II 118th CONGRESS 1st Session S. 554 IN THE SENATE OF THE UNITED STATES February 28, 2023 Mr. Rubio (for himself and Mr. Scott of Florida ) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To reform the inspection process of housing assisted by the Department of Housing and Urban Development, and for other purposes.

1. Short title This Act may be cited as the HUD Inspection Reform and Capital Improvement Act of 2023 . 2. Definition In this Act, the term Secretary means the Secretary of Housing and Urban Development. 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) ) . 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 ; 134 Stat. 2163), 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; title V of Public Law 105–65 ) 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). . 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. 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. 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.