the PHA. For example, the project described 

in Example #1 from above has a score of 78 

with 30 units. Using another project with a 

score of 92 and 650 units with project from 

Example #1 would calculate to an overall 

physical inspection score of 91. Note the 

impact on the overall physical inspection of 

a single property with a large number of 

units. 

Project 

Weighted 

average 

property 

score 

× 

Rescaling to 

the 30-point 

basis 

= × 

Number of 

units in the 

property 

/ Total PHA 

units = 

Project 

weighted 

area score 

#1 ................................................................. 78 .3 23.4 30 680 1.0 

#2 ................................................................. 92 .3 27.6 650 680 26.4 

Total ..................................................... 100 .................... .......... .................... .................... 27.4 


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The physical subsystem indicator score for 

this PHA provided to HUD’s centralized 

scoring system would be 27.4, rounded to a 

score of 27. Weighted-average property scores 

are scaled to a 30-point basis by multiplying 

by 0.3. The total is then multiplied by the 

number of units within the property and 

divided by the total number of PHA units, to 

produce a unit-weighted average. All of the 

project’s weighted area scores are totaled and 

rounded using a rounding policy of rounding 

up to the nearest whole number a score 

ending in 0.5 and above, and rounding down 

a score ending in 0.4 and below. 

14. Examples of Sampling Weights for 

Buildings 

As shown above, buildings with the most 

dwelling units have the greatest impact on 

the project’s overall physical score. Buildings 

with the most dwelling units also have the 

greatest likelihood of being selected for 

inspection. The determination of which 

buildings will be inspected is a two-phase 

process. In Phase 1 of the process, all 

buildings that contain dwelling units are 

sorted by size and then the units are 

randomly sorted within each building. A 

computer program selects a random sample 

of units to be inspected. 

All buildings in a project may not be 

selected in the building sample during Phase 

1 sampling, because a building may have so 

few units such as a sole scattered-site single 

family unit. A Phase 2 sampling is used to 

increase the size of the number of buildings 

selected. In Phase 2, the additional buildings 

that are included in the sample are selected 

with equal probability so that the residential 

building sample size is the lesser of either the 

dwelling unit sample size or the number of 

all residential buildings. All common 

buildings are selected for inspection. To 

illustrate the process for sampling buildings, 

two examples are provided below: 

Example #1. This first example uses a 

project with two buildings where both 

buildings are selected for inspection. 

Building A has 10 dwelling units and 

building B has 20 dwelling units, for a total 

of 30 dwelling units. The target dwelling unit 

sample size for a project with 30 dwelling 

units is 15 units. The sampling ratio for this 

project is two and is calculated by dividing 

the 15 target units by the total number of 

units (30/15=2). In this illustration, every 

second dwelling unit will be selected from 

the random sort of the units within each 

building. Since both buildings have at least 

2 dwelling units, both buildings are certain 

to be selected for inspection in Phase 1. Since 

all buildings were selected in Phase 1 of 

sampling, Phase 2 is not required. Both 

buildings in this example have a selection 

probability of 1.00 and a sampling weight of 

1.00. 

Example #2. This example uses a project 

where only some of the buildings within the 

project are selected for inspection in Phase 1, 

so a Phase 2 sampling is required. For this 

example, a project is comprised of 22 

residential buildings. Two buildings each 

have 10 dwelling units and 20 buildings are 

scattered-site single family dwelling units. 

The project has 40 total dwelling units (two 

buildings with 10 units each added to 20 

single units (20+20)). The target sample size 

for a project with 40 dwelling units is 16 

units, and the sampling ratio would be 2.5 

(40 total dwelling units divided by 16 target 

dwelling units). Since the target sample size 

is the lesser of either the dwelling unit 

sample size (16) or the number of all 

residential buildings (22), 16 residential 

buildings would be inspected for this project. 

In Phase 1 of sampling, the 2 buildings 

with 10 dwelling units are selected with 

certainty since they both have more than 2.5 

dwelling units. Each of the scattered-site 

single family buildings then have a 40 

percent probability of selection (100 percent 

or 1 divided by the 2.5 sampling ratio equals 

0.40). Assume that both large buildings and 

8 of the single family buildings (10 buildings 

in all) were selected in Phase 1. This leaves 

12 single family buildings available for 

selection during Phase 2. Since 16 residential 

buildings need to be inspected, the sample of 

10 buildings selected in Phase 1 falls 6 

buildings short of a full sample. Therefore, 

the system will select 6 of the 12 previously 

unselected buildings during Phase 2 

sampling. The chance of any single building, 

of the 12 remaining buildings, being selected 

during Phase 2 is 0.50 or 50 percent (6 target 

buildings divided by 12 previously 

unselected buildings). The overall probability 

of any one of the 20 single family units being 

selected during either Phase 1 or Phase 2 is 

calculated as follows: 

Element Protocol Calculation 

Phase 1 Single Family Unit Building Selection ................ 8 of 20 buildings .............................................................. 8/20 = .40 

Phase 2 Single Family Unit Building Selection ................ 6 of 12 buildings .............................................................. 6/12 = .50 

Overall Possibility of Single Family Unit Building Selection During Phase 2.100% minus the 40% already selected during Phase 1 

and multiplied by the 50% chance of being selected 

during Phase 2.

(1.00¥.40) × .50 = .30s 

Overall Probability of a Single Family Unit Building Selection.Probability from Phase 1 added to probability from 

Phase 2.

.40 + .30 = .70 

Verification—Overall Single Family Unit Building Selection.14 of 20 buildings ............................................................ 14/20 = .70 

Probability Weight* of Selection for Single Family Unit 

Building Selection.

1 divided by the overall probability of Single Family Unit 

Building Selection.

1.00/.70 = 1.43 

*See the note in Section VI.1 under the definition for normalized sub-area weight. 

15. Accessibility Questions 

HUD reviews particular elements during 

the physical inspection to determine possible 

indications of noncompliance with the Fair 

Housing Act (42 U.S.C. 3601–3619) and 

section 504 of the Rehabilitation Act of 1973 

(29 U.S.C. 794). More specifically, during the 

physical inspection, the inspector will record 

if: (1) There is a wheelchair-accessible route 

to and from the main ground floor entrance 

of the buildings inspected; (2) the main 

entrance for every building inspected is at 

least 32 inches wide, measured between the 

door and the opposite door jamb; (3) there is 

an accessible route to all exterior common 

areas; and (4) for multi-story buildings that 

are inspected, the interior hallways to all 

inspected units and common areas are at 

least 36 inches wide. These items are 

recorded, but do not affect the score. 

Appendix B to Part 902—Financial 

Condition Scoring 

I. Purpose of This Appendix 

This appendix provides information about 

the scoring process for PHAS Indicator #2, 

Financial Condition. The purpose of the 

Financial Condition Indicator is limited to 

measuring the financial condition of the 

Low-Rent and Capital Fund programs of the 

project(s) and PHA. 

II. Background 

A. Financial Condition Indicator Regulatory 

Background 

To reflect a shift from a PHA-wide based 

assessment to one that is property based, 

HUD is revising the Financial Assessment 

Sub-System for public housing (FASS–PH) 

Financial Data Schedule (FDS) and financial 

condition scoring process. Project-based 

management is defined in 24 CFR 990.115 as 

‘‘the provision of property management 

services that is tailored to the unique needs 

of each property.’’ PHAs must also 

implement project-based budgeting and 

project-based accounting, which are essential 

components of asset management. Projectbased accounting is critical to a propertybased assessment of financial condition, 

because it mandates the submission of 

property-level financial data. Accordingly, 

PHAs will now be scored at a property level, 

using the already designated projects as the 

basis for assessment. 

The condition of the Low-Rent program 

and Capital Fund program will be evaluated 

at the project level, producing individual 

project scores within the PHA. Project 

performance will be scored and averaged 

across the PHA, weighted according to unit 

count. The projects within a PHA will be 


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evaluated and scored based on the project’s 

performance relative to industry standards. 

B. Comparable Scoring Systems 

The financial condition subindicators are 

not unique to public housing. The 

subindicators included in the Financial 

Condition Indicator scoring process are 

common measurements used throughout the 

multifamily industry to rank properties and 

identify the properties that require further 

attention. 

III. Subindicators 

A. Subindicators of the Financial Condition 

Indicator 

There are three subindicators that examine 

the financial condition of each project. The 

values of the three subindicators, calculated 

from the project level data, comprise the 

overall financial assessment of a project. The 

three subindicators of the Financial 

Condition Indicator are: 

• Quick Ratio (QR); 

• Months Expendable Net Assets Ratio 

(MENAR); and 

• Debt Service Coverage Ratio (DSCR). 

B. Description of the Financial Condition 

Subindicators 

The subindicators are described as follows: 

Subindicator #1, QR. This subindicator is 

a liquidity measure of the project’s ability to 

cover current liabilities. It is measured by 

dividing adjusted unrestricted current assets 

by current liabilities. The purpose of this 

ratio is to indicate whether a project could 

meet all current liabilities if they became 

immediately due and payable. A project 

should have available current resources equal 

to or greater than its current liabilities in 

order to be considered financially liquid. The 

QR is a commonly used liquidity measure 

across the industry. Maintaining sufficient 

liquidity is essential for the financial health 

of an individual project. 

Subindicator #2, MENAR. This 

subindicator measures a project’s ability to 

operate using net available, unrestricted 

resources without relying on additional 

funding. In particular, it is computed as the 

ratio of net available unrestricted resources to 

average monthly operating expenses. The 

result of this calculation shows how many 

months of operating expenses can be covered 

with currently available, unrestricted 

resources. 

Subindicator #3, DSCR. This subindicator 

is a measure of a project’s ability to meet 

regular debt obligations. This subindicator is 

calculated by dividing adjusted operating 

income by a project’s annual debt service. It 

indicates whether the project has generated 

enough income from operations to meet 

annual interest and principal payment on 

long-term debt service obligations. 

IV. GAAP-Based Scoring Process and 

Elements of Scoring 

A. Points and Threshold 

The Financial Condition Indicator is based 

on a maximum of 20 points. In order to 

receive a passing score under this indicator, 

a project must achieve at least 12 points, or 

60 percent of the available points under this 

indicator. 

B. Scoring Elements 

The Financial Condition Indicator score 

provides an assessment of a project’s 

financial condition. Under the PHAS 

Financial Condition Indicator, HUD will 

calculate a score for each project, as well as 

for the PHA overall financial condition, that 

reflects weights based on the relative 

importance of the individual financial 

subindicators. The overall Financial 

Condition Indicator score for a PHA is a unitweighted average of the PHA’s individual 

project financial condition scores. In order to 

compute an overall financial condition score, 

an individual project financial condition 

score is multiplied by the number of units in 

each project to determine a ‘‘weighted 

value.’’ The sum of the weighted values is 

then divided by the total number of units in 

a PHA’s portfolio to derive the overall PHAS 

Financial Condition Indicator score. The 

three subindicator scores are produced using 

GAAP-based financial data contained in the 

FDS. The minimum number of points (zero) 

and the maximum number of points (twenty) 

can be achieved over a range of values. 

Subindicators Measurement of Points 

QR .............................................................................................. Liquidity ...................................................................................... 9.0 

MENAR ....................................................................................... Adequacy of reserves ................................................................. 9.0 

DSCR .......................................................................................... Capacity to cover debt ............................................................... 2.0 

Total ..................................................................................... ..................................................................................................... 20.0 

QR 

A project will receive zero points when its 

QR is less than 1.0. If its QR equals 1.0, it 

will receive 5.4 points. If its QR is between 

1.0 and 2.0, it will receive a score of between 

5.4 and 9.0 points, on a proportional basis. 

A project will receive the maximum of 9.0 

points when its QR is equal to or greater than 

2.0. 

QR value Points 

<1.0 ........................... 0.0. 

1.0 ............................. 5.4. 

QR value Points 

≥1.0 but ≥2.0 ............. >5.4 to <9.0. 

≥2.0 ........................... 9.0. 

The following graph depicts the 

relationship between the QR and scores. 


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MENAR 

A project will receive zero points when its 

MENAR is less than 1.0. If its MENAR equals 

1.0, it will receive 5.4 points. If its MENAR 

is between 1.0 and 4.0, it will receive a score 

of between 5.4 and 9.0 points, on a 

proportional basis. A project will receive the 

maximum of 9 points when its MENAR is 

equal to or greater than 4.0. 

MENAR value Points 

<1.0 ........................... 0.0 

1.0 ............................. 5.4 

MENAR value Points 

≥1.0 but <4.0 ............. >5.4 to <9.0 

≥4.0 ........................... 9.0 

The following graph depicts the 

relationship between the MENAR and scores. 

DSCR 

A project will receive zero points when its 

DSCR ratio is less than 1.0. If its DSCR equals 

at least 1.0 but less than 2.0, it will receive 

1 point. A project will receive the maximum 

of 2.0 points if its DSCR is equal to or greater 

than 2.0 or if it has no debt at all. 

DSCR value Points 

<1.0 ........................... 0.0 

≥1.0 but <2.0 ............. 1.0 

≥2.0 ........................... 2.0 

No Debt Service ........ 2.0 

The following graph depicts the 

relationship between the DSCR and scores. 


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49574 Federal Register / Vol. 73, No. 163 / Thursday, August 21, 2008 / Proposed Rules 

V. Audit Adjustment 

Pursuant to 24 CFR 902.30, HUD calculates 

a revised financial condition score after it 

receives audited financial information. The 

revised financial condition score, which is 

based on the audited information, can 

increase or decrease the initial PHA-wide 

score that was based on the unaudited 

financial information. The audited score 

reflects two types of adjustments. The first 

type is based on audit flags and reports that 

result from the audit itself. Significant 

deficiencies and material weaknesses are 

considered to be audit flags, alerting the 

REAC to an internal control deficiency or an 

instance of noncompliance with laws and 

regulations. The second adjustment type 

addresses significant differences between the 

unaudited and audited financial information 

reported to HUD pursuant to § 902.30. 

Audit Opinion and Flags 

As part of the analysis of the financial 

health of a PHA, including assessment of the 

potential or actual waste, fraud, or abuse at 

a PHA, HUD will look to the Audit Report 

to provide an additional basis for accepting 

or adjusting the financial component scores. 

The information collected from the annual 

Audit Report pertains to the type of audit 

opinion; details of the audit opinion; and the 

presence of significant deficiencies, material 

weaknesses, and noncompliance. 

If the auditor’s opinions on the financial 

statements and major federal programs are 

anything other than unqualified, points could 

be deducted from the PHA’s audited 

financial score. The REAC will review audit 

flags to determine their significance as it 

directly pertains to the assessment of the 

PHA’s financial condition. If the flags have 

no effect on the financial components or the 

overall financial condition of the PHA as it 

relates to the PHAS assessment, the audited 

score will not be adjusted. However, if the 

flags have an impact on the PHA’s financial 

condition, the PHA’s audited score will be 

adjusted according to the seriousness of the 

reported finding. 

These flags are collected on the Data 

Collection Form (OMB approval number 

2535–0107). The PHA completes this form 

for audited submissions. If the Data 

Collection Form indicates that the auditor’s 

opinion will be anything other than 

unqualified, points can be deducted from the 

financial condition score. The point 

deductions have been established using a 

three-tier system. The tiers give consideration 

to the seriousness of the audit qualification 

and limit the deducted points to a reasonable 

portion of the PHA’s total score. 

Audit Flag Tiers 

Audit flags are assigned tiers, as stated in 

the following chart. 

AUDIT FLAGS AND TIER CLASSIFICATIONS

Audit flags Tier classification Comments 

Financial Statement Audit Opinion(s): 

1. Unqualified opinion(s) ...................................................................................... None. 

2. Qualified opinion(s).

• Departures from GAAP not significant enough to cause an adverse opinion(s). 

• Limitations on the scope of the audit (regardless of cause) not significant 

enough to cause a disclaimer of opinion..

Tier 2 ..................... Deduction only if the departure includes the Low Rent or Capital Fund 

programs. 

3. Adverse opinion(s) regardless of reason(s) ..................................................... Tier 1. 

4. Disclaimer of opinion(s) regardless of reason(s) ............................................. Tier 1. 

Opinion(s) on Supplemental Information (Statement of Auditing Standard (SAS) 

29 ‘‘in relation to’’ type of opinion): 

1. Fairly stated ...................................................................................................... None ...................... Applies to the FDS. 

2. Fairly stated except for: ................................................................................... Tier 2. 

3. No opinion ........................................................................................................ Tier 1. 

4. Incomplete or missing ...................................................................................... Tier 1. 

Report on Internal Control and Compliance and Other Matters Noted in an Audit 

of the Financial Statement performed in accordance with Government Auditing 

Standards (GAS) (Yellow Book): 

1. Control deficiencies .......................................................................................... Tier 3. 

• Significant deficiencies; 

• Material weakness; 


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AUDIT FLAGS AND TIER CLASSIFICATIONS—Continued 

Audit flags Tier classification Comments 

2. Material noncompliance ...................................................................................

3. Fraud ................................................................................................................

4. Illegal acts ........................................................................................................

5. Abuse ...............................................................................................................

Tier 3 .....................

Tier 3. 

Tier 3. 

Tier 3. 

Deduction applies only if the internal 

control deficiency and/or noncompliance relates to the Low Rent or Capital Fund programs. 

Report on Compliance with Requirements Applicable to Major Federal Programs 

and Internal Control over Compliance with OMB Circular A–133—

Opinion on compliance with each major federal program requirements: 

1. Unqualified opinion(s) on compliance with Low Rent program and Capital 

Fund program major federal requirements.

None. 

2. Qualified opinion(s) on compliance with Low Rent Program program and 

Capital Fund program major federal requirements (regardless of cause).

Tier 2. 

3. Adverse opinion(s) on compliance with Low Rent program and Capital Fund 

program major federal requirements (regardless of cause).

Tier 1. 

4. Disclaimer of opinion(s) on compliance with Low Rent Program and Capital 

Fund program major federal requirements (regardless of cause).

Tier 1. 

Internal Controls and Compliance: 

1. Control Deficiencies: ........................................................................................ Tier 3. 

• Significant deficiencies in internal controls over compliance with Low Rent 

program and Capital Fund program requirements. 

• Material weakness in internal controls over compliance with Low Rent 

program and Capital Fund program requirements. 

2. Material noncompliance with Low Rent program and Capital Fund program 

requirements.

Tier 3. 

Other Consideration: 

1. Significant change penalty deduction applies only if the significant change(s) 

relate to the Low Rent or Capital Fund programs.

Tier 2. 

2. Ongoing concerns ............................................................................................ Tier 1. 

3. Management Discussion and Analysis and other supplemental information 

omitted.

Tier 2. 

4. Financial statements using basis other than GAAP ........................................ Tier 1. 

Each tier assesses point deductions of 

varying severity. The following chart 

illustrates the point schedule: 

Tier PHAS points deducted 

Tier 1 ................ Any Tier 1 finding assesses a 100 percent deduction of the PHA’s financial condition indicator score. 

Tier 2 ................ Any Tier 2 finding assesses a point deduction equal to 10 percent of the unadjusted financial condition indicator score. 

Tier 3 ................ Each Tier 3 finding assesses a 0.5 point deduction per occurrence, to a maximum of 4 points of the financial condition indicator score. 

Review of Audited Versus Unaudited 

Submission 

The purposes of comparing the ratios and 

scores from the unaudited FDS submission to 

the ratios and scores from the audited 

submission are to: 

• Identify significant changes in ratio 

calculation results and/or scores from the 

unaudited submission to the audited 

submission; 

• Identify PHAs that consistently provide 

significantly different data from their 

unaudited submission in their audited 

submission; and 

• Assess or alleviate penalties associated 

with the inability to provide reasonably 

accurate unaudited data within the required 

time frame. 

This review process will be performed only 

for the audited submissions. 

Significant Change Penalty 

HUD views the transmission of 

significantly inaccurate unaudited financial 

data as a serious condition. Therefore, 

projects are encouraged to assure that 

financial data is as reliable as possible for 

their unaudited submissions. 

A significant change penalty will be 

assessed for significant differences between 

the unaudited and audited submissions. A 

significant difference is considered to be an 

overall financial condition score decrease of 

three or more points from the unaudited to 

the audited submission. A significant change 

penalty is considered a tier 2 flag and will 

result in a reduction of 10 percent of the total 

audited financial condition score. 

For example: A PHA scores 30 points on 

its unaudited submission. The audited 

submission score is 26 points. Because the 10 

percent reduction is 2.6 points, 2.6 is 

rounded to the next whole number, 3.0 

points. Therefore, the PHA audited score is 

23 points (26 points minus 3 points equals 

23 points). 

The PHAS system automatically deducts 

the significant change penalty from the 

audited score, and this reduction triggers the 

REAC analyst’s review. REAC may waive the 

significant change penalty if the project 

provides reasonable documentation of the 

significant difference in its submission. 

Appendix C to Part 902—Management 

Operations Scoring 

I. Purpose of This Appendix 

This appendix provides additional 

information about the scoring process for the 

PHAS Management Operations Indicator. 

The purpose of the management operations 

assessment is to assess the project’s and 

PHA’s management operations capabilities. 

All projects will be assessed under the 

Management Operations Indicator, even if a 

PHA has not converted to asset management. 

This PHAS Management Operations 

Scoring document has been revised to reflect 

research HUD conducted through informal 

meetings with representatives of PHAs, 

residents, projects, and public housing 

industry groups, and to provide the basis for 

scoring projects on the management 

operations. This management operations 

scoring document is applicable to PHAs with 

fiscal years ending on and after June 30, 

2009. 


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II. Definitions 

As used in this appendix: 

Adjusted vacancy rate is a project’s 

vacancy rate excluding all exemptions. If a 

project qualifies for this adjustment, it shall 

retain justifying documentation for HUD 

review. 

Assessment period is the 12-calendarmonth period as of the end of the calendar 

month before the management review of 

public housing projects begins, or the period 

of time as defined in each component. 

Average number of days tenant-generated 

work orders were open during the assessment 

period is the total number of days tenantgenerated work orders were open divided by 

the total number of tenant-generated work 

orders. 

Changing market conditions are when 

projects are in communities that are 

undergoing dramatic population loss or 

economic dislocations. Projects should 

maintain documentation of the specific 

condition, i.e., population loss, business 

relocations, etc., along with evidence of the 

marketing and outreach approaches utilized 

by projects. Projects must demonstrate: 

(1) Exhaustive marketing efforts; 

(2) Efforts to modernize the units to make 

the units more closely match market demand 

in terms of size, type, or amenities; and 

(3) Consideration given to deprogramming 

if the market does not respond to marketing 

or modernization efforts. 

Invoices in dispute are invoices challenged 

by the project and the project has sent 

documentation to the vendor that explains 

why the invoices are challenged. 

Management Review Form (Review Form), 

form HUD–5834, Management Review for 

Public Housing Projects, is the review form 

used by HUD when conducting a 

management review of public housing 

projects. 

Preventive maintenance plan is a planned 

course of action for scheduled maintenance 

procedures that are systematically performed 

at regular intervals to prevent premature 

deterioration of buildings and systems. A 

preventive maintenance plan should include: 

(1) The identification of: 

(a) Critical systems, such as heating, 

ventilation and air conditioning (HVAC), and 

fire safety; 

(b) Building elements, such as roofs and 

exterior walls; and 

(c) Grounds care, such as parking lots and 

fencing. 

(2) Appropriate strategies and protocols for 

performing preventive maintenance on each 

system and building element, and for 

grounds care; and 

(3) A schedule for conducting preventive 

maintenance appropriate to each system and 

building element, and for grounds care. 

Reduced average number of days tenantgenerated work orders were open during the 

previous 3 years is a comparison of the 

average time tenant-generated work orders 

were open in the current assessment period 

to the average number of days tenantgenerated work orders were open in the 

single calendar month that is 3 years prior to 

the current assessment period. It is calculated 

by subtracting the average number of days 

tenant work orders were open in the current 

assessment period from the average number 

of days tenant-generated work orders were 

open in the earlier assessment period. In 

order to receive credit for a reduction in the 

average time tenant-generated work orders 

were active during the previous 3 years, the 

project shall retain justifying documentation 

for HUD review. 

Reduced vacancy rate during the previous 

3 years is a comparison of the adjusted 

vacancy rate in the current assessment period 

to the adjusted vacancy rate in the single 

calendar month that is 3 years prior to the 

current assessment period. It is calculated by 

subtracting the adjusted vacancy rate in the 

current assessment period from the adjusted 

vacancy rate in the earlier assessment period. 

Vacancy days associated with a vacant 

unit receiving section 9(d) funds in 

accordance with 24 CFR 990.145. Neither 

vacancy days associated with a vacant unit 

prior to that unit meeting the condition of 

being a unit receiving section 9(d) fund nor 

vacancy days associated with a vacant unit 

after construction work has been completed 

or after the time frame for placing the vacant 

unit under construction has expired shall be 

exempted. The following apply when 

computing time frames for a vacant unit 

receiving section 9(d) funds: 

(1) The calculation of turnaround time for 

newly modernized units starts when the unit 

is turned over to the PHA from the contractor 

and ends when the lease goes into effect for 

the new or returning resident. The total 

vacancy time would be the sum of the premodernization vacancy time (vacancy days 

that had accumulated prior to the unit being 

included in the section 9(d) budget), and the 

post-modernization vacancy time (from the 

time the unit is turned over to the PHA from 

the contractor). 

(2) Unit-by-unit documentation, showing 

the date a vacant unit was included in a 

HUD-approved section 9(d) budget, the date 

it was released to the PHA by the contractor, 

and the date a new lease is effective for the 

new or returning resident, or the date the 

time period for placing the vacant unit under 

construction expired. 

III. Subindicators 

A. Subindicators of Management Assessment 

Indicator 

The criteria (subindicators and 

components) of the management review of 

projects are included in form HUD–5834, 

Management Review for Public Housing 

Projects. The Management Operations 

Indicator consists of 5 management 

subindicators and 12 components that are 

scored. The remaining 2 subindicators and 9 

components are compliance areas and are not 

scored. Table 1 lists the subindicators and 

components. 

TABLE 1—MANAGEMENT OPERATIONS INDICATOR

Subindicator Component 

1. General Appearance and Security ....................................................... 1.1 Appearance and Market Appeal. 

1.2 Security. 

2. Follow-Up and Monitoring of Project Inspections (Not Scored) .......... 2.1 Exigent Health and Safety (EHS) Deficiencies (Not Scored). 

2.2 Lead-Based Paint (LBP) Inspection Deficiencies (Not Scored). 

3. Maintenance and Modernization .......................................................... 3.1 Unit Inspections. 

3.2 Work Orders. 

3.3 Preventive Maintenance. 

3.4 Energy Conservation/Utility Consumption. 

3.5 Modernization (Not Scored). 

4. Financial Management ......................................................................... 4.1 Percentage of Accounts Payable. 

4.2 Rent Collection. 

4.3 Budget Management (Not Scored). 

4.4 Procurement (Not Scored). 

5. Leasing and Occupancy ....................................................................... 5.1 Vacancy Rate. 

5.2 Turnaround Time. 

5.3 Occupancy Review (Not Scored). 

6. Tenant/Management Relations ............................................................ 6.1 Economic Self-Sufficiency. 

6.2 Resident Involvement in Project Administration. 

7. General Management Practices (Not Scored) ..................................... 7.1 Management Review Findings (Not Scored). 

7.2 Other Prior Review Findings (Not Scored). 

7.3 Insurance (Not Scored). 


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The areas that are not scored are included 

in the management review of public housing 

projects, because the information they 

provide is integral to supporting good 

management operations. 

B. Grades for Management Assessment 

Subindicators and Components 

Subindicator #1, General Appearance and 

Security. This subindicator evaluates the 

appearance of a project, and the level of 

security, including level of crime, screening 

of applicants, eviction of residents for crime 

and crime-related activities, and coordination 

with local officials and residents to 

implement anti-crime strategies. 

Component #1.1, Appearance and Market 

Appeal. This component evaluates, at the 

time of the review, the appearance of a 

project’s exterior and common areas, 

including the degree to which the project is 

attractive, appealing, and clean, and that it 

demonstrates market appeal. The project’s 

evaluation will be based on either 

‘‘Superior,’’ ‘‘Satisfactory,’’ or 

‘‘Unsatisfactory’’ ratings in 12 areas. If any 

area does not apply to the project, the area’s 

points will not be included in the total points 

for this component, to avoid penalizing a 

project. The 12 areas are as follows: 

Superior Performance: 

(1) Attractive project entrance with 

appropriate signage and plantings. 

(2) Attractive, well-maintained 

landscaping—trees, shrubs, grass not 

overgrown. 

(3) Building exteriors including paint, 

siding, and masonry are in good repair. 

(4) No graffiti. 

(5) Paved surfaces—parking lots, streets, 

and walks are in good repair. 

(6) Public spaces and amenities are well 

maintained. 

(7) Fencing, railing, porches, overhangs, 

and ramps are in good condition and 

enhance project appearance. 

(8) Windows have no torn or damaged 

window treatments, and blankets, bed sheets, 

or other materials not designed to be window 

treatments are not used for window 

coverings. 

(9) Overall project appearance is not 

institutional (i.e., building looks like an 

institution, dull, uniform, unimaginative) 

and exceeds the standards in the surrounding 

neighborhood. 

(10) Project is clean and free of debris, 

trash, clutter, and/or abandoned vehicles. 

(11) Dumpsters and trash cans are clean 

and properly enclosed. 

(12) No evidence of damaged and/or 

boarded-up units. 

Satisfactory Performance: 

(1) Moderately attractive project entrance 

with signage and plantings. 

(2) Landscaping is average—trees, shrubs, 

grass not overgrown. 

(3) Building exteriors including paint, 

siding, and masonry are at least in fair repair. 

(4) Limited graffiti in no more than 5 

places. 

(5) Paved surfaces—parking lots, streets, 

and walks are at least in moderate repair. 

(6) Public spaces and amenities are at least 

moderately maintained. 

(7) Fencing, railing, porches, overhangs, 

and ramps are at least in moderate condition 

and do not detract from project appearance. 

(8) Windows have no more than 5 torn or 

damaged window treatments and blankets, 

bed sheets, or other materials not designed to 

be window treatments are not used for 

window coverings. 

(9) Overall project appearance is somewhat 

institutional and is at least equivalent to 

surrounding neighborhood. 

(10) Project is at least moderately clean, 

with minimal debris, trash, clutter, and/or 

abandoned vehicles. 

(11) Dumpsters and trash cans are at least 

moderately clean and usually enclosed. 

(12) No more than 5 damaged and/or 

boarded-up units. 

Unsatisfactory Performance: 

(1) Project entrance is not attractive, with 

no signage and limited plantings. 

(2) Landscaping is below average—trees, 

shrubs and/or grass are overgrown. 

(3) Building exteriors including paint, 

siding, and masonry are in poor repair. 

(4) Excessive graffiti in 6 or more places. 

(5) Paved surfaces—parking lots, streets, 

and walks are in poor repair. 

(6) Public spaces and amenities are not 

maintained. 

(7) Fencing, railing, porches, overhangs, 

and ramps are in poor condition and detract 

from project appearance. 

(8) Windows have 6 or more torn or 

damaged window treatments and blankets, 

bed sheets, or other materials not designed to 

be window treatments are used for curtains. 

(9) Overall project appearance is 

institutional and is worse than the 

surrounding neighborhood. 

(10) Project is not clean because of 

significant debris, trash, clutter and/or 

abandoned vehicles. 

(11) Dumpsters and/or trash cans are not 

clean and generally unenclosed. 

(12) Six or more damaged and/or boardedup units. 

Grade A: The project: 

(1) Achieves 80 percent or greater of the 

points possible for all of the criteria for 

which the project is assessed; and 

(2) Has zero unsatisfactory ratings. 

Grade C: The project achieves less than 80 

percent but greater than or equal to 50 

percent of the points possible for all of the 

criteria for which the project is assessed. 

Grade F: The project achieves less than 50 

percent of the points possible for all of the 

criteria for which the project is assessed. 

Component #1.2, Security. This component 

evaluates, at the time of the review, a 

project’s performance in tracking crimerelated problems on project property, the 

adoption and implementation, consistent 

with section 9 of the Housing Opportunity 

Program Extension Act of 1996 (42 U.S.C. 

1437d(r)) and the Quality Housing and Work 

Responsibility Act of 1998 (Pub. L. 105–276, 

October 21, 1998), of applicant screening and 

resident eviction policies and procedures, 

and the coordination with local officials and 

residents to implement anti-crime strategies. 

Grade A: The project can meet the criteria 

for the three following items: 

(1) There is no evidence of a crime problem 

at the project or the crime rate at the project 

is equal to or less than the crime rate for the 

surrounding neighborhood; 

(2) The project has formally adopted 

effective applicant screening policies and 

procedures that deny admissions to 

applicants on the basis of the following, as 

stated in 24 CFR 960.204: 

• The applicant was evicted because of 

drug-related activity from assisted housing 

within the last 3 years, unless the applicant 

has successfully completed a rehabilitation 

program approved by the project; 

• The project has reason to believe the 

applicant is illegally using a controlled 

substance, or engages in any drug-related 

activity on or off the project; 

• The project has reason to believe the 

applicant is abusing alcohol, which interferes 

with the health, safety, or right to peaceful 

enjoyment of the premises by other residents; 

• The applicant or any household member 

of the applicant has been convicted of drugrelated criminal activity for the manufacture 

or production of methamphetamine on the 

premises of federally assisted housing; or 

• The applicant or any member of the 

applicant’s household is subject to a lifetime 

registration requirement under a state sex 

offender registration program. 

(3) The project has formally adopted 

effective policies and procedures to evict 

residents who the project has reasonable 

cause to believe, as follows: 

• Engage in criminal activity that threaten 

the health, safety, or right to peaceful 

enjoyment of the premises by other residents 

or project personnel; 

• Engage in any drug-related criminal 

activity on or off the project premises; or 

• Abuse alcohol in a way that interferes 

with the health, safety, and peaceful 

enjoyment of the premises by other residents 

or project personnel. 

Grade C: The project: 

(1) Can meet the criteria for items (2) and 

(3) in grade A of this component; and 

(2) Cannot meet the criteria in item (1) in 

grade A of this component; and 

(3) Has formally adopted an effective 

security plan developed in coordination with 

local police officials and residents to 

implement anti-crime strategies. 

Grade F: The project: 

(1) Cannot meet the criteria for items (2) 

and (3) in grade A, above; or 

(2) Cannot meet the criteria in item (1) in 

grade A of this component; and 

(3) Has not formally adopted an effective 

security plan developed in coordination with 

local police officials and residents to 

implement anti-crime strategies. 

Subindicator #2, Follow-Up and 

Monitoring of Project Inspections. This 

subindicator examines a project’s 

performance, at the time of the review, in 

correcting or abating exigent health and 

safety (EHS) deficiencies and lead-based 

paint (LBP) abatement. This subindicator is 

not scored. 

Component #2.1, Exigent Health and 

Safety (EHS) Deficiencies. This component 

examines a project’s performance, at the time 

of the review, in correcting or abating EHS 

deficiencies identified during its most recent 

HUD physical condition inspection. This 

component is not scored. 


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Component #2.2, Lead-Based Paint (LBP) 

Inspection Deficiencies. This component 

examines a project’s performance, at the time 

of the review, in maintaining current LBP 

certifications for projects built before 1978, 

and performing risk assessments and hazard 

reduction, if necessary, for reported elevated 

intervention blood lead levels (EIBLLs). This 

component is not scored. 

Subindicator #3, Maintenance and 

Modernization. This subindicator measures a 

project’s performance in conducting unit 

inspections, responding to tenant-generated 

work orders, performing preventive 

maintenance, managing utility consumption/ 

energy conservation, and managing 

modernization activities. 

Component #3.1, Unit Inspections. This 

component measures the percentage of units 

that a project inspected for the 12-calendarmonth period as of the end of the calendar 

month before the management review of 

public housing projects begins in order to 

determine short-term maintenance needs and 

long-term modernization needs. The project 

is required to conduct unit inspections using 

the HUD inspection protocol that is based on 

the Uniform Physical Condition Standards 

(UPCS) set forth in 24 CFR part 5, subpart G. 

HUD will consider the following: 

• Adequacy of the inspection program. 

The project must have an adequate 

inspection program in terms of tracking 

inspections, and in ensuring the 

thoroughness and quality of the project’s 

inspections. 

• Units to be inspected. All occupied units 

and/or units available for occupancy are 

required to be inspected. This includes units 

used for non-dwelling purposes, those 

occupied by employees, and those used for 

resident services. 

• Units exempted. Units in the following 

categories are exempted and not included in 

the calculation of the total number of units, 

and the percentage of units inspected for the 

assessed period. 

(1) Occupied units for which a project has 

documented two attempts to inspect the unit 

during the assessment period, but only if the 

project can document that appropriate legal 

action (up to and including eviction of the 

legal or illegal occupant(s)) has been taken 

under the lease to ensure that the unit can 

be subsequently inspected. 

(2) Units vacant during the assessment 

period for the following reasons: 

(a) Vacant units that are receiving section 

9(d) Capital Funds; or 

(b) Vacant units that are documented to be 

uninhabitable for reasons beyond a project’s 

control due to: 

(i) High/unsafe levels of hazardous/toxic 

materials; 

(ii) An order of the local health department 

or state agency or a directive of the 

Environmental Protection Agency; 

(iii) Natural disasters; or 

(iv) Units that are kept vacant because they 

are structurally unsound. 

• Supporting documentation for vacant 

units that are uninhabitable for reasons 

beyond project’s control. A project shall 

maintain information to support its 

determination of vacant units that are 

uninhabitable due to circumstances and 

actions beyond the project’s control. This 

supporting information is subject to review 

and may be requested for verification 

purposes at any time by HUD. The project 

shall, at a minimum, maintain: 

(1) The date on which the unit met the 

conditions of being a vacant unit that is 

uninhabitable due to circumstances and 

actions beyond a project’s control; 

(2) Documentation identifying the specific 

conditions that distinguish the unit as a unit 

vacant due to circumstances and actions 

beyond a project’s control; 

(3) A description or list of the actions taken 

by a project to eliminate or mitigate these 

conditions; and 

(4) The date on which the unit ceased to 

meet such conditions and became an 

available unit. 

Grade A: The project: 

(1) Scores 90 percent or more on a 100- 

point scale on HUD’s physical condition 

inspection; or 

(2) Inspects 99 percent or more of the units; 

and 

(3) Has an adequate system for tracking 

unit inspections. 

Grade C: The project: 

(1) Inspects at least 95 percent but less than 

99 percent of the units; and 

(2) Has an adequate system for tracking 

dwelling unit inspections. 

Grade F: The project: 

(1) Inspects less than 95 percent of the 

units; or 

(2) Does not have an adequate system for 

tracking dwelling unit inspections. 

Component #3.2, Work Orders. This 

component measures the average number of 

days that tenant-generated maintenance work 

orders are outstanding. A project may choose 

either to be assessed: (1) for the most recent 

one-month period where the required 

information is available; or (2) for the 12- 

calendar-month period as of the end of the 

calendar month before the management 

review of public housing projects begins. For 

grade C(3), the assessment comparison is the 

completion performance in the single 

calendar month that is 3 years prior to the 

single calendar month being used in the 

assessment. The assessment of this 

component includes only those work orders 

that were closed during the period of time 

being assessed, even if the work order was 

opened prior to the period of time being 

assessed. It does not assess those work orders 

that were not closed during the period of 

time being assessed. 

• Adequacy of the system to track work 

orders. It is implicit in this component that 

the project has an adequate system for 

tracking work orders, and ensuring the 

thoroughness and quality of the project’s 

needed repairs. 

Grade A: The project has: 

(1) Scored 90 percent or more on a 100- 

point scale on HUD’s physical condition 

inspection; or 

(2) Completed tenant-generated work 

orders in less than an average of 3 days; and 

(3) An adequate system for tracking work 

orders. 

Grade C: The project has: 

(1) Completed tenant-generated work 

orders in an average of at least 3 days but less 

than 10 days; and 

(2) An adequate system for tracking work 

orders; or 

(3) Completed tenant-generated work 

orders within an average of between 10 and 

20 days; and 

(a) Reduced the average time it takes to 

complete tenant-generated work orders by at 

least 10 days during the past 3 years; and 

(b) An adequate system for tracking work 

orders. 

Grade F: The project: 

(1) Completed all tenant-generated work 

orders in an average of 10 or more days; or 

(2) Does not have an adequate system for 

tracking work orders. 

Component #3.3, Preventive Maintenance. 

This component evaluates a project’s 

implementation of a written preventive 

maintenance plan, including but not limited 

to the identification of critical systems, 

building elements, grounds care and 

equipment, appropriate strategies and 

protocols for performing preventive 

maintenance on all plan items, and a 

schedule for conducting preventive 

maintenance for each item in the plan. 

Grade A: The project: 

(1) Conducts annual inspections of 

buildings, grounds, common areas, nondwelling space, and major systems; and 

(2) Has a sufficient preventive maintenance 

plan; and 

(3) All of the elements in the project’s 

preventive maintenance plan have been 

implemented. 

Grade C: The project: 

(1) Conducts annual inspections of 

buildings, grounds, common areas, nondwelling space, and major systems; and 

(2) Has a sufficient preventive maintenance 

plan; and 

(3) At least 70 percent of the elements in 

the project’s preventive maintenance plan 

have been implemented. 

Grade F: The project: 

(1) Does not conduct annual inspections of 

buildings, grounds, common areas, nondwelling space, and major systems; or 

(2) Does not have a sufficient preventive 

maintenance plan; or 

(3) Less than 70 percent of the elements in 

the project’s preventive maintenance plan 

have not been implemented. 

Component #3.4, Energy Conservation/ 

Utility Consumption. This component 

examines a project’s energy conservation/ 

utility consumption measures for projects 

that have had an energy audit within the past 

5 years. 

Grade A: The project: 

(1) Has completed or updated its energy 

audit within the past 5 years and the project 

has implemented all of the recommendations 

that were cost-effective; or 

(2) Is doing the maximum feasible to 

reduce energy consumption such that no 

energy audit conducted within the past 5 

years has made cost-effective 

recommendations. 

Grade C: The project: 

(1) Has completed or updated its energy 

audit within the past 5 years and the energy 

audit is less than one-year old; or 

(2) Has completed or updated its energy 

audit within the past 5 years, the energy 

audit is as least one-year old, and the project 


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has developed an implementation plan for all 

cost-effective recommendations and is on 

schedule with the implementation plan, 

based on available funds. The 

implementation plan identifies, at a 

minimum, the cost-effective items from the 

audit, the estimated cost, the planned 

funding source, and the anticipated date of 

completion for each item. 

Grade F: The project did not complete or 

update its energy audit within the past 5 

years, or the project has not developed an 

implementation plan for all cost-effective 

recommendations, or is not on schedule with 

its implementation plan based on available 

funds, or has not implemented all of the 

recommendations that were cost-effective. 

Component #3.5, Modernization. This 

component examines the project’s 

management of modernization and nonroutine maintenance through the physical 

needs assessment, and examines project 

plans and budgets for modernization 

activities. This component is not scored. 

Subindicator #4, Financial Management. 

This subindicator examines a project’s 

timeliness in paying invoices that are not in 

dispute, the percentage of rents collected, the 

adequacy of a project’s budget management, 

and the project’s ability to plan and 

implement procurement actions. 

Component #4.1, Percentage of Accounts 

Payable. This component examines, at the 

end of the most recent one-month period 

where the required information is available, 

a project’s timeliness in paying invoices that 

are not in dispute. 

• Adequacy of the system to track accounts 

payable. It is implicit in this component that 

the project has an adequate system for 

tracking accounts payable. 

Grade A: 

(1) All of the invoices that are not in 

dispute are 30 days or less outstanding; and 

(2) The project has an adequate system for 

tracking accounts payable. 

Grade C: 

(1) One or more of the invoices that are not 

in dispute are greater than 30 days but no 

more than 60 days outstanding; and 

(2) The project has an adequate system for 

tracking accounts payable. 

Grade F: 

(1) One or more of the invoices that are not 

in dispute are greater than 60 days 

outstanding; or 

(2) The project does not have an adequate 

system for tracking accounts payable. 

Component #4.2, Rent Collection. This 

component measures the percentage of rents 

collected, which is determined by dividing 

the total rents collected by the total rents 

charged to tenants. A project may choose to 

be assessed for either: (1) the most recent 

one-month period for which the required 

information is available, or (2) the 12- 

calendar-month period as of the end of the 

most recent calendar month where the 

required information is available. Rents 

include rental charges only and would not 

include other charges to tenants, such as 

court costs, maintenance costs, etc. 

• Adequacy of the system to track rents 

collected. Implicit in this component is that 

the project has an adequate system to track 

and document total rents charged and total 

rents collected. 

Grade A: 

(1) The percentage of rents collected is at 

least 97 percent of the total rent to be 

collected; and 

(2) The project has an adequate system to 

track and document total rents charged and 

total rents collected. 

Grade C: 

(1) The percentage of rents collected is at 

least 93 percent but less than 97 percent of 

the total rent to be collected; and 

(2) The project has an adequate system to 

track and document total rents charged and 

total rents collected. 

Grade F: 

(1) The percentage of rents collected is less 

than 93 percent of the total rent to be 

collected; or 

(2) The project does not have an adequate 

system to track and document total rents 

charged and total rents collected. 

Component #4.3, Budget Management. 

This component examines the project’s 

budgeting revenue and expenditure 

performance, as well as actual year-to-date 

revenue and expenditure performance, for 

the current fiscal year (or the prior fiscal year 

if the management review of public housing 

projects is conducted within the first quarter 

of the project’s current fiscal year). This 

component is not scored. 

Component #4.4, Procurement. This 

component examines a project’s ability to 

plan for and implement procurement actions 

for the project in accordance with 24 CFR 

85.36 and all other applicable laws and 

regulations. This component is not scored. 

Subindicator #5, Leasing and Occupancy. 

This subindicator measures the average 

adjusted vacancy rate and unit turnaround 

time. The following categories of units that 

are not considered available for occupancy 

are exempted from the computation of 

adjusted vacancy rate and unit turnaround 

time. 

(1) Units approved for special use. Units 

approved for special use that are exempt 

during the assessment period are HUDapproved units used to promote selfsufficiency and anti-drug and anti-crime 

activities, or for non-dwelling purposes, 

including but not limited to resident services, 

resident organization offices, police 

substations, day care centers, public safety 

activities, or resident job training. 

(2) Employee occupied units. Employee 

occupied units that are exempt during the 

assessment period are units occupied by 

employees whose occupancy is contingent 

upon their continued employment by a 

project. However, units that are occupied by 

residents who meet the project’s eligibility 

criteria and are also employed by the project 

shall not be exempted from the computation 

of adjusted vacancy rate and unit turnaround 

time. 

(3) Vacant units approved for 

deprogramming. Vacant units approved for 

deprogramming that are exempt during the 

assessment period are HUD-approved units 

for demolition and/or disposition, vacant 

units that have been approved for 

conversion/reprogramming, or units vacated 

for vacancy consolidation. 

(4) Vacancy days associated with vacant 

units receiving section 9(d) Capital Funds 

during the assessment period. Vacancies 

resulting from project modernization or unit 

modernization, provided that one of the 

following conditions are met: 

(a) The unit is undergoing modernization 

(i.e., the modernization contract has been 

awarded or force account work has started) 

and must be vacant to perform the work, and 

the construction is on schedule according to 

a HUD-approved PHA Annual Plan; or 

(b) The unit must be vacated to perform the 

work and the treatment of the vacant unit is 

included in a HUD-approved PHA Annual 

Plan, but the time period for placing the 

vacant unit under construction has not yet 

expired. The PHA shall place the vacant unit 

under construction within 2 federal fiscal 

years (FFYs) after the FFY in which the 

capital funds are approved. 

(c) Vacancy days associated with a vacant 

unit prior to the time the unit meets the 

conditions of being a unit receiving section 

9(d) Capital Funds, and vacancy days 

associated with a vacant unit after 

construction work has been completed or 

after the time period for placing the vacant 

unit under construction has expired, shall 

not be exempted from the computation of 

adjusted vacancy rate and unit turnaround 

time. 

(5) Vacancy days associated with units 

vacant during the assessment period due to 

circumstances and actions beyond a project’s 

control. Circumstances and actions beyond a 

project’s control may include, but are not 

limited to: 

(a) Litigation. Units that are vacant due to 

litigation, such as a court order or settlement 

agreement that is legally enforceable; units 

that are vacant in order to meet regulatory 

and statutory requirements to avoid potential 

litigation (as covered in a HUD-approved 

PHA Annual Plan); and units under 

voluntary compliance agreements with HUD 

or other voluntary agreements acceptable to 

HUD (e.g., units that are being held vacant as 

part of a court-order, HUD-approved 

desegregation plan, or as part of a voluntary 

compliance agreement requiring 

modifications to the units to make them 

accessible pursuant to 24 CFR part 8); 

(b) Changing market conditions; 

(c) Disasters. Units that are vacant due to 

a federally declared, state-declared, or other 

declared disaster; or 

(d) Casualty losses. Damaged units that 

have sustained casualty damage and remain 

vacant due to delays in settling insurance 

claims, but only until the insurance claims 

are settled. 

• Supporting documentation for section 9 

Capital Fund program units. A project shall 

maintain information to support its 

determination of vacancy days associated 

with a vacant unit that meets the conditions 

of being a unit receiving section 9(d) Capital 

Funds under paragraph (4) of this section. 

The project shall, at a minimum, maintain: 

(1) The date on which the unit met the 

conditions of being a vacant unit receiving 

section 9(d) Capital Funds; and 

(2) The date on which construction work 

was completed or the time period for placing 

the vacant unit under construction expired. 

• Supporting documents for vacancies 

beyond a project’s control. A project shall 


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maintain information to support its 

determination of vacancy days associated 

with units vacant due to circumstances and 

actions beyond the project’s control. This 

supporting information is subject to review 

and may be requested for verification 

purposes at any time by HUD. The project 

shall, at a minimum, maintain: 

(1) The date on which the unit met the 

conditions of being a unit vacant due to 

circumstances and actions beyond a project’s 

control; 

(2) Documentation identifying the specific 

conditions that distinguish the unit as a unit 

vacant due to circumstances and actions 

beyond a project’s control; 

(3) A description or list of the actions taken 

by a project to eliminate or mitigate these 

conditions; and 

(4) The date on which the unit ceased to 

meet such conditions and became an 

available unit. 

Component #5.1, Vacancy Rate. This 

component measures the average adjusted 

vacancy rate for the 12-calendar-month 

period as of the end of the calendar month 

before the management review of public 

housing projects begins (except as noted in 

grades C(3) and D(3)), and the project’s 

progress in reducing vacancies. 

• Adequacy of the system to track vacancy 

rate. It is implicit in this component that the 

project has an adequate system for tracking 

vacancy rate. 

Grade A: The project has: 

(1) An adjusted vacancy rate of 2 percent 

or less; or 

(2) For a project with fewer than 100 units, 

not more than the number of unit days for 

2 units vacant for the entire year; and 

(3) An adequate system for tracking 

vacancy days. 

Grade B: The project has: 

(1) An adjusted vacancy rate of greater than 

2 percent and less than or equal to 4 percent; 

and 

(2) An adequate system for tracking 

vacancy days. 

Grade C: The project: 

(1) Has an adjusted vacancy rate of greater 

than 4 percent and less than or equal to 6 

percent; and 

(2) Has an adequate system for tracking 

vacancy days; or 

(3) Has: 

(A) An adjusted vacancy rate of greater 

than 6 percent and less than or equal to 10 

percent; and 

(B) For the same calendar month 3 years 

prior, the adjusted vacancy rate was 16 

percent or greater; and 

(C) An adequate system for tracking 

vacancy days. 

Grade D: The project: 

(1) Has an adjusted vacancy rate of greater 

than 6 percent and less than or equal to 10 

percent; and 

(2) Has an adequate system for tracking 

vacancy days; or 

(3) Has: 

(A) An adjusted vacancy rate of greater 

than 10 percent and less than or equal to 14 

percent; 

(B) An adjusted vacancy rate of 20 percent 

or greater for the same calendar month 3 

years prior; and 

(C) An adequate system for tracking 

vacancy days. 

Grade F: The project: 

(1) Has an adjusted vacancy rate greater 

than 10 percent; or 

(2) Does not have an adequate system for 

tracking vacancy days. 

Component #5.2, Turnaround Time. This 

component examines the amount of time it 

takes a project to turn around units that were 

leased within the 12-calendar-month period 

as of the end of the calendar month before 

the management review of public housing 

projects begins. 

• Adequacy of the system to track vacant 

unit turnaround time. It is implicit in this 

component that the project has an adequate 

system for tracking vacant unit turnaround 

time. 

Grade A: The project has: 

(1) Achieved a grade of A under 

component 5.1, vacancy rate; or 

(2) Turned around vacant units in an 

average of less than 15 calendar days; and 

(3) An adequate system for tracking vacant 

unit turnaround days. 

Grade B: The project has: 

(1) Turned around vacant units in an 

average of at least 15 calendar days but less 

than 20 calendar days; and 

(2) An adequate system for tracking vacant 

unit turnaround days. 

Grade C: The project has: 

(1) Turned around vacant units in an 

average of at least 20 calendar days but less 

than 25 calendar days; and 

(2) An adequate system for tracking vacant 

unit turnaround days. 

Grade D: The project has: 

(1) Turned around vacant units in an 

average of at least 25 calendar days but less 

than 30 calendar days; and 

(2) An adequate system for tracking vacant 

unit turnaround days. 

Grade F: The project: 

(1) Has turned around vacant units in an 

average of 30 calendar days or more; or 

(2) Does not have an adequate system for 

tracking vacant unit turnaround days. 

Component #5.3, Occupancy Review. This 

component addresses all of the activities and 

procedures necessary to house and retain 

occupancy eligible low-income families, 

including accepting and processing 

applications, selecting families for assistance, 

minimizing vacancies and unit turnaround 

time in public housing, ensuring that public 

housing families comply with program 

requirements, and properly computing 

income and rent. This component is not 

scored. 

Subindicator #6, Tenant/Management 

Relations. This subindicator evaluates the 

economic self-sufficiency opportunities 

provided for residents and the degree of 

resident involvement in the project’s 

administration. 

Component #6.1, Economic SelfSufficiency. This component evaluates—for 

the calendar month ending before the 

management review of public housing 

projects begins—employment, selfsufficiency participation, and self-sufficiency 

opportunities provided for adult residents. 

This component excludes any adult who: 

(1) Is 62 years or older; 

(2)(i) Is a blind or disabled individual, as 

defined under 216(i)(1) or 1614 of the Social 

Security Act (42 U.S.C. 416(i)(1); 1382c), or 

(ii) Is a primary caretaker of such an 

individual; 

(3) Meets the requirements for being 

exempted from having to engage in a work 

activity under the state program funded 

under part A of title IV of the Social Security 

Act (42 U.S.C. 601 et seq.) or under any other 

welfare program of the state in which the 

PHA is located, including a stateadministered welfare-to-work program; or 

(4) Is a member of a family receiving 

assistance, benefits, or services under a state 

program funded under part A of title IV of 

the Social Security Act (42 U.S.C. 601 et seq.) 

or under any other welfare program of the 

state in which the PHA is located, including 

a state administered welfare-to-work 

program, and has not been found by the state 

or other administering entity to be in 

noncompliance with such a program. 

Grade A: The project has: (1) At least 85 

percent of its households with a head, 

spouse, or sole member that is an elderly 

person or a disabled person; or 

(2) At least 50 percent of its adult residents 

employed either full or part-time; or 

(3) At least 10 percent of its adult residents 

participating in a self-sufficiency program. 

Grade C: The project offers or coordinates 

with an outside agency to make available at 

least one economic self-sufficiency activity. 

Grade F: The project does not offer or 

coordinate with an outside agency to make 

available at least one economic selfsufficiency activity. 

Component #6.2, Resident Involvement in 

Project Administration. This component 

evaluates, for the calendar month ending 

before the management review of public 

housing projects begins, the opportunities for 

resident involvement in project 

administration. 

Grade A: The project offers at least one 

opportunity for tenants to be involved in the 

administration of the project. 

Grade F: The project does not offer at least 

one opportunity for tenants to be involved in 

the administration of the project. 

Subindicator #7, General Management 

Practices. This subindicator tracks a project’s 

ability to take appropriate actions to provide 

the information needed to close all findings 

resulting from any review of public housing 

projects. This subindicator is not scored. 

An asterisk (*) will be used to indicate that 

a project has an outstanding finding(s) from 

a prior management review or from the 

current management review. An asterisk (*) 

will also be used to indicate that a PHA has 

an outstanding finding(s) under the 

Management Operations Indicator from any 

prior review or from the current management 

review. 

Component #7.1, Management Review 

Findings. This component tracks a project’s 

ability to take appropriate actions to provide 

the information needed to close all findings 

resulting from any prior HUD management 

review of public housing projects, by the due 

dates, and any finding(s) resulting from the 

current management review. For prior HUD 

management reviews, this component applies 

to reports with findings issued more than 75 


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days prior to the management review of 

public housing projects. This component is 

not scored. 

Component #7.2, Other Prior Review 

Findings. This component tracks a project’s 

ability to take appropriate actions to provide 

the information needed to close all findings 

resulting from any review, including, but not 

limited to independent public accountant 

audits; Government Accountability Office 

reviews; HUD Inspector General reviews; and 

reviews based on the Guidance for the OnSite Limited Monitoring Review of Civil 

Rights Related Program Requirements 

(CRRPR) for Low-Rent Public Housing (LR) 

Program and Housing Choice Voucher (HCV) 

Program and based on the On-Site Limited 

Monitoring Review—Section 504 (OMB 

approval number 2577–0251, expires May 31, 

2010), by the due dates for closing the 

findings. This information will be used for 

civil rights and fair housing purposes to 

determine compliance with 24 CFR 5.105(a) 

and 24 CFR 903.7(p). This component 

applies to reports with findings issued more 

than 75 days prior to the management review 

of public housing projects. This component 

is not scored. 

Component #7.3, Insurance. This 

component assesses whether a project has 

sufficient insurance coverage as applicable to 

the project. This component is not scored. 

Elements of Scoring 

A. Points and Threshold 

The Management Operations Indicator 

score is based on a maximum of 40 points. 

In order to receive a passing score under this 

indicator, a project must achieve at least 24 

points or 60 percent of the available points 

available under this indicator. 

B. Scoring Elements 

The Management Operations Indicator 

score provides an assessment of a project’s 

management effectiveness. Under the PHAS 

Management Operations Indicator, HUD will 

calculate a score for each project, as well as 

for the overall management operations of a 

PHA, that reflects weights based on the 

relative importance of the individual 

management subindicators and components. 

The overall Management Operations 

Indicator score for a PHA is a unit-weighted 

average of the PHA’s individual project 

management operations scores. In order to 

compute the score, an individual project 

management operations score is multiplied 

by the number of units in each project to 

determine a ‘‘weighted value.’’ The sum of 

the weighted values is then divided by the 

total number of units in a PHA’s portfolio to 

derive the overall PHAS Management 

Operations Indicator score. 

The computation of the score under this 

PHAS indicator utilizes data obtained 

through a management review of public 

housing projects by HUD and requires four 

main calculations for the subindicators and 

components, which are: 

• Scores are first calculated for each 

component, where applicable. 

• Scores are then calculated for each 

subindicator, where applicable. 

• A score is calculated for form HUD–

5834, Management Review for Public 

Housing Projects, which is the project score. 

• A score is calculated for the overall 

indicator score, which is a unit-weighted 

average of the individual project management 

operations scores. 

The calculations are performed on the 

basis of the following: 

• The point value and/or grades of the 

subindicators and components that are listed 

in Table 2; and 

• The point equivalent to the grades 

assigned for each component that are listed 

in Table 3. 

TABLE 2—MANAGEMENT OPERATIONS INDICATOR

Subindicator/component Grades Points 

#1, General Appearance and Security ................................................................................................................ .................................... 6.0 

1.1 Appearance and Market Appeal .......................................................................................................... A, C, F ....................... 5.0 

1.2 Security ................................................................................................................................................ A, C, F ....................... 1.0 

#2, Follow-Up and Monitoring of Project Inspections ......................................................................................... Not Scored ................ ................

2.1 Exigent Health and Safety (EHS) Deficiencies ................................................................................... Not Scored ................ N/S 

2.2 Lead-Based Paint (LBP) Inspection Deficiencies ................................................................................ Not Scored ................ N/S 

#3, Maintenance and Modernization ................................................................................................................... .................................... 6.0 

3.1 Unit Inspections ................................................................................................................................... A, C, F ....................... 1.0 

3.2 Work Orders ......................................................................................................................................... A, C, F ....................... 3.0 

3.3 Preventive Maintenance ...................................................................................................................... A, C, F ....................... 1.0 

3.4 Energy Conservation/Utility Consumption ........................................................................................... A, C, F ....................... 1.0 

3.5 Modernization ....................................................................................................................................... Not Scored ................ N/S 

#4, Financial Management .................................................................................................................................. .................................... 8.0 

4.1 Percentage of Accounts Payable ........................................................................................................ A, C, F ....................... 4.0 

4.2 Rent Collection ..................................................................................................................................... A, C, F ....................... 4.0 

4.3 Budget Management ............................................................................................................................ Not Scored ................ N/S 

4.4 Procurement ......................................................................................................................................... Not Scored ................ N/S 

#5, Leasing and Occupancy ................................................................................................................................ .................................... 18.0 

5.1 Vacancy Rate ....................................................................................................................................... A, B, C, D, F .............. 16.0 

5.2 Turnaround Time ................................................................................................................................. A, B, C, D, F .............. 2.0 

5.3 Occupancy Review .............................................................................................................................. Not Scored ................ N/S 

#6, Tenant/Management Relations ..................................................................................................................... .................................... 2.0 

6.1 Economic Self-Sufficiency ................................................................................................................... A, C, F ....................... 1.0 

6.2 Resident Involvement in Project Administration .................................................................................. A, F ............................ 1.0 

#7, General Management Practices .................................................................................................................... Not Scored ................ N/S 

7.1 Management Review Findings ............................................................................................................ Not Scored ................ N/S 

7.2 Other Prior Review Findings ................................................................................................................ Not Scored ................ N/S 

7.3 Insurance ............................................................................................................................................. Not Scored ................ N/S 

Total ....................................................................................................................................................... .................................... 40.0 

The grades for each component are 

assigned values to indicate the percentage of 

the component points that will be awarded 

in the calculation. The assigned values for 

the grades, which are listed in Table 3, are 

the same for each component. For example, 

a project with a grade of C for vacancy rate 

will receive 70 percent of the component 

points of 16, for a score of 11.20 for the 

component. 

TABLE 3—POSSIBLE GRADES

Grade Points 

A ................................................... 1.00 

TABLE 3—POSSIBLE GRADES—

Continued 

Grade Points 

B ................................................... 0.85 

C ................................................... 0.70 

D ................................................... 0.50 


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TABLE 3—POSSIBLE GRADES—

Continued 

Grade Points 

F .................................................... 0.00 

C. Scoring of Component #1.1, Appearance 

and Market Appeal 

The scoring for component #1.1 has a base 

calculation different from the other 

components. The project is assessed in the 

following 12 categories: 

(1) Project entrance; 

(2) Landscaping; 

(3) Building exterior; 

(4) Graffiti; 

(5) Paved surfaces; 

(6) Public spaces and amenities; 

(7) Fencing, railing, porches, overhangs, 

and ramps; 

(8) Windows; 

(9) Overall project appearance; 

(10) Debris; 

(11) Trash receptacles; and 

(12) Units. 

A Superior Performance in a category is 

valued at two points; a Satisfactory 

Performance in a category is valued at one 

point; and an Unsatisfactory Performance in 

a category is valued at zero points. 

A project’s score in appearance and market 

appeal may be a single project-wide 

assessment, or may be a compilation of 

multiple assessments of one or more of the 

individual sites that comprise the project. 

Project-wide assessment: For a projectwide assessment, the project as a whole 

receives a single assessment in each of the 12 

categories listed above. For any given 

assessment, one or more of these categories 

may be excluded if they do not apply to a 

particular project. The total points earned for 

all of the categories for which a PHA is 

assessed is divided by the maximum points 

possible to determine the grade equivalent 

for this component. The maximum points 

possible are determined by identifying the 

total number of criteria that were not 

excluded and multiplying that number by 

two points. 

Example 1: A project is assessed in all 12 

categories for a maximum of 24 possible 

points. If the project achieves a total of 22 

points, the 22 points are divided by 24 

points, which equals 91.67 percent, or a 

grade of A. 

Example 2: A project is not assessed under 

public spaces and amenities for a total of 11 

categories and a maximum of 22 possible 

points. If the project achieves a total of 15 

points, the 15 points are divided by 22 

points, which equals 68.18 percent, or a 

grade of C. 

Multiple site assessment: A project may be 

comprised of two or more discreet, 

individual sites. HUD may elect to assess one 

or more of these sites individually. If so, each 

site assessed will be assessed in each of the 

12 categories listed above. For any given 

reason, one or more of these categories may 

be excluded if they do not apply to a 

particular site. The total points earned for all 

of the categories for which a site is assessed 

is divided by the maximum points possible 

to determine the overall score for each site. 

The maximum points possible are 

determined by identifying the total number 

of criteria that were not excluded and by 

multiplying the number by two points, as 

described above. 

All individual site assessments will be 

combined to produce a single project-wide 

assessment score in each of the 12 categories, 

as follows: 

(1) The site-specific scores for each 

category will be averaged to determine a unitweighted average project-wide score for each 

category. Any category that is excluded from 

the assessment at all sites will also be 

excluded from the project-wide assessment. 

(2) All average project-wide scores in all 

categories will be summed to determine the 

unit-weighted overall project-wide total 

points. These points will be divided by the 

maximum points possible to determine the 

grade equivalent for this component. The 

maximum points possible are determined by 

identifying the total number of non-excluded 

criteria from all site assessments and by 

multiplying that number by 2 points. 

D. Scoring of Component #5.3, Occupancy 

Review 

The questions listed under this component 

on form HUD–5834, Management Review for 

Public Housing Projects, cannot be 

completed unless form HUD–5834–A, Tenant 

File Review, and form HUD–5834–B, Upfront 

Income Verification Review, have been 

completed. This component is not scored, 

and forms HUD–5834–A and HUD–5834–B 

are not scored. 

E. Example of Score Computations 

The indicator score equals the sum of the 

subindicator scores, as shown in Table 4. The 

indicator score for a project is rounded to two 

decimal places. The indicator score for a 

PHA is rounded to the nearest whole 

number. The subindicator scores equal the 

sum of the component scores. 

TABLE 4—EXAMPLE ASSESSMENT OF THE MANAGEMENT OPERATIONS INDICATOR

Subindicator/Component Points Grade Value Calculations Score 

#1, General Appearance and Security ................................................ 6 .0 4.50 

1.1 Appearance and Market Appeal .......................................... 5 .0 C .70 (5.0) × (.70) = 3.50 ........ 3.50 

1.2 Security ................................................................................ 1 .0 A 1.00 (1.0) × (1.0) = 1.00 ........ 1.00 

#2, Follow-Up and Monitoring of Project Inspections ......................... 0 .0 Not Scored N/S 

2.1 Exigent Health and Safety (EHS) Deficiencies ................... 0 .0 Not Scored N/S 

2.2 Lead-Based Paint (LBP) Inspection Deficiencies ............... 0 .0 Not Scored N/S 

#3, Maintenance and Modernization ................................................... 6 .0 5.10 

3.1 Unit Inspections ................................................................... 1 .0 C .70 (1.0) × (.70) = .70 .......... .70 

3.2 Work Orders ........................................................................ 3 .0 A 1.00 (3.0) × (1.0) = 3.00 ........ 3.00 

3.3 Preventive Maintenance ...................................................... 1 .0 C .70 (1.0) × (.70) = .70 .......... .70 

3.4 Energy Conservation/Utility Consumption ........................... 1 .0 C .70 (1.0) × (.70) = .70 .......... .70 

3.5 Modernization ...................................................................... 0 .0 Not Scored N/S 

#4, Financial Management .................................................................. 8 .0 5.60 

4.1 Percentage of Accounts Payable ........................................ 4 .0 C .70 (4.0) × (.70) = 2.80 ........ 2.80 

4.2 Rent Collection .................................................................... 4 .0 C .70 (4.0) × (.70) = 2.80 ........ 2.80 


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TABLE 4—EXAMPLE ASSESSMENT OF THE MANAGEMENT OPERATIONS INDICATOR—Continued 

Subindicator/Component Points Grade Value Calculations Score 

4.3 Budget Management ........................................................... 0 .0 Not Scored N/S 

4.4 Procurement ........................................................................ 0 .0 Not Scored N/S 

#5, Leasing and Occupancy ............................................................... 18 .0 9.40 

5.1 Vacancy Rate ...................................................................... 16 .0 D .50 (16.0) × (.50) = 8.00 ...... 8.00 

5.2 Turnaround Time ................................................................. 2 .0 C .70 (2.0) × (.70) = 1.40 ........ 1.40 

5.3 Occupancy Review ................................................................ 0 .0 Not Scored NS 

#6, Tenant/Management Relations ..................................................... 2 .0 1.70 

6.1 Economic Self-Sufficiency ................................................... 1 .0 C .70 (1.0) × (.70) = .70 .......... .70 

6.2 Resident Involvement in Project Administration .................. 1 .0 A 1.00 (1.0) × (1.0) = 1.00 ........ 1.00 

#7, General Management Practices ................................................... 0 .0 Not Scored N/S 

7.1 Finding Correction: Management Review Findings ............ 0 .0 Not Scored N/S 

7.2 Finding Correction: Other Prior Review Findings ............... 0 .0 Not Scored N/S 

7.3 Insurance ............................................................................. 0 .0 Not Scored N/S 

Total Points ........................................................................... ................ ................ ................ ........................................ 26.30 

F. Scoring Projects During the First Year and 

Subsequent Years of Implementation Under 

the New PHAS 

During the first year of implementation 

under the new PHAS, a PHA’s Management 

Operations Indicator score of record will be 

converted to the 40-point value if a project 

does not have a management review during 

the first year. Table 5 shows the conversion 

from a 30-point value to a 40-point value. 

TABLE 5—CONVERSION FROM 30-POINT VALUE TO 40-POINT VALUE

30-Pt. Value .................................. 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 

40-Pt. Value .................................. 40.0 38.7 37.3 36.0 34.7 33.3 32.0 30.7 29.3 28.0 26.7 25.3 24.0 22.7 21.3 

30-Pt. Value .................................. 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 

40-Pt. Value .................................. 20.0 18.7 17.3 16.0 14.7 13.3 12.0 10.7 9.3 8.0 6.7 5.3 4.0 2.7 1.3 

The score that will be used is the PHA’s 

most recent score of record. Table 6 includes 

an example of how scoring will be computed 

during the first year of implementation of the 

new PHAS, with each project having 100 

units. 

TABLE 6—FIRST YEAR OF IMPLEMENTATION SCORING

Project Management 

review score 

PHA’s 30-point 

value score of 

record 

Conversion to 

40-point value 

First year of 

implementation 

scoring 

1 ....................................................................................................... 0.0 24.0 32.0 32.0 

2 ....................................................................................................... 27.0 0.0 0.0 27.0 

3 ....................................................................................................... 36.0 0.0 0.0 36.0 

Overall Total: First Year of Implementation PHAS Scoring ..................................................................................................... 31.7 

During the second year of implementation 

under the new PHAS, a PHA’s score of record 

will be converted to the 40-point value if a 

project does not have a management review 

during the first or second years. The score 

that will be used is the PHA’s most recent 

score of record. Table 7 includes an example 

of how scoring will be computed during the 

second year of implementation of the new 

PHAS, with each project having 100 units. In 

this example, every project has received a 

management review. 


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49584 Federal Register / Vol. 73, No. 163 / Thursday, August 21, 2008 / Proposed Rules 

TABLE 7—SECOND YEAR OF IMPLEMENTATION SCORING

Project Management 

review score 

PHA’s 30-point 

value score of 

record 

Conversion to 

40-point value 

Second year of 

implementation 

score 

1 ....................................................................................................... 36.0 0.0 0.0 36.0 

2 ....................................................................................................... 32.0 0.0 0.0 32.0 

3 ....................................................................................................... 37.0 0.0 0.0 37.0 

Overall Total: Second Year of Implementation PHAS Scoring ................................................................................................ 35.0 

For subsequent years, the most recent 

management review score for a project will 

be used for a project’s management 

operations score, or the most recent score of 

record will be used. The most recent 

management operations scores for all projects 

will be used to calculate a PHA’s overall 

management operations score. 

G. Examples of Score Computations for the 

Redistribution of Points 

• An example of computing a subindicator 

score with a non-assessed component. When 

a non-assessed component exists, the value 

of the component shall be redistributed 

proportionally across the components that 

have been assessed within the same 

subindicator in order to maintain the same 

scoring ratios. To redistribute the points for 

a non-assessed component, each assessed 

component shall be multiplied by the total 

possible points for the subindicator and 

divided by the total points of the assessed 

components, as shown in Table 8. 

TABLE 8—EXAMPLE OF A REDISTRIBUTION OF POINTS WITHIN THE MAINTENANCE AND MODERNIZATION SUBINDICATOR

Component 

Total 

possible 

points 

Assessed 

comp. 

points 

Redistribution 

calculation 

Redis. 

points Grade Grade value 

Score 

calculation 

Comp. 

score 

3.1 Unit Inspections.1.0 1.0 (1.0 × 6.0)/5.0 ....... 1.20 F 0.0 1.20 × 0.0 .............. 0.00 

3.2 Work Orders 3.0 3.0 (3.0 × 6.0)/5.0 ....... 3.60 A 1.0 3.60 × 1.0 .............. 3.60 

3.3 Prev. Maint. .. 1.0 1.0 (1.0 × 6.0)/5.0 ....... 1.20 C 0.7 1.20 × 0.7 .............. 0.84 

3.4 Energy/Utility 1.0 N/A N/A ........................ N/A N/A N/A N/A ........................ N/A 

3.5 Mod. .............. 0.0 N/S N/S ........................ N/S N/S N/S N/S ........................ N/S 

Total Points .... 6.0 5.0 ............................... 6.0 .................. .................. ............................... 4.44 

In the example in Table 8, the energy/ 

utility component under maintenance is not 

assessed. To redistribute the energy/utility 

points, each assessed component must be 

multiplied by the total possible points for the 

subindicator (6), and divided by the total 

possible points of the assessed components 

(5). The redistributed value of the total 

possible points for the preventive 

maintenance component is calculated to be 

1.20 points. In the example, the project has 

received a grade of C for preventive 

maintenance and the project then receives 70 

percent of the redistributed point value for 

preventive maintenance. As shown in Table 

8, 70 percent of 1.20 equals 0.84 points. The 

maintenance subindicator score is then 

computed by summing the redistributed 

components, thus making the final score for 

the maintenance subindicator 4.44 points. 

• An example of computing the 

Management Operations Indicator score for a 

project excluding the tenant/management 

relations subindicator. Table 9 provides an 

example for the calculation of the 

Management Operations Indicator score 

when the tenant/management relations 

subindicator has not been assessed. When a 

non-assessed subindicator exists, the value of 

the non-assessed subindicator shall be 

redistributed proportionally across the 

subindicators that have been assessed. To 

redistribute the tenant/management relations 

subindicator points, each assessed 

subindicator shall be multiplied by the total 

possible points for the Management 

Operations Indicator (40), and divided by the 

total possible points of the assessed 

subindicators (38). The final Management 

Operations Indicator score is derived by 

summing the redistributed subindicator 

points. 

TABLE 9—EXAMPLE OF THE EXCLUSION OF A SUBINDICATOR

Subindicator Total possible 

points 

Total possible 

assessed 

points 

Actual 

subindicator 

score 

Redistributed calculation 

Redistributed 

subindicator 

points 

General Appearance and Security ... 6.0 6.0 3.00 (3.00 × 40)/38 ................................... 3.16 

Maintenance and Modernization ....... 6.0 6.0 4.44 (4.44 × 40)/38 ................................... 4.67 

Financial Management ...................... 8.0 8.0 8.00 (8.00 × 40)/38 ................................... 8.42 

Leasing and Occupancy ................... 18.0 18.0 18.00 (18.0 × 40)/38 ................................... 18.95 

Tenant/Management Relations ......... 2.0 N/A N/A N/A ................................................... N/A 

Total Points ................................ 40.0 38.0 ........................ ........................................................... 35.20 

• An example of rescaling components so 

that the sum of components equals a 

redistributed subindicator. In the previous 

example, the subindicator points were 

redistributed because the tenant/management 

relations subindicator was not assessed. After 

the subindicator points were redistributed, 

the component points comprising the 

subindicator no longer added up to the 

redistributed value of the subindicator. 

Therefore, a calculation must be performed to 

rescale the components of subindicators that 

were assessed so that those components add 

up to the redistributed subindicators. Table 

10 contains an example of rescaling the 

maintenance subindicator components so 

that they add up to the redistributed 

maintenance subindicator. In Table 10, each 


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component is rescaled by multiplying by a 

factor of 40 (total possible points), divided by 

38 (total assessed points). The rescaled 

component values add up to 4.67 points, 

which are the redistributed subindicator 

points for the maintenance subindicator. 

TABLE 10—EXAMPLE OF RESCALING OF COMPONENTS

Component Component value Component rescaling calculation Component values 

after rescaling 

Unit Inspections .................................................... 0.00 0.00 × (40/38) ....................................................... 0.00 

Work Orders ......................................................... 3.60 3.60 × (40/38) ....................................................... 3.79 

Preventive Maint ................................................... 0.84 0.84 × (40/38) ....................................................... .88 

Energy/Utility ......................................................... N/A N/A ........................................................................ N/A 

Modernization ....................................................... N/S N/S ........................................................................ N/S 

Total Points ................................................... 4.44 ............................................................................... 4.67 

H. Physical Condition and/or Neighborhood 

Environment 

The overall management operations score 

for a project will be adjusted upward to the 

extent that negative conditions are caused by 

situations outside the control of the project. 

These situations are related to the poor 

physical condition of the project or the 

overall depressed condition of the major 

census tract in which a project is located. 

The intent of this adjustment is to avoid 

penalizing projects through appropriate 

application of the adjustment. In addition, 

the overall PHA Management Operations 

Indicator score will be adjusted upward to 

reflect the individual project adjustments. 

Definitions and application of physical 

condition and neighborhood environment 

factors are: 

(1) A physical condition adjustment 

applicable to projects at least 28 years old, 

based on the unit-weighted average Date of 

Full Availability (DOFA) date. 

(2) A neighborhood environment 

adjustment applicable to projects in census 

tracts in which at least 40 percent of the 

families have an income below the poverty 

rate, as documented by the most recent 

census data. If a project is in more than one 

census tract, the census data for the census 

tract where the majority of units are located 

shall be used. If there is no census tract data 

available for a project, the census data for 

that project will be based on the county’s 

census data, and if county data is not 

available, then the state census data will be 

used. 

• Adjustment for physical condition and 

neighborhood environment. HUD will adjust 

the overall management operations score of 

a project subject to one or both of the 

physical condition and neighborhood 

environment conditions. The adjustments 

will be made to the individual project scores, 

and then to the overall management 

operations score, so as to reflect the difficulty 

in managing the projects. 

The adjustment for physical condition and 

neighborhood environment will be calculated 

by HUD and applied to all eligible projects. 

The data to determine if a project is eligible 

for either adjustment will be derived from the 

Public and Indian Housing Information 

Center databases. 

In each instance where the actual 

management operations score for a project is 

rated below the maximum score of 40 points, 

one unit-weighted point each will be added 

for physical condition and/or neighborhood 

environment, but not to exceed the maximum 

number of 40 points available for the 

Management Operations Indicator for a 

project. Table 11 shows an example of the 

calculation of physical condition and/or 

neighborhood environment points for a 

hypothetical PHA with four projects. The 

adjustment for physical condition and/or 

neighborhood environment is a unitweighted average of a PHA’s individual 

project physical condition and/or 

neighborhood environment adjustments. 

TABLE 11—CALCULATION OF PHYSICAL CONDITION AND/OR NEIGHBORHOOD ENVIRONMENT (PCNE) POINTS

Line Project Proj. #1 Proj. #2 Proj. #3 Proj. #4 Total 

PHA 

1 ................................. Units ..................................................................................... 133 65 89 25 12 

2 ................................. Weight .................................................................................. 42.6% 20.8% 28.5% 8.0% 100.0% 

3 ................................. Physical Condition Points .................................................... 1 1 1 0 ................

4 ................................. Neighborhood Environment Points ...................................... 1 1 0 0 ................

5 ................................. Total PCNE Points at Project Level .................................... 2 2 1 0 ................

6 ................................. Weighted Physical Condition Points .................................... 0.43 0.21 0.29 0.00 0.92 

7 ................................. Weighted Neighborhood Environment Points ..................... 0.43 0.21 0.00 0.00 0.63 

8 ................................. Weighted PCNE Points ....................................................... 0.85 0.42 0.29 0.00 1.55 

This PHA has 312 total units in four 

projects (see line 1). The weight of each 

project is based on units and is calculated by 

dividing the project units into the total PHA 

units (see line 2). Project #1 and project #2 

qualify for both points; project #3 qualifies 

for only physical condition; and project #4 

does not qualify for any points (see lines 3 

through 5). Each project contributes its 

physical condition and/or neighborhood 

environment points to the overall PHA 

Management Operations Indicator score 

based on its weight. For example, in project 

#1, the weighted physical condition and 

neighborhood environment point is 0.85 and 

is calculated by multiplying the project 

weight of 42.6 percent (line 2) by the 

physical condition and neighborhood 

environment point of 2 (see line 5). The 

overall physical condition and neighborhood 

environment adjustment at the PHA level is 

calculated at 1.55 points by adding the 

individual project weighted scores (see line 

8 under the Total PHA column). 

Appendix D to Part 902—Capital Fund 

Scoring 

I. Purpose of This Appendix 

This appendix provides information about 

the scoring process for PHAS Indicator #4, 

Capital Fund program. The purpose of the 

Capital Fund program assessment is to 


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examine the period of time it takes a PHA to 

obligate and expend the funds provided to a 

PHA from the Capital Fund program under 

section 9(j) of the Act (42 U.S.C. 1437g(9)(j)). 

Funds from the Capital Fund program under 

section 9(d) of the 1937 Act (42 U.S.C. 

1437g(d)(2)) do not include HOPE VI 

program funds. 

This indicator is not applicable for PHAs 

that choose not to participate in the Capital 

Fund program under section 9(d) of the 1937 

Act. This indicator is applicable on a PHAwide basis, and not to individual projects. 

The assessment required under the PHAS 

Capital Fund program indicator will be 

performed through analysis of obligated and 

expended amounts in HUD’s electronic Line 

of Credit Control System (e-LOCCS) (or its 

successor) for all Capital Fund program 

grants that were open during a PHA’s 

assessed fiscal year. Of the total 100 points 

available for a PHAS score, a PHA may 

receive up to 10 points based on the Capital 

Fund program indicator. Scoring for this 

indicator will be dependent on the amount 

of time it takes a PHA to obligate and expend 

its capital funds. If a PHA has no obligation 

end dates or no expenditure end dates in the 

assessed fiscal year, and does not have any 

§ 9(j) of the 1937 Act sanctions against it, the 

points for that subindicator will be 

redistributed to the remaining subindicator. 

II. Subindicators 

A. Subindicators of Capital Fund Program 

Indicator. The two subindicators of the 

Capital Fund program indicator are: 

• Timeliness of fund obligation; and 

• Timeliness of fund expenditure. 

B. Grades for Capital Fund Program 

Indicator. This indicator measures the 

statutory requirements for the Capital Fund 

program. 

Subindicator #1, Timeliness of Fund 

Obligation. This subindicator examines the 

period of time it takes for a PHA to obligate 

funds from the Capital Fund program under 

section 9(j)(1) of the 1937 Act (42 U.S.C. 

1437g(9)(j)). HUD may extend the period of 

time for the obligation of funds in accordance 

with 24 CFR 905.120 and section 9(j)(2) of 

the 1937 Act. 

Grade A: The PHA has obligated 90 percent 

or more of the grant amount for all of its 

grants on its obligation end date for all open 

Capital Fund program grants that have 

obligation end dates during the assessed 

fiscal year and does not have any grants that 

have been sanctioned pursuant to § 9(j) of the 

1937 Act during the assessed fiscal year. 

Grade F: The PHA has obligated less than 

90 percent of the grant amount for any of its 

open grants on the obligation end date during 

the assessed fiscal year or is undergoing 

sanctions as per Section III of this appendix 

D. 

Subindicator #2, Timeliness of Fund 

Expenditure. This subindicator examines the 

period of time it takes for a PHA to expend 

funds from the Capital Fund program under 

section 9(j)(5) of the 1937 Act. 

Grade A: The PHA has: 

(1) Expended 100 percent of the grant 

amount for all of its grants on the 

expenditure end date for all Capital Fund 

program grants that have an expenditure end 

date within a PHA’s assessed fiscal year; or 

(2) A remaining balance of one percent or 

less of the grant amount or $1,000 or less of 

the grant amount (whichever is smaller) for 

all Capital Fund program grants that have an 

expenditure end date within a PHA’s 

assessed fiscal year. 

Grade F: The PHA has a remaining balance 

of greater than one percent of the grant 

amount or more than $1,000 of the grant 

amount (whichever is smaller) for all Capital 

Fund program grants that have an 

expenditure end date within a PHA’s 

assessed fiscal year. 

III. Sanctions 

Sanctions for the obligation and 

expenditure of funds, and HUD’s right to 

recapture funds are in accordance with 24 

CFR 905.120. If a PHA has been sanctioned 

during the assessment period, the PHA will 

receive an automatic grade of ‘‘F’’ for the 

timeliness of fund obligation, the timeliness 

of fund expenditure, or both, as appropriate. 

IV. Elements of Scoring 

A. Points and Threshold. The Capital Fund 

program indicator is based on a maximum of 

10 points. In order to receive a passing score 

under this indicator, a PHA must achieve at 

least 6 points or 60 percent of the available 

points under this indicator. 

B. Scoring Elements. The Capital Fund 

program indicator score provides an 

assessment of a PHA’s ability to obligate and 

expend Capital Fund program funds in a 

timely manner. The computation of the score 

under this PHAS indicator utilizes data 

obtained through analysis of obligated and 

expended amounts in HUD’s e-LOCCS (or its 

successor) for all Capital Fund program 

grants that were open during the assessed 

fiscal year and requires two main 

calculations, which are: 

• Scores are first calculated for each 

subindicator. 

• From the two subindicator scores, an 

indicator score is then calculated. 

The two calculations are performed based 

on: 

• The point value of the two subindicators, 

which are listed in Table 1; and 

• The point equivalent to the grades 

assigned for each subindicator, which are 

listed in Table 2. 

TABLE 1—CAPITAL FUND PROGRAM

SUBINDICATOR AND POINTS

Subindicator Points 

Timeliness of Fund Obligation ...... 5 

Timeliness of Fund Expenditure ... 5 

The grades for each subindicator are 

assigned point equivalent values to indicate 

the percentage of the subindicator points that 

will be awarded in the calculation. The 

assigned point equivalent values for the 

grades, which are listed in Table 2, are the 

same for each subindicator. For example, a 

PHA with a grade of A for timeliness of fund 

obligation will receive all of the subindicator 

points of 5, for a score of 5.0 for the 

subindicator. 

TABLE 2—POSSIBLE GRADES

Grade Point 

value 

A ................................................... 1.00 

F .................................................... 0.00 

C. Example of Score Computations. The 

indicator score equals the sum of the 

subindicator scores, as shown in Table 3. 

TABLE 3—EXAMPLE ASSESSMENT OF THE CAPITAL FUND PROGRAM INDICATOR

Subindicator Points Grade Point 

value Calculations Score 

Timeliness of Fund Obligation .................. 5 A 1.00 (5.0) × (1.0) = 5.0 ..................................... 5.0 

Timeliness of Fund Expenditure ............... 5 A 1.00 (5.0) × (1.0) = 5.0 ..................................... 5.0 

Total Points ....................................................................................................................................................................................... 10.0 

D. PHA Responsibility. PHAs are 

responsible for ensuring that their Capital 

Fund program information is submitted to eLOCCS by the submission due date. A PHA 

may not appeal its PHAS and/or Capital 

Fund program score based on the fact that it 

did not submit its Capital Fund program 

information to e-LOCCS by the submission 

due date. PHAs shall retain supporting 

documentation for the Capital Fund program 

for at least 3 years. 

3. Part 907 is added to read as follows: 

PART 907—SUBSTANTIAL DEFAULT 

BY A PUBLIC HOUSING AGENCY 

Sec. 

907.1 Purpose and scope. 

907.3 Bases for substantial default. 

907.5 Procedures for declaring substantial 

default. 

907.7 Remedies for substantial default. 

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

3535(d). 


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§ 907.1 Purpose and scope. 

This part provides the criteria and 

procedures for determining and 

declaring substantial default by a public 

housing agency (PHA) and the actions 

available to HUD to address and remedy 

substantial default by a PHA. Nothing in 

this part shall limit the discretion of 

HUD to take any action available under 

the provisions of section 6(j)(3)(A) of the 

1937 Act (42 U.S.C. 1437d(j)(3)(A)), any 

applicable annual contributions contract 

(ACC), or any other law or regulation 

that may authorize HUD to take actions 

against a PHA that is in substantial 

default. 

§ 907.3 Bases for substantial default. 

(a) Violations of laws and agreements. 

A PHA may be declared in substantial 

default when the PHA: 

(1) Violates a federal statute; 

(2) Violates a federal regulation; or 

(3) Violates one or more terms of an 

ACC, or other covenants or conditions 

to which the PHA is subject. 

(b) Failure to act. In addition to the 

violations listed in paragraph (a) of this 

section, in the case where a PHA is 

designated as a troubled performer 

under PHAS, the PHA shall be in 

substantial default if the PHA: 

(1) Fails to execute an MOA; 

(2) Fails to comply with the terms of 

an MOA; or 

(3) Fails to show substantial 

improvement, as provided in 

§ 902.75(d). 

§ 907.5 Procedures for declaring 

substantial default. 

(a) Notification of finding of 

substantial default. If the PHA is found 

in substantial default, the PHA shall be 

notified of such determination in 

writing. Except in situations as 

described in paragraph (d) of this 

section, the PHA shall have an 

opportunity to respond to the written 

determination, and an opportunity to 

cure the default, if a cure of the default 

is determined appropriate by HUD. The 

determination of substantial default 

shall be transmitted to the Executive 

Director of the PHA, the Chairperson of 

the Board of the PHA, and the 

appointing authority(ies) of the PHA’s 

Board of Commissioners, and shall: 

(1) Identify the specific statute, 

regulation, covenants, conditions, or 

agreements of which the PHA is 

determined to be in violation; 

(2) Identify the specific events, 

occurrences, or conditions that 

constitute the violation; 

(3) Specify the time period, which 

shall be a period of 10 but not more than 

30 days, during which the PHA shall 

have an opportunity to demonstrate that 

the determination or finding is not 

substantively accurate, if required; 

(4) If determined by HUD to be 

appropriate, provide for an opportunity 

to cure and specify the time period for 

the cure; and 

(5) Notify the PHA that, absent a 

satisfactory response in accordance with 

paragraph (b) of this section, action 

shall be taken as determined by HUD to 

be appropriate. 

(b) Receipt of notification and 

response. Upon receipt of the 

notification described in paragraph (a) 

of this section, the PHA may submit a 

response, in writing and within the 

specified time period, demonstrating: 

(1) The description of events, 

occurrences, or conditions described in 

the written determination of substantial 

default is in error, or establish that the 

events, occurrences, or conditions 

described in the written determination 

of substantial default do not constitute 

noncompliance with the statute, 

regulation, covenants, conditions, or 

agreements that are cited in the 

notification under paragraph (a) of this 

section; or 

(2) If any opportunity to cure is 

provided, that the violations have been 

cured or will be cured in the time 

period specified by HUD. 

(c) Waiver of notification and the 

opportunity to respond. A PHA may 

waive, in writing, receipt of written 

notification from HUD of a finding of 

substantial default and the opportunity 

to respond to such finding. HUD may 

then immediately proceed with the 

remedies as provided in § 907.7. 

(d) Emergency situations. A PHA shall 

not be afforded the opportunity to 

respond to a written determination or to 

cure a substantial default in any case 

where: 

(1) HUD determines that conditions 

exist that pose an imminent threat to the 

life, health, or safety of public housing 

residents or residents of the surrounding 

neighborhood; or 

(2) The events or conditions 

precipitating the default are determined 

to be the result of criminal or fraudulent 

activity. 

§ 907.7 Remedies for substantial default. 

(a) Except as provided in § 907.7(c), 

upon determining that events have 

occurred or conditions exist that 

constitute a substantial default, HUD 

may: 

(1) Take any action provided for in 

section 6(j)(3) of the Act (42 U.S.C. 

1437d(j)(3)); 

(2) Provide technical assistance for 

existing PHA management staff; or 

(3) Provide assistance deemed 

necessary, in the discretion of HUD, to 

remedy emergency conditions. 

(b) HUD may take any of the actions 

described in paragraph (a) of this 

section sequentially or simultaneously 

in any combination. 

(c) In the case of a substantial default 

by a troubled PHA pursuant to 

§ 902.83(b): 

(1) For a PHA with 1,250 or more 

units, HUD shall petition for the 

appointment of a receiver pursuant to 

section 6(j)(3)(A)(ii) of the 1937 Act (42 

U.S.C. 1437d(j)(3)(A)(ii)); or 

(2) For a PHA with fewer than 1,250 

units, HUD shall either petition for the 

appointment of a receiver pursuant to 

section 6(j)(3)(A)(ii) of the Act (42 

U.S.C. 1437d(j)(3)(A)(ii)), or take 

possession of the PHA (including all or 

part of any project or program of the 

PHA) pursuant to section 6(j)(3)(A)(iv) 

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

1437d(j)(3)(A)(iv)), and appoint, on a 

competitive or noncompetitive basis, an 

individual or entity as an administrative 

receiver to assume the responsibilities 

of HUD for the administration of all or 

part of the PHA (including all or part of 

any project or program of the PHA). 

(d) To the extent feasible, while a 

PHA is operating under any of the 

actions that may have been taken by 

HUD, all services to residents will 

continue uninterrupted. 

(e) HUD may limit remedies under 

this part to one or more of a PHA’s 

specific operational areas (e.g., 

maintenance, capital improvement, 

occupancy, or financial management), to 

a single program or group of programs, 

or to a single project or a group of 

projects. For example, HUD may select, 

or participate in the selection of, an 

AME to assume management 

responsibility for a specific project, a 

group of projects in a geographical area, 

or a specific operational area, while 

permitting the PHA to retain 

responsibility for all programs, 

operational areas, and projects not so 

designated. 

Dated: July 14, 2008. 

Paula O. Blunt, 

General Deputy Assistant Secretary for Public 

and Indian Housing. 

[FR Doc. E8–18753 Filed 8–20–08; 8:45 am] 

BILLING CODE 4210–67–P 


jlentini on PROD1PC65 with PROPOSALS2