HUD Inspection Reform and Capital Improvement Act of 2021
Bill: S.2560 | Sponsor: Sen. Rubio, Marco (R-FL)
Policy area: Housing and Community Development

Summary:
HUD Inspection Reform and Capital Improvement Act of 2021

To reform the inspection process of housing assisted by the Department 
       of Housing and Urban Development, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``HUD Inspection Reform and Capital 
Improvement Act of 2021''.

SEC. 2. DEFINITION.

    In this Act, the term ``Secretary'' means the Secretary of Housing 
and Urban Development.

SEC. 3. REDUCTION IN GRADE OR PAY OR REMOVAL FOR MISCONDUCT OR 
              PERFORMANCE OF EMPLOYEES OF THE DEPARTMENT OF HOUSING AND 
              URBAN DEVELOPMENT.

    (a) In General.--Section 7(c) of the Department of Housing and 
Urban Development Act (42 U.S.C. 3535(c)) is amended--
            (1) by striking ``The Secretary is authorized'' and 
        inserting the following: ``Employment, Compensation, Authority, 
        and Duties of Personnel.--
            ``(1) In general.--The Secretary is authorized''; and
            (2) by adding at the end the following:
            ``(2) Reduction in grade or pay or removal for misconduct 
        or performance of employees.--
                    ``(A) Definitions.--For purposes of this 
                paragraph--
                            ``(i) the term `covered employee'--
                                    ``(I) means an individual holding a 
                                position in the civil service in the 
                                Department; and
                                    ``(II) does not include any 
                                individual--
                                            ``(aa) holding in a 
                                        position described under 
                                        sections 5312 through 5316 of 
                                        title 5, United States Code 
                                        (relating to the Executive 
                                        Schedule);
                                            ``(bb) holding a position 
                                        as a limited term appointee, 
                                        limited emergency appointee, or 
                                        noncareer appointee in the 
                                        Senior Executive Service, as 
                                        defined under paragraphs (5), 
                                        (6), and (7), respectively, of 
                                        section 3132(a) of title 5, 
                                        United States Code; or
                                            ``(cc) holding a position 
                                        of a confidential or policy-
                                        determining character under 
                                        schedule C of subpart C of part 
                                        213 of title 5, Code of Federal 
                                        Regulations;
                            ``(ii) the term `grade' means a level of 
                        classification under a position classification 
                        system;
                            ``(iii) the term `misconduct' includes 
                        neglect of duty, malfeasance, or failure to 
                        accept a directed reassignment or to accompany 
                        a position in a transfer of function; and
                            ``(iv) the term `pay' means the rate of 
                        basic pay fixed by law or administrative action 
                        for the position held by a covered employee.
                    ``(B) Actions covered.--This paragraph--
                            ``(i) applies to a reduction in grade or 
                        pay or removal; and
                            ``(ii) does not apply to--
                                    ``(I) a reduction in grade or pay 
                                or removal under section 7512 of title 
                                5, United States Code;
                                    ``(II) a reduction in grade or pay 
                                or removal under section 7521 of title 
                                5, United States Code;
                                    ``(III) a removal under section 
                                7532 of title 5, United States Code; or
                                    ``(IV) a removal under section 
                                3592, 3595, or 7543 of title 5, United 
                                States Code.
                    ``(C) Cause and procedure.--
                            ``(i) In general.--Notwithstanding any 
                        other provision of law, under regulations 
                        prescribed by the Office of Personnel 
                        Management, the Secretary may, if the Secretary 
                        determines that the misconduct or performance 
                        of a covered employee warrants such action--
                                    ``(I) remove the covered employee 
                                from the civil service;
                                    ``(II) reduce the grade of the 
                                covered employee; or
                                    ``(III) reduce the pay of the 
                                covered employee.
                            ``(ii) Reduction in grade.--A covered 
                        employee subject to a reduction in grade under 
                        clause (i)(II) shall, beginning on the date on 
                        which the reduction takes effect, receive the 
                        annual rate of pay applicable to the reduced 
                        grade.
                            ``(iii) Appeal procedures.--
                                    ``(I) In general.--Subject to 
                                subclause (II) and clause (iv), any 
                                reduction in grade or pay or removal 
                                under this paragraph may be appealed to 
                                the Merit Systems Protection Board 
                                under section 7701 of title 5, United 
                                States Code.
                                    ``(II) Time for appeal.--An appeal 
                                under subclause (I) may only be made if 
                                such appeal is made not later than 7 
                                days after the date of such reduction 
                                in grade or pay or removal.
                            ``(iv) Review on appeal.--
                                    ``(I) In general.--Upon receipt of 
                                an appeal under clause (iii), the Merit 
                                Systems Protection Board shall refer 
                                the appeal to an administrative law 
                                judge pursuant to section 7701(b)(1) of 
                                title 5, United States Code. The 
                                administrative law judge shall expedite 
                                any such appeal under such section and, 
                                in any such case, shall issue a 
                                decision not later than 45 days after 
                                the date on which the Board receives 
                                the appeal.
                                    ``(II) Information and 
                                assistance.--To the maximum extent 
                                practicable, the Secretary shall 
                                provide to the Merit Systems Protection 
                                Board, and to any administrative law 
                                judge to whom an appeal under this 
                                paragraph is referred, such information 
                                and assistance as may be necessary to 
                                ensure an appeal under this paragraph 
                                is expedited.
                                    ``(III) Finality.--Notwithstanding 
                                any other provision of law, including 
                                section 7703 of title 5, United States 
                                Code, the decision of an administrative 
                                law judge under subclause (I) shall be 
                                final and shall not be subject to any 
                                further appeal.
                                    ``(IV) Delayed decision.--
                                            ``(aa) In general.--In any 
                                        case in which the 
                                        administrative law judge cannot 
                                        issue a decision in accordance 
                                        with the 45-day requirement 
                                        under subclause (I), the 
                                        reduction in grade or pay or 
                                        removal shall be final.
                                            ``(bb) Explanation.--In a 
                                        case described in item (aa), 
                                        the Merit Systems Protection 
                                        Board shall, not later than 14 
                                        days after the date on which 
                                        the reduction in grade or pay 
                                        or removal becomes final, 
                                        submit to Congress a report 
                                        that explains the reasons why a 
                                        decision was not issued in 
                                        accordance with that 
                                        requirement.
                                    ``(V) No stays.--The Merit Systems 
                                Protection Board or administrative law 
                                judge may not stay any reduction in 
                                grade or pay or removal action under 
                                this paragraph.
                                    ``(VI) Effect of appeal of 
                                removal.--During the period beginning 
                                on the date on which a covered employee 
                                appeals a removal from the civil 
                                service under this paragraph and ending 
                                on the date on which the administrative 
                                law judge issues a final decision on 
                                such appeal, the covered employee may 
                                not receive any pay, awards, bonuses, 
                                incentives, allowances, differentials, 
                                student loan repayments, special 
                                payments, or benefits.
                            ``(v) Whistleblower protection.--In the 
                        case of a covered employee seeking corrective 
                        action (or on behalf of whom corrective action 
                        is sought) from the Office of Special Counsel 
                        based on an alleged prohibited personnel 
                        practice described in section 2302(b) of title 
                        5, United States Code, the Secretary may not 
                        reduce the grade or pay or remove the covered 
                        employee under this paragraph without the 
                        approval of the Special Counsel under section 
                        1214(f) of title 5, United States Code.''.
    (b) Application.--The authority under paragraph (2) of section 7(c) 
of the Department of Housing and Urban Development Act, as added by 
subsection (a), shall apply to any covered employee (as defined in such 
paragraph) appointed before, on, or after the date of enactment of this 
Act.
    (c) Conforming Amendments.--Title 5, United States Code, is 
amended--
            (1) in section 4303(f)--
                    (A) in paragraph (3), by striking ``or'' at the 
                end;
                    (B) in paragraph (4), by striking the period at the 
                end and inserting ``, or''; and
                    (C) by adding at the end the following:
            ``(5) the reduction in grade or removal of an employee 
        under section 7(c)(2) of the Department of Housing and Urban 
        Development Act (42 U.S.C. 3535(c)(2)).'';
            (2) in section 7512--
                    (A) in subparagraph (E), by striking ``; or'' and 
                inserting a comma;
                    (B) in subparagraph (F), by striking the period at 
                the end and inserting ``, or''; and
                    (C) by adding at the end the following:
            ``(G) a reduction in grade or pay or removal under section 
        7(c)(2) of the Department of Housing and Urban Development Act 
        (42 U.S.C. 3535(c)(2)).'';
            (3) in section 7521(b), in the matter following paragraph 
        (5)--
                    (A) in subparagraph (B), by striking ``or'' at the 
                end;
                    (B) in subparagraph (C), by striking the period at 
                the end and inserting ``; or''; and
                    (C) by adding at the end the following:
            ``(D) a reduction in grade or pay or removal under section 
        7(c)(2) of the Department of Housing and Urban Development Act 
        (42 U.S.C. 3535(c)(2)).''; and
            (4) in section 7542, by striking ``or to a removal under 
        section 3592 or 3595 of this title'' and inserting ``to a 
        removal under section 3592 or 3595 of this title, to an action 
        under section 713 of title 38, or to a reduction in grade or 
        pay or removal under section 7(c)(2) of the Department of 
        Housing and Urban Development Act (42 U.S.C. 3535(c)(2))''.

SEC. 4. ENFORCEMENT OF PHYSICAL CONDITION STANDARDS AND TENANT 
              PROTECTION.

    Section 8(o) of the United States Housing Act of 1937 (42 U.S.C. 
1437f(o)), as amended by section 101(b)(2)(B) of division Q of the 
Consolidated Appropriations Act, 2021 (Public Law 116-260), is amended 
by adding at the end the following:
            ``(22) Maintenance of property.--Any entity receiving 
        housing assistance payments with respect to dwelling units 
        covered by a housing assistance payments contract shall--
                    ``(A) maintain decent, safe, and sanitary 
                conditions at those dwelling units, as determined by 
                the Secretary; and
                    ``(B) comply with any standards under applicable 
                State or local laws, rules, ordinances, or regulations 
                relating to the physical condition of those dwelling 
                units.
            ``(23) Enforcement of physical condition standards.--
                    ``(A) In general.--The Secretary shall take action 
                under subparagraph (C) against an entity with a housing 
                assistance payments contract for project-based 
                assistance with respect to a multifamily housing 
                project if--
                            ``(i) the project receives a Uniform 
                        Physical Condition Standards (in this paragraph 
                        referred to as `UPCS') inspection score of not 
                        more than 45;
                            ``(ii) the entity fails to certify in 
                        writing to the Secretary within 3 days of 
                        receiving the score under clause (i) that all 
                        exigent health and safety deficiencies 
                        identified by the inspector at the project have 
                        been corrected; or
                            ``(iii) the project receives a UPCS 
                        inspection score of more than 45 and less than 
                        59 and has received consecutive scores of less 
                        than 60 on UPCS inspections.
                    ``(B) Applicability.--Subparagraph (A) shall--
                            ``(i) apply with respect to insured and 
                        noninsured projects with dwelling units 
                        receiving assistance under this section other 
                        than under paragraph (13); and
                            ``(ii) not apply to dwelling units 
                        receiving assistance with capital or operating 
                        funds under section 9.
                    ``(C) Notification and enforcement.--
                            ``(i) In general.--If an entity violates 
                        clause (i), (ii), or (iii) of subparagraph (A), 
                        the Secretary shall notify the entity and 
                        provide an opportunity for response not later 
                        than 15 days after the date on which the 
                        results of the UPCS inspection are issued.
                            ``(ii) Plan and notice of default.--If 
                        violations remain at a project after the 15-day 
                        period described in clause (i), the Secretary 
                        shall--
                                    ``(I) develop a plan to bring the 
                                project into compliance not later than 
                                30 days after the date on which the 
                                results of the UPCS inspection are 
                                issued; and
                                    ``(II) provide the owner, the 
                                tenants of the property, the local 
                                government, any mortgagees, and any 
                                contract administrator of the project 
                                with a Notice of Default with a 
                                specified timetable, determined by the 
                                Secretary, for correcting all 
                                deficiencies.
                            ``(iii) Withdrawal of notice of default.--
                        If an appeal submitted by the entity results in 
                        a UPCS inspection score of not less than 60, 
                        the Secretary may withdraw a Notice of Default 
                        issued under clause (ii)(II).
                            ``(iv) Penalties.--If, at the end of the 
                        timetable described in clause (ii)(II), the 
                        entity fails to fully correct all deficiencies 
                        in the project, the Secretary may--
                                    ``(I) require immediate replacement 
                                of project management with a management 
                                agent approved by the Secretary;
                                    ``(II) impose civil money 
                                penalties, which--
                                            ``(aa) shall be used solely 
                                        for the purpose of supporting 
                                        safe and sanitary conditions at 
                                        the property, as designated by 
                                        the Secretary, with priority 
                                        given to the tenants of the 
                                        property affected by the 
                                        penalty; and
                                            ``(bb) shall not be payable 
                                        out of project income;
                                    ``(III) abate the housing 
                                assistance payments contract under this 
                                section, including partial abatement, 
                                as determined by the Secretary, until 
                                all deficiencies have been corrected;
                                    ``(IV) pursue transfer of the 
                                project to an owner, approved by the 
                                Secretary under established procedures, 
                                which will be obligated to promptly 
                                make all required repairs and to accept 
                                renewal of the housing assistance 
                                payments contract as long as such 
                                renewal is offered;
                                    ``(V) transfer the existing housing 
                                assistance payments contract under this 
                                section to another project or projects 
                                and owner or owners;
                                    ``(VI) pursue exclusionary 
                                sanctions, including suspensions or 
                                debarments from Federal programs;
                                    ``(VII) seek judicial appointment 
                                of a receiver to manage the property 
                                and cure all project deficiencies or 
                                seek a judicial order of specific 
                                performance requiring the owner to cure 
                                all project deficiencies;
                                    ``(VIII) work with the owner, 
                                lender, or other related party to 
                                stabilize the property in an attempt to 
                                preserve the property through 
                                compliance, transfer of ownership, or 
                                an infusion of capital provided by a 
                                third party that requires time to 
                                effectuate; or
                                    ``(IX) take any other regulatory or 
                                contractual remedies available as 
                                deemed necessary and appropriate by the 
                                Secretary.
                    ``(D) Contracts.--
                            ``(i) In general.--The Secretary shall take 
                        appropriate steps to ensure that project-based 
                        contracts remain in effect, subject to the 
                        exercise of contractual abatement remedies to 
                        assist relocation of tenants for major threats 
                        to health and safety after written notice to 
                        and informed consent of the affected tenants 
                        and use of other remedies under this paragraph.
                            ``(ii) Other assistance.--To the extent the 
                        Secretary determines, in consultation with the 
                        tenants and the local government, that a 
                        property is not feasible for continued rental 
                        assistance payments under this section or other 
                        housing programs, based on consideration of the 
                        costs of rehabilitating and operating the 
                        property and all available Federal, State, and 
                        local resources, including rent adjustments 
                        under section 524 of the Multifamily Assisted 
                        Housing Reform and Affordability Act of 1997 
                        (42 U.S.C. 1437f note) and environmental 
                        conditions that cannot be remedied in a cost-
                        effective fashion, the Secretary may, in 
                        consultation with the tenants of the property, 
                        contract for project-based rental assistance 
                        payments with an owner or owners of other 
                        existing housing properties, or provide other 
                        rental assistance.
                    ``(E) Report.--
                            ``(i) In general.--The Secretary shall, on 
                        a quarterly basis, issue a publicly available 
                        report on all properties covered by this 
                        paragraph that--
                                    ``(I) are assessed through UPCS 
                                inspections; and
                                    ``(II)(aa) have a UPCS inspection 
                                score of less than 60; or
                                    ``(bb) received an unsatisfactory 
                                management and occupancy review during 
                                the 36-month period preceding the 
                                report.
                            ``(ii) Contents.--Each report issued under 
                        clause (i) shall--
                                    ``(I) include, for each property 
                                covered by the report--
                                            ``(aa) the UPCS inspection 
                                        score and date of inspection; 
                                        and
                                            ``(bb) the ownership 
                                        interest and management of the 
                                        property;
                                    ``(II) identify--
                                            ``(aa) the enforcement 
                                        actions being taken to address 
                                        the physical conditions of the 
                                        properties covered by the 
                                        report, including imposition of 
                                        civil monetary penalties and 
                                        termination of subsidies; and
                                            ``(bb) properties that have 
                                        been identified multiple times 
                                        as having the physical 
                                        conditions described in item 
                                        (aa);
                                    ``(III) identify actions that the 
                                Secretary is taking to--
                                            ``(aa) remediate all health 
                                        and safety concerns; and
                                            ``(bb) protect tenants of 
                                        the properties covered by the 
                                        report; and
                                    ``(IV) include any administrative 
                                or legislative recommendations to 
                                further improve the living conditions 
                                at each property covered under a 
                                housing assistance payments contract.
            ``(24) Tenant protection.--
                    ``(A) In general.--The Secretary may provide 
                tenant-based assistance for dwelling units covered 
                under a project-based assistance subsidy contract if--
                            ``(i) the owner of the dwelling units has 
                        received a Notice of Default; and
                            ``(ii) the dwelling units pose an imminent 
                        health and safety risk to the tenants of the 
                        dwelling units.
                    ``(B) Reimbursements.--To the extent that the 
                Secretary determines that dwelling units described in 
                subparagraph (A) are not feasible for continued rental 
                assistance payments or transfer of the project-based 
                assistance subsidy contract associated with those 
                dwelling units to another project or projects and owner 
                or owners, any remaining amounts associated with those 
                dwelling units shall be recaptured and used to 
                reimburse amounts used for tenant-based assistance 
                under subparagraph (A).''.

SEC. 5. REPORTS ON REAL ESTATE ASSESSMENT CENTER INSPECTIONS.

    (a) Annual HUD Report.--Not later than 90 days after the date of 
enactment of this Act, and annually thereafter, the Secretary shall 
issue a publicly available report on the website of the Department of 
Housing and Urban Development (in this section referred to as the 
``Department'') regarding Real Estate Assessment Center (in this 
section referred to as ``REAC'') inspections of all properties 
assisted, insured, or both, under a program of the Department, which 
shall include--
            (1) the percentage of all inspected properties that 
        received a REAC-inspected score of less than 65 during the 48-
        month period preceding the report;
            (2) the number of properties in which the most recent REAC-
        inspected score represented a decline relative to the previous 
        REAC-inspected score;
            (3) a list of the 10 metropolitan statistical areas with 
        the lowest average REAC-inspected scores for all inspected 
        properties; and
            (4) a list of the 10 States with the lowest average REAC-
        inspected scores for all inspected properties.
    (b) GAO Report.--The Comptroller General of the United States shall 
issue a publicly available report on the website of the Government 
Accountability Office with recommendations for how REAC inspections of 
all properties assisted, insured, or both, under a program of the 
Department should be reformed and improved.

SEC. 6. BUDGET-BASED RENTAL ADJUSTMENTS FOR CERTAIN PROPERTIES 
              RECEIVING PROJECT-BASED RENTAL ASSISTANCE THAT UNDERWENT 
              MARK-TO-MARKET.

    (a) Definition.--In this section, the term ``eligible property'' 
means a property that--
            (1) receives project-based rental assistance under section 
        8 of the United States Housing Act of 1937 (42 U.S.C. 1437f);
            (2) underwent a mortgage restructuring under subtitle A of 
        the Multifamily Assisted Housing Reform and Affordability Act 
        of 1997 (42 U.S.C. 1437f note; title V of Public Law 105-65); 
        and
            (3)(A) has been transferred to a different owner due to the 
        failure of a prior owner to meet Uniform Physical Condition 
        Standards;
            (B) received a failing Uniform Physical Condition Standard 
        score under a prior owner; or
            (C) requires substantial rehabilitation, including the 
        replacement of major systems, in order to ensure the long term 
        sustainability of the property, as determined by a capital 
        needs assessment and as approved by the Secretary.
    (b) Authority.--The Secretary may, at the request of the owner of 
the property, approve the adjustment of rent on a budget basis (within 
the meaning of section 401.412(b) of title 24, Code of Federal 
Regulations, or any successor regulation) for an eligible property if 
the owner--
            (1) demonstrates that--
                    (A) the available operating revenue is insufficient 
                to operate and maintain the property; and
                    (B) a rent adjustment is necessary to support 
                financing for rehabilitation; and
            (2) submits a rehabilitation plan to extend the useful life 
        of the property for not less than 25 years, including 
        remediation of all existing health, sanitation, and safety 
        concerns.
    (c) Reporting Requirement.--During the period during which a 
property for which a budget-based rental adjustment is approved under 
subsection (b) is being rehabilitated, the owner of the property shall 
submit to the Secretary a quarterly report that includes--
            (1) a description of the progress made on, and expenses 
        incurred for, capital improvements and debt service;
            (2) a detailed list of outstanding improvements;
            (3) the expected completion date for each outstanding 
        improvement described in paragraph (2); and
            (4) any other information required by the Secretary.

SEC. 7. CODIFICATION OF UNIFORM PHYSICAL CONDITION STANDARDS INSPECTION 
              TIMELINES FOR UNITS RECEIVING PROJECT-BASED RENTAL 
              ASSISTANCE.

    (a) Definition.--In this section, the term ``covered property'' 
means a property that receives project-based rental assistance under 
section 8 of the United States Housing Act of 1937 (42 U.S.C. 1437f).
    (b) Scoring and Ranking of Physical Condition.--The Secretary shall 
score and rank the physical condition of covered properties in 
accordance with this section.
    (c) Methodology for Ranking.--
            (1) In general.--The Secretary shall score each covered 
        property on the basis of a 100-point scale.
            (2) Fractions.--In scoring a covered property under 
        paragraph (1), the Secretary shall round--
                    (A) a score that includes a fraction below one half 
                point to the next lower full point; and
                    (B) a score that includes a fraction of one half 
                point or higher to the next higher full point.
    (d) Designations and Frequency of Inspections.--
            (1) Standard 1 performing property.--The Secretary shall--
                    (A) designate a covered property that receives a 
                score of not less than 90 points on its physical 
                condition inspection as a standard 1 performing 
                property; and
                    (B) conduct a physical inspection of a standard 1 
                performing property once every 3 years.
            (2) Standard 2 performing property.--The Secretary shall--
                    (A) designate a covered property that receives a 
                score of not less than 80 points and less than 90 
                points on its physical condition inspection as a 
                standard 2 performing property; and
                    (B) conduct a physical inspection of a standard 2 
                performing property once every 2 years.
            (3) Standard 3 performing property.--The Secretary shall--
                    (A) designate a covered property that receives a 
                score of less than 80 points on its physical condition 
                inspection as a standard 3 performing property; and
                    (B) conduct a physical inspection of a standard 3 
                performing property every year.
    (e) Special Requirements.--If a covered property receives a score 
in the range of a standard 1 performing property or standard 2 
performing property on its physical condition inspection and has been 
cited by the Secretary as having an exigent health and safety 
deficiency, the property--
            (1) shall only shall be designated as a standard 1 
        performing property or standard 2 performing property, 
        respectively, if the owner resolves the deficiency; and
            (2) shall be designated as a standard 3 performing property 
        if the owner does not resolve the deficiency.
    (f) Authority To Delay Inspections.--
            (1) In general.--Notwithstanding subsection (d), the 
        Secretary may delay the physical inspection of a covered 
        property that is undergoing a substantial rehabilitation.
            (2) Definition.--For purposes of this subsection, the term 
        ``substantial rehabilitation'', with respect to a covered 
        property, means a physical rehabilitation for the long-term 
        sustainability of the property where the costs of the 
        rehabilitation exceed 25 percent of the property's replacement 
        cost (calculated based on fair market value) after completion 
        of all required repairs, replacements, and improvements.
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