[Federal Register Volume 61, Number 251 (Monday, December 30, 1996)]
[Rules and Regulations]
[Pages 68894-68950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32469]



[[Page 68893]]

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Part III





Department of Housing and Urban Development





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24 CFR Part 901



Public Housing Management Assessment Program; Interim Rule





  Federal Register / Vol. 61, No. 251 / Monday, December 30, 1996 / 
Rules and Regulations  

[[Page 68894]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 901

[Docket No. FR-3447-I-03]

RIN 2577-AA89


Public Housing Management Assessment Program

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, HUD.

ACTION: Interim rule.

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SUMMARY: This interim rule implements the proposed revision, published 
on May 6, 1996, of the Public Housing Management Assessment Program 
(PHMAP) at 24 CFR part 901. PHMAP applies to public housing agencies 
(PHAs) and resident management corporations (RMCs), and any other 
entities under contract to manage public housing, but does not apply to 
Indian housing authorities, nor to the Family Self-Sufficiency Program 
authorized under section 23. PHMAP provides policies and procedures to 
identify PHA management capabilities and deficiencies, and assists HUD 
State/Area Offices in accountability monitoring and risk management.

DATES: Effective Date: January 29, 1997. Assessments using the 
requirements of this rule will begin with PHAs whose fiscal years end 
on March 31, 1997, the final date of the quarter after this rule is 
published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: MaryAnn Russ, Deputy Assistant 
Secretary for Public and Assisted Housing Operations, Office of Public 
and Indian Housing, Department of Housing and Urban Development, 451 
Seventh Street, S.W., Washington, D.C. 20410, telephone (202) 708-1380. 
A telecommunications device for hearing or speech impaired persons 
(TTY) is available at (202) 708-0850. (These are not toll-free 
telephone numbers.)

SUPPLEMENTARY INFORMATION: On May 6, 1996, HUD published a proposed 
rule (61 FR 20358) to revise the entire PHMAP at 24 CFR part 901. 
Eighty-seven comments were received on the proposed rule. The public 
comments on the proposed rule and the resulting changes in this rule 
are discussed below in section II of this preamble.

I. Highlights of Changes From the Proposed Rule

    A number of changes, more fully discussed in section II of this 
preamble, below, have been made to the proposed rule by this interim 
rule, including the following:
     The definition for ``vacancy days: is modified to specify 
that it pertains to ``dwelling'' units.
     The definitions and methodologies for both the Performance 
Funding System (PFS) and PHMAP should be the same as long as feasible, 
and the language of the new rule reflects that.
     Definitions of the terms ``effective lease date,'' 
``maintenance plan,'' and ``move-out date'' are added.
     The definition of ``average turnaround time'' is changed 
to read, ``. . . the annual average of the total number of turnaround 
days between the latter of the legal expiration date of the immediate 
past lease or the actual move-out date of the former tenant (whenever 
that occurred, including in some previous fiscal year) and the date a 
new lease takes effect.''
     The threshold for progress in reducing the vacancy rate 
that applies to a C grade has been changed from 30% to 15 percentage 
points.
     The term ``Reduced Actual Vacancy Rate in Previous 3 
Years'' is clarified to include the fiscal year being assessed under 
PHMAP in the 3-year period.
     Dwelling units used for non-dwelling purposes with HUD 
approval, employee occupied units, and vacant units approved for 
demolition or disposition are not included as available units in the 
determination of occupancy/vacancy rates
     For purposes of indicator #2, Modernization, a minimum 
time is specified between the date HUD's monitoring report or audit is 
provided to the PHA and the end of the PHA's fiscal year in order to 
give the PHA sufficient time to correct all findings. The Department 
has revised components #3 and #4 to reflect a minimum time of 75 
calendar days.
     The Department agrees that emergency CGP work does not 
require prior HUD approval and has revised component #5 of indicator 
#2, Modernization, to specifically exclude emergency work.
     The Department has added specific language to indicator 
#4, Work Orders, stating that all preventive maintenance work orders 
are to be tracked, as well as which type of work orders are exempted 
from the calculation of this indicator.
     The new resident services and community building indicator 
is now subdivided into four equally weighted components, and the 
indicator or the individual components are subject to exclusion based 
on the particular circumstances of each PHA. The name of this indicator 
has been renamed ``Resident Services and Community Building'' to place 
a more accurate emphasis upon the specific role of PHAs for these 
functions. PHA's with 100% elderly developments will not be assessed 
under this indicator. To avoid penalizing small PHAs with active 
programs, PHAs with fewer than 250 units or with 100% elderly 
developments may request to be assessed under the indicator at the time 
of PHMAP certification submission.
     The Resident Services and Community Building indicator has 
been revised in order to assess PHAs for the functions they perform in 
operating resident services programs and for resident management or TOP 
performance only when the PHA is the contract administrator for the 
program.
     The rule has been changed to state that indicator #8, 
Security, does not apply to PHAs with fewer than 250 units under 
management unless the PHA requests to be assessed under the indicator 
at the time of the PHMAP certification submission.
     Section 901.105(d)(3)(iv) has been clarified in the new 
rule to state that a PHA's score for indicators #1, #4 and/or #5, after 
any adjustment(s) for physical condition and/or neighborhood 
environment, may not exceed the maximum potential weighted points 
assigned to the respective indicator(s).
     Section 901.115(e) of the proposed rule read, ``PHAs with 
more than 100 units that achieve a total weighted score of less than 
60% on indicator (2), modernization, shall be designated as mod-
troubled.'' The Department agrees that these ``small'' PHAs should also 
be assessed on their modernization program, and has amended this 
section accordingly.
     The posting of PHA PHMAP scores is now required at all 
offices, rather than in all developments.
     The rule makes clear that PHAs are only required to post 
and report out final PHMAP scores and do not have to post and report 
any score that is appealed in a timely basis and is under consideration 
by HUD.
     The rule now specifically permits an appeal from a State/
Area Office rejection of a claim for additional scoring adjustment that 
is based on the physical condition or neighborhood environment of 
housing developments.
     In sections 901.220(b) and 901.225, the Department has 
changed the percentage in the new rule to require that 20% of the 
residents at a PHA in substantial default indicate to HUD their 
interest in participating in the competitive proposal process.
     The period has been extended to a 60, rather than 45, day 
submission period for certifications to be submitted following the end 
of a PHA's fiscal year.

[[Page 68895]]

II. Discussion of Public Comments

General Comments

    Comment: One comment stated that PHAs should be monitored, but the 
PHMAP grading system is not the answer.
    Response: Congress passed the amendments to the 1937 Act that 
authorize PHMAP, and it is the clear intent and purpose of Congress to 
require HUD to assess PHA management performance. The authorizing 
statute provides specific statutory indicators, and permits, as HUD 
deems appropriate, up to five additional ones to be used for this 
purpose.
    Comment: Twenty-four comments stated that a truer assessment can be 
accomplished now than before; overall, the proposed rule is positive; 
generally pleased with the proposed revisions that eliminate the 
snapshot indicators; and the proposed rule is a vast improvement over 
the current PHMAP certification. Many of the commenters commended HUD's 
effort to streamline the certification process by reducing the number 
of indicators from 12 to eight and by providing standard definitions 
for critical terms. The first six indicators are measures of essential 
property management and a marked improvement over the current system.
    Response: The comments are noted by the Department.
    Comment: Five comments felt that there should be a transition 
period to allow adequate time to change computer programs. There should 
be at least one year to sample the new indicators to see how changes 
are going to affect individual PHAs. Any revision of the PHMAP should 
be made effective beginning with the next fiscal year after the new 
rule has been published. Two comments felt that if Congress has moved 
the authorization process forward, PHA's should have an ``option year'' 
implementation where a PHA has a choice to use either the current PHMAP 
or the new PHMAP. If the authorization process is stalled, the 
Department should not implement the new rule.
    Response: Most of the data elements required to determine the grade 
or score for the new indicators are already being maintained by PHAs 
for reporting requirements for the current PHMAP rule or for other 
programs. Because of that, a long transition period is not needed. 
Therefore, assessment under this rule will begin with PHAs whose fiscal 
year ends the quarter after the publication of this rule (PHAs whose 
fiscal year ends in the quarter immediately following publication of 
this revised rule will be assessed under the ``old'' PHMAP rule). This 
transition period will permit PHAs to organize their data in order to 
respond to the new requirements. During the first year of 
implementation of the new rule, the Department will consider 
modification and exclusion requests based on special circumstances 
arising from the initial implementation process. A choice of which set 
of criteria to use (have PHAs choose under which PHMAP rule, old or 
new, to be assessed) is not feasible because all PHA's must be assessed 
using the same indicators for the same period of time (i.e., the same 
calendar year) in order for the scoring to be comparable and fair. HUD 
is moving forward with this rule because the implementation of the new 
PHMAP is not dependant upon Congressional authorization. The new rule 
is published as an interim rule to indicate HUD's intention to continue 
to refine and improve PHMAP.
    Comment: Three Comments requested the Department not to establish a 
system which requires PHAs to retroactively retrieve information. The 
Commenters stated that in areas where ``improvement over the last three 
years'' is considered to calculate the grade, the information needed is 
not readily available to the PHAs in the new format required by the 
proposed rule. A transition process should be addressed in the new rule 
to deal with this.
    Response: The PHMAP new rule does not require a PHA to 
retroactively retrieve information unless the PHA chooses to certify to 
the percentage of improvement within the prior three year period as 
permitted by some of the indicators. Since whether to make such a 
certification is the decision of each PHA, a PHA should factor in the 
additional time to retrieve the necessary information. A transitional 
period for this reason is deemed to be unnecessary.
    Comment: Three Comments felt that with fewer indicators, it will be 
more difficult for small PHAs to achieve high performer status; a low 
score on one indicator will have a much greater impact on the total 
score.
    Response: The reinvention and streamlining of the PHMAP process 
seeks to focus on the most significant management aspects of PHA 
management and reduce the burden of the PHMAP process while still 
producing a valid and reliable assessment. However, the use of fewer 
indicators does not result in a disproportionate impact from any one 
indicator. The use of modification and exclusion requests allows PHAs 
the opportunity to justify why they should not be penalized by a 
performance that does not exactly meet the requirements of an 
indicator. Even if additional, though less significant, indicators were 
used in PHMAP, the weighting of indicators according to their 
significance would reduce their individual impact on the score despite 
the additional assessment burden that would result.
    Comment: One Comment stated that HUD has attempted to add 
compliance with specific directives to a program that is supposed to 
rate performance, and that including them in PHMAP waters down the 
focus and the results of the program. HUD should remove all non-
essential components (Section 3 program at 24 CFR part 135, energy/
utility management, etc.).
    Response: HUD has attempted to limit PHMAP to examining essential 
aspects of PHA management. Of these, some that deal with compliance 
issues, such as the energy indicator, are essential because they are 
statutory. In other indicators, such as Resident Initiatives, which 
examines, among other subjects, implementation of Section 3 programs, 
the degree of successful implementation is regarded as a valid measure 
of a PHA's efforts to encourage partnerships with residents and the 
local community that help improve management operations at the PHA. 
However, compliance-related measures have been kept at a minimum in 
this rule.
    Comment: One Comment felt that the State/Area Offices should be 
given the flexibility to correct shortcomings in the system which could 
not have been foreseen in advance.
    Response: This rule does provide a high degree of the requested 
flexibility to State/Area Offices. The State/Area Offices assess each 
PHA within their jurisdiction on an annual basis, and make 
determinations for high-performing, standard, and troubled PHAs, and 
troubled PHAs with respect to the program under section 14 (mod-
troubled) in accordance with a PHA's PHMAP weighted score. On-site 
confirmatory reviews may be conducted by the State/Area Offices, which 
may result in corrections to a PHAs total weighted score, if 
appropriate. In addition, State/Area Offices make determinations for 
exclusion and modification requests, perhaps the greatest area of 
flexibility in the PHMAP rule. At the same time, HUD must ensure that 
PHMAP is a truly nationwide assessment methodology and that comparable 
performance by PHAs in different State/Area Offices is rated without 
regard to the location.
    Comment: One Comment stated that the Commenter has worked very hard 
to achieve high performer status, but cannot achieve it, under the 
proposed

[[Page 68896]]

PHMAP ratings. Surely, a rating scheme can be formulated that would be 
equally fair to all PHAs, taking into consideration the huge 
differences between small and large PHAs, big city and rural PHAs, and 
the necessity for each to be operated differently.
    Response: As indicated in the preamble of the proposed rule, the 
Departments of Veterans Affairs and Housing and Urban Development, and 
Independent Agencies Appropriations Act, 1992 (92 App. Act) (approved 
October 28, 1991, Pub. L. 102-139) provided that the evaluation of PHAs 
must be administered flexibly to ensure that they are not penalized for 
circumstances beyond their control; and that the weights assigned to 
indicators must reflect the differences in management difficulty that 
result from physical condition and neighborhood environment. HUD 
implements this mandate, which also reflects the concerns expressed in 
the comment, by permitting PHAs to submit modification and exclusion 
requests, by limiting the applicability of certain indicators by PHA 
size, and by assigning additional adjustments to a PHA's PHMAP score 
based upon physical condition and neighborhood environment.
    Comment: Two comments stated that PHMAP scores for PHAs and RMCs 
should be assessed and scored separately. The purpose of the RMC is to 
manage and maintain public housing units independent of the PHA. The 
RMC is an independent body that neither answers to, nor is required to 
follow the advice of the PHA. Resident groups are being given an 
enormous amount of responsibility, without the corresponding 
accountability which puts the PHA in an unfair and untenable position. 
To relieve the RMC of the necessity of being accountable creates a 
situation of ``smoke and mirrors.'' Don't let resident management be an 
illusion; make it real. If the RMC has been deemed eligible and able to 
manage, it should also be deemed eligible to handle the corresponding 
success or failure. Do not combine RMC and PHA PHMAP scores.
    Response: As discussed in the preamble to the proposed rule, 
because an RMC enters into a contract with a PHA to perform specific 
management functions on a development-by-development basis, and because 
the scope of the management that is undertaken varies, not every 
indicator that applies to a PHA would be applicable to each RMC. Even 
if an RMC were to assume all of the management functions for a 
particular development, 24 CFR 964.225(d), entitled, Management 
contract, and 24 CFR 964.225(h), entitled, Prohibited activities, 
provide that a PHA may enter into a management contract with a resident 
management corporation, but a PHA may not contract for assumption by 
the resident management corporation of the PHA's underlying 
responsibilities to the Department under the ACC. In addition, 24 CFR 
964.225(k) requires a PHA to review, not less than annually, an RMC's 
performance to ensure that it complies with all applicable requirements 
and meets agreed-upon standards of performance. The ultimate 
responsibility for the management of all of its developments resides 
with the PHA, whether it contracts out management or other services to 
an RMC or any other contractor.
    Comment: Two comments stated that the sample worksheet for 
indicator #6 and the PHMAP certification form are not exactly user 
friendly. One commenter suggested that HUD redesign these two forms so 
that they can be readily understood and computer formatted for those 
PHAs that have such capability. The other commenter stated that the new 
rule should include a standard questionnaire form for PHA use.
    Response: The worksheet and certification form have been 
redesigned, as applicable, to make them more user friendly. HUD 
welcomes additional, specific recommendations to improve these 
documents further.
    Comment: One comment felt that PHMAP should be aimed toward 
identifying a quality and reliable service delivery. Progress of 
development conditions, resident involvement in the solution of 
community affairs, as well as independent achievements by the residents 
should be evidence of growth and should be rewarded with high scores 
and additional benefits.
    Response: Even with the reduction and streamlining of PHMAP to 
measure only the essential aspects of PHA management, as discussed in 
previous responses, the significance of resident involvement and 
achievement are recognized in this rule by maintaining resident 
involvement as a separate indicator. However, this is only one factor 
in a program that attempts to assess all of the significant areas of 
PHA management and a PHA must perform well in each area to receive a 
high score and additional benefits.
    Comment: One comment maintained that the results in the quality of 
work and development conditions should be evaluated in connection with 
available resources versus market cost in the jurisdictions.
    Response: The current PHMAP regulation contains substantial 
provisions to ensure that PHAs are not penalized for conditions beyond 
their control: (1) a PHA may request a modification of any indicator 
and/or component to compensate for conditions beyond its control; (2) a 
PHA may request the exclusion of an indicator and/or component for the 
same reason; (3) without requesting a modification, the current and new 
PHMAP regulations both allow PHAs to modify the scoring calculations 
for certain indicators by exempting certain units; and (4) there is a 
two-stage appeal process available if the PHA fails to find relief 
under items one, two and three, above. As discussed previously, 
exclusion and modification requests are processed by the local State/
Area Office, which would have the greatest awareness of the resources 
and market conditions affecting a PHA. These procedures provide the 
appropriate mechanism to address special circumstances, such as area 
market costs, affecting a PHA's performance.
    Comment: Two comments were concerned with revisions that would 
require the collection and management of new data when that data is 
needed solely for PHMAP and is not normally utilized in the management 
of housing. Such changes to the data collection and processing system 
are not easily accomplished.
    Response: The Department's experience in implementing PHMAP so far 
has resulted in some refinement in the data necessary to assess 
management performance. The goal of this rule is to provide a more 
valid assessment process and HUD believes the data requested will 
produce this result. HUD will continue to evaluate the appropriateness 
and usefulness of the information it gathers in its implementation of 
this rule, and will make adjustments as warranted.
    Comment: Three comments stated that the proposed rule should be 
delayed until Congress has completed action concerning the management 
assessment criteria of PHAs. Bills in the Senate and the House have 
provisions that would affect PHMAP. The Senate bill would add two 
indicators and the House bill would create an accreditation process for 
PHAs. It is not clear how these provisions may be reconciled. If the 
final bill contains significant changes, HUD should incorporate them 
into a new proposed rule re-issued for comment.
    Response: HUD believes that this rule, incorporating nearly five 
years of experience and feedback on the rule first implemented in 
January 1992, represents an improvement over the existing process. The 
Department will

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fully implement any statutory amendments to PHMAP when they are made, 
but is also continuing to go forward with this rule to avoid delay in 
implementing an improved process.
    Comment: One comment stated that a PHA's ability to maintain its 
units will decline due to the budget cuts to all PHAs, thus affecting 
the PHMAP scores. With no funds for repairs, more units will fail HQS. 
How are PHAs suppose to improve and maintain housing units when funds 
are reduced, and PHAs are denied modernization funds?
    Response: HUD recognizes that PHAs have not been fully funded. In 
FY 1996, for example, PHAs received only 89% of their funding 
eligibility under the Performance Funding System (PFS). To the extent 
that a PHA can demonstrate its management performance has been 
adversely affected by funding shortfalls, it should do so in an 
exclusion/modification request. PHAs are expected and encouraged to do 
their best, but they cannot be expected to do the impossible. In 
addition, alternative measures have been implemented such as minimum 
rents and the new focus on mixed-income housing, which provide PHAs 
with possible alternative income sources.
    Comment: One comment stated that a system designed to measure 
performance of PHAs nationally must be flexible and accommodate local 
differences. PHMAP should give consideration to the conditions and 
level of difficulty involved in owning and operating public housing in 
poverty impacted and distressed urban areas.
    Response: PHMAP is required by statute to take into account the 
physical condition of a PHA's developments and their neighborhood 
environment in assessing management. In the previous rule, PHMAP scores 
could be adjusted, based upon physical condition and neighborhood, by 
up to 10 points to raise a designation to the next status level. In 
this rule, the overall PHMAP score of a PHA will be adjusted by adding 
weighted points that reflect the differences in the difficulty of 
managing developments that result from the physical condition and/or 
the neighborhood environment of a PHA's developments.
    Comment: Two comments felt that two indicators, Resident Services 
and Security, are troubling and display a tendency toward meddling and 
micromanagement. HUD has been trying to retreat from that tendency. 
Plus, Congress has been cutting funding for PHAs. The commenters felt 
that these indicators are non-management in nature and are not within 
the control of the PHA. PHMAP should grade only those indicators which 
are within the control of the management.
    Response: A PHA's management efforts are directed toward 
developments, which are not just properties or structures, but which 
are housing: buildings that are people's homes. Because of this, there 
is a strong relationship between a PHA's management efforts and quality 
of life for a development's residents. While the PHA cannot mandate or 
control the positive interaction or advancement of its tenants, it can 
foster the environment and opportunity for such interaction and 
advancement. The resident involvement indicator attempts to measure a 
PHA's success in accomplishing this. On the other hand, a PHA is 
obligated to manage and respond to the unlawful behavior of tenants 
whose actions impede the peaceful enjoyment of other tenants. The 
security indicator addresses the PHA's success in managing this 
significant housing issue.
    Comment: One comment supports extending coverage to alternative 
management entities.
    Response: The Department appreciates this concurrence in its effort 
to assess and improve the management performance of every PHA.
    Comment: One comment urges HUD to adopt those changes that help 
streamline the process of assessment and to use the simplest methods 
necessary to achieve a particular goal or outcome.
    Response: As discussed above, it is HUD's intention to streamline 
and improve the PHMAP process with this new rule. Further, HUD is by no 
means closing the door on additional refinement, but will continue to 
consider and examine additional ways of improving PHMAP. To this end, 
this rule is being published as an interim rule.
    Comment: One comment felt that it is equally important for PHAs to 
develop strong relationships with their surroundings and their 
neighbors. There should be points added or deducted to a PHA's final 
score based on the role a PHA assumes and its relationship with its 
surroundings.
    Response: The resident involvement indicator in this rule, as did 
the previous resident initiatives indicator that is being replaced, 
assesses, in part, a PHA's efforts to involve residents to improve the 
community in which they live. Beyond this specific aspect of community 
involvement, it is likely that a well managed PHA, the general goal of 
PHMAP, is a positive community asset and a good neighbor. The 
recognition of outstanding individual community contributions and 
achievements by PHAs is important and receives attention from HUD in 
special ceremonies rather than in PHMAP, which focuses on the overall, 
day-to-day management aspects of PHAs.
    Comment: One comment felt that there should be a simplified list of 
indicators to be used for smaller PHAs: vacancy rate; rents 
uncollected; inspections; and financial management.
    Response: The authorizing statute for PHMAP lists seven indicators 
that must be used in assessing PHAs. This limits HUD's ability to 
differentiate between large and small PHAs in the indicators used for 
assessment. However, for indicators #7 and #8, PHAs with fewer than 250 
units will not be assessed under these indicators unless they request 
to be assessed at the time of submission of the PHMAP certification.
    Comment: Three comments stated that the proposed rule is more 
process-oriented and requires the tracking and/or collection of much 
more data. This is more burdensome and requires additional 
administrative responsibilities at a time when the level of public 
housing operating subsidy is being reduced.
    Response: Although the Paperwork burden estimate for this rule 
exceeds the Paperwork burden estimate for the previous rule published 
on January 17, 1992, a substantial part of that increase results from 
HUD's recognition that a change in necessary data for assessment 
purposes will initially require more effort to compile. As was the case 
for the previous rule, it is expected that as the collection and 
organization of the data becomes more routine following the first 
submission, the associated burden will also decrease.
    Comment: One comment felt that HUD should look for ways to 
eliminate regulations, not just change regulations.
    Response: In the past year, HUD has undertaken an extensive effort 
to reinvent and streamline all of its rules, and hundreds of pages of 
regulations have been eliminated. The statute authorizing PHMAP 
requires its implementation by regulations, and HUD must follow this 
Congressional mandate.
    Comment: Two comments stated that a continuing concern is that 
making the annual grade in PHMAP may become the true mission of many 
PHAs.
    Response: HUD does not consider the prospect of PHA's refining 
their management practices to become high performers under PHMAP year 
after year to be distressing. The purpose of PHMAP is to assess the 
quality of PHA management, and in implementing this program, HUD 
intends for the score

[[Page 68898]]

achieved to be a valid measure of performance. To address situations in 
which the PHMAP score poorly corresponds to the actual conditions at a 
PHA, the rule permits the State/Area Office, in exceptional 
circumstances listed in the rule, to reinstate any review to address 
particular deficiencies, and to deny or rescind incentives or high 
performer status, even though a PHA has satisfied all of the indicators 
for high or standard performer designation. The purpose of this 
provision is to prevent PHMAP from being an empty, pro forma exercise.
    Comment: One comment believes that PHMAP is but one way to evaluate 
a PHA's management and ultimately, the quality of its stock. PHMAP is 
not a comprehensive measure of PHA quality and it is too process 
oriented. Greater emphasis should be placed on key results which more 
accurately equate with the quality of the housing stock.
    Response: The observation in this comment does not quite correspond 
to the parameters and purpose of PHMAP as established under the 
authorizing statute. PHMAP evaluates PHA management performance using 
seven indicators that are made mandatory under the statute, which 
permits the Department to use up to five additional indicators. These 
requirements establish limits on what must and what may be used to 
assess the quality of a PHA's management, and not the quality of its 
housing stock. The statute explicitly requires HUD to take into account 
the difficulty of managing developments that result from their physical 
condition, indicating the Congressional determination that, to some 
degree, the quality of the housing stock is independent of the PHA's 
management capability. HUD is obliged to implement PHMAP in a manner 
consistent with the statute, and attempts to do so in a manner that 
will produce a valid and reliable result. As the Department hopes this 
rule demonstrates, HUD is, and will continue to be, receptive to the 
refinement of PHMAP based upon its administrative experience and the 
input it receives from PHAs.
    Comment: One comment encourages HUD to publish handbook guidance 
well in advance of the effective date of the new rule so that PHAs may 
make any planning, record keeping or operational changes required to 
ensure compliance and performance.
    Response: The Department anticipates the issuance of a revised 
PHMAP Handbook 7460.5 and a new confirmatory review guidebook prior to 
the applicability date of the new rule.
    Comment: One comment stated that the term ``approved, funded, on-
schedule annual modernization program'' is defined in the rule and in 
the preamble under the discussion of indicator #1. But the term is not 
used in indicator #1. Is it intended that the term be applied to the 
exemption for ``vacant units undergoing modernization?'' If so, it 
should be made explicit. Is it intended that the term be used in 
connection with indicator #2? If so, then this term is contrary to the 
rule's discussion of indicator #2, which includes only CIAP and CGP.
    Response: The comment is noted, and the definition for ``approved, 
funded, on-schedule annual modernization program'' is superseded by the 
definition for ``vacant units undergoing modernization.'' The 
definition in this rule, which includes the Hope VI Program, the 
Vacancy Reduction Program (VRP), lead based paint risk assessment 
funding (1992-1995) and any successor program to the CGP or the CIAP, 
applies to indicators #1, #4 and #5, as appropriate. In addition, the 
Department intended for all modernization programs to be assessed under 
indicator #2. For this reason, lead based paint risk assessment funding 
will be assessed under all five components of indicator #2. However, 
due to the design of the Hope VI and the VRP, these program areas 
cannot be assessed under components #1 and #2 under the modernization 
indicator. Therefore, in completing a PHA's assessment for indicator 
#2, the State/Area Office will only examine components #3, #4 and #5 
for the Hope VI and the VRP. Appropriate language has been added to 
indicator #2 in the new rule. A similar comment was made with respect 
to indicators #4 and #5, and this response is also applicable to those 
two indicators.

Section 901.10  Indicator #1, Vacancy Rate and Unit Turnaround

Component #1, Vacancy Rate
    Comment: Many comments agreed with the changes proposed for the 
indicator and commended the Department for making the indicator a more 
representative measure of vacancies. Six comments commended the 
Department for allowing an adjusted vacancy rate to be used for grades 
above a C. Seven comments stated that this is a much better way to 
compare vacancy indicator grades and scores since all PHAs will be 
compared on the same basis. Several comments indicated that this is a 
more accurate measure of good management and concurred with the 
proposed rule combining these two indicators whereas currently they are 
separate. One comment stated that the changes made to indicator #1 are 
much more equitable than the current indicator requirements and two 
other comments indicated agreement with adjusting the vacancies by the 
conditions listed in the rule and with the grading scale for the 
vacancy rates. Three comments expressed strong support for the change 
indicating that it will allow HUD to more accurately judge a PHA's 
vacancy rate.
    Response: The Department agrees that, since the adjusted vacancy 
rate is derived from valid exemptions, PHAs should be able to achieve 
grades above a C level based on an adjusted vacancy rate. The 
Department feels that the new component #1 will provide a more 
representative picture of PHA vacancies than the current indicator. The 
Department also agrees with the assumption that if a PHA scores C or 
above in the vacancy component it should not have a problem with 
turning around vacant units, and that combining current indicators #1 
and #5 into the new indicator #1 is a correct decision.
    Comment: Four comments stated that the new vacancy indicator is 
really a measure of the number of vacancies weighted equally to the 
turnover rate. The comments indicated that the new weighting of 
turnover will penalize PHAs that have successful programs for families 
that move out of public housing. Two comments stated that the proposed 
rule rewards process over product and activity over results, and that 
the proposal is far more process-oriented and less results-oriented 
than the present system for counting vacancies. The proposed rule 
states that vacancy rates should have greater significance than unit 
turnaround but proposes a scoring system that requires greater reliance 
on unit turnaround and unit turnover than on the number of units vacant 
at the end of each month. Eight comments indicated that a 12 month 
average of the number of units that are vacant at the end of each month 
should be used. This is normally what is expected in any rental market 
and the proposed method is too complicated and requires too much staff 
time to calculate. Another comment stated that the proposed method 
places as much emphasis on turnaround time as on actual vacancies and 
suggested using a twelve month average of the number of vacant units on 
the 10th day of each month to avoid the problem.
    Three comments indicated that the new vacancy indicator would not 
reward actual occupancy. Instead of measuring the number of units 
vacant at the end of each month, it measures the number of units leased 
each month and the amount of time required to lease the

[[Page 68899]]

units to arrive at a vacancy rate which converts to an occupancy rate. 
The current method is an honest way to define occupancy levels. 
Computing the vacancy rate by calculating the ratio of unit vacancy 
days to unit days available places greater reliance on unit turnaround. 
It requires PHAs to calculate the vacancy days for all units leased in 
a given month plus the vacancy days for all units remaining vacant at 
the end of the month, divided by the total unit days available for 
occupancy that month.
    Six comments stated that this method calculates vacancy days, which 
is a function of turnover, rather than the actual number of vacant 
units. For example, if two PHAs have the same number of units and 
turnaround time, but one has higher turnover, the latter will 
automatically have more vacant days than the former. The vacancy rate 
should be the average vacancy rate over the past twelve months. Three 
comments indicated that the current indicator allows PHAs to answer the 
question, ``What is your vacancy rate?'' The answer is, ``Our vacancy 
rate is the number of units vacant at the end of the month compared 
with the number of units available for occupancy.'' Two comments stated 
that if a PHA has a high turnover rate because it is moving residents 
out for private lease-up or home ownership, this too, should be an 
allowable adjustment to the vacancy rate because PHAs with high move-
out rates are adversely affected even though they may have no control 
over the reasons for the high move-out. Two comments suggested that the 
snapshot picture be retained.
    Three comments indicated that the proposed rule penalizes high 
turnover rates and provided the following examples: PHA with a high 
turnover rate but the same unit turnaround time would get a higher 
vacancy rate than a PHA with lower turnover rate (same unit turnaround 
time): PHA ``Y'' with 100 units, and 20 units vacated and filled during 
the year (10 days average turnaround) would have a .55% vacancy rate; 
and PHA ``Z'' with 100 units, and 40 units vacated and filled during 
the year (10 days average turnaround) would have a 1.10% vacancy rate. 
A PHA with a high turnover rate and a lower unit turnaround time could 
get a higher vacancy rate than a PHA with lower turnover rate and a 
higher unit turnaround time: PHA ``A'' with 100 units, and 60 units 
vacated and filled during the year (20 days average turnaround) would 
have a 3.2% vacancy rate and a B grade. PHA ``B'' with 100 units, and 
only 30 units vacated and filled during the year (35 days average 
turnaround) would have a 2.8% vacancy rate and an A grade, even though 
it averaged a higher (35 vs. 20) vacancy turnaround rate. There is no 
basis for rewarding or penalizing a housing authority based on a higher 
or lower percentage of residents moving out during a year. Turnover 
rates depend on a variety of factors, many beyond the PHA's control. 
Some factors are: availability of alternative affordable housing; self-
sufficiency programs; resident demographics; eligibility screening and 
lease enforcement; and HUD required transfers.
    Response: The Department agrees that by using a methodology that 
takes into account circumstances and actions that impact on the 
occupancy/vacancy status of a unit over the entire course of the PHA's 
fiscal year, PHAs with high turnover rates will have more vacancy days 
than comparable PHAs with low turnover rates, assuming that the 
turnaround time is the same. The Department disagrees, however, with 
the conclusion that this makes the proposed methodology less useful 
than one based on taking a snapshot, either on a one-time basis, as is 
currently the case, or on a monthly basis over a year's time as 
suggested in some comments. The ``snapshot'' approach may be easier to 
implement but it grades the PHA performance based on a single-day 
measurement that may or may not be representative of the PHA 
performance in this area over the entire period of time being assessed. 
If an average based on 12 snapshots is better than one snapshot, then 
an average based on 365 snapshots will present the most accurate 
picture.
    It is incorrect to state that the measure of vacancies and the 
measure of turnaround time have been given equal weight in the 
development of this indicator. The new rule combines the vacancy 
indicator and the turnaround indicator of the current Sec. 901 into one 
single indicator that has two components. The first component (with a 
weight of x2) measures the vacancy rate and, if applicable, the 
progress a PHA has made in reducing the vacancy rate. The second 
component (with a weight of x1) measures turnaround time. Because the 
vacancy rate is a clear manifestation of management effort and reflects 
the essence of a PHA's mission, it has been weighted more heavily than 
the unit turnaround component. In addition, the proposed rule would use 
the second component only when a PHA scores below a C on the first 
component.
    The proposed methodology provides ample opportunities for a PHA to 
adjust its vacancy days for turnover of units due to reasons such as 
modernization or that are due to circumstances and actions beyond the 
control of the PHA, such as court-ordered or HUD-approved desegregation 
efforts. A PHA also has the option of requesting a modification to the 
calculation of this component that would take into account any other 
special factor, such as self-sufficiency activities or security 
measures implemented by the PHA, that may contribute to a higher than 
normal turnover of units. The indicator should not be a deterrent or 
penalty to PHAs that have successful programs that encourage residents 
to move out of public housing to private market housing opportunities. 
Success builds upon success and a PHA that is able to work with 
residents and prepare them for home ownership or private market rental 
units should not have difficulties in attracting applicants for units 
that have been vacated.
    The Department believes the proposed method of calculating this 
component to be the most accurate measure of a PHA's performance in 
this area. Also, contrary to some comments, the proposed method of 
calculation is the method commonly in use in the real estate industry.
    Comment: One comment stated that the proposed rule requires more 
calculations than the current method and also requires tracking each 
unit for potential adjustments. This will be difficult for many PHAs 
and for HUD field staff to verify. The current occupancy rate 
calculation method is preferred. Three comments indicated that the 
indicator will take hours more in record keeping. HUD reduces PFS and 
modernization monies, but expects more and more in reports and record 
keeping. The proposed method is cumbersome, inconsistent with other HUD 
definitions for determining vacancy, and increases the difficulty level 
for calculating vacancy rates.
    Two comments stated that the new method of calculating the vacancy 
rate is far more process-intensive than the previous methods. PHAs 
should be given the opportunity to take a simple average based upon 
end-of-month vacancies rather than using the far more complex 
calculation offered in the proposed rule. Two comments stated that it 
is poor management practice to calculate vacancy/occupancy percentages 
one way for the PFS and another way for a management assessment system. 
Two comments agreed with the expansion and clarification of the units 
that can be exempted from the adjusted vacancy rate and indicated that 
the nine

[[Page 68900]]

exemptions should remain consistent with reporting under the PFS.
    One comment indicated concern with the need to maintain data on the 
cause of each vacancy, as in the examples presented in the preamble. 
For large PHAs the data collection and maintenance becomes very 
difficult. Maintenance of this data is doable, but HUD needs to 
recognize the impact on PHA data systems if the various categories for 
adjustment are revised from time to time.
    Three other comments stated that this level of evaluating vacancies 
would be burdensome for large PHAs. To track the actual vacancy rate 
and have the ability to also accurately calculate an adjusted vacancy 
rate would require significant alterations to the mainframe computer 
system programs as well as to standard operating procedures, and large 
PHAs need ample time to implement these changes. One comment stated 
that the new component requires that PHAs analyze each vacant unit and 
in the absence of readily available industry software, this process 
could prove burdensome for large PHAs. Another comment stated that if 
HUD retains the methodology of the proposed rule it should provide PHAs 
with software that do the bulk of the calculation for them.
    Response: The Department does not believe that the information 
collection requirements for this indicator represent an undue burden on 
PHAs. Most of the data elements required to determine the grade or 
score for the two components that comprise this indicator are already 
being maintained by PHAs and used in calculating operating subsidy 
eligibility under the PFS or used for reporting requirements of other 
programs. In fact, if PHAs have been maintaining turnaround time data 
accurately under the previous interim rule, no new data collection will 
be required, just a change in computation.
    The Department understands that a well-run PHA should have a system 
in place for monitoring occupied units and vacant units and the 
duration of vacancies. Beyond simply being good business practice, PHAs 
must monitor turnaround time, both to evaluate the effectiveness of 
their maintenance and marketing and leasing efforts, and to develop 
information for the current PHMAP indicator on vacant unit turnaround 
time. This should pose no more onerous burden on large PHAs than on 
smaller institutions, and in fact, would probably be even more 
important to a large PHA, where remote monitoring of large-scale 
activities is the norm.
    In response to the suggestion that HUD should provide software for 
this purpose, HUD has no plans to develop additional software at this 
time. In addition, as a matter of policy, HUD cannot be in a position 
of competing with private-sector software developers.
    To a significant extent, the Department has also used definitions 
and methodologies in this section that are the same as those used in 
other programs. An example of this consistency is that the adjustment 
for units vacant for circumstances and actions beyond the PHA's control 
as defined in Sec. 901.1(a)(9) is the same for both PHMAP and PFS. The 
Department will issue guidance to PHAs on how to use existing sources 
of data to calculate each component of this indicator.
    Comment: Three comments stated that if HUD wants PHAs to calculate 
vacancy loss, then HUD should adjust the turnaround indicator to 
reflect that goal, rather than throwing out the existing common sense 
method of calculating vacancies. Three other comments indicated that 
HUD's justification for the new vacancy indicator is the need to 
calculate vacancy loss like the private sector does. The private sector 
can estimate dollar value of vacancy loss, but PHAs cannot because PHAs 
do not realize rental income until the unit is rented. The private 
sector can ``go down their waiting list'' or advertise in the paper to 
pick the tenant who can move in the day the unit is ready and PHAs 
can't do that. The information can be useful, but the private sector 
uses it to determine budgets, not to determine vacancy rate.
    Response: The Department disagrees with these comments. Neither the 
current vacancy indicator nor the new vacancy indicator were developed 
to be a measure of rental revenue lost because of units becoming 
vacant. The vacancy indicator is not a measure of financial 
performance, but a measure of the ability of the PHA to maximize 
occupancy and minimize turnaround time within certain constraints 
recognized by the Department.
    Comment: Several comments addressed the changes in the grading 
scale. One comment indicated that a vacancy rate of 3% for a grade C is 
too stringent. Another expressed support for the change from 1% to 3% 
vacancy rate in order to achieve an A grade, indicating that it makes 
sense with the national average vacancy rate of 7%. Two comments stated 
that the current 99% vacancy rate for an A is valid. Another comment 
expressed concern with the change indicating that a vacancy rate of 7% 
would yield a C grade and still exclude the unit turnaround component 
from consideration. One comment stated that it is not clear if the 3% 
vacancy threshold for not having to report unit turnaround was retained 
or not. Another comment stated its support for the provision that 
permits PHAs to choose between adjusted and actual vacancy rate 
calculation, but suggested that HUD retain the previous interim rule's 
alternative grade C for a reduction in vacancies of at least 30%.
    One comment expressed support for the option that allows a PHA to 
achieve a C grade if it reduced its actual vacancy rate by at least 15 
percentage points within the past three years and has an adjusted 
vacancy rate of between four and five percent. It also indicated 
support for somewhat lower grades for PHAs making slower progress. 
Another comment stated that a PHA can improve by at least 15% and still 
receive a lower grade by not matching the adjusted vacancy rate 
requirement.
    Response: The Department agrees that a vacancy rate of 3% for a 
grade C is too stringent and changed that in the proposed rule. The 
Department believes that the new grading scale is reasonable and takes 
into account the national average vacancy rate and also takes into 
account the new method of calculating the vacancy rate, which is more 
representative of the true performance of PHAs in this area over the 
period of time being assessed.
    The Department is also proposing a different threshold for not 
having to report unit turnaround. The second component, vacant unit 
turnaround time, will only apply to PHAs that score below a C grade on 
the first component. PHAs can achieve a C grade by meeting one of the 
following conditions: the PHA has an actual vacancy rate of greater 
than 5% and less than or equal to 7%; or an adjusted vacancy rate of 
greater than 3% and less than or equal to 4%; or the PHA reduced its 
actual vacancy rate by at least 15 percentage points within the past 
three years and has an adjusted vacancy rate of greater than 4% and 
less than or equal to 5%.
    Regarding the threshold for progress in reducing the vacancy rate 
that applies to a C grade, the Department changed it from 30% to 15 
percentage points. The Department agrees that it is important to 
recognize and reward significant progress. It also understands that the 
grade relief should not defeat the balance of the grading scale. The 
grading scale already provides for a somewhat lower grade (a D) for 
PHAs with adjusted vacancy rates between four and five percent that do 
not achieve the 15 percentage points decrease in the actual vacancy 
rate.
    Comment: One comment requested that the term ``Reduced Actual 
Vacancy

[[Page 68901]]

Rate in Previous 3 Years'' be clarified in order to indicate if the 
fiscal year being assessed under PHMAP is the third year of that 3-year 
period or if the 3-year period is prior to the PHMAP year being 
assessed.
    Response: The Department agrees with the comment and the new rule 
has been changed to state that the fiscal year being assessed is the 
third year of that three year period. An example will be provided in 
the revision to the PHMAP Handbook 7460.5.
    Comment: One comment stated that the idea of measuring a PHA's 
performance over the previous three years seems to be unfair and 
generate inaccurate statistics because of diverse variables that would 
not remain constant over the years and suggested that each year be 
measured against its previous year. Another comment indicated that the 
PHA does not currently have a three-year history of the daily vacancy 
rate so it must have time to collect this data. It proposed to use the 
average rate on the last day of each month until it can get the actual 
daily and adjusted rates. One other comment indicated that it would be 
extremely difficult to track vacancy days and unit days available for 
the previous three years and requested that a more accurate and 
equitable method of calculation be sought so that comparison statistics 
can remain accurate and consistent.
    Response: The Department agrees that due to the change in the 
method of computation, vacancy rates generated under the two systems 
cannot be compared unless an adjustment is made to the statistics for 
the previous two years. Only those PHAs interested in using this 
grading option (progress in reducing the vacancy rate during the 
previous three-year period) will have to recompute the vacancy rate for 
the two years prior to the year being assessed, using the new 
methodology. Most of the data needed for this will come from the 
records developed by the PHA to comply with the PHMAP reporting 
requirements for the current unit turnaround indicator.
    Comment: One comment suggested that the five grades be condensed 
into a ``satisfactory'' rating (2% adjusted vacancy rate or below); 
``adequate'' rating (2-4%); and ``unsatisfactory'' rating (over 4%); 
the five grades could be used as a mechanism for setting goals for 
troubled PHAs but need not be required for all PHAs.
    Response: The Department has some sympathy for the suggestion that 
the number of evaluation levels be reduced and simplified, but we do 
not believe it appropriate to address that simplification issue at this 
time. The biggest reason for maintaining the larger number of 
evaluation categories is that beyond the pass/fail differentiation, the 
Department expects to be able to use PHMAP scores, and to some extent, 
individual indicators, to identify PHAs where performance is clearly 
superior and worthy of emulation, and at the other extreme, cases where 
performance indicates a need for the Department's intervention in PHA 
operations. Five or six ``grades'' may or may not be the perfect model 
for this kind of evaluation, but the existing structure appears to be 
working to date, and in the absence of demonstrable benefits of 
alternate approaches, HUD does not see a need to revisit this issue at 
this time.
    Comment: One comment stated that it appears to be impossible for 
PHAs to obtain a grade of D or F if the adjusted vacancy rate is 
greater than 6%. This is not a true grading system and makes it 
impossible for PHAs with a high vacancy rate to realize any points for 
improvement. It would be unfair to compare a PHA with an older housing 
stock to a PHA which may have newer stock or modernized units.
    Response: The comment is partially correct that under the proposed 
rule an adjusted vacancy rate greater than 6% will result in a PHA 
receiving a grade of F. If a PHA has an adjusted vacancy rate greater 
than 6% and less than or equal to 7%, and has reduced its actual 
vacancy rate by at least 5 percentage points during the past three 
years, then the PHA would get an E instead of an F. The grading system 
is not unfair to high vacancy PHAs because it does allow for 
adjustments in recognition that some types of vacancies are beyond the 
control of the PHA.
    Comment: One comment stated that the actual vacancy rate does not 
exempt units occupied by employees, units used for resident services 
and units undergoing modernization. PHAs are penalized by an increase 
in the actual vacancy rate when these units are not exempted from the 
actual vacancy rate. This creates the potential for PHAs to eliminate 
needed resident services by eliminating space for these services in an 
effort to decrease the vacancy rate. Most PHAs will be prevented from 
ever using the actual vacancy rate if these units are not exempted.
    Response: The Department disagrees with the comment. The rule has 
been clarified to indicate that units approved for non-dwelling use, 
employee occupied units and vacant units approved for deprogramming 
will be completely excluded from the computation of this indicator. 
Regarding the units undergoing modernization, PHAs are not penalized 
because these units can also be excluded under the adjusted vacancy 
rate computation. The grading scale for the vacancy indicator allows 
PHAs to get all possible grades, including an A, under the adjusted 
vacancy rate option. There is no real incentive for PHAs to cut back on 
resident services by eliminating space for these services in an effort 
to decrease the vacancy rate.
    Comment: One comment stated that the increase in difficulty for 
calculating the vacancy rate will increase the cost of a PHA's annual 
audit.
    Response: The Department believes that the increase in scope of 
work would not represent a substantial increase in the cost of the 
audit and that the additional expense, if any, will represent a good 
investment for the PHA. Since the Department reimburses a PHA for its 
audit costs, it will reimburse a PHA for any additional audit costs 
resulting from changes to any of the indicators.
    Comment: One comment stated that the proposed calculation counts 
vacant units both during the month and at the end of the month, 
regardless of reoccupancy during the 30 days.
    Response: The Department disagrees. The proposed calculation adds 
the number of vacant units each day of the year (adjusting for valid 
exemptions) and divides by the number of unit/days available.
    Comment: Three comments proposed that PHAs should be able to choose 
either the current method or the new method for computing vacancy 
rates. One of the comments stated that there are currently two methods 
for calculating the vacancy rate and it seems a bit arbitrary to 
abolish this flexibility that PHAs utilize to reduce their paperwork 
requirements. Form HUD-51234 already is a requirement that must be 
submitted by PHAs and to require a duplication of effort for PHMAP 
purposes is contrary to good management practices. The comments 
recommend the use of form HUD-51234 or the new calculation methodology 
at the discretion of the PHA. This would enable PHAs to retain 
flexibility in the manner in which they choose to determine the vacancy 
rate without imposing any additional paperwork burden unless the PHAs 
elect to do so.
    Response: While the Department favors maximum local flexibility, it 
is impractical to allow PHAs to be able to pick and choose among 
different methodologies for developing the data for this most important 
indicator. Allowing that would make it impossible to compare the 
vacancy rates for different PHAs (and even for the same

[[Page 68902]]

PHA over a period of time). The Department believes very strongly that 
all program participants need to be evaluated under the same basic 
procedures, especially the same definitions. To do otherwise is to 
invite complaints that the process compares apples with oranges; the 
process can't afford to permit the PHAs to elect whether to present 
``apples or oranges'' for evaluation.
    Comment: One comment stated that the Department should give 
consideration to reducing the vacancy standards for a period of time 
due to the One Strike policy. Improved screening standards will 
increase the amount of time to process an application. If the 
Department is seriously concerned about quality of life in PHAs, give 
the occupancy people time to do their jobs efficiently.
    Response: The Department agrees that the implementation of the 
``One Strike and You're Out'' policy and stricter security measures may 
temporarily increase vacancy and turnover rates at some PHAs. Adequate 
planning in the implementation of the security measures should help 
PHAs reduce these temporary problems. After the initial stages, these 
programs will have a positive impact on the vacancy and turnover rates 
of PHAs due to the increased security and stability of their public 
housing communities. Because these situations will greatly vary from 
PHA to PHA, it would not be proper to make any changes, even temporary 
ones, to the grading standards of the vacancy indicator. Instead, PHAs 
that believe that the implementation of stricter security measures 
related to the ``One Strike and You're Out'' policy negatively impacted 
their vacancy rate may submit a modification request along with their 
PHMAP certification.
    Comment: One comment stated that because of the low weight (x1) of 
the turnaround component relative to the vacancy rate component, the 
turnaround component is almost unnecessary since it can't change the 
grade of the indicator in a significant way.
    Response: The Department disagrees with the comment. Although the 
component would not have a big impact in determining the final grade of 
the indicator, this is in accordance with the position of the 
Department regarding the interrelation and relative weight of the two 
components. Because the vacancy rate is a clear manifestation of 
management effort and reflects the essence of a PHA's mission, it has 
been weighted more heavily than the vacant unit turnaround component. 
In addition, the new rule uses the second component only when a PHA 
scores below a C on the first component. The Department believes that 
if vacancies are at a C level or above, the PHA does not have a problem 
with turning around vacant units. It should be noted that the component 
would have at least a minor impact in the final grade of the indicator 
(may increase or decrease one grade level) and may add up to 6.66 
points to the total PHMAP score.
    Comment: One comment stated that the proposed rule requirement for 
vacant units undergoing modernization is inconsistent with scheduling 
adjustments that HUD permitted in the past in recognition of the 
realities that some PHAs face in soliciting bids from contractors for 
modernization funded work. The proposed time requirement would punish a 
PHA with few vacancies that may need to ``stockpile'' vacancies to 
accumulate sufficient volume of work to obtain competitive bids from 
contractors. It is recommended that all vacancies covered by a funded, 
on-schedule modernization program be excluded from the vacancy rate 
calculation.
    Response: The Department disagrees because the small purchase 
procedure is a viable option for PHAs with few vacancies to accomplish 
modernization costing less than $100,000 (or a lesser amount as 
specified by State law). Under this method, PHAs solicit quotes from an 
adequate number (normally, no less than three) of sources and can award 
the contract to the offeror with the lowest quote. This method is 
significantly less time consuming than the normal sealed bid procedure 
where formal advertising is involved. It is also noted that contractors 
can be procured for utilization on an as-needed basis, allowing them to 
begin work immediately.
    Comment: One comment stated that the proposed definition of and 
calculations concerning a vacant unit undergoing modernization seems to 
be counterproductive; a more equitable way of calculating vacant days 
would be to count only those vacant days between the completion of the 
modernization work and the day of tenant move-in or reoccupancy.
    Response: The Department disagrees with the comment regarding the 
adjustment for vacant units undergoing modernization. The adjustments 
provided in the proposed rule are either activities that the Department 
wishes to support, such as modernization, or represent circumstances or 
actions that the Department considers to be beyond the PHA's control. 
In such cases where these definitions apply to vacant units before the 
units are included in a HUD-approved modernization budget, the units 
may be exempted for those other reasons. If the units were vacant prior 
to being included in the HUD-approved modernization budget for other 
than the exempted reasons in the rule, the vacancy days accumulated 
prior to the unit being included in the HUD-approved modernization 
budget must be included in the vacancy rate calculation as non-exempted 
vacancy days.
    Comment: One comment stated that not excluding the vacancy days 
that accumulated prior to a unit being included in the HUD-approved 
modernization budget from the calculation of this indicator could 
result in substantial dollars wasted to make vacant units temporarily 
habitable until such time that a modernization plan has been approved 
by HUD. Dollars invested in temporary major rehabilitation of units 
located in buildings subsequently placed under modernization are lost 
because major replacements cannot be salvaged during/after 
modernization. In order to not provide PHAs with an unintentional PHMAP 
performance measure incentive to waste limited HUD dollars, vacancy 
days for units in a building included in a modernization budget which 
was approved by HUD during the PHMAP assessment year should be exempt 
regardless of whether or not some units in the building were vacant 
prior to HUD's approval of the plan.
    Another comment recommended excluding from the vacancy calculation 
units that a PHA has scheduled to modernize but not yet included in the 
modernization budget, as well as vacant units that have been modernized 
and are scheduled to be reoccupied. These vacant units should be 
excluded because the vacancies are part of the normal modernization 
process and are not the result of poor performance. For example, this 
PHA has completed modernization of hundreds of apartments for people 
with mobility impairments, but HUD has not permitted us to rent 
accessible apartments to non-disabled families. These vacancy days 
should not be included in the vacancy rate calculation.
    Response: The Department disagrees with the comments. The issue of 
whether to expand the preferential treatment for units undergoing 
modernization to include units scheduled for modernization but not yet 
under a modernization budget (for example, units scheduled for 
modernization in the second year of the CGP Five Year Plan) was 
discussed as part of the Vacancy Rule negotiated rulemaking proceedings 
but not adopted. The Department was part of

[[Page 68903]]

the consensus that developed the definition of vacant unit undergoing 
modernization and believes it to be appropriate. For the same reason, 
the Department does not believe that an adjustment should be given for 
the time between completion of modernization work and reoccupancy. Once 
a unit has been modernized, there is no reason to allow an adjustment 
for the time needed to lease the unit. Marketing and leasing of units 
is a normal function of a PHA.
    The Department also disagrees with the second part of the comment. 
HUD does not control whether or not a PHA can admit non-disabled 
applicants to a unit designed for the disabled. If a PHA cannot lease 
units with accessible facilities to the persons with disabilities, they 
are free to lease those units to non-disabled applicants (see Handbook 
7465.1 REV-2, paragraph 5-2c). The cited handbook urges that a PHA 
facing such a circumstance `` * * * include a provision in the lease 
requiring the family to move if someone needing that size specially 
designed unit applies and there is an appropriate unit available for 
the family originally admitted.''
    Comment: One comment indicated that the PHA has a large number of 
competing subsidized units, and certain bedroom sizes and certain 
handicapped units are very difficult to rent to residents that are 
actually eligible for them. Another comment stated that the indicator 
does not accurately reflect the capabilities of a PHA to manage its 
units; such factors as market conditions greatly impact a PHA's score 
in this area. One other comment indicated that the rule does not 
provide enough information on what may be acceptable under changing 
market conditions and it does not define what constitutes ``aggressive 
marketing and outreach measures'' or provide standards by which such 
goals should be reached or judged.
    Response: The Department feels that the new rule adequately 
addresses the issue of marketing difficulties at Sec. 901.5 and 
Sec. 901.10(b)(2)(iii). An adjustment may be made to a PHA's vacancy 
days because of market conditions. In order to justify the adjustment, 
the PHA will need to document the specific market conditions that exist 
and document marketing and outreach efforts. The PHA will need to 
describe when the downturn in market conditions occurred, the 
location(s) of the unit(s) effected, the likelihood that these 
circumstances will be mitigated or eliminated in the near term and why 
the market conditions are such that they are preventing the PHA from 
occupying, selling, demolishing, rehabilitating, reconstructing, 
consolidating, or modernizing the vacant units. The Department has 
provided examples of what constitutes changing market conditions in 24 
CFR Sec. 990.102 and will issue further guidance to PHAs on this 
circumstance in the revision of the PHMAP Handbook 7460.5.
    Comment: One comment stated that the grading system for this 
indicator penalizes PHAs that are actively modernizing their housing 
stock. To require lower vacancy rates for PHAs actively improving their 
housing stock through modernization than for PHAs not undertaking the 
improvements is egregious at best. The scoring of actual and adjusted 
vacancies appears to be unnecessary since the adjusted vacancy rate 
only occurs for authorized reasons as defined by HUD. To allow for 
adjustments to be made and then apply a different scoring criteria is 
illogical and inconsistent.
    Response: The Department disagrees with the comment. The proposed 
methodology provides ample opportunities for a PHA to adjust its 
vacancy days for turnover of units due to reasons that are accepted and 
supported by the Department such as modernization or are due to 
circumstances and actions beyond the control of the PHA, such as court-
ordered or HUD-approved desegregation efforts. A PHA also has the 
option of requesting a modification to the calculation of this 
component that would take into account some other factor that is 
causing frequent turnover of units at the PHA. The Department believes 
the proposed method of calculating this component to be the most 
accurate measure of a PHA's performance in this area.
Exemptions
    Comment: One comment stated that adjusted vacancies help a poorly 
performing PHA score better under the proposed rule, but generally will 
do nothing to assist high-performing PHAs because it is doing the 
things necessary to prevent these types of vacancies. A high-performing 
PHA with just normal vacancies is hurt by the proposed rule. Another 
comment stated that the proposed scoring range is looser and, 
therefore, objectionable and there are more exemptions. Vacancies have 
decreased since the advent of PHMAP, just because HUD is grading PHAs 
and they are concentrating on keeping vacancies low. HUD should not 
reduce its standards simply to satisfy PHAs who aren't getting the job 
done. There should be no changes to the current grading standards. HUD 
is going in the wrong direction by making PHMAP high-performance status 
so easy to attain as it compromises the credibility of the evaluation 
process.
    Another comment stated that if a PHA chooses an adjusted vacancy 
rate, it has the potential to exempt vacancy days in nine different 
categories, some of which are very broad. Under this scenario, it is 
conceivable that some PHAs will assume responsibility for few vacancy 
days. One other comment stated that most exemptions are easy to 
determine or validate except for units uninhabitable ``for reasons 
beyond the PHA's control.'' Two other comments indicated that ``reasons 
beyond the PHA's control'' is vague and may indirectly be within the 
control of the PHA. Because such an adjustment should be the exception 
rather than the rule, it should be eliminated. Such units fall into a 
murky area that some poorly run agencies may be tempted to exploit. It 
may be difficult to demonstrate that the conditions leading to 
condemnation by the health department were either within or outside of 
a PHA's control.
    Response: The Department believes that the adjustments are not a 
function of whether a PHA is a high or poor performer, but a 
recognition that there are some circumstances and actions that impact 
on vacancies that are beyond the control of the PHA, such as a natural 
disaster, or that should be supported, such as modernization. The 
Department understands that there are often good reasons for unit 
vacancies, and that a blanket appraisal of unit vacancies as a bad 
condition glosses over some very real and explicable conditions that 
affect management of low-income properties in the real world.
    The Department believes that it has defined the categories of 
vacancies completely enough that most of a PHA's vacancies can be 
clearly identified, and that a PHA has a fair opportunity to explain 
its situation. Where some number of unit vacancies cannot be adequately 
explained in terms of the acceptable or allowable categories, the PHA 
will be held strictly accountable, but where the unit vacancies are 
within the parameters established by HUD, under the negotiated 
rulemaking for the PFS vacancy rule, for example, the Department does 
not believe it fair or reasonable that the PHA should be penalized. The 
Department agrees that the exemption categories, as presented in the 
proposed rule, need some clarification and the new rule reflects that. 
The category mentioned by some of the comments is duplicated in the 
proposed rule and that duplication will be eliminated in the new rule. 
The exemptions will remain consistent with the nine exemption 
categories used under PFS.

[[Page 68904]]

    Comment: Two comments stated that the language for exemption of 
units vacant for circumstances and actions beyond the PHA's control 
(Sec. 901.10(9)(v)) provides that insufficient funding for otherwise 
approvable applications made for CIAP funds (only PHAs with less than 
250 units are eligible to apply and compete for CIAP funds) are 
exempted from the calculation of this component. It further provides 
that this definition will cease to be used if CIAP is replaced by a 
formula grant. The comments stated that this subsection should apply to 
CGP, particularly now with the budget reductions. Also, one of the 
comments stated that vacant units covered in proposed unit demolition 
and disposition applications should be excluded, even if the 
applications have yet to be acted upon by HUD.
    Response: The Department disagrees and has retained this language 
in the new rule. The provisions referred to in the comments were taken 
directly from the new Vacancy Rule published in the Federal Register on 
February 28, 1996 (61 FR 7586). The rule incorporated recommendations 
of a regulatory negotiation advisory committee. The committee did 
discuss the issue of providing relief to PHAs (and RMCs) because of 
insufficient funding for the CIAP and CGP programs. The relief was 
limited, however, to insufficient funding for an otherwise approvable 
CIAP application (or failure of a PHA to fund an otherwise approvable 
RMC request for CGP funds from its PHA). The CIAP is a competitive 
program with insufficient funding to cover the needs of all approvable 
funding applications. When the funding program is competitive, a PHA 
either gets the funding applied for, or it doesn't. However, since the 
CGP is a formula grant program, with guaranteed yearly funding, a CGP 
PHA is better able to plan modernization activities in advance and make 
crucial repairs as necessary.
    The Department does not agree with the suggestion that a PHA be 
able to assume HUD approval of a pending application for demolition or 
disposition, if the application has not been acted upon at the end of 
the fiscal year being assessed. There are significant differences 
between initiating the application process and receiving approval to 
dispose or demolish.
    Comment: Six comments indicated that vacancy days for units that 
suffer casualty damage, especially by fire, should not be counted until 
the unit is turned back over to the PHA after the contractor completes 
the repairs, if applicable, instead of at the time of insurance claim 
settlement. It is more logical to include casualty-damaged units in the 
same exemption status as units undergoing modernization or units 
documented to be uninhabitable for reasons beyond the PHA's control. 
The exempted vacancy days for units that suffer casualty damage should 
change to read, ``vacant units that have sustained casualty damage 
until the unit is ready to be leased or 90 days, whichever is 
earlier.''
    Response: The Department disagrees with the comment. The indicator 
retained the current provision that already allows a PHA to make an 
adjustment for the period of time during which the claim is being 
adjusted. Since the fire damage to the unit may be minimal or severe, 
it would not be appropriate for the Department to allow an automatic 
additional period of time of up to 90 days to repair the unit. PHAs may 
request a modification to the calculation if they believe they have a 
situation (severe damage) that warrants a special adjustment.
    Comment: One comment recommended substituting the word ``permits'' 
for ``requires'' in Sec. 901.10(a)(4) which exempts vacant units in 
which resident property has been abandoned, but only if State law 
requires the property to be left in the unit. The comment added that 
when a resident abandons a unit, leaving their personal property 
therein, many small PHAs have no other appropriate space to store such 
property during the period of time specified by State law before they 
can legally dispose of the abandoned property.
    Response: The Department does not concur in the recommendation. The 
point of this provision is to limit the period of time when a vacant 
unit would be exempted from the vacancy count to the period of time 
that is beyond the PHA's control. The proposed change would expand the 
provision to cases in which State law ``permits'' a unit to remain 
encumbered by abandoned possessions. HUD believes that the existing 
language--``requires''--is more specific and more limiting, and is more 
consistent with the intent of this regulation and similar recent 
regulatory efforts to reduce unit vacancies.
    The Department recognizes that some small PHAs might be 
inconvenienced by having to store abandoned effects for some period of 
time before disposition, but we are not convinced that such 
inconvenience is sufficient to justify holding a residential unit off-
line. In most cases, laws on abandonment require that the landlord 
secure abandoned property, not necessarily that they leave such 
property in place in anticipation of the abandoning family's possible 
return. If storage space is at a premium, PHAs have the option of 
renting a storage locker and either deducting the cost of the rental 
from the proceeds of the sale of the goods, if any, or collecting that 
cost from the resident, should he/she re-appear.
    Comment: One comment stated that the total available units should 
not include units that are being modernized as a result of Federally 
mandated work projects (such as a lead-based paint abatement project) 
that require that the residents be relocated while the work is being 
performed. All vacant units as a result of Federally mandated work that 
requires resident relocation should be considered not available for the 
period of time that the unit is vacant as a result of the required 
work, including the use of the unit to relocate residents during the 
course of the work. Another comment stated that the exemptions should 
include a category for units held to house residents relocated due to 
comprehensive modernization. When a large development undergoes 
comprehensive modernization, it is difficult to quickly find units to 
transfer all residents; a reasonable time limit should be included in 
the exemption.
    Response: The Department partially agrees with the comment. The 
proposed methodology for calculating the vacancy rate component already 
permits a PHA to make an adjustment to its vacancy days for units 
undergoing modernization. A PHA also has the option of requesting a 
modification to the calculation of this component that would take into 
account any other special factors or special circumstances that are out 
of the control of the PHA. The Department does not agree with the 
suggestion that PHAs be allowed to adjust their vacancy days for units 
that are not undergoing modernization but are being held vacant for 
relocation purposes.
    Comment: One comment stated that the exemption of units that are 
uninhabitable is valuable because it allows troubled PHAs to work on 
renovating units and getting them back into the occupied inventory 
without being penalized in the vacancy rate calculations.
    Response: The Department agrees that this exemption category is 
valuable, but it should be noted that the category restricts the 
exempted units to those uninhabitable for reasons beyond the PHA's 
control. The rule further defines these reasons.
    Comment: One comment suggested that the rule should be expanded to

[[Page 68905]]

specifically exempt vacant days due to transfer of residents resulting 
from overhoused/underhoused conditions and when for security reasons, a 
resident must be relocated under a witness protection program.
    Response: The Department does not agree with the comment that the 
new rule include adjustments for vacancy days associated with 
relocation of residents because of over/underhoused circumstances. This 
is a situation that should be dealt with by the PHA as part of its 
normal operations. Adequate planning on the part of the PHA can greatly 
reduce the amount of time that the units involved in the transfer 
remain vacant. Vacancies arising as a result of relocation of residents 
for security reasons may be dealt with under the modification 
procedures.
    Comment: One comment indicated that the rule should clarify whether 
the PHA can exclude units used for non-dwelling purposes, for resident 
services, or that are occupied by PHA employees even if HUD has not 
specifically approved their conversion for non-dwelling purposes.
    Response: The Department believes that the relevant rules are 
sufficiently clear. PHAs may not use dwelling units for non-dwelling 
purposes without explicit authorization for the conversion, and there 
should be no expectation that HUD would permit exemption of vacant 
units used for unauthorized purposes.
    Comment: One comment indicated that it appears that 
Sec. 901.10(a)(3) requires that to be exempted under this item, units 
have to comply with the two conditions at the same time. The comment 
added that the exemption should apply if either one of the conditions: 
high/unsafe levels of toxic materials or structurally unsound, is 
present.
    Response: The Department agrees with the comment that the exemption 
should apply when either one of the conditions is satisfied. The new 
rule has been modified to conform with the Vacancy Rule and the subject 
items are now covered under Secs. 901.10(b)(2)(ii) and (b)(2)(iv).
    Comment: Two comments observed that there are several categories of 
units exempted ``off-the-top'' when calculating adjusted vacancy rate 
and turnaround time. The comments indicated that HUD should clarify if 
the exemption of units vacant for circumstances beyond the PHA's 
control due to changing market conditions is determined by the PHA 
(self-certified) or reviewed and decided by HUD as a modification. The 
comments also requested HUD to clarify the exemption of units vacant 
for circumstances beyond the PHA control due to natural disasters as to 
who determines or declares the natural disaster condition.
    The comments suggested that, because these are excluded ``off-the-
top'' and using a PHA-certified figure, it is left entirely to the PHA 
to decide if these circumstances apply, when they apply, and then to 
subtract them out of the calculation. As currently structured, a PHA 
could unilaterally adjust the figures they report under ``adjusted 
vacancy rate'' and ``turnaround time'' because they believe that 
``changing market conditions'' have caused their units to remain 
vacant, or because ``insufficient CIAP funding'' prevented the PHA from 
occupying the units. All market conditions are ``changing'' to some 
extent, and no CIAP-funded PHA ever receives ``sufficient funding for 
otherwise approvable applications'' to meet all of their needs. The 
real question is, when are these circumstances sufficiently unique and 
extensive to impact a PHA's ability to occupy its units?
    The comments indicated that these two conditions are so subjective 
and judgmental that they should be addressed through the regular PHMAP 
modification process. The comments added that it is inappropriate for 
an allegedly objective assessment process such as PHMAP to allow the 
entity being assessed (i.e., the PHA) to exercise this degree of 
unilateral control over their own assessment. This may help to improve 
PHA grades, but it does nothing for the integrity of the PHMAP 
assessment process. One comment requested that exemptions be clearly 
defined, leaving as little subjective determination as possible to HUD 
field staff. Another comment requested HUD to clarify if the PHA may 
exempt the units listed when preparing the PHMAP certification or if it 
should request a modification.
    Response: The Department disagrees with the proposition that the 
PHAs have free rein to define away unit vacancies as a function of 
natural calamities and/or market circumstances beyond control. These 
issues were a major source of discussion during the negotiation of the 
PFS Vacancy Rule, and the language upon which the negotiated rulemaking 
committee reached agreement is faithfully reproduced in this 
regulation. For example, the committee deemed the term ``natural 
disaster'' sufficiently precise for purposes of establishing a formula 
for determining PFS eligibility.
    In the case of a claim for exemption under any of these ``beyond-
the-control'' criteria, the PHAs can exclude the units when preparing 
the PHMAP certification, but HUD intends that the burden of proof 
should fall on the PHA to demonstrate that it has done what it can to 
remedy the reason(s) for the vacancy. In the case of a ``natural 
disaster'' claim, the PHA would be expected to point to a proclamation 
by the President or the Governor that the county or other local area in 
question has, in fact, been declared a disaster area. Where a PHA 
claims extraordinary market conditions, the PHA will be expected to 
document the market conditions to which it refers (the examples of 
changing population base and competing projects are the simplest) and 
the explicit efforts that the PHA has made to address those conditions.
    The Department does not believe that it can draft a regulation that 
concretely defines and delimits all the circumstances that could affect 
a PHA's capacity to maintain high occupancy levels, nor does HUD deem 
it advisable to attempt to do so. The PHAs and their parent State and 
local governments are in the best position to recognize and appreciate 
specific local circumstances. In this regulation, and in the supporting 
handbook guidance, we will expect that PHAs will be able to provide 
data with which to support their self-certifications, and upon which 
HUD reviewers can verify such self-certifications, but HUD believes 
that it would be counter-productive to attempt to define further or to 
limit the scope of PHAs' capacity to describe their real-world 
situations.
    Comment: One comment proposes that an adjustment factor be added 
for turnovers delayed because the applicant must give 30 to 60 days 
notice (by lease) to their current landlord before moving.
    Response: The Department does not agree with the proposed addition. 
PHAs should know local conventions on requirements for notice, and plan 
their own management activities accordingly, projecting expected 
turnovers and providing notice to applicants that a unit is expected to 
become available, for example, far enough in advance to avoid delays in 
leasing. In those cases where special local circumstances make this 
unfeasible, the PHA may submit a modification request to the indicator.
    Comment: One comment requested guidance on HUD's interpretation of 
units that are vacant ``for reasons beyond the PHA's control'' asking 
whether this category includes items such as termite damage, vandalism, 
or casualty loss that may not be covered by insurance if there is a 
high deductible. Two other comments asked if the exemption would 
include units delayed for reoccupancy as a result of heavy

[[Page 68906]]

vandalism since such vandalism is often beyond the PHA's control.
    Response: The Department does not consider that the examples cited 
in the comment fall under the definition of units vacant for reasons 
beyond the PHA's control. Termite control is similar to other examples 
of pest control and is considered part of the normal maintenance 
operations of any standard performance PHA. A well managed PHA should 
also have insurance coverage for casualty loss (including vandalism) 
providing enough coverage to enable the PHA to repair the units in case 
of casualty damage. In cases where special local circumstances may make 
this unfeasible, the PHA should submit a modification request to the 
indicator.
Definitions
    Comment: One comment stated that the definition of ``under 
construction'' as related to force account work should be changed to 
indicate that force account work has started in the block (as opposed 
to the specific unit).
    Response: The new rule has been changed to indicate that force 
account work has started either in the unit(s) or in the building(s).
    Comment: One comment stated that the term ``units available for 
occupancy'' needs to be clearly defined. Some troubled PHAs could argue 
that a certain number of their units are not available for occupancy 
because of the extremely poor condition of the units.
    Another comment indicated that the term ``dwelling unit'' is not 
defined in the proposed rule. It should be defined as a unit that is 
either leased or available for lease to eligible low-income residents. 
Another comment stated that the term ``available unit'' is defined in 
the preamble and the rule but never used again. Instead, the term 
``unit'' is used in connection to the terms ``vacant unit'' and 
``vacancy day''. The term ``unit days available'' is used but no clear 
connection is ever drawn between it and ``available units''. HUD should 
clarify and substitute where necessary.
    One comment stated that the term ``vacant unit'' in the rule is 
different from the term as used in the preamble. The preamble indicates 
that ``units under lease for non-dwelling uses should not be 
included...'' In other words, these units should be excluded. The rule 
definition states that units under lease for police substations, social 
service providers, etc., are treated the same as units under lease to 
eligible families. If an occupant vacates the unit, it is made 
available to another social service provider. These units are not 
available for lease to eligible low-income residents, and as such, 
should not be treated the same as units which are available in this 
definition. It should be clarified whether these units will be excluded 
from the computation of vacant units or if they will be counted as 
occupied units. Another comment stated that units used for non-dwelling 
purposes and dwelling units occupied by PHA employees and units used 
for resident services need to have additional parameters defined. This 
adjustment may encourage some poorly run PHAs to use these loopholes to 
get a better adjusted vacancy rate.
    Response: The Department agrees that dwelling units used for non-
dwelling purposes with HUD approval, employee occupied units, and 
vacant units approved for demolition or disposition should not be 
included as available units in the determination of occupancy/vacancy 
rates and the new rule reflects that change. We also agree with the 
definition of a ``dwelling unit'' as a unit that is either leased or 
available for lease to eligible low-income residents.
    Comment: Two comments indicated that while the use of the total 
unit days available as the denominator in both the actual and adjusted 
vacancy rates provides a simple procedure, it tends to understate the 
adjusted vacancy rate. A more accurate calculation would exclude the 
adjusted vacant units from both the numerator and denominator.
    Response: The calculation of the vacancy rate and the use of that 
rate to determine a given grade for PHMAP purposes has been and 
continues to be closely linked to the methodology and definitions used 
in the PFS. Under the PFS, a PHA, when calculating occupancy or vacancy 
rates, first determines the total number of dwelling units in its 
inventory (the denominator portion of the rate being calculated). 
Regulations then permit the PHA to exclude units that have been 
approved for deprogramming (e.g., demolition or disposition) as they 
become vacant and units approved for non-dwelling use. These exclusions 
reflect the permanent nature of the action. Units that are undergoing 
modernization or are vacant because of circumstances beyond the PHA's 
control are not excluded from the denominator because these actions are 
not permanent. By remaining in the denominator, they will continue to 
be eligible for operating subsidy.
    The inclusion of units undergoing modernization or units vacant 
because of circumstances beyond the PHA's control in the denominator 
does not make the calculation of the PHMAP adjusted vacancy rate either 
``more'' accurate or ``less'' accurate. What is necessary is that the 
two quantities that comprise the rate have a logical relationship to 
each other. In this case, the relationship is between a PHA's dwelling 
unit inventory and that portion of the inventory that is vacant during 
the PHA's fiscal year. Under both PHMAP and PFS, there are incentives 
to minimize the portion of the inventory that is vacant and both 
approaches start by looking at the proportion of total vacancies to the 
dwelling unit inventory. If that rate is low enough, the PHA will 
maximize its PHMAP grade and its operating subsidy eligibility.
    Both PHMAP and PFS also recognize that not all vacancies are 
``equal.'' A PHA with a high number of vacant units may still maximize 
its PHMAP grade and PFS eligibility if it can show that most of the 
vacant units are undergoing modernization. When one makes an adjustment 
to the total number of vacancies to exclude those that are undergoing 
modernization, the PHA is not changing the fact that the unit is still 
part of the PHA's dwelling unit inventory. This is why the adjustment 
is only to the numerator portion of the rate and not to the 
denominator.
    Comment: One comment indicated that the term ``vacancy day'' 
definition uses the qualifying statement ``...unless the vacancy day is 
exempted for an eligible reason.'' A ``vacancy day'' does not lose its 
status as a ``vacancy day'' because it is exempted. It simply becomes a 
``vacancy day that is exempted''. This should be clarified because 
other terms (like ``actual vacancy rate'' and ``adjusted vacancy 
rate'') make reference to it in their definitions. Another comment 
proposed that the definition for vacancy day should be modified to 
specify that it pertains to ``dwelling'' units.
    Response: The Department agrees with the comments and the new rule 
reflects the changes.
    Comment: One comment indicated that the term ``units available for 
occupancy'' is defined as the number of units identified on a PHA's ACC 
times the number of days available and asked then what number should be 
used for units acquired or built during the assessment year? Two 
comments asked whether occupied units that have not reached Date of 
Full Availability (DOFA) are counted or excluded until they reach DOFA 
date.
    Response: The definition of number of ``units available for 
occupancy'' has been clarified to exclude three categories of units 
from the number of units identified in the PHA's ACC. The units 
acquired or built during an assessment year will be added on a prorated 
basis based on the sum of the

[[Page 68907]]

number of days available of each individual unit added to the ACC. The 
date to be used for determining days available is the date of ``End of 
Initial Operating Period'' (EIOP) for the corresponding project. 
COMMENT: One comment stated that the formula used for the calculation 
of the actual vacancy rate is inconsistent with that used for the 
completion of PHA financial information and creates the potential for 
errors when preparing both the PHMAP certification and the annual 
budget documents. The actual vacancy rate should be consistent 
throughout all HUD requirements (i.e., form HUD-51234 and budget 
forms).
    Response: The Department agrees that the definitions and 
methodologies for both PFS and PHMAP should be the same as long as 
feasible, and the language of the new rule reflects that.
    Comment: One comment recommended adding to the list of definitions 
the terms ``move-out date,'' which is when the PHA regains possession 
of the unit by the legal expiration of the lease; and ``effective lease 
date,'' which is the date from which rent is due and payable and all 
other provisions of the lease are enforceable.
    Response: The Department partially agrees with the comment and the 
new rule includes the definitions. The ``effective lease date'' is the 
date when the executed lease contract becomes effective and rent is due 
and payable and all other provisions of the lease are enforceable. On 
the other hand, the ``move-out date'' is the actual date when the 
resident vacates the unit, which may or may not coincide with the legal 
expiration of the lease agreement.
Component #2, Unit Turnaround
    Comment: Two comments stated that if the turnaround calculation is 
retained, it should be kept as a separate indicator. Two comments 
suggested the elimination of this component, because unit turnaround 
measures efficiency of scheduling maintenance activities, which should 
be covered by indicators #4 and #5.
    Response: The Department disagrees with both of these suggestions. 
The requirement to measure a PHA's ability to turn around its vacant 
units is statutory, whether the statutory requirement is carried out by 
establishing a separate indicator for unit turnaround or by including 
unit turnaround as a component of a different indicator. The Department 
agrees with the assumption that if vacancies are at a grade C or above, 
a PHA does not have a problem with turning around vacant units. The 
Department also disagrees that unit turnaround solely measures a PHA's 
efficiency of scheduling maintenance activities. The calculation of 
unit turnaround also includes down time, which is the time between when 
the unit is vacated and a work order is issued for the repair of the 
unit; and lease-up time, which is the time from when maintenance 
completes the repair of the unit and a new lease takes effect.
    Comment: Three comments stated that this component does not 
accurately measure a PHA's performance in maintaining and leasing their 
units because nothing in the component shows how many units the PHA had 
to turn around during the year. These commenters believed the 
percentage of units that are turned around during the year should be 
included in the formula. For example, if a PHA has a turnaround time of 
20 days, and turned over 45% of their units, and you multiply the 
turnaround time (20 days) times the percentage of turnover (45%), it 
equals 20 times 45%, or nine days. You then subtract nine days from the 
20 days to equal a turnaround of 11 days. The commenters felt that this 
is a more accurate measure of a PHA's ability to manage and turnaround 
per unit. A PHA with a high yearly turnaround is unduly taxed under the 
current formula.
    Response: The Department disagrees with this suggestion because 
this component is measuring the annual average of time it takes a PHA 
to turn around its vacant units, rather than measuring the turnover 
rate, which takes into account how many units the PHA had to turn 
around during the year.
    Comment: Three comments stated that the calculation of unit 
turnaround includes vacancy days from prior fiscal years, offering 
little incentive (scoring) under the proposed rule for re-occupying 
older units. It is recommended that unit turnaround time be capped at 
one year or 360 days.
    Response: The Department disagrees because to do so would result in 
an inaccurate assessment of a PHA's ability to turnaround all vacant 
units and would provide no incentive for PHAs to ensure that long-tern 
vacant units are turned around and reoccupied. In addition, if these 
units are not included in the calculation of this component, it would 
result in a skewed perception of a PHA's ability to manage its total 
maintenance/re-leasing activities. Furthermore, ``turnaround time'' is 
a term of art and means all the days that elapse between one tenancy 
and the next. In the event that unusual or special circumstances 
exists, a PHA may request a modification to the calculation of this 
component.
    Comment: Two comments feel that this component should be given the 
same exemptions as in component #1.
    Response: The Department agrees and stated so in both the preamble 
and the regulation of the proposed rule, as well as in the new rule.
    Comment: Two comments stated that unit turnaround time should 
exempt seven days for each PHA-required transfer because one resident 
has two units tied-up for a week and sometimes longer.
    Response: The Department disagrees with this suggestion. Although 
the total time it took the two units mentioned in the comment to be 
turned around may have been a week or longer, each unit was turned 
around on different days, with different individual total turnaround 
time. The intent of this component is to measure the annual average 
number of days it takes a PHA to turn around its vacant units, which 
includes for each vacant unit a total of down time, make ready time, 
and lease up time.
    Comment: Two Comments questioned the definition which states that 
units are exempted from the vacancy calculation if special conditions 
exist that are beyond control of the PHA. They inquired whether this 
definition includes units delayed for reoccupancy as a result of heavy 
vandalism. They contend that it should because such vandalism is often 
beyond the PHA's control.
    Response: The Department has determined not to specifically include 
heavy vandalism as part of conditions beyond a PHA's control in this 
definition since circumstances for individual PHAs will differ. In such 
a case, a PHA may submit a modification request to exclude such units 
in the calculation of this component, accompanied by justifying 
documentation.
    Comment: One Comment stated that unit turnaround is assessed based 
on calendar days rather than working days (25% of the time in 20 
calendar days is non-working time). The Commenter contended that it 
should be based on regular working days since most PHAs cannot afford 
to pay overtime salary rates.
    Response: The Department disagrees and will continue to use 
calendar days as the standard for all of the PHMAP indicators. 
Vacancies, rent collection, etc., are not based on working days, and it 
would be unrealistic to do so. In addition, it is easier to calculate 
calendar days, especially when using an automated system, due to the 
necessity of factoring in holidays and weekends when using working 
days.

[[Page 68908]]

    Comment: One Comment stated that unit turnaround operates against 
thorough tenant screening and compliance with city code requirements 
and, therefore, against the reputation of public housing. These other 
factors that affect unit turnaround should be considered, including 
strict lease compliance, terminating residencies or relocating over or 
underhoused families. The Commenter said that conscientious 
implementation of HUD policy can create large turnovers, stress 
maintenance resources and result in poor ratings, while a PHA with no 
turnovers or even lack of attention to over and under-housing can 
maintain an excellent rating.
    Response: The Department disagrees with this statement because the 
enforcement of and/or compliance with these factors is part of the 
ongoing management responsibility of all PHAs. Using good management 
practices, a PHA should not have a higher turnaround time due to 
enforcement and/or compliance with the other factors mentioned in the 
Comment. For example, a PHA that strictly enforces rent collection 
procedures will typically have fewer evictions since more residents 
will pay rent in a timely manner. This normally will eliminate the need 
for evictions or situations where huge balances are built up and the 
resident vacates as a result of not being able to pay off the 
indebtedness once court action is taken. If a PHA enforces the lease 
clauses regarding the upkeep of the unit by occupants through informing 
the resident of the family's responsibility, providing instruction as 
necessary, and through inspections, repair, and properly instituted 
resident charges, units will tend to be in better condition when 
vacated, thereby reducing needed repairs and subsequently reducing 
vacant unit turnaround time. Additionally, a lack of attention to over 
and underhoused residents will affect a PHA's turnover rate, rather 
than its turnaround time.
    Comment: One Comment requested that the Department consider the 
implementation of an exception to the component whereby, if all but one 
unit turns over in a timely manner, a PHA can request an exception for 
a circumstance that was beyond its control. Even one exception can have 
a big impact in a small PHA.
    Response: The Department agrees, and in the event a truly unusual 
or special circumstance exists, a PHA may submit a modification request 
that addresses the circumstance(s) beyond its control.
    Comment: One Comment stated that assessing this component based on 
how the PHA fared in the first component is appropriate and the grading 
is equitable.
    Response: The Department agrees, and will continue to examine unit 
turnaround as the second component under this indicator.
    Comment: One Comment stated that if the current turnaround method 
stays, it should be a measure of when the unit is ready physically for 
rental and the new tenant has committed to the unit, not necessarily 
when physical occupancy occurs.
    Response: The Department disagrees with the Comment for several 
reasons. First, there is no guarantee that maintenance staff will start 
renovations as soon as possible after the unit is vacated. Secondly, 
there is no guarantee that the first applicant that is offered the unit 
will accept, thereby leaving the unit vacant for a longer period of 
time. Thirdly, the Department believes that the definition of 
turnaround time takes into account the concerns expressed in the 
Department's first two reasons for disagreeing. A well managed PHA 
coordinates maintenance and resident selection activities to ensure 
that as many units as possible are available for occupancy as soon as 
possible by planning move-ins in advance and notifying applicants as 
soon as possible. Since the PHMAP assesses management performance, it 
is appropriate to include the management of the total maintenance/re-
leasing activities in this component.
    Comment: One Comment (1) disagrees that unit turnaround is an 
unnecessary component for high performers; (2) feels that this 
component should be weighted as proposed; (3) believes that an adjusted 
turnaround time exceeding 30 days is unacceptable performance for any 
management agency regardless of the vacancy rate; and (4) believes that 
the need for a turnaround time of 50 days or less to score on this 
component is a poor standard and would not show the results of what may 
be clear and significant performance improvements.
    Response: The Department disagrees with the first statement because 
normally, a PHA (whether a standard or high performer) that achieves at 
least a grade of C for component #1 does not have a problem with 
turning around vacant units, i.e., unit turnaround is not a factor in a 
high vacancy rate. The Department agrees with the second statement 
because the vacancy rate is a clear manifestation of management effort 
and embodies the essence of a PHA's mission; therefore, it is weighted 
more heavily than the process-oriented unit turnaround component. It is 
not clear what the Comment meant in the third statement by ``adjusted 
turnaround time.'' This term was not referred to in the proposed rule, 
was not included as a definition, nor was it used in the text of the 
component. The Department also disagrees with the fourth statement and 
believes that the range between the grades in this component is 
equitable for the new rule.
    Comment: One Comment stated that the proposed rule provides that 
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 is effective for the new or returning resident. This 
provision eliminates a level playing field for measuring the normal 
turnaround time required by a PHA to restore vacant units to occupancy. 
The Commenter alleges that this gives unfair advantage to PHAs that did 
not need to vacate units for modernization and it doubly penalizes PHAs 
that modernize units for completing modernization on large numbers of 
units concurrently. The Commenter felt that this component should 
measure the time it takes PHAs to restore units to occupancy when they 
vacate for normal move-out reasons.
    Response: The Department disagrees with this Comment and believes 
that this method of calculating unit turnaround does provides a level 
playing field for PHAs because it provides a standard method that will 
be used by all PHAs. The Department does not believe that this method 
of calculating unit turnaround gives an unfair advantage to any PHA, 
regardless of the scope or type of modernization. A unit that is 
modernized with the resident in place is not included in the 
calculation of this indicator because it has not been vacated and 
subsequently turned around; therefore, there is no advantage to be 
considered. If a PHA vacates a unit to modernize, the time it took to 
modernize the unit is not included in unit turnaround time regardless 
of the number of units completing modernization concurrently. A PHA 
should be able to plan for move-ins in advance and notify applicants in 
sufficient time to coincide with the availability of units. This 
component will continue to measure unit turnaround for whatever reason 
the unit is vacated and turned around.
    Comment: One Comment recommended that average turnaround time be 
defined as, ``the annual average of the total number of turnaround days 
between the legal expiration date of the immediate past lease (whenever 
that occurred, including in some previous fiscal year) and the date a 
new lease takes effect, that being the date from which rent is due and 
payable and all

[[Page 68909]]

other provisions of the lease are enforceable.'' This allows PHAs to 
take into consideration the wide variety of local ordinances and State 
statues that effect the termination of a lease and date the PHA thereby 
regains possession of the unit.
    Response: The Department agrees, in part, with this recommendation, 
and will change the definition of average turnaround time to read, 
``...the annual average of the total number of turnaround days between 
the latter of the legal expiration date of the immediate past lease or 
the actual move-out date of the former tenant (whenever that occurred, 
including in some previous fiscal year) and the date a new lease takes 
effect.'' This change will take into consideration the wide variety of 
State and local laws that effect the termination of a lease. By 
retaining the actual move-out date of the former tenant in the 
definition, a PHA is not penalized for doing evictions, since in such 
cases, the resident usually vacates after the legal expiration date of 
the lease. It should be noted that in the rare case where an applicant 
executes a lease and moves into the unit prior to the completion of 
minor repairs, the calculation of turnaround time continues until the 
repairs to the unit have been completed by the PHA.
Indicator #2, Modernization--Sec. 901.15
    The weight for this indicator has been increased to x1.5 in the new 
rule to reflect the importance of planning for and allocating scarce 
modernization funding.
    Comment: Ten Comments supported the greater emphasis being given to 
obligation of funds in relation to expenditure of funds for components 
#1 and #2.
    Response: The Department concurs that by assigning more weight to 
fund obligation, and less to fund expenditure, the rule largely removes 
the disincentive for PHAs to accept inferior work products from 
contractors.
    Comment: Two comments recommended that there should be intermediate 
grades for components #1 and #2 that allow for varying times beyond the 
required deadlines (e.g., within one year after deadline = C, two years 
= D, etc.). Interim grades should be adopted to recognize that 
capacities vary between PHAs and the size of their modernization 
programs. One method would be: A for 100%, B for 90-99.9%, C for 80-
89.9%, D for 70-79.9%, and F for below 70%. If the Department remains 
adamant that these are too many grades, then at least a grade of C 
should be available for > 80% but < 100%. Another comment suggested 
that components #1 and #2 should have more grades (A-F) to allow small 
amounts of funds to be expended/obligated without scoring an F. For 
example, 99% of funds obligated/expended would receive a score of B, 
and 95% of funds obligated/expended would receive a score of C. Another 
comment recommended that all components should have grades A-F; larger 
PHAs may have multiple modernization projects being run simultaneously. 
A problem with just one such project should not be the cause of a 
failing grade. In addition, another comment recommended that an 
intermediate grade of C should be created for components #1 and #2 for 
PHAs that, for example, are one year behind the expenditure or 
obligation time. Some PHAs may need to accumulate funds over several 
years in order to fully carry out their strategic plans. Another 
comment recommended that large PHAs that administer complex, multi-year 
programs that exceed $100 million in a single year, be given more 
flexible standards than are proposed for components #1 and #2. The 
proposed rule refers to the HUD-approved original implementation 
schedule, and the previous interim rule refers to the HUD-approved 
revised schedule. HUD should allow a grade of A for these two 
components where the HUD-approved original or revised implementation 
schedule allows longer than three years to expend all funds, and the 
PHA is either in compliance with that schedule or has timely self-
executed an extension of the HUD-approved deadline for valid reasons 
beyond its control.
    Response: The Department does not agree with these comments since 
components #1 and #2 adequately take into account situations where 
longer times are appropriate in the original implementation schedule or 
are necessary in the revised implementation schedule due to reasons 
outside of the PHA's control. The Department believes that it is 
appropriate to distinguish between time extensions due to reasons 
outside of the PHA's control (which have no adverse impact on the PHA's 
score on components #1 and #2) and time extensions due to reasons 
within the PHA's control (which avoid fund recapture, but have an 
adverse impact on the PHA's score on components #1 and #2). The 
Department notes that the need to use leftover funds is a reason for a 
time extension outside of the PHA's control. In addition, the 
Department notes that while larger PHAs have more funds to obligate and 
expend, such PHAs also have greater resources and capacity to implement 
their programs; therefore, size of program is not appropriate in 
measuring fund obligation and expenditure performance.
    Comment: Six comments expressed concern about how HUD will define 
``significant findings'' for components #3 and #4 in the new rule. This 
is a very critical issue since HUD staff judgments vary widely from 
city to city. Significant findings should be really significant. PHAs 
should have the opportunity to see and comment on the definition.
    Response: The Department has revised components #3 and #4 to 
include a definition of ``findings.'' The Department has eliminated the 
term ``significant'' since, by definition, all findings made in 
connection with HUD monitoring or an audit are significant. Items that 
are not significant are considered to be observations and are not 
designated as findings.
    Comment: Two comments disagreed that obligation of funds should be 
weighted higher than expenditure of funds. Often it is easier to enter 
into a contract than it is to complete one. Emphasis should be on a 
PHA's planning efforts and its record of delivering promised work.
    Response: The Department does not agree with this comment. The 
Department believes that the more time-consuming part of implementation 
involves the design work, the bid process, and the award of contract. 
In the overwhelming majority of cases, fund expenditure occurs 
routinely after fund obligation, in accordance with the schedule for 
periodic payments.
    Comment: Two comments were unclear about the reporting requirements 
for a self-executed time extension for obligation of funds and 
suggested that the Department provide a short list of examples of the 
types of circumstances ``out of the control of the PHA'' which would 
warrant a self-executing extension.
    Response: The Department has revised components #1 and #2 to 
provide additional examples which are: unforeseen delays in contracting 
or contract administration; and need to use left-over funds from a 
completed modernization program for additional work. Additional 
examples will be provided in the revised PHMAP Handbook 7460.5.
    Comment: One comment stated that it was not clear what data were 
being used to score components #1, #2 and #5, and suggested that HUD 
needs to develop a procedure reflecting PHA performance in the same 
fiscal year as other PHMAP grades.

[[Page 68910]]

    Response: The Department scores components #1 and #2 on the basis 
of Federal Fiscal Year (FFY), not PHA fiscal year, in order to provide 
a uniform measurement for all PHAs, without regard to the relationship 
between the construction season and PHA fiscal year. The Department 
scores components #3, #4, and #5 based on the status of the PHA's 
modernization program(s) as of the PHA's fiscal year end. The 
Department intends to continue these bases for scoring.
    Comment: One comment noted that the components are well described 
and the grading is equitable.
    Response: The comment is noted by the Department.
    Comment: One comment recommended that only fund obligation should 
be measured since in fact this is the only activity really under a 
PHA's control, with expenditures affected by contractor progress, 
litigation, and other outside factors.
    Response: Fund expenditure is a performance measure mandated by the 
1992 Appropriations Act and, therefore, must be included.
    Comment: One comment recommended that the modernization indicator 
be changed for the assessment of the CGP. Requirements for measurements 
should be in large percentages rather than items of work (i.e., 33% of 
all funds three years old or less should be obligated). Further detail 
should not be required. HUD should model these reporting requirements 
on those of the CDBG program. There should be flexibility for 
expenditure rate requirements based on circumstances beyond PHA 
control, such as contractor default, the discovery of hidden 
conditions, etc.
    Response: The Department believes that the component on fund 
obligation appropriately assesses performance under the CGP. The CGP 
provides annual formula funding for modernization. Accordingly, such 
stable and predictable funding should enable CGP PHAs to plan and 
implement their modernization programs in an expeditious manner. The 
Department strongly believes that two years is adequate time for most 
PHAs to obligate all funds, but provides for a longer time period where 
appropriate.
    Comment: One comment recommended that fund obligation be extended 
to three years rather than the two proposed.
    Response: The Department believes that two years is a more 
appropriate measure of performance. However, the Department notes that 
the PHA may propose, and HUD may approve, implementation schedules with 
fund obligation deadlines of longer than two years due to local 
differences in work scope and complexity, construction seasons, 
material or equipment supply, or State/local contracting requirements.
    Comment: One comment questioned how HUD will know whether the PHA 
extended the target date within 30 calendar days after the deadline and 
whether such extensions were for reasons outside of the PHA's control. 
These components are not certified by the PHA, but are graded by HUD 
based on HUD in-house information. HUD will only know what it can 
gather from LOCCS and from on-site reviews. Assessments will be very 
inconsistent and of questionable accuracy.
    Response: A PHA is currently required to inform HUD if it has 
extended the target date for fund obligation so that HUD may enter the 
revised date into the Line of Credit Control System (LOCCS). A PHA also 
is currently required to report on all time extensions that it issued 
and the reasons for those extensions in its annual CGP performance and 
evaluation report for the program year ending June 30. If a PHA issues 
a time extension between June 30 and September 30, it will be required 
to inform HUD so that components #1 and #2 may be scored correctly. If 
the State/Area Office fails to take into account a time extension made 
by the PHA, the PHA may appeal its score to the State/Area Office so 
that the corrected information may be used in rescoring.
    Comment: One comment stated that component #1 is an example of 
excessive flexibility, in that a PHA can miss the performance target 
but still receive a grade A by executing a self-imposed time extension 
within 30 calendar days after the expenditure deadline so long as the 
extension is for conditions which the PHA determines is beyond its 
control. A PHA also can manage this requirement by simply including in 
its original implementation schedule, a time period longer than three 
years to expend its modernization funds. The same options are available 
in connection with component #2.
    Response: The Department believes that PHA flexibility to issue 
time extensions for reasons outside of the PHA's control is critical to 
streamlining program requirements and is an important tool in 
expediting program implementation. HUD still approves the original 
implementation schedule and may require a shorter time period if a PHA 
proposes a time period that is too long. Also, HUD reviews the basis on 
which the PHA issues a time extension and, if inappropriate, may 
withdraw the PHA's authority to do so, thereby requiring that all 
future time extensions be submitted for prior HUD approval.
    Comment: One comment questioned the term ``modernization'' as used 
in components #1 and #2. Does it mean CIAP/CGP only, or the larger 
definition of ``modernization'' found in the term ``approved funded, 
on-schedule annual modernization program?'' The comment contended that 
the rule uses two different definitions of the term ``modernization'': 
one that is CIAP/CGP only; and one that includes more than just CIAP/
CGP.
    Response: All components apply to both the CGP, the CIAP and lead 
based paint risk assessment (1992-1995). Only components #3, #4 and #5 
apply to funding under the HOPE VI Program and the Vacancy Reduction 
Program for the assessment of this indicator. The new rule has been 
revised to include this language.
    Comment: One comment recommended that HUD decouple the fund 
obligation deadline from specific modernization projects. This is in 
keeping with HUD's approach in the community development program arena 
where HUD tracks a specified amount of funds obligated each year 
regardless of the year in which HUD allocated the funds to a locality.
    Response: The Department does not agree with this comment since 
each annual grant must be individually tracked and closed out.
    Comment: One comment stated that components #1 and #2 do not 
measure the adequacy of modernization efforts or address the adequacy 
of the overall maintenance program of the PHA.
    Response: The Department points out that both components are 
mandated by statute. The Department believes that component #2, fund 
obligation, is a critical indicator of modernization performance. 
Neither component is intended to address the adequacy of the PHA's 
overall maintenance program.
    Comment: One comment stated that a PHA's potential score for 
components #3 and #4 seems to be subject to the timing of a HUD 
monitoring visit. A PHA should not be graded on these components unless 
at least three months have elapsed between the date of HUD's monitoring 
report to the PHA and the end of the PHA's fiscal year; also, the time 
frame for HUD reviews should be clarified.
    Response: The Department agrees that a minimum time should be 
specified between the date of HUD's monitoring report or audit is 
provided to the PHA and the end of the PHA's fiscal year in order to 
give the PHA sufficient time to correct all findings. Accordingly, the 
Department has revised components #3

[[Page 68911]]

and #4 to reflect a minimum time of 75 calendar days.
    Comment: One comment stated that a clearer distinction should be 
established between an ``A'' and a ``C'' grade for components #3 and 
#4; i.e., that a PHA must ``have corrected'' all findings versus ``be 
in the process of correcting'' all findings.
    Response: The phrase the ``PHA has corrected'' all findings means 
that HUD concurs in the PHA's determination that the violation no 
longer exists and that HUD is ready to close the finding or has already 
closed it. The phrase the ``PHA is in the process of correcting'' all 
findings means that the violation still exists and the finding is not 
yet ready to be closed.
    Comment: One comment supports an appeal process in the event a PHA 
and HUD differ on what constitutes ``significant findings.''
    Response: As stated, above, this language has been changed and the 
term ``significant'' has been eliminated. In addition, the PHMAP rule 
at Sec. 901.125 sets forth the PHA's right of appeal.
    Comment: One comment recommended that HUD use qualified building 
inspection firms or inspectors, in combination with qualified HUD 
engineers as they are available to inspect the physical work that is 
completed rather than the Corps of Engineers.
    Response: The Department intends to use all resources available to 
it, including the U.S. Army Corps of Engineers, for inspection of 
approved modernization programs.
    Comment: One comment recommended that component #5 be covered under 
indicator #6, financial management, since financial management of the 
modernization program is part of the overall financial management of 
the PHA's programs.
    Response: The Department rejects this comment since the 
modernization budget controls are so integral to implementation 
performance by a PHA.
    Comment: One comment supported the change to component #5 that 
reflects the flexibility recently provided to CGP PHAs to move work 
items between approved annual statements and the five-year action plan 
and to address emergency items not reflected in either document. 
Another comment noted that emergency CGP work does not require prior 
HUD approval.
    Response: The Department agrees that emergency CGP work does not 
require prior HUD approval and has revised component #5 to specifically 
exclude emergency work.
    Comment: One comment proposed a new component related to the 
incorporation of work orders, which are identified by yearly 
inspections of systems and units and deferred for modernization, in the 
modernization plan.
    Response: The Department does not agree with this comment because 
all work orders are tracked under indicator #4 in the new rule. A work 
order deferred for modernization is any work order that is combined 
with similar work items as defined in Sec. 901.5.
Indicator #3 Rents Uncollected--Sec. 901.20
    Comment: Ten comments supported the simplification of the indicator 
and the grading method, without further comment.
    Response: The comments are noted by the Department.
    Comment: Ten comments sought a variety of additional exclusions 
from ``dwelling rent'' such as charges for amounts that cannot be 
collected by the PHA without stopping the eviction process, amounts 
owed by tenants no longer in possession, disputed amounts, amounts 
written off, or amounts abated. One PHA thought that the indicator was 
inconsistent with the one strike policy in indicator #8 because a 
resident evicted for selling drugs would be charged dwelling rent that 
could not be collected during the eviction process.
    Response: The Department does not agree. The reasons for nonpayment 
of rent are varied and the specific conditions mentioned are not 
unique. The purpose of the indicator is to assess a PHA's ability to 
deal with conditions for nonpayment effectively to collect the rent 
due; excluding the charges related to all possible reasons for 
noncollection would defeat the purpose of the indicator. A PHA may 
request a modification or exclusion to this indicator due to highly 
unusual or unique circumstances.
    Comment: Five comments pointed out inconsistencies in terminology 
in the indicator that they believed made the indicator unclear. One 
comment stated that the terminology in Sec. 901.20 doesn't have the 
same specificity as the summary. The language in Sec. 901.20 needs to 
be revised to conform with the summary and the definitions. There were 
four comments regarding the definition of the terms ``current dwelling 
rent billed,'' ``current dwelling rent uncollected,'' ``percent of 
current dwelling rent,'' and ``rents uncollected.''
    Response: The terminology referred to in the comments has been 
changed in the new rule to be consistent.
    Comment: Four comments stated that uncollected rent of 2% or less 
for a grade of A was unduly restrictive and not in line with the 
private market standard. The comments requested that the 2% be changed 
to 5% to conform to industry standards.
    Response: The Department believes that the percentage for grade A 
is fair since this grade represents the truly outstanding PHA, rather 
than the industry standard. The industry standard of 5% is reflected in 
grade C of this indicator, and denotes standard performance.
    Comment: Two comments noted that the indicator is not as simple as 
it seems since data required by the indicator is not readily available 
in the accounting system. One comment stated that the method should not 
be changed from the interim method.
    Response: The Department recognizes that accounting systems do not 
usually collect or compile the specific tenant accounts receivable 
information required for indicator #3 as proposed; therefore, the 
proposed indicator has been changed to incorporate information that is 
collected by PHAs to compile other tenant accounts receivable and 
financial reports. The major change between the new indicator and the 
current method is that the new indicator includes only information for 
tenants in residence during the assessed fiscal year.
    Comment: One PHA commented that rent collections are so important 
that the indicator should have a weight of x3.
    Response: The Department agrees that rent collections are important 
to the financial health of the PHA, and it has the second highest 
weight of all the indicators. The weighting has been simplified to a 
ten point scale, with only indicator #1, vacancy rate and unit 
turnaround, having a weight of x2.
Indicator #4, Work Orders Sec. 901.25

General Comments

    Comment: Many comments received were generally supportive of the 
revised requirements of this indicator. Most indicated that the changes 
made to this indicator will create a management tool that is more 
equitable and provide a more accurate measurement of work order 
completion.
    Response: The comments are noted by the Department.
    Comment: Four comments stated that recording the time for 
completing emergency and non-emergency work orders is unnecessary and 
unproductive. The extra administrative expense to record the time of 
processing work orders is not justified. One comment stated that this 
change will put an excessive burden on small PHAs in tracking the time 
involved on routine

[[Page 68912]]

(non-emergency) work orders due to the many factors which can effect 
how long it takes to do a work order.
    Response: The Department does not agree with this statement. This 
indicator is a statutory requirement under the PHMAP. The preamble to 
the PHMAP rule and the new rule state that ``implicit in this indicator 
is the adequacy of the PHA's work order system in terms of how a PHA 
accounts for and controls its work orders, and its timeliness in 
preparing/issuing work orders.'' Therefore, there should not be 
substantial additional administrative expense since an adequate work 
order system must be able to track and control work orders from the 
dates/times of when the work orders were initiated to the dates/times 
when they were completed.
    Comment: Two comments stated that emergency work orders should be 
at least equal in weight to non-emergency work orders.
    Response: The Department believes that since emergency conditions 
must be abated immediately or no longer than 24 hours from when first 
reported, the tracking and controlling of non-emergency work orders 
would provide more accurate information of PHA work order performance. 
Hence, more weight is given to the PHAs' non-emergency work order 
activities. However, the weight of the total indicator in the new rule 
is x1.
    Comment: Two comments stated that the definitions for cyclical work 
orders and preventive maintenance are very similar, which is especially 
distressing because the proposed rule is very clear in its requirement 
that the two not be confused.
    Response: The Department agrees that there are many instances in 
which PHAs might not use the work order process to do general cleaning 
activities, pick up trash or change light bulbs. When they do, these 
work orders are classified as cyclical work orders and are excluded 
from component #2, non-emergency work order, calculation. Other 
examples of cyclical work orders might be work orders that are 
routinely written each year to replace furnace filters, clean out site 
and roof storm drains or raking leaves in the fall. Preventive 
maintenance work orders are usually generated from preventive 
maintenance inspections. They are primarily related to the modification 
or repair of physical systems of units, buildings and grounds. The 
Department will include examples of cyclical and preventive work orders 
in the revision of the PHMAP Handbook 7460.5.
    Comment: Two comments stated that for work orders done by outside 
contractors, which may take longer to complete or that require special 
parts, if a vendor has difficulty in securing a part, the PHA would be 
penalized even though the living conditions in the unit aren't 
compromised.
    Response: The Department does not agree with this comment. The 
Department has provided up to 25 days for the average time to complete 
non-emergency work orders in order for a PHA to achieve a grade A for 
this component. This is quite liberal as compared to the private 
sector. The few cases that might exceed the 25 day period, due to a 
wait on a special part, should not significantly impact a final PHMAP 
score. In regards to emergency work orders, if the emergency condition 
in a particular unit cannot be corrected or abated within the 24 hour 
time frame, the resident(s) could be moved out of the unit, which would 
abate the emergency situation.
    Comment: Two comments wants to know if the reduction of days needed 
to complete work orders affect grades A and B, or is it only taken into 
consideration when the grade is C or less. Under what conditions may a 
PHA make such an election? To this, the rule appears to be silent.
    Response: The reduction of days needed to complete non-emergency 
work orders is only taken into consideration when the grade is C or 
less. The Department has revised the reduction of days needed to 
complete non-emergency work orders during the preceding three years to 
conform with other changes in the new rule.
    Comment: One comment stated that this indicator is poorly written 
and needs additional clarification.
    Response: The comment is not specific as to where the 
clarifications are needed. The Department wants a new PHMAP rule that 
is clear, concise and easy to understand, and welcomes any and all 
suggestions on how it can achieve that goal. If some areas of the rule 
are unclear to a reader, or needs further interpretation, he/she can 
contact the local State/Area Office for assistance.
    Comment: One comment stated that PHAs may need technical assistance 
to construct an effective tracking system without spending scarce funds 
on additional software or special tracking systems.
    Response: The Department agrees with this comment and maintains 
that PHAs must have in place an adequate work order system that tracks 
and controls work orders from the dates that they were initially 
entered into the system to the dates when they were completed. The 
necessary information to grade emergency and non-emergency work orders 
should be readily accessible from the data in the PHA's work order 
system. However, if the PHA's existing system cannot perform the 
necessary tracking function, it should be a priority of the PHA to up-
date the existing system or replace it with one that can. To that end, 
HUD is always available to provide appropriate technical assistance.
    Comment: One comment stated that there should be a one year delay 
in implementation.
    Response: The Department has determined that the revisions in the 
new PHMAP rule will apply to PHAs with fiscal years ending the quarter 
after the new PHMAP rule is published in the Federal Register.
    Comment: One comment stated that this indicator does not provide 
any means for measuring the effectiveness of a PHA's response to 
deficiencies identified in inspections.
    Response: The Department agrees. Measuring the effectiveness of PHA 
response to deficiencies is too subjective and would not necessarily be 
the same from PHA to PHA; PHMAP measures performance.
    Comment: One comment stated that a confirmatory review should be 
required each year by qualified HUD staff or building inspection firms.
    Response: The Department disagrees due to the lack of resources. 
Risk management is used to determine where confirmatory reviews are 
most needed.
Component #1, Emergency Work Orders
    Comment: One comment stated that the evaluation for grading 
emergency work orders under component #1, is too tight, i.e., 99% of 
the emergency work orders completed or abated within 24 hours for a 
grade A and down to 95% completed or abated for a grade F.
    Response: The Department does not agree. The Department defines 
emergency as physical work items that pose an immediate threat to the 
life, health and safety of residents or that are related to fire 
safety. If emergency work items cannot be completed or abated within 24 
hours, the PHA could move the resident out of the unit until the 
emergency work is completed or abated. The removal of the resident(s) 
from the emergency condition is considered abatement. Therefore, 
correcting or abating an emergency situation should never exceed 24 
hours.
    Comment: One comment stated that a more specific definition of 
emergency work orders should be given, possibly including examples.
    Response: Emergency means physical work items that pose an 
IMMEDIATE

[[Page 68913]]

threat to life, health, safety, or property, or that are related to 
fire safety. Some of the more easily definable emergency situations 
would be: (1) an unhealthy or undrinkable water supply; (2) a gas leak; 
(3) a broken sanitary sewer line where sewage is ponding on the surface 
of the ground; (4) failed heating systems in colder winter climates; 
(5) hazardous electrical systems; non-working smoke detector or fire 
alarm system; and (7) toxic material situations such as exposure to 
asbestos or defective lead-based paint. Situations such as leaky roofs, 
broken windows or stairways might be classified as an emergency 
depending on specific circumstances and the degree to which the 
situation is an immediate threat to tenant health, safety or to 
property. Temporarily covering a hole in the roof or broken window, or 
closing off a stairwell until the condition can be corrected would be 
considered emergency abatement and would change these types of work 
orders from emergency to regular (non-emergency) work orders. The 
Department will include examples of emergency and non-emergency work 
orders in the revision of the PHMAP Handbook 7460.5.
Component #2, Non-Emergency Work Orders
    Comment: Two comments stated that excluding cyclical work orders 
from the calculation of this indicator serves to create what must be an 
unintentional disincentive to devote staff resource time to routine 
daily maintenance work. The PHA that devotes all of its maintenance 
resources to competing PHMAP measured work orders while ignoring trash 
on the grounds and in the hallways will score higher than a PHA that 
devotes its resources to daily maintenance as well as inspection and 
resident initiated work orders. Unless the PHMAP rule intends to cause 
PHAs to place a very low priority on the completion of daily 
maintenance work orders, work orders generated to accomplish this work 
should not be excluded from the calculation of this indicator.
    Response: The Department disagrees with this suggestion since this 
component was designed to only measure PHA performance in completing 
work orders and was never intended to place daily maintenance work at a 
low priority or ignore trash on the grounds and in the hallways. 
Normally, tasks such as picking up trash, etc., are performed by 
laborers and would not be covered by a work order. Work orders exempted 
for modernization, issued to prepare a vacant unit for re-rental, or 
issued for the performance of cyclical maintenance are not necessarily 
the same from PHA to PHA and consequently, would tend to skew the 
performance grade results from PHA to PHA if they were not exempted.
    Comment: One comment stated that preventive maintenance work orders 
are not exempted from the calculation of this component and should be. 
This PHA issues over 3,000 work orders for preventive maintenance to be 
performed on the heating systems over the period of the three to four 
month non-heating season. If these are included in the count, there is 
no possible way for this PHA to obtain a high score for this component 
since the work could never be completed in 25 days or less.
    Response: It appears that the work orders described above should be 
classified as cyclical work orders, which are excluded from the non-
emergency calculation. If this is not the case, the PHA does have the 
option to request HUD's approval of either a modification or exclusion 
of this indicator.
    Comment: One comment stated that to divide work orders among 
routine and emergency, then determine average number of days it took to 
complete them assumes that only closed work orders will be counted 
under this indicator, and any work order that is not closed will be 
counted against the following fiscal year as we currently do with 
vacant units. Please clarify.
    Response: The calculation of this indicator includes: the number of 
days in the assessed fiscal year it takes to close active non-emergency 
work orders carried over from the previous fiscal year; the number of 
days it takes to complete non-emergency work orders issued and closed 
during the assessed fiscal year; and the number of days all active non-
emergency work orders are open in the assessed fiscal year, but not 
completed. The new rule includes a definition of the average number of 
days for non-emergency work orders to be completed.
    Comment: One comment stated that this indicator should specifically 
state that HUD wants all preventive maintenance work orders tracked 
rather than focusing on exclusions and thus, place proper emphasis on 
preventive maintenance.
    Response: The Department agrees and has added specific language to 
the new rule stating that all preventive maintenance work orders are to 
be tracked, as well as which type of work orders are exempted from the 
calculation of this indicator.

Section 901.30  Indicator #5, Annual Inspection of Units and Systems

General Comments
    Comment: Three comments support the improvements in this indicator, 
particularly reducing the components from four to two and eliminating 
redundancies.
    Response: HUD agrees that it is more appropriate to track all work 
orders, including inspection generated work orders, under indicator #4. 
Indicator #5 now focuses more on a PHA's ability to determine short-
term maintenance needs and long-term modernization needs.
    Comment: Three comments expressed concern about the possible 
subjective interpretation of the adequacy of a PHA's inspection system 
by HUD field staff. A clear and reasonable description of an adequate 
inspection system should be included in the rule.
    Response: The preamble to the proposed rule stated that the 
adequacy of a PHA's inspection program will be part of the confirmatory 
review in terms of the quality of a PHA's inspections, and how a PHA 
tracks both inspections and needed repair, and the adequacy of a PHA's 
inspection system is also included in the new rule. The Department 
recognizes that what is adequate for one PHA may not be adequate for 
another PHA, thereby making this term general in concept. Examples of 
inspection systems will be included in a guidebook on the conduct of 
confirmatory reviews and in the revised PHMAP Handbook 7560.5.
    Comment: Two comments stated that the two components are well 
described and are graded equitably. However, it should be clarified if 
damages caused by residents that are not reported to maintenance for 
prompt repair could be exempted and considered as repairs for code 
compliance.
    Response: If a unique or unusual circumstance were to occur, a PHA 
could request a modification to this indicator to avoid being penalized 
for circumstances beyond its control. However, one of the purposes of 
an annual unit inspection is for a PHA to be able to identify, at least 
annually, the condition of its housing stock. Since this indicator no 
longer measures the amount of time it takes to correct unit/system 
deficiencies, the annual inspection would simply initiate corrective 
action.
    Comment: One comment stated that this indicator is poorly written 
and needs additional clarification.
    Response: The comment is not specific as to where the 
clarifications are needed. The Department wants a

[[Page 68914]]

new PHMAP rule that is clear, concise and easy to understand, and 
welcomes any and all suggestions on how it can achieve that goal. If 
some areas of the rule are unclear to a reader, or needs further 
interpretation, he/she may contact the local State/Area Office for 
assistance.
    Comment: One comment stated that PHAs must have adequate time to 
change the manner in which they track annual inspections and needed 
repairs.
    Response: The Department agrees, and the new rule will apply to 
PHAs whose fiscal year ends the quarter after the publication of this 
rule in the Federal Register.
    Comment: One comment recommended that a confirmatory review of this 
indicator be required each year by HUD or qualified building inspection 
firms that would track whether each item was completed or whether it 
was referred to a work order and when the work order was completed.
    Response: The Department disagrees because these issues are more 
properly examined under indicator #4, work orders. Also, due to the 
lack of resources, risk management is used to determine where 
confirmatory reviews are most needed. However, when HUD conducts a 
confirmatory review of indicator #4, the items mentioned in the comment 
are verified and confirmed.
    Comment: One comment stated that component #2 should have a higher 
weight. The commenter suggested that there should be a new component 
that requires a monthly walk through of the common areas, with the 
results of these inspection being available for HUD monitoring.
    Response: The Department disagrees with both parts of the comment. 
HUD believes that the inspection of units and the inspection of systems 
are equally important to the quality of a PHA's housing stock and, 
therefore, each component is weighted equally. The Department believes 
that adding a new component that requires a monthly walk through of the 
common areas would result in the micromanagement of PHAs.
    Comment: One comment asked why the proposed certification form asks 
the question, ``Percent of units meeting HQS.''
    Response: This question has always been on the certification form. 
The Department requests this information for trending and statistical 
purposes.
    Comment: One comment felt that this indicator has been severely 
weakened. Poor property management may be rewarded simply because 
inspections have been conducted. The necessary follow-up to correct 
identified deficiencies is not addressed in the proposed rule.
    Response: The Department disagrees with this comment because 
inspection generated repair items are tracked under indicator #4, work 
orders.
    Comment: One comment suggested that units under proposed demolition 
and disposition applications that are vacant should be excluded from 
this indicator.
    Response: The Department does not agree with this comment. There 
have been and will continue to be significant differences between 
initiating the application process and receiving approval to dispose or 
demolish.
    Comment: One comment does not agree with the exemption of occupied 
units that the PHA has made two documented attempts to inspect because 
this could become an excuse for PHAs with poor inspection programs.
    Response: The Department disagrees that such a situation is likely 
to happen because the language of the exemption goes on to state that 
PHAs may claim this exemption only if it can document that appropriate 
legal action (up to and including eviction of the legal or illegal 
occupant(s)), has been taken under the provisions of the lease to 
ensure that the unit can be subsequently inspected.
    Comment: One comment observed that the expanded definition of what 
units are excluded from the calculations are an improvement. It seems 
logical to exclude units in the same category as in the vacancy 
indicator. However, there is concern about the exclusion of ``units 
vacant for circumstances and actions beyond the PHA's control.'' The 
concept is too vague. There will be situations cited that may arguably 
be within an agency's control. HUD should, minimally, identify a short 
list of examples as a guide to PHAs and HUD State/Area Offices.
    Response: The Department agrees and this rule has been revised to 
specifically state the allowable exemptions for indicator #5.
    Comment: One comment agrees with excluding units documented as 
uninhabitable, but feels the term should be defined (e.g., condemned by 
local health department). In addition, PHAs with uninhabitable units 
should indicate what plans they have to demolish and dispose of such 
units.
    Response: The language for this indicator already states that units 
that are documented to be uninhabitable by order of the local health 
department may be exempted. To further enumerate all of the possible 
Federal, State or local agencies that could be involved in such a 
process is unnecessary since situations differ from PHA to PHA. 
However, if units have been determined to be in such a state as to be 
designated uninhabitable, HUD strongly recommends that PHAs at least 
inspect these units annually to verify the structural integrity of the 
building. This is particularly important for scattered site units and 
long-term vacant buildings. In addition, a CGP PHA has to address the 
physical needs of all of its developments in its Comprehensive Plan.
Component #1, Annual Inspection of Units
    Comment: Three comments stated that HQS should remain as the 
standard, with the PHA expanding on the HQS requirements to include 
local code items. Otherwise, HUD would need knowledge of many different 
local codes to properly assess PHA actions. The commenters added that 
it would be necessary to adapt HQS at the highest local standard or a 
PHA would have to modify inspection standards based on where the unit 
was located.
    Response: The Department requires that HQS be used as the 
inspection criteria for PHAs only if there are no local occupancy and/
or housing codes that cover a PHA's jurisdiction. The PHMAP Handbook 
7460.5 requires that a PHA comply with local occupancy and/or housing 
codes. Rather than expand on the HQS requirements to include local code 
items, a PHA should expand upon local code requirements to include 
omitted HQS items. If a PHA is dealing with more than one local 
occupancy/housing code within its jurisdiction, the PHA should 
incorporate HQS items into the local occupancy/housing inspection forms 
for each locality.
    Comment: Two comments stated that incorporating maintenance long-
term planning into annual inspections would greatly compromise the 
ability of a PHA to abate common problems. In addition, it is difficult 
to determine if completion of long-term preventive maintenance 
functions (exterior painting, etc.) would be included.
    Response: The Department disagrees with this comment and believes 
that just the opposite is likely to occur. A PHA's ability to abate 
common problems should be greater when a PHA is able to plan for short-
term maintenance needs and long-term modernization needs. Such planning 
will allow a PHA to budget appropriate expenditures from its operating 
budget and modernization program, thereby avoiding possible budget 
short falls. With such planning done on an on-going basis, a PHA can 
focus more resources on day-to-day operations and the abatement of

[[Page 68915]]

common problems. In addition, the completion of long-term preventive 
maintenance items are included at the discretion of each PHA. A PHA may 
decide to fund all exterior painting out of its operating budget, 
painting ``X'' amount of units/buildings each year on a rotating basis. 
Or, a PHA may decide to include 50% of its exterior painting under its 
modernization program, and fund the exterior painting of the remaining 
units out of its operating budget.
    Comment: One comment felt that the proposed indicator does not 
exempt occupied units scheduled for modernization this year or the 
next. Inspection of occupied units scheduled for imminent modernization 
should be limited to an inspection of emergency conditions only. It 
seems wasteful to take the time to write up deficiencies on a unit when 
specifications have been developed and possibly even bid for the 
modernization of the unit. One comment stated that the term ``referred 
the deficiency to the current year's or next year's modernization 
program'' is an incredible loophole simply permitting the existence of 
non-compliant conditions.
    Response: This indicator does exempt a vacant unit undergoing 
modernization as stated in the preamble language and the proposed rule. 
The Department has added new language to the new rule in order to 
clarify the circumstances under which work orders can be deferred to 
modernization. As stated in the definition for this term, only similar 
items can be deferred by a PHA to be completed in the current year's 
modernization program, or to be completed in next year's modernization 
program if there are less than three months remaining before the end of 
the PHA fiscal year when the work order was generated.
    However, before an item is deferred to modernization, it should be 
(1) similar to a work item that is in the current year's modernization 
program, (2) similar to a work item that is in next year's 
modernization program, or (3) similar to deficiencies noted in other 
units/buildings and the correction of such deficiencies has not been 
included in the current or next year's modernization program, but the 
current or next year's Annual Statement is revised to include the new 
work item. If the similar deficiency that was deferred for 
modernization is not corrected in the current or next year's 
modernization program, the work item may no longer be exempted from the 
calculation of this indicator and the deficiency reverts back to being 
tracked through the work order system.
    Occupied units shall be inspected, particularly for detection and 
repair of emergency conditions, as long as they remain occupied. Non-
emergency work orders generated during inspection of occupied units 
scheduled for imminent modernization (this year or the next) should be 
classified as deferred for modernization and not included in the 
computation of this indicator as long as the identified deficiencies 
are part of the work items included in the modernization project.
    Comment: One comment stated that it is not clear whether preventive 
maintenance items, such as repairs to stoves and plumbing, etc., would 
be recorded or tracked. How are they recorded if completed during the 
inspection?
    Response: All preventive maintenance items should be recorded and 
tracked through the work order tracking system. This information will 
enable a PHA to plan for short- and long-term maintenance needs. If a 
minor deficiency is corrected during an inspection, the PHA should not 
retroactively issue a work order for that work item. A minor deficiency 
that is corrected during the inspection is no longer a deficiency, and 
there is no need to issue a work order. However, any parts used to 
complete minor repairs made during the course of an annual inspection 
should be tracked through inventory control.
    Comment: One comment was concerned that many PHAs may misinterpret 
the indicator as suggesting that a PHA must use only local housing/
occupancy code or HQS, and nothing else.
    Response: A PHA should use local housing and/or occupancy codes, 
and should expand upon local code requirements to include omitted HQS 
items, when applicable. In cases where there is no local occupancy and/
or housing code or the local code is less stringent than HQS, the PHA 
should use HQS.
Component #2, Annual Inspection of Systems
    Comment: One comment stated that there is no definition provided 
for the term ``maintenance plan'' and yet it is used as a factor of 
measure for indicator #5, component #2. The use of this term appears to 
be with an appropriate intent to allow for the fact that a major system 
that has been inspected and documented to be in good repair does not 
require another inspection in the following year. An effective PHA 
systems maintenance plan could appropriately reschedule the system for 
inspection three years later. If the system is new, after the first 
year of operation, testing it might not need to be rescheduled until 
five years later. A maintenance plan would document the performance of 
appropriately scheduled preventive maintenance on systems. Only safety 
systems and those required to be inspected and certified annually by 
State law for safety reasons should require annual inspection. If the 
intent of this provision is the use of the term ``maintenance plan'' is 
to allow for this fact, it should be clearly stated as such. Otherwise, 
different Field Offices will be left to subjectively interpret the 
meaning of this term and its applicability in the determination of PHA 
performance under indicator #5.
    Response: The Department agrees that the term ``maintenance plan'' 
should be defined. It is defined in the rule as a comprehensive annual 
plan of a PHA's maintenance operation by providing the total year's 
estimated work schedule supported by a staffing plan, contract 
schedule, materials and procurement plan, training, and approved 
budget. The plan should establish a strategy for meeting the goals and 
time frames of the facilities management planning and execution, 
capital improvements, utilities, and energy conservation activities. 
The Department disagrees with the rest of the comment because this 
component examines whether a PHA inspects all of its systems at least 
annually to ensure the viability of the units/buildings and the 
provision of safe, sanitary and decent housing.

Section 901.35  Indicator #6, Financial Management

Component #1, Cash Available
    Comment: Eight comments specifically approved of combining the cash 
and energy/utility consumption components; three more comments 
specifically approved of the cash available component.
    Response: The comments are noted by the Department.
    Comment: Three comments objected to the combination of cash 
available with energy/utility consumption and/or to the use of one or 
the other as a measure of financial management. Commenters stated that 
energy is not a measure of financial management and that available cash 
is not a measure of energy management.
    Response: The Department disagrees. Although the amount of cash on 
hand is not by itself a measure of energy management, efficiencies in 
operation and in energy/utility consumption will reduce expenditures 
and thereby affect cash available.

[[Page 68916]]

    Comment: Nine comments stated that the indicator should include 
other factors such as ratio of reserves to expenses over a period of 
time, an assessment of audit findings, average monthly cash reserves 
instead of a ``snapshot'' of cash available at fiscal year end, ability 
to maintain expenses within budget, ability to maintain an adequate 
reserve level for contingencies, or that the existing interim 
indicators should be retained.
    Response: The Department does not disagree that there are a number 
of additional factors that could be measured as an indication of good 
financial management. However, the review of existing PHMAP procedures 
was done with the intent of streamlining and of limiting the number and 
content of the indicators to the basic information that could be used 
for performance measurement. This review process intentionally resulted 
in fewer, not more, indicator measurements. Maintaining a minimum level 
of liquidity was determined to be a basic requirement for financial 
management that should be an essential part of performance measurement.
    Comment: Nine comments expressed concern that the terms ``cash 
available,'' ``cash reserves,'' and ``routine operating expenses'' were 
not adequately defined and would lead to inconsistent reporting on the 
part of PHAs. One comment stated that the sample worksheet should be 
revised to be computer friendly. One comment stated that the ``Analysis 
of General Fund Cash Balance'' should be used in lieu of the sample 
worksheet. One comment stated that the sample worksheet should match 
the information on form HUD-52595, Balance Sheet, because it would be 
difficult for small PHAs to identify accounts receivable/payable that 
would be active within 30 days.
    Response: The Department notes that the sample worksheet is 
intended as guidance to the PHA in determining the cash available to 
meet routine operating expenditures, but its use is optional. ``Routine 
operating expenses'' are identified on the worksheet as being those 
reported on form HUD-52599, Statement of Operating Receipts and 
Expenditures, Line 520, Total Routine Expense. If a PHA experiences 
one-time expenditures in a given year that would distort the use of 
Line 520 information for the indicator, the PHA may request a 
modification. If PHAs follow the practice of aging their accounts 
receivable/payable, determining those that would be active within 30 
days should not be a problem, and if the accrual information is 
immaterial to the computation, it need not be included. The use of 
information directly from form HUD-52595, Balance Sheet, would be 
possible only in the case of a PHA with no programs other than the 
management of PHA-owned rental. For the same reason, the Department 
does not think that the ``Analysis of General Fund Cash Balance,'' 
which is based on form HUD-52595, is a substitution for the sample 
worksheet since the Analysis does not, without further calculation, 
provide the user with the amount of cash specifically available for 
PHA-owned rental operations. In any case, the sample worksheet is 
optional and a PHA may choose to develop its own format and procedures, 
as long as its results are the same as would be derived by utilizing 
the optional worksheet.
    Comment: Five comments stated that the indicator penalizes PHAs for 
using reserve dollars to operate, and two comments expressed concern 
that small PHAs will never be able to accumulate sufficient cash to 
score well on the indicator.
    Response: The Department recognizes that PHAs must make choices in 
the use of funds and that there are circumstances that may make it 
difficult to achieve or to sustain a given level of cash, or that may 
reduce available cash on a short term basis. However, HUD also 
recognizes that in order to function in a financially responsible 
manner a PHA must have a minimum amount of cash on hand to cover day-
to-day routine expenditures. Available cash to cover one month's 
routine expenditures would be 8.33% of total routine expenditures; a 
PHA does not fail this indicator unless the percentage is less than 5%. 
In order to meet its monitoring responsibilities, it is important that 
the Department take note of such PHAs and of the circumstances that are 
affecting their cash flow situation.
    Comment: Three comments asked if the cash available calculation was 
to be adjusted for subsidy proration or year end adjustments for 
subsidy.
    Response: The sample worksheet for indicator #6 has provision for 
including year end adjustments for subsidy in determining cash 
availability. The difference between subsidy eligibility and the 
prorated subsidy amount is not included because the amount of the 
difference will not be realized in cash payments.
    Comment: One comment stated that percentages should be applied to 
PHAs of all sizes since $3 million in cash for a large PHA might not be 
enough to cover unexpected financial difficulties. One comment stated 
that dollars, not percentages, should be applied to all PHAs.
    Response: The indicator measures cash available to cover routine 
expenditures, not unexpected cash needs for emergencies. The new 
indicator is measured in percentages because a percent gives a more 
flexible basis for evaluation than a flat dollar amount.
    Comment: One comment expressed concern that the indicator would 
encourage PHAs to exercise poor financial judgment by deferring needed 
maintenance expenditures in order to maintain a large cash balance and 
score well on indicator #6.
    Response: The Department disagrees. Indicator #6 is but one 
indicator in a group of indicators intended to measure PHA performance; 
two other indicators (#4 and #5) measure the PHA's performance in the 
area of maintenance.
    Comment: One comment stated that the available cash should take 
into consideration funds that might be available from local government 
to help the PHA.
    Response: The Department disagrees that the PHA potential to tap 
the local government for funds should be automatically included in 
determining the amount of cash available. Unless the local government 
is legally required to subsidize the operation of the PHA, there is no 
assurance that the local government's willingness or ability to provide 
funds to the PHA will continue in the future.
Component #2, Energy Consumption
    In the proposed rule, the Department indicated particular interest 
in receiving comments from PHAs as to whether they preferred Option A, 
Option B or the choice of being able to use either option for their 
PHMAP certification and assessment. Option A compares energy/utility 
consumption expenses to the average of those computed on a three year 
rolling base and Option B measures whether or not a PHA has conducted 
an energy audit and implemented the improvements recommended as a 
result of the energy audit.
    Comment: Nine comments preferred a choice of either Option A or 
Option B. Four comments stated a preference for Option B.
    Response: The Department adopts the preferred approach of the 
majority of comments, which offers PHAs required to be assessed on this 
component a choice of either Option A or Option B.
    Comment: Five comments stated that the energy/utilities component, 
Option A, should be based on consumption instead of dollars expended 
since PHAs don't have any control over the utility rate charged by 
local utility companies.

[[Page 68917]]

    Response: The Department agrees and the proposed PHMAP energy/
utilities component, Option A, does measure energy/utilities 
consumption rather than dollars. The sample worksheet for computing 
Option A compares a PHA's current consumption to its rolling base 
period consumption. In comparing Line 17 to Line 13 of form HUD-52722B, 
Adjustment for Utilities Consumption and Rates, the rolling base period 
consumption is adjusted prior to the comparison with the current year 
to reflect the current year's rates. Since the same rates are used, the 
only difference in the amounts compared is due to consumption. The 
wording of the proposed rule regarding Option A in the preamble may 
have been confusing in this regard and this option has been revised to 
refer to energy/utility consumption expenses.
    Comment: Three comments stated that the upgrading of equipment, 
e.g., the addition of security lighting, affects consumption and that 
PHAs should not be penalized. One comment stated that PHAs should not 
be penalized for positive initiatives, such as increased utilization by 
resident initiatives and family self-sufficiency participants, that 
result in increased consumption for office buildings.
    Response: The Department agrees that a PHA should not be penalized 
for increased energy/utility consumption due to upgrades of equipment 
such as adding security lighting for safety, etc., and resident 
initiatives programs. Therefore, with sufficient supporting 
documentation, a PHA may request a modification to exempt the excess 
energy/utility consumption from the calculation of the energy/utility 
component, Option A. The Department anticipates the issuance of a 
revised PHMAP Handbook 7460.5 subsequent to the effective date of the 
new rule. Examples of eligible modification requests and required 
supporting documentation will be included in the Handbook.
    Comment: One comment stated that the component should be named 
``utility consumption'' rather than ``energy consumption'' since water 
and sewer charges are a utility expense for PHAs, not an energy source.
    Response: The name of the component was, in fact, changed from 
``energy'' to ``energy/utility'' in the proposed rule to reflect the 
fact that water and sewer charges, which are now included in the 
consumption measurement, are, as the comment states, a utility expense 
for PHAs, not an energy source. This component is referred to as 
``energy consumption'' in the new rule, with Option A referred to as 
``energy/utility consumption expenses.''
    Comment: One comment stated that the cost of utilities, in 
comparison with other operating expenses, is not sufficient to justify 
a PHMAP indicator when other expenses are not measured at all under the 
PHMAP.
    Response: The Department disagrees. Currently, PHA utility expenses 
exceed $1 billion annually and represent over one-quarter of PHA 
operating expenses. It is clear that the cost of utilities is a major 
operating expense that must be addressed on an on-going basis by 
management. Congress recognized the importance of this issue by 
including it in the statute as one of the mandatory indicators. 
Therefore, the cost of utilities must be included in the PHMAP 
assessment.
    Comment: One Comment supported the elimination of measuring energy/
utility consumption for those PHAs scoring C or higher for component 
#1, but stated that the energy audit rule at Sec. 905.302 should be 
revised to require an audit every five years only for PHAs that score 
lower than C. Otherwise, the Comment states, comparing energy and 
utility cost to the average of a three year rolling base should be 
eliminated as unnecessary.
    Response: The Department disagrees. The Department addressed this 
concern regarding audits for standard and high performers at the time 
it issued the final rule at 24 CFR part 965 earlier this year. At that 
time, it was noted that PHA utility expenses exceed $1 billion 
annually, and the appropriation for operating subsidy for fiscal years 
1994 and 1995 was sufficient to fund PHAs at 95% and 96%, respectively. 
In fiscal year 1996, the appropriation for operating subsidy was only 
sufficient to fund PHAs at 89%. It is not guaranteed that future 
appropriations will result in a higher percentage of funding. Hence, 
the Department must ensure that PHAs conduct audits as one means of 
holding down operating costs, including the cost of utilities, and 
ensuring that the limited funds available for operations are used as 
efficiently as possible.
    HUD's Office of Inspector General (OIG) recently completed an Audit 
Report entitled ``Review of Opportunities to Reduce Utility Costs At 
Public Housing Authorities.'' The OIG report was based on visits to 
approximately 63 PHAs that manage 41% of the 1.3 million public housing 
units nationally. The OIG indicated that, despite past efforts, 
opportunities for reducing utility costs continue to exist and are cost 
effective in many instances due to ongoing improvements in technology. 
PHA managers need to be aware of, evaluate, and give maximum 
consideration to these ongoing and new opportunities when managing 
their utility costs. The OIG further states, that, because of 
improvements in technology, managing utilities is a continuous process 
that requires an ongoing energy management program.
    Comment: One Comment stated that the rule needs a definition of 
``energy audit'' and ``cost effective'' so that PHAs know how to 
determine what is ``cost effective'' and what is not. In addition, the 
Comment stated that the rule should also cross-reference the location 
of any applicable HUD guidance on the matter.
    Response: The terms referenced by the Commenter have previously 
been defined at 24 CFR 965.303, PHA-Owned or Leased Projects-
Maintenance and Operation. However, as a result of President Clinton's 
regulatory reinvention efforts and Executive Order 12866, Regulatory 
Planning and Review, issued by President Clinton on September 30, 1993, 
HUD commenced a comprehensive review of all of its regulations to 
determine which regulations could be eliminated and streamlined. One 
such review was with respect to 24 CFR part 965. The Department favored 
providing PHAs with more flexibility to meet local custom and 
eliminated those definitions. The Department still believes that those 
definitions still represent a reasonable description for those terms 
and may be used by PHAs. The revised PHMAP Handbook 7460.5 will include 
cross-references to applicable HUD issuances as appropriate.
    Comment: One Comment stated that the energy/utility component could 
be greatly improved by lowering the standards and recommended adopting 
a standard of a 10% increase for a grade C level performance and a 4%-
5% increase for a grade A.
    Response: The Department believes that the current percentage 
ranges are equitable and that a choice of using Option A or Option B, 
which the Department has decided to adopt, offers PHAs much greater 
latitude with regard to the energy/utilities component.
    Comment: One Comment stated a preference to let Option A stand as a 
separate indicator as it does now since Option B (energy audits) is not 
funded by the Department.
    Response: The Department disagrees with this rationale on the basis 
of its belief that a sound energy management program is fundamental to 
good property management and that energy audits are a cost of doing 
business that should be included as a part of an agency's budget.

[[Page 68918]]

    Comment: One Comment stated that, for purposes of PHMAP, Option A 
should be modified to reinstate the HDD factor. One Comment stated that 
if HDDs are not considered for PHMAP, the rolling base period should be 
extended so as not to distort energy expenditure trend data due to 
abnormal weather. One Comment stated that the elimination of the HDD 
factor no longer offers adjustments for unusually harsh winters.
    Response: The Department agrees that HDDs should be considered for 
purposes of PHMAP if an HDD adjustment would significantly affect a 
PHA's assessment. For purposes of PHMAP, therefore, a PHA may request a 
modification to adjust consumption using an HDD adjustment for space 
heating utilities provided that the same data source is used for the 
current year as well as the three year rolling base period. The HDD 
factors used by a PHA are subject to HUD State/Area Office approval.
    Comment: One Comment recommended the elimination of Option A due to 
conditions beyond the control of the PHA (e.g., rate increases) or 
positive initiatives (e.g., increased resident programs that have 
resulted in increased consumption to provide facilities for these 
activities).
    Response: As previously discussed, Option A measures only 
consumption, not rate, increases and increased consumption due to 
special circumstances, e.g., resident initiatives programs, will be 
addressed in a revised PHMAP Handbook 7460.5.
    Comment: One Comment proposed that Option B be modified to permit a 
passing grade for PHAs that have conducted an energy audit and have an 
implementation plan for all items in the audit in that it may not be 
feasible to implement all recommendations given insufficient funding 
and other priorities relating to health and safety.
    Response: The Department agrees. A PHA may achieve a grade C under 
Option B if it has completed the energy audit, developed an 
implementation plan and is on schedule with its implementation 
schedule, based on available funds. The implementation plan should 
identify at least the items from the audit, the estimated cost, the 
planned funding source (e.g., funds from 1998 operating budget, 1998 
CGP, etc.) and the anticipated date of completion for each item. The 
Department has changed the language in the new rule to reflect this 
comment.
    Comment: One Comment expresses concern that at the time of a PHMAP 
self-certification, an audit report may have just been issued or may be 
five years old. The Comment states that this would give some PHAs an 
advantage and force others into an F grade. The Comment also questions 
whether a PHA should implement all cost effective recommendations, 
e.g., it may be cost-effective to use gas appliances rather than 
electric, but could create a carbon monoxide danger in units of a 
certain design. Other recommendations may be cost-effective over a very 
long payback period but there may be higher priority needs. The Comment 
recommends that Option B refer to an energy audit completed at least 
two years earlier and implementation of all recommendations with a 
payback period of five years or less unless the PHA has established 
good cause for not implementing them.
    Response: The Comment lacks specificity as to exactly how the 
Commenter believes that the existence of an audit just issued or which 
may be five years old will give any PHA an advantage. Not all PHAs are 
going to do audits at the same time, nor would the Department expect 
them to. As such, some PHAs will be completing work from a previous 
audit while other PHAs are planning new work from a recently completed 
audit. The Department does not have a problem with this sequence as it 
expects energy management to be a constant, ongoing and evolutionary 
process. Therefore, HUD has determined not to revise Option B to refer 
to an energy audit completed at least two years earlier, and not to 
adopt the suggestion that PHAs implement all recommendations with a 
payback period of five years or less unless the PHA has established 
good cause for not implementing them.
    The Department has no problem with eliminating an otherwise cost 
effective energy conservation measure (ECM) if the existing design 
would render the measure hazardous. Issues such as this should be a 
consideration during the development of the audit itself. At that 
point, consideration would have to be given to the cost of work 
necessary to make the ECM safe. If all costs are considered, including 
the additional hazard, the ECM would likely not be cost effective.
    The Department believes that a two year audit period is excessively 
short and unnecessarily burdensome on PHAs, and has included in this 
component the existing five year frequency contained in 24 CFR part 
965. As noted above, during HUD's streamlining process of 24 CFR part 
965, the definition of cost effective (a pay back period of 15 years or 
less) was eliminated. HUD favors giving PHAs the flexibility to 
determine what is cost effective. Therefore, HUD will not adopt the 
recommendation of requiring incorporation of EMCs with a five year 
payback. The revised PHMAP Handbook 7460.5 will include cross-
references to applicable HUD issuances, as appropriate.
Indicator #7, Resident Services and Community Building--Section 901.40

General Comments

    Comment: One comment stated that this indicator combines several 
distinct elements with the grading system, requiring a PHA to score an 
A on each element in order to score an A on the indicator. The comment 
added that these elements should be reorganized as separate components 
within the indicator and the indicator grade should be a composite of 
the component scores, as is the pattern in the other PHMAP indicators.
    Response: The Department agrees with the comment and the new rule 
reflects the changes. The new resident services and community building 
indicator is now subdivided into four equally weighted components, and 
the indicator or the individual components are subject to exclusion 
based on the particular circumstances of each PHA. The name of this 
indicator has been renamed ``Resident Services and Community Building'' 
to place a more accurate emphasis upon the specific role of PHAs for 
these functions.
    Comment: One comment suggested that the criteria for this indicator 
should recognize innovations in program design or implementation beyond 
the traditional grant programs that often require considerable effort 
and resourcefulness.
    Response: The Department agrees that PHAs should promote innovation 
in the implementation of resident programs, especially if this results 
in linkages to additional resources and measurable results. The 
subdivision of the indicator into four components will provide more 
flexibility to recognize this type of innovation when assessing the 
indicator. The Department will provide further guidance, in the form of 
examples of activities that PHAs could get credit under each one of the 
components, in the revision of the PHMAP Handbook 7460.5.
    Comment: One comment indicated agreement with the reduction of 
weight factor from triple weight but suggested that a reduction to a 
weight of x1.5 would be more appropriate.
    Response: The Department disagrees with the comment. A weight of x1 
in the new 100 point system represents 10% of the score. A weight of x3 
in the current 220 point system represents 13.6% of

[[Page 68919]]

the score. It should also be considered that some elements of the 
current resident initiatives indicator are now covered in the new 
security indicator. The Department feels that the weight assigned to 
the new resident services and community building indicator is adequate.
    Comment: One comment stated support for a PHMAP indicator measuring 
resident involvement, but expressed disappointment with the language of 
the proposed rule and indicated that the current rule gives more 
flexibility and offers a broader base for resident participation. 
Another comment stated that the proposed scoring aspects of the 
indicator appear unrealistic. Both comments suggested HUD retain the 
current indicator.
    Response: The Department disagrees that the current resident 
initiatives indicator should be retained, without changes, in the new 
rule. The Department agrees that the indicator required some 
clarification in order to make it easier to assess and score and the 
new rule reflects those changes.
    Comment: Two comments requested that the term ``on-going management 
issues'' be defined. The comments argued that this is a very broad term 
and could create problems if PHAs are required to pass all on-going 
management issues by the residents because business delays would be 
very costly. The comments stated that this is not a practical 
requirement and that the term ``ample opportunity'' is too vague. 
Another comment requested that the terms: ``Section 3 program,'' 
``monitors progress,'' ``issues reports,'' ``encouraged the formation 
of a resident council,'' ``mechanisms to ensure residents have ample 
opportunity for input,'' and ``percent of goals met under 
implementation plan'' be defined in the rule.
    Response: Many of these terms have either been revised, or the term 
is defined elsewhere in the Code of Federal Regulations. The Department 
will add any applicable guidance regarding such terms in the revised 
PHMAP Handbook 7460.5.
    Comment: The Department received several comments regarding 
applicability of this indicator to small PHAs. One comment stated that 
it is impossible for small PHAs to organize a workable resident 
initiatives program with part-time staff and that the indicator imposes 
too much extra work and is an administrative burden for small PHAs. 
Another comment indicated that small PHAs don't have the resources to 
handle this workload and residents don't have the interest. Five 
comments proposed that PHAs with 100 units or less be exempted from 
this indicator and that only large PHAs be assessed under it.
    Three comments suggested that the indicator be removed for all 
housing authorities, or revised to consider only PHAs of 250 or more 
units. The comments proposed that as a minimum, PHAs with 249 or less 
units should be exempted. The comments argued that HUD has used 249 or 
less units as criterion for ``small housing authorities'' for nearly 
all aspects of funding such as CIAP vs. CGP, Youth Build Grants, 
Vacancy Reduction Grants, or Tenant Opportunity Program grants. Another 
comment indicated that maybe this indicator exclusion should be for all 
PHAs with less than 500 units.
    One comment stated that small PHAs should be assessed under the 
indicator because residents of these PHAs also have a right to 
involvement in PHA management. One comment indicated that under the 
proposed changes, HUD has the appearance that it no longer cares what 
these smaller PHAs are doing. Another comment added that all PHAs 
should be assessed under the indicator in order to ensure that they are 
informed of the programs available and are conforming, to the best of 
their ability, to the Section 3 program. One other comment stated that 
since many PHAs over the past three years have gotten extensively 
involved in aspects of resident initiatives, it seems unfair to 
automatically exclude the efforts of those who have performed and 
earned merit. Another comment suggested that PHAs with 100% elderly 
units be excluded from this indicator.
    Response: The Department agrees that since it has used fewer than 
250 units as a threshold for ``small housing authorities'' for nearly 
all aspects of funding, the same criterion should and is being used for 
applicability of this indicator. This policy is consistent with the 
Tenant Participation and Tenant Opportunities regulation (24 CFR part 
964) which has a participating threshold of 250 units, and it is also 
utilized in the CGP. In addition, PHA's with 100% elderly developments 
will not be assessed under this indicator. To avoid penalizing small 
PHAs with active programs, PHAs with fewer than 250 units or with 100% 
elderly developments may request to be assessed under the indicator at 
the time of PHMAP certification submission.
    Comment: Two comments indicated that what this indicator measures 
is not a property management issue, but a social issue related to PHAs. 
The provision of social service support is not a function of PHA 
management any more than it is a function of privately owned or Section 
8 residential property management.
    Response: The Department understands that active resident 
participation and involvement have a direct affect on property 
management and are a key element to a successful, well managed public 
housing community. The Department provided a separate resident 
initiatives indicator and component on resident involvement in PHMAP 
because there is considerable evidence that resident services programs 
can help to promote and sustain housing authority management successes. 
Various tenant participation initiatives (patrols, neighborhood clean-
ups, etc.) can reduce vandalism and project maintenance. Resident 
employment initiatives get residents involved in positive pursuits and 
employed residents can act as role models for others. Overall, 
involving residents in the various facets of property management--as 
trainees in a landscaping project or as participants in screening 
prospective residents--can showcase self-improvement and individual 
responsibility and contribute substantially to building positive and 
strong public housing communities.
    Comment: Two comments requested HUD to clarify if the indicator 
intends to ``examine efforts'' or to ``require efforts'' and argued 
that it seems that it has been prescribed to require PHAs to develop 
and administer programs that at times are not funded by HUD, are not 
long-term commitments by HUD, and in most cases, the results of 
performance are predicated on the residents' willingness to 
participate. It is not equitable to score a PHA on items that are 
beyond the PHA's control. It is equitable to request PHAs to adopt 
resolutions encouraging participation. Another comment indicated that 
this is an unfunded mandate.
    One comment stated that the performance message has now been 
confused with compliance items. Another comment indicated that PHMAP is 
intended to be a performance-based assessment system in which 
indicators must be written so that standards and criteria are clear, 
measurable, and capable of being duplicated from one PHA to another. 
The comment added that too much of this indicator is process-oriented, 
not performance-based and that adopting programs and ``mechanisms'' is 
administrative process and offers no guarantee or measure of results. 
One other comment stated that the indicator, as currently structured, 
will be very difficult to grade and will produce very inconsistent 
results. Three comments recommended that this indicator be

[[Page 68920]]

deleted entirely because it measures process and not outcomes.
    Response: This indicator has been revised to hold PHAs accountable 
only for the functions they perform in operating resident services 
programs. The indicator has been subdivided into four separate 
components to make it easier to assess and grade: economic uplift and 
self-improvement; resident organization, resident involvement; and 
resident programs management. Each has been reshaped to address the 
public comments, especially to focus solely on the PHA's 
responsibilities for resident services. The indicator has been renamed 
``Resident Services and Community Building'' to place a more accurate 
emphasis upon the specific roles of PHAs for these functions.
    In response to concerns about short-term resident initiatives 
funding, it should be emphasized that PHAs would only be assessed for 
programs for which it has been funded. PHAs could also get credit for 
programs implemented through a partnership, for which the funding was 
made available through another of the partners.
Component #1, Economic Uplift and Self-Improvement
    Comment: One comment stated that under the proposed changes, HUD 
adds a Section 3 requirement that has mixed adherence throughout the 
country. Another comment indicated that in small communities there are 
very few Section 3 programs and if there is one and the contractor's 
contract calls for them to hire Section 3 people, all a PHA can do is 
inform the residents that they may apply. One other comment argued that 
the implementation of Section 3 programs and the number of residents 
hired by the PHA is not a measure of its management. The comment 
concluded that resident self-sufficiency and related programs don't 
have any place in a management assessment program.
    One comment indicated that to implement Section 3 training, you 
must have residents willing to participate. It stated that most of 
their residents are elderly, handicapped or have very small children 
and many are not able to work. Another comment stated that the Section 
3 program may be disadvantageous to large municipalities facing a 
hiring freeze. Another comment stated that Section 3 is a mandate for 
any department using federal funds, and should not be a centralized 
program, as indicator #7 seems to require. It added that there seems to 
be no final rule for Section 3 in Public Housing (24 CFR part 135) and 
its status seems in doubt.
    One comment mentioned that it does not have a concern with the 
Section 3 program emphasis because it has a great program now, but it 
is concerned with future funding and the impact if no new funding is 
available to continue the program. One comment agreed with the 
Department's efforts to emphasize the Section 3 program and another 
comment recommended that PHAs be required to show results in employment 
efforts in subsequent years to add to the results oriented focus. One 
other comment stated that it is difficult to be consistently abreast of 
a PHA performance under Section 3 and resident employment and suggested 
that it must be a PHA requirement to report resident employment to the 
HUD office in order to assess this criteria. Another comment stated 
that Section 3 is already a requirement and argued that PHAs should not 
get credit for something they are already required to implement. It 
further suggested that credit be given only for those things that PHAs 
do that are over and above HUD requirements such as internship programs 
or on the job training plans and also for using CGP funds to assist 
resident groups and develop security measures.
    Response: The inclusion of an employment-related subcomponent in 
the resident initiatives indicator reflects the Department's emphasis 
on economic uplift as a proactive means to reducing dependency, and as 
mandated by the recent welfare reform legislation. The Department 
understands that there is considerable evidence that the increase in 
working families is very beneficial to property management. Because of 
the importance of this area, the Department wishes to give PHAs credit 
for the leadership role they can perform in employment-related 
initiatives. The Department has expanded the definition to include all 
employment-related initiatives, not just Section 3 or those in the 
public sector. Section 3 is effective as an interim rule and should be 
viewed as one tool in employment related initiatives.
    In response to comments that the indicator be strengthened, 
language has been added to the indicator to require the PHA to provide 
evidence that they have one or more economic uplift and self-
improvement programs and partnerships for economic uplift, including 
but not limited to, Section 3 initiatives. Such opportunities can be 
provided either directly or through non-PHA partners. The Department 
believes it is important for PHAs to get credit for their initiatives 
in promoting employment opportunities for residents. It is expected 
that PHAs will provide data on the number of residents by development 
in employment-related programs as well as evidence of the number of 
residents obtaining employment. PHAs can use Multifamily Tenant 
Characteristics System information to measure employment.
    While the Department is supportive of PHAs efforts to measure 
employment, the indicator only requires that PHAs implement programs 
(HUD funded or non-HUD funded through partnerships) in its family 
occupied developments and set up and implement a system for measuring 
progress. The Department is not trying to dictate specific numeric 
employment goals but rather emphasizing activities that help measure 
PHA effort in implementing these programs.
Component #2, Resident Organization
    Comment: One comment stated that HUD's encouragement of a resident 
council at each family development site assumes that resident councils 
are an absolute for every family development, regardless of the size of 
the development. Resident councils for some small developments are not 
only not necessary, but impractical. Another comment indicated that 
family developments are often built on scattered sites throughout a 
wide geographical area. The comment added that it is next to impossible 
to establish a resident council under these conditions and that this 
goal should be voluntary in these situations.
    Response: Current HUD requirements give PHAs and resident 
communities the flexibility to determine how resident councils are 
organized. There is no specific requirement for a resident council at 
each development. The local public housing community should determine 
what kind of representation system suits its needs and makes the most 
sense. In larger developments, a separate resident council is merited. 
In smaller PHAs, a city-wide council may be more appropriate.
    Comment: One comment stated that the current rule is supportive of 
resident councils and other resident groups while the proposed rule is 
too restrictive because it only makes reference to resident councils. 
The comment added that, while highly desirable, it is not always 
possible to organize and conduct development-wide elections and it 
urged the Department to reinstate the ``or other resident groups'' 
language of the current rule. Three comments suggested that the 
indicator reference to resident councils at each PHA family development 
should be changed to specify ``HUD recognized resident councils.''
    Response: HUD is supportive of all resident organizations that work 
to benefit the residents, but the indicator

[[Page 68921]]

does not pretend to cover all possible forms of resident organization. 
The Department considers that resident councils, as official vehicles 
of resident representation, should be encouraged and the indicator 
measures PHA efforts to promote this goal. In regards to the issue of 
``HUD-recognized resident councils,'' the Department understand that it 
is not HUD's role to certify resident councils and that it is the PHA's 
responsibility to certify if such organizations have been formed in 
compliance with approved regulations, policies and procedures.
Component #3, Resident Involvement
    Comment: Four comments stated that PHAs should not be penalized for 
lack of participation by the residents provided the PHA promotes self-
sufficiency programs and community involvement. The comments indicated 
that PHAs may offer a variety of programs and training for residents, 
but they cannot make residents attend and participate. Another two 
comments recommended that an exclusion of the indicator be permitted in 
such cases where a PHA can show that the residents are not interested 
in forming a resident council and do not want to be involved in any of 
the programs covered by this indicator. One other comment also 
recommended to make each component potentially able to be excluded, 
based upon PHA's situation. Two comments stated that this indicator 
cannot accurately establish levels of participation, interest, etc., of 
the residents, it only measures the level of opportunities the PHA 
makes available to its residents. Therefore, it cannot measure 
performance.
    Response: The Department agrees that PHAs cannot be made 
responsible for lack of interest by residents in organizing resident 
councils, but PHAs can be assessed on their efforts to promote and 
facilitate the organization of resident councils by activities such as: 
facilitating space for meetings, providing training, access to bulletin 
boards, helping to schedule and promote meetings, approving Board 
policies and developing PHA procedures for certifying resident 
councils.
    In response to some of the concerns expressed in the comments, the 
Department changed the indicator to subdivide it into four components. 
This component measures PHA efforts regarding resident councils, and 
PHA collaboration and support to existing resident councils or to those 
that are in the process of being organized. A PHA is not responsible 
for the formation or continuation of resident councils as these 
functions are the responsibility of the resident councils. The 
Department is making the indicator and each of its components subject 
to exclusion. This would certainly apply to cases where the PHA can 
show evidence that it has predominately scattered site units and that 
residents are not interested in these programs. The Department will 
provide additional guidance to PHAs on this issue in the revision of 
the PHMAP Handbook 7460.5.
    Comment: Three comments indicated that resident involvement is 
simply not an appropriate measure of a PHA's management capability.
    Response: The Department disagrees and as mentioned earlier, 
believes that active resident participation and involvement have a 
direct affect on property management and are key elements to a 
successful, well managed PHA. In addition, there is considerable 
evidence that resident involvement and resident services programs can 
help to promote and sustain housing authority management successes.
Resident Surveys
    Comment: One comment stated that resident surveys would be time 
consuming, but may be helpful. Another comment suggested that PHAs 
should be required to complete a resident survey on the fear of crime 
and the measure of disorder in each community once a year.
    Two comments stated that resident surveys are most important in 
order to establish programs in which the residents are interested and 
suggested that PHAs be required to report on whether they conduct 
resident surveys for modernization or whether the PHA attempts to 
conduct resident surveys or communicates with newsletters. Five other 
comments expressed support for resident surveys, with one proposing an 
annual standardized survey used as a learning tool by PHAs and another 
three arguing that standardized surveys should only be used as models 
for PHAs to develop locally oriented surveys.
    One comment suggested that resident surveys be optional for well 
managed PHAs and required under the MOA for troubled PHAs. Another 
comment stated that conducting resident surveys is a good idea, but HUD 
should allow PHAs to complete regular surveys in lieu of HUD's mandated 
ideas of what resident involvement means.
    Two comments indicated that PHAs should be encouraged, but not 
required, to conduct such surveys, with HUD assisting in the 
development of survey formats and data analysis models that PHAs may 
use for this purpose. The comments argued that if HUD wishes to use 
customer satisfaction as the basis for the PHMAP score, then HUD should 
conduct the survey itself using some type of sampling technique that 
employs consistent and statistically reliable methods. Another comment 
expressed concern with the feasibility of implementing this measure in 
small PHAs with a majority of elderly and residents with disabilities.
    Another comment stated that consumer satisfaction is critical in 
public housing and a survey of residents may be a way to gauge 
satisfaction. Surveys should not be conducted by PHAs; that would add 
too much paperwork and residents would feel inhibited to express their 
true feelings. Surveys should be conducted by private contractors, 
using a standardized form on a statistically significant sample of 
residents (using MTCS data to assure a diverse and representative 
group) from each PHA. The results would be shared with HUD and the PHA.
    Ten comments stated that resident surveys as suggested would only 
amount to more paperwork with few, if any, tangible results. A survey 
completed by the resident council or advisory board would be more 
accurate and more useful. Another three comments stated that the 
present contact with residents is sufficient to adequately assess their 
level of satisfaction. One comment indicated that no new unfunded tasks 
should be imposed on PHAs through PHMAP.
    Four comments indicated that surveys, by their nature, are 
subjective in orientation and often reflect the goals of the entity 
doing the survey. There are too many variables which would affect the 
responses. To direct PHAs to design and implement their own surveys 
would be a self-serving exercise of little real value. For HUD to 
develop a standard survey to be used by every PHA, each with its own 
set of problems and capabilities, would result in a document devoid of 
any real meaning. Another two comments stated that surveys are complex 
to develop and can be resented or distrusted by residents. Four 
comments expressed concern with the cost to PHAs of implementing 
resident surveys and indicated that a national format is not a good 
idea because of the special local conditions. Another comment stated 
that PHAs shouldn't be penalized for lack of resident response to these 
surveys.
    Two other comments argued that total consumer satisfaction is 
impossible to achieve and even more difficult to measure. Requiring 
PHAs to conduct periodic surveys for this purpose is an undue burden, 
especially on large PHAs

[[Page 68922]]

where housing projects are distant from one another and from the PHA.
    One comment recommended that this be a voluntary activity and that 
it not be included in performance measurements. Another comment 
requested HUD to provide technical assistance in the area of assessing 
consumer satisfaction, but discouraged the creation of a new reporting 
requirement. HUD could distribute information to PHAs on how to design, 
develop and implement resident satisfaction surveys. It is unrealistic 
to expect that a single resident survey instrument will necessarily be 
meaningful to every PHA and every resident population. In times of 
diminishing operating subsidies, HUD should not force PHAs to conduct 
such surveys only for the sake of PHMAP.
    Response: In response to the comments, the Department decided not 
to require the implementation of resident surveys as part of the PHMAP 
process. Although it is not required, PHAs may consider the voluntary 
use of this optional tool to obtain resident input and to measure 
resident involvement and satisfaction.
    The Tenant Participation and Tenant Opportunities regulation (24 
CFR Sec. 964) stipulates that PHAs shall encourage full resident 
participation and partnership with the PHA. The Department does not 
want to provide overly specific instructions to PHAs, but instead wants 
to offer options for alternative approaches for promoting constructive 
resident participation and customer satisfaction. Therefore, the 
component on resident participation has been changed to require a PHA 
to provide evidence that the PHA is providing meaningful ways to 
communicate and partner with residents concerning the quality of life 
and housing management services (such as screening, relocation, capital 
improvements), but is not prescribing the specific method(s).
    Possible methods used by PHAs would include, but not be limited to: 
resident membership on the PHA Board of Commissioners or on specific 
policy committees that contribute substantially in planning and 
implementing PHA programs; regular resident consultation through 
ongoing, scheduled meetings with the PHA-certified duly-elected 
resident councils; regular communication mechanisms with residents, 
such as a newsletter, as well as other means such as customer surveys 
and focus groups.
Component #4, Resident Programs Management
    Comment: Several comments stated that PHA performance should not be 
assessed based on grants and activities that are not under the control 
of the PHA. Sixteen comments indicated that TOP and TAG are controlled 
by the resident organization and not by the PHAs and that it would be 
unfair of HUD to hold PHAs accountable for tenant organization grants 
that are not under the PHA's control. One of the comments suggested 
that HUD eliminate this component. Another comment asked if a PHA would 
get credit if its resident organization implements a TOP grant 
training.
    Response: The Department agrees that PHAs should not be held 
responsible for resident activities or grants that are not under their 
control and the new rule reflects these changes. The indicator has been 
revised in order to assess PHAs for the functions they perform in 
operating resident services programs and for resident management or TOP 
performance only when the PHA is the contract administrator for the 
program.
    Comment: One comment stated that in order to meet 90% of the goals 
as defined in the grants, a PHA would need to adjust those goals under 
various circumstances, i.e., numbers versus percentages; either the 
grant plan should allow for a percentage versus an exact number to be 
included, or the goal must be flexible enough to change when 
circumstances dictate.
    Another two comments indicated that this indicator requires the 
documentation of achievement of a certain percentage of goals under 
resident initiative programs, but goals tend to be few and somewhat 
unquantifiable; such program goals should not be measured by PHMAP 
unless the goals had been articulated with the understanding that they 
were to be quantifiable and achievable within the grant term; progress 
is often in the hands of the tenants and tenant leaders.
    Two comments stated that there is general concern that measuring 
performance in meeting grant goals may be difficult to evaluate and may 
not be representative of performance. There is a clear incentive for 
PHAs to establish easily attainable goals to protect a good PHMAP 
score. We believe the goals for such programs should be set as high as 
possible and used as targets for achievement. Some other system of 
measurement should be found. This should be measured in the criteria 
used to determine management capability in the competition to receive 
grants.
    One comment argued that HUD shouldn't ask PHAs to document goals 
met under resident initiatives programs. Those programs already have 
exhaustive reporting requirements.
    One comment stated that the standard defined as 90% and 60% of goal 
attainment under the implementation plan for any and all of the grant 
programs are too stringent and perhaps inappropriate to the goals being 
measured. The measure of goal attainment based on implementation 
strategies is at best subjective and at times affected by conditions 
beyond the control of the PHA.
    One comment indicated concern with the indicator measuring resident 
involvement via any resident related grants received by the agency. The 
comment argued that HUD would do better to leave grant measurements 
with the specific grant processes and perhaps rate PHAs on whether they 
have a system to become informed about resident related grant 
opportunities or if they have applied, assuming they have resources to 
do so.
    Another comment indicated that Sec. 901.40(a)(4) attempts to 
measure compliance in many categorical funding programs in which PHAs 
are voluntary participants and that have their own contractual 
requirements and enforcement mechanisms. If HUD were to grade 
compliance with these contracts under PHMAP, HUD would be unilaterally 
imposing new contractual provisions that substantially alter the 
consequences of performance or non-performance. Provisions of this 
nature should not take effect unless and until they are subject to 
negotiation between the contracting parties.
    One comment stated that applying for social service grants is a PHA 
option, not a requirement. PHAs that do not elect to apply are 
appropriately not penalized. How can evaluation of a PHA's performance 
of optional activities be used as a basis to rate the PHA's management 
performance?
    Response: The Department included resident grant progress as a 
component of the resident initiatives indicator because it is critical 
that any available categorical grant funding be utilized effectively to 
meet the defined work plan objectives of the specific programs. This 
component would only apply if the PHA has responsibility for 
administering one or more grant programs.
    By applying to these programs, a participating PHA accepts 
implementation requirements attached to them. Goals for these programs 
are developed by the PHA and should reflect realistic expectations of 
what the

[[Page 68923]]

PHA proposes to accomplish. The rule reflects some margin of 
flexibility in grading the percentage of goals achieved. Assessing PHAs 
on performance in managing grant programs is not new to PHMAP. PHAs are 
assessed under other areas of their management, including performance 
in managing grant programs (competitive or formula) such as 
modernization. In addition, the Department has revised the regulation 
to eliminate assessment of the resident management or TOP unless the 
PHA acts as the contract administrator for the resident grantee.

Section 901.45  Indicator #8, Security

General Comments
    Comment: There were fifteen comments recommending that indicator #8 
not apply to smaller PHAs, described variously as those PHAs with fewer 
than 500 units, fewer than 250 units, and fewer than 100 units. One 
comment felt that all PHAs, regardless of size, should be assessed 
under this indicator because crime and drugs exists everywhere.
    Response: In response to the comments received, the Department has 
determined that indicator #8 will apply to PHAs with 250 or more units 
under management. To avoid penalizing small PHAs with active programs, 
PHAs with fewer than 250 units can request to be assessed under the 
indicator at the time of the PHMAP certification submission. However, 
PHAs with fewer than 250 units should be keeping records of crime, 
reporting it to local law enforcement, administering rigorous screening 
criteria, evicting residents who engage in criminal activity, and 
meeting the goals specified by categorical grants as good management 
practices, even though they are not required to be measured on this 
activity.
    Comment: There were two comments specifically supporting ``One 
Strike and You're Out'' and screening and eviction policies through 
indicator #8. Two commenters mentioned that constraints in existing 
State law or the local court system have made it difficult to comply 
with the intent of the one strike policy. Two other commenters 
indicated that PHAs should be required to submit evidence that they 
have implemented eviction policies that could be monitored through 
tracking systems.
    Response: The Department is pleased that there is a positive 
response to its one strike policies which are established pursuant to 
the ``Housing Opportunity Program Extension Act of 1996'' and PIH 
implementing guidance (Notice PIH 96-27), which provided additional 
guidance to PHAs in the areas of screening, lease enforcement and 
eviction in order to help PHAs fight crime. The one strike policy must 
be implemented within the context of the applicable State laws and 
court systems. PHAs will not be required to submit documentation at the 
time of certification; rather, PHAs are required to maintain supporting 
documentation for all of the indicators it certifies to for HUD post 
review. To assist PHAs in setting up and operating successful programs, 
the Department will provide examples of best practices in the 
forthcoming revised PHMAP Handbook 7460.5.
    Comment: There were four comments that felt that this indicator 
would place unnecessary administrative burdens on a small PHA that does 
not have a crime problem and is already cooperating with the local 
police department. In addition, small PHAs do not have the resources 
(funds and personnel) to perform the security measures required by this 
indicator.
    Response: Current practices by PHAs show that the cooperation of 
PHAs and local law enforcement for the collection and reporting of PHA 
crime information is not always a cost issue. Please note that the 
Extension Act permits PHAs to request criminal conviction records of 
adult applicants from the National Crime Information Center (NCIC), 
police departments and other law enforcement agencies. The Public 
Housing Drug Elimination Technical Assistance Program can be used to 
assist PHAs in developing appropriate collection systems and data 
bases. The Department anticipates that the use of NCIC and other data 
sources in addition to the technical assistance from HUD will enable 
PHAs to obtain necessary information in a timely manner.
    Comment: Three comments felt that there should be a policy designed 
for small PHAs and one for large PHAs. It will be very difficult for a 
small PHA with no security problem and no resident involvement to make 
a passing grade in this indicator.
    Response: Rather than have a separate security indicator for small 
and large PHAs, the Department has determined that PHAs with fewer than 
250 units shall be exempted from this indicator unless the PHA requests 
to be assessed under the indicator at the time of the PHMAP 
certification submission.
    Comment: Three comments stated that the criteria listed for this 
indicator are measures of process and not necessarily results. A more 
appropriate measure would include actual crime data. Also, indicators 
of vacancy percentage and financial management are directly related to 
the degree of security in the developments.
    Response: This indicator has been revised to reflect the comments 
received and its components now more accurately measure results. The 
Department agrees that vacancies and financial management are directly 
related to security in the developments, but performance in these areas 
are measured under indicators #1 and #6.
    Comment: One comment suggested that this indicator shouldn't apply 
until adequate time is provided for PHAs to establish the proper 
documentation, reporting, and tracking criteria to successfully score 
in this indicator. Another comment strongly requested that HUD require 
data be provided beginning with the next fiscal year after the 
effective date of the provisions of this indicator because it would be 
very difficult to secure data from January 1, 1996, to the present.
    Response: The Department has determined that the new rule will 
apply to PHAs with fiscal years ending the quarter after the new rule 
is published in the Federal Register.
    Comment: One comment stated that this indicator combines several 
distinct elements with the grading system, requiring a PHA to score an 
A on each element to score an A on the indicator. These elements should 
be reorganized as separate components within the indicator and the 
indicator grade should be a composite of the component scores, as is 
the pattern in the other PHMAP indicators.
    Response: The Department will grade this indicator as a composite 
of the sub-component scores, as is the pattern in other PHMAP 
indicators.
    Comment: One comment felt that security is not a property 
management issue, but a social issue related to PHAs, and was outside 
of the PHA's control. Another comment stated that reducing crime and 
drugs was an appropriate property management issue.
    Response: In both public and private property management, crime and 
drug problems have a direct affect on property management. Because of 
this, the Department has determined it is critical that this indicator 
apply to all PHAs with 250 units or more under management.
    Comment: One comment stated that this indicator will be very 
difficult to grade objectively and consistently. The terms ``mechanism 
to track crime-related problems'' and ``system for taking action'' are 
vague and undefined and need clarification. Two comments questioned the 
meaning of ``document results in screening out'' various applicants. 
One comment felt the proposed measure of PHA actions to appropriately 
screen out applicants and

[[Page 68924]]

evict residents who engage in criminal activity is the only appropriate 
measure of PHA management performance under this indicator.
    Response: The Department has rephrased this component and the first 
two phrases mentioned are no longer included in the new rule. The third 
phrase commented on has been revised to say, ``can document that it 
successfully screens out and denies admission to a public housing 
applicant who * * *'' and ``can document that it successfully evicts a 
public housing resident who * * *'' This new language more clearly 
embodies the intent of the one strike policy. The Department agrees 
with the last comment.
    Comment: One comment felt that the term ``crime'' should be defined 
to avoid wasting time on crimes that do not affect the safety/security 
of residents.
    Response: The Department has not established one uniform national 
definition of crime, since different types of crime represent different 
threats, and vary among communities. HUD believes each PHA should 
decide what constitutes criminal violations that are unacceptable to 
the local community. In general, the crimes against which PHAs should 
screen applicants are those that would pose a threat to the health or 
safety of other residents or PHA staff, or a financial risk to the PHA. 
These crimes would be lease violations. These are the crimes against 
which applicants should be screened and for which violators be evicted.
    Comment: One comment stated that Sec. 901.110(e) should state that 
indicator #8 should be excluded automatically for PHAs with 100 or 
fewer units.
    Response: The Department agrees with this comment and the rule has 
been changed to state that this indicator does not apply to PHAs with 
fewer than 250 units under management unless the PHA requests to be 
assessed under the indicator at the time of the PHMAP certification 
submission.
    Comment: One comment reflected that criteria #2 and #3 deal with 
screening and evictions. If HUD is to allow a PHA to self-certify on 
this indicator, the PHA should be required to submit evidence of 
policies and leases to support the certification.
    Response: The Department disagrees and is requiring that a PHA 
maintain supporting documentation for all of the indicators it 
certifies to for post review by HUD or the independent auditor rather 
than submit additional documentation at the time of certification.
    Comment: One comment felt that too many communities already have 
police departments that avoid their responsibilities in public housing 
``projects'' for reasons that include the perception that public 
housing is a Federal rather than local responsibility. This indicator 
plays into that mind set, and therefore, hurts the crime fighting goals 
PHAs and HUD share.
    Response: The Department believes that the establishment of one 
strike leasing, eviction and related processes have already proven to 
be effective in crime/drug reduction. This indicator has been designed 
to measure the implementation of mechanisms that many PHAs have already 
used successfully in developing safe and secure environments for public 
housing residents.
    Comment: One comment believes that this is the most important 
indicator for large PHAs where crime is a critical problem, and should 
have a greater weight than x1.
    Response: The Department agrees that this is a very important 
indictor. This indicator and indicator #7, resident involvement, have a 
combined total of 20 points in a 100 point scale. The Department feels 
that this is an equitable distribution when the importance of all of 
the indicators are considered as a whole.
    Comment: One comment thought that PHAs should request help from the 
HUD State Coordinator in getting assistance from law enforcement 
agencies.
    Response: The Department recommends that a PHA first contact its 
State/Area Office for technical assistance in obtaining assistance from 
law enforcement agencies, and to explore alternative solutions. HUD 
agrees that the State Coordinator and the Area Representative should be 
advised of unresolved difficulties in implementing the one strike 
policy. The Department will provide assistance, as appropriate, to 
further the implementation of the one strike policy.
    Comment: One comment suggested that additional criteria should be 
considered that would give recognition to PHAs that have made 
tremendous progress in arresting crime and/or have established resident 
patrols to assist in crime reduction.
    Response: The Department appreciates the suggestion, but feels that 
the appropriate vehicle for such recognition is its Performance Awards 
Ceremony.
    Comment: One comment suggested there be a criterion that measures a 
PHA's efforts to get resident involvement in citizen patrols.
    Response: The Department agrees that citizen patrols are very 
effective in helping to reduce incidence of crime in a community, and 
this criterion is indirectly measured under components #1 and/or #4 of 
this indicator.
Component #1, Tracking and Reporting Crime Related Problems
    Comment: Thirty comments felt that PHAs should not be held 
accountable under indicator #8 for cooperation with local police 
departments and other community agencies, as this partnership was 
beyond their control. At least one commenter expressed concern about 
being able to access criminal data. Another commenter indicated that 
PHAs do not have the authority to address crime problems.
    Response: As a result of these concerns, the Department has 
determined that PHAs will not be assessed for partnerships with the 
local police departments and other local agencies, with the exception 
of grade A. Grade A of this component has been revised to assess a 
PHA's cooperative system for tracking and reporting incidents of crime 
to local police authorities. Grades below an A assess only the 
reporting of incidents of crime to local police authorities. Although 
PHAs will not be measured under this criterion for grades below an A, 
it is essential for PHAs to work closely with local and State agencies 
in order to operate effective crime and drug prevention programs. Also, 
while PHAs do not specifically have the authority for arrests, they can 
utilize one strike to deny admission or evict known criminal violators.
    Comment: Five comments thought that documentation from local law 
enforcement agencies might be a method of reporting crime in small 
housing authorities.
    Response: The Department couldn't agree more. All PHAs are 
encouraged to develop partnership relationships with local law 
enforcement entities, and all PHAs should be keeping records of crime, 
reporting it to local law enforcement, administering rigorous screening 
criteria, and evicting residents who engage in criminal activity.
    Comment: One comment stated that HUD shouldn't ask PHAs to try to 
require their municipal police departments to act beyond the scope of 
the Cooperation Agreement.
    Response: It is not intended that tracking and reporting crime-
related problems would in any way mandate PHAs to require their 
municipal police departments to act beyond the scope of the Cooperation 
Agreement. A PHA should always act within the scope of the Cooperation 
Agreement and should never require another agency to act beyond the 
scope of the Agreement.

[[Page 68925]]

    Comment: One comment stated that PHAs that complain that they 
cannot negotiate obtaining monthly calls for service confirm that they 
have poor relations with their local police departments.
    Response: Although this may be true, it is not necessarily through 
lack of trying. A PHA should continue to negotiate working 
relationships with local law enforcement entities.
Component #4, Grant Program Goals
    Comment: Five comments reflected that this indicator requires the 
documentation of achievement of a certain percentage of goals under 
resident initiative programs, but goals tend to be few and somewhat 
unquantifiable. Such program goals should not be measured by PHMAP 
unless the goals had been articulated with the understanding that they 
were to be quantifiable and achievable within the grant term. There is 
general concern that measuring performance in meeting grant goals may 
be difficult to evaluate and may not be representative of performance. 
There is a clear incentive for PHAs to establish easily attainable 
goals to protect a good PHMAP score. Four of these commenters felt that 
some other system of measurement should be found, or the indicator 
eliminated. One commenter proposed that the goals be set as high as 
possible and used as a target for achievement. Seven commenters 
indicated that PHAs should not be rated on this indicator unless there 
was specific funding for all PHAs, and therefore, this program area was 
an unfunded mandate. One commenter stated that PHAs should only be 
rated on resident initiatives, not security. One commenter questioned 
why the goal did not track progress in goal achievement under the Drug 
Elimination program.
    Response: The Department believes that the establishment of one 
strike leasing, eviction and related processes have already proven to 
be effective in crime/drug reduction. This indicator has been designed 
to measure the implementation of mechanisms that many PHAs have already 
used successfully in developing safe and secure environments for public 
housing residents. Grant goals are part of the overall evaluation of an 
application for funding. If a PHA has unrealistic goals, they are 
either renegotiated, or the PHA does not receive funding.
    The Department has determined that security will continue to be a 
separate indicator because it is integral to good management and can be 
accomplished without additional funding, or with operating subsidy and 
comprehensive grant funds. PHAs should make use of these or other 
allowable funding sources to address crime and security problems. The 
Department cannot restrict factors to those in the Drug Elimination 
Program since crime problems affect all PHAs, not only those that have 
successfully competed for drug elimination grants.
    Comment: One comment stated that goal achievement should be 
measured in terms of program implementation (which it is within the 
power of the PHA), not impact on crime (which is beyond the control of 
the PHA). A range from 85% to 100% should be establish for achieving an 
A grade.
    Response: The Department has determined that a PHA will achieve a 
grade A for this indicator if it is meeting at least 90% of its goals 
under the implementation plan for any and all of these programs.
Data Collection--Sec. 901.100
    Comment: Thirty comments stated that 45 days to submit the 
certification is a concern because PHAs are busy completing their year 
end work. It would cause a problem for small PHAs that have limited 
human resources to complete all other fiscal year end reports required. 
The time to submit should remain 90 days. Two comments stated that 45 
days to submit its certification would be sufficient time as long as 
there was a quorum for the Board meeting, and as long as the process 
works smoothly. Seven comments recommended that certifications should 
be submitted 60 days following the end of a PHA's fiscal year.
    Response: HUD is attempting to balance the need to make the PHMAP 
scoring as quick and timely as possible, so that it more accurately 
reflects a PHA's current status, with the additional year end burden it 
represents to both PHAs and HUD itself. In light of the above comments, 
the Department has determined that a better balance is achieved with a 
60, rather than 45, day submission period, and the rule is amended 
accordingly.
    Comment: Two comments pointed out that PHAs that request and 
receive an extension to submit their fiscal year end financial reports 
should also be granted an extension to file their PHMAP certification. 
Large PHA's must routinely ask for extensions to submit their year end 
financial statements.
    Response: The Department agrees with the comment. To satisfy 
administrative requirements, PHAs must submit extension requests or 
waiver requests for both their fiscal year end financial reports and 
their PHMAP certification. However, a State/Area Office may grant an 
extension for the submission of year end financial statements for a 
period of no more than 90 calendar days. Requests for extensions for 
more than 90 calendar days, or requests for extensions in addition to 
the initial 90 calendar days, shall be approved by the Assistant 
Secretary, as well as waivers for the submission of a PHA's PHMAP 
certification.
    Comment: Two comments felt that PHMAP should be more flexible so as 
not to discourage otherwise outstanding performance due to late 
submission of required reports or a PHA's inability to review and 
approve submissions more quickly. Lateness should not have the effect 
of decimating the performance ratings in all areas rated by PHMAP.
    Response: The Department disagrees with this comment, and will 
retain the option which permits State/Area Offices to award a 
presumptive rating of failure in all of the PHMAP indicators if 
required reports have not been submitted to HUD in a timely manner. HUD 
believes that outstanding performance includes a PHA's ability to 
submit in a timely manner required reports that are used to calculate 
the PHA's PHMAP score.
    Comment: Two comments felt that the revisions to the rule may 
require major changes in the systems used to maintain records related 
to PHMAP. Changes in a PHA's information systems will be both costly 
and burdensome. It will require PHAs to focus important resources on 
administrative areas that will not improve the manner in which quality 
housing is provided to low-income families.
    Response: HUD recognizes that, at least initially, the changes made 
by this rule to improve PHMAP will impose a burden on PHAs who will 
have to make necessary adjustments in their information systems. As was 
the case for the previous rule, it is expected that as the collection 
and organization of the data will become more routine following the 
first submission, the associated burden will also decrease.
    Comment: One comment felt that the time frame for submission should 
relate to the size of the PHA.
    Response: HUD disagrees with this comment. The Department has 
received comments from small PHAs citing small staffs and from large 
PHAs citing large administrative burdens to justify changes in the time 
frame for submission. The Department has concluded that, until 
experience demonstrates otherwise, the same time frame for submissions 
should apply to all PHAs.

[[Page 68926]]

    Comment: One comment felt that the certification form is cumbersome 
and includes requests for information currently available to HUD, 
specifically financial data required to be provided to HUD by all PHAs, 
or more information than currently required. It appears to require 
inclusion of data necessary for HUD to perform or confirm the 
calculations made by the PHA, and this is repetitive since PHA audits 
ensure accuracy in reporting. This is contrary to HUD's intent to 
require PHAs to certify to information otherwise not available.
    Response: The worksheet and certification form have been redesigned 
to make them more user friendly, as applicable. HUD welcomes 
additional, specific recommendations to improve these documents 
further. The Department disagrees that the certification form requests 
information currently available to HUD. For example, the new 
certification form financial management question for indicator #6 
requests the dollar amount of a PHA's cash reserve available for 
operations. The requested financial information is not reported on any 
other required reporting submission. The Department cannot rely totally 
on audit report confirmation because audit reports are not normally 
available until after the PHMAP process has been completed for the 
assessed fiscal year. The certification form requires a PHA to state 
the raw data that are used to calculate the score of specific 
indicators to ensure accurate calculation.
    Comment: One comment stated that if the purpose is to shorten the 
time it takes for a PHA to learn its status/score, it may be more 
appropriate to reduce the amount of time that HUD has to respond. It 
should not take any more than two weeks to review the PHA submission 
(one page) and to perform any analysis or calculations for indicators 
that HUD scores.
    Response: HUD is attempting to balance the need to make the PHMAP 
scoring as quick and timely as possible, so that it more accurately 
reflects a PHA's current status, with the additional year end burden it 
represents to both PHAs and HUD itself. In light of the above comments, 
the Department has determined that a better balance is achieved with a 
60, rather than 45, day submission period. State/Area Offices monitor 
other program areas in addition to the PHMAP, which is just one facet 
of the Department's overall affordable rental housing efforts. In 
addition to the section 8 program, State/Area Offices must administer 
such efforts as modernization programs, resident initiative programs, 
and drug elimination programs. The Department feels that 60 days for 
State/Area Offices to complete a PHMAP assessment is equitable in view 
of other workload requirements.
    Comment: One comment reflected that in the preamble to the proposed 
rule, HUD states that it will require State/Area Offices to give PHAs 
their PHMAP scores within 45 days from certification, but the proposed 
rule's text does not contain that requirement. The commenter suggests 
that HUD include that requirement in the text.
    Response: State/Area Offices will be required to meet the 60 day 
notification period by an internal directive that will be as binding 
upon them as a regulatory requirement.
    Comment: One comment observed that Sec. 901.100(b)(5) stipulates 
that a PHA's certification will be post-reviewed by HUD during the next 
on-site review, but is subject to verification at any time. What does 
this mean? It suggests that verification could be accomplished by some 
means other than on-site review. It is critical to clearly stipulate in 
the rule a standard and consistent approach that must be followed by 
all HUD State/Area Offices in order to validate, document and justify a 
conclusion that a PHMAP score certified by a PHA should be changed.
    Response: On-site reviews are usually conducted pursuant to risk 
management, and Sec. 901.100(b)(9) simply provides that certification 
verification can take place at any time notwithstanding the regularly 
scheduled on-site reviews. In addition, the rule does clearly stipulate 
a standard and consistent approach to validate, document and justify a 
conclusion that a PHMAP score certified by a PHA should be changed. The 
verification language in Sec. 901.100(b)(9) is related to the provision 
at Sec. 901.115(k), that permits, in exceptional circumstances that 
constitute a standard and consistent approach, a State/Area Office to 
reinstate any review as necessary to address particular deficiencies, 
or deny or rescind incentives or high performer status, even though a 
PHA has satisfied all of the indicators for high or standard performer 
designation.
    Comment: One comment asked exactly what information does HUD expect 
to derive from ``existing reporting and data forms?'' As written, only 
indicator #2 can be scored by HUD without complete and total reliance 
on PHA self-certified data. This is an enormous flaw in any allegedly 
objective assessment process, including PHMAP.
    Response: The assessment process is the result of balancing the two 
objectives of maximizing reliability and minimizing the administrative 
burden. The Department realizes that the extensive demands upon both 
its own and PHAs' resources limit what may be appropriately imposed 
upon PHAs and adequately monitored by the Department. HUD's reliance 
upon PHA-certified data is backed up by the admittedly small number of 
on-site reviews HUD is able to conduct, but these reviews do indicate 
substantial, good faith compliance. HUD attempts to target its 
monitoring resources as efficiently as possible by focusing on troubled 
or near troubled PHAs or PHAs in which the factors identified in 
Sec. 901.115(k) of the rule are present. The required supplement to the 
independent audit requires a PHA's independent audit to ascertain 
whether the PHA maintains the data necessary to support its PHMAP 
certification and whether the PHMAP data are consistent with the PHA's 
other records. HUD will continue to consider ways in which the 
reliability of PHMAP may be improved. In addition, the new rule has 
been revised to state that a PHA may not appeal its PHMAP score to the 
State/Area Office if the reason the PHA received a failing in any 
indicator or component was due to the fact that the PHA did not provide 
justifying documentation to the independent auditor for the 
indicator(s) the PHA certified to.
    Comment: One comment stated that the clause that allows PHAs to 
include in their PHMAP certifications ``any information bearing on the 
accuracy or completeness of the data being used by HUD in grading an 
indicator'' is confusing. A PHA should certify to the correct data in 
exactly the manner prescribed by the PHMAP process. If a PHA believes 
that the data does not fairly represent its performance, it should 
submit a ``modification'' request, but the data in the certification 
shouldn't be changed.
    Response: The rule, at Sec. 901.100(b)(3), provides that a PHA may 
include such information in its certification, rather than through an 
exclusion or modification request, and that HUD will consider the 
information in grading the affected indicator. The intent is not to 
encourage a result that the certified information would be changed, but 
to encourage a PHA to submit corrected data, late reports, or 
previously omitted required data at the time it submits its PHMAP 
certification. This provision allows more flexibility in the PHMAP 
process, and helps ensure that the most recent data is available to use 
in completing the PHMAP assessment.
    Comment: One comment felt that the provision that suggests a PHA 
could get

[[Page 68927]]

a presumptive F in all PHMAP indicators if the certification is not 
submitted on time should be clarified. Does this mean all indicators or 
only those which rely on the certification?
    Response: The language states all indicators. This provision at 
Sec. 901.100 (b)(4) gives HUD a direct and timely way of enforcing the 
certification requirement. Although compliance with PHMAP is the norm 
among PHAs, if failure to provide the certification would only result 
in failing grades for the indicators subject to certification, a PHA 
may decide to forgo submitting the certification when a passing grade 
could be achieved without it. This would defeat the purpose of PHMAP to 
assess the performance of a PHA on all of the indicators.
Computing Assessment Score--Sec. 901.105
    Comment: Two comments agree that the establishment of clear-cut 
adjustment guidelines is a good addition to PHMAP.
    Response: The comment is noted by the Department.
    Comment: One comment stated that the physical condition of a 
project reflects not only the care and maintenance provided by the PHA, 
it also reflects the attitudes and behavior of residents in some 
communities. Those cases where the physical condition of the project 
does not improve regardless of a PHA's efforts to improve and maintain 
the project in safe and sanitary condition should be considered as a 
condition beyond the PHA's control, and a modification or exclusion 
should be allowed for this reason.
    Response: The Department disagrees with this comment. If a 
resident's attitudes and behavior cause maintenance or other physical 
problems, it then becomes a lease enforcement issue rather than 
automatic grounds for a modification or exclusion request due to 
conditions beyond a PHA's control. However, HUD considers modification 
and exclusion requests individually, and on a case by case basis, and 
grants or denies them as appropriate.
    Comment: One comment stated that the definition of neighborhood is 
based on census tract and proposed that HUD permits also the option of 
census block groups. Census blocks allows for more specific definition 
of demographic characteristics.
    Response: The Department agrees that PHAs may use census blocks as 
well as census track data, as appropriate.
    Comment: One comment stated that the proposed rule excludes 
developments that received comprehensive modernization within the past 
ten years from receiving additional weight for the physical condition 
factor. Some PHAs receive comprehensive modernization for a portion of 
a larger community. When that happens, some proportional additional 
weight should be allowed for the physical condition factor.
    Response: The Department has determined that if only certain units 
or developments received substantial rehabilitation, the additional 
weight would be prorated to exclude the units or developments with 
substantial rehabilitation. The revision to the PHMAP Handbook 7460.5 
will include examples of proration.
    Comment: One comment suggested that an alternative for weighting 
could be to provide extra credit for PHAs that, because of aggressive 
efforts to develop joint programs, are able to mitigate the adverse 
conditions in the general vicinity of the developments as well as 
within them.
    Response: The Department may not provide an alternative to the 
physical condition and neighborhood environment factors because they 
are statutory. A PHA's efforts to mitigate the adverse conditions in 
the general vicinity of the developments will be recognized by the 
resident involvement indicator to the extent the PHA involves residents 
in such efforts. In general, it is expected that a well-managed PHA 
would have a positive influence on the adverse conditions in its 
general vicinity, but the PHA's primary responsibility is to conditions 
within its developments, and this remains the focus of PHMAP.
    Comment: One comment felt that adjustments for physical condition 
and neighborhood environment are too liberal and can result in 
artificially inflated scores.
    Response: The Department disagrees with this comment, since the 
adjustments for physical condition and/or their neighborhood 
environment apply to the following three indicators only: indicator #1, 
vacancy percentage and unit turnaround; indicator #4, work orders; and 
indicator #5, annual inspection and condition of units and systems.
    Comment: One comment reflected that Sec. 901.105(d)(3)(ii) states 
that developments that have received comprehensive modernization within 
the past ten years are not eligible for a weighted score for the 
physical condition factor. Are these developments eligible for the 
neighborhood factor?
    Response: Yes, these developments are eligible for the neighborhood 
environment factor.
    Comment: One comment reflected that Sec. 901.105(d)(3)(iii) states 
that a PHA that receives a grade of A under indicators #4 and #5 may 
not claim the additional weight for indicator #1 since the physical 
condition of its developments is not applicable. Is a PHA eligible for 
the additional weight for indicator #1 using the neighborhood 
environment factor?
    Response: Yes, such a PHA is eligible for the neighborhood 
environment factor.
    Comment: One comment disagreed that a PHA that receives a grade of 
A under indicators #4 and #5 may not claim the additional weight for 
indicator #1 since the physical condition of its developments is not 
applicable. The ability of management to lease a vacant unit bears a 
direct relationship to its age and neighborhood environment. A PHA's 
ability to market a unit and a housing applicant's decision to rent a 
unit is influenced by the neighborhood conditions and environment in 
which the development is located. Accordingly, the additional weight 
for indicator #1 should be permitted. Another comment stated that a PHA 
could be doing a good job of inspecting units and responding to work 
orders and still have a high vacancy rate at one or more of its 
developments due to neighborhood environment (if not also physical 
condition). A PHA has the right to qualify under either one or both.
    Response: The Department disagrees with this comment, and maintains 
that if a unit is in good physical condition, the age of the unit has 
little bearing on the ability to rent the unit. HUD believes that well 
maintained units, as evidenced by an outstanding rating in the areas of 
work orders and the condition of units and systems, are not eligible 
for the additional weight for physical condition, since indicators #4 
and #5 account for the physical condition of a PHA's units. The 
additional weight based upon neighborhood environment for indicator #1 
is permitted in such a case.
    Comment: One comment stated that since PHAs already have the right 
to seek modifications or exclusions, rewarding PHAs with bonus points 
seems ludicrous.
    Response: The additional weight given the factors of physical 
condition and neighborhood environment represents the Department's 
implementation of the statutory mandate to have the weights assigned to 
various indicators reflect these factors. The use of exclusion and 
modification

[[Page 68928]]

requests implements the statutory mandate that PHAs not be penalized as 
a result of circumstances beyond their control.
    Comment: One comment stated that the additional points made 
available to PHAs that demonstrate a significant number of units 
subject to adverse physical conditions or neighborhood environment, 
seem significant. If over 50% of a PHA's units are subject to such 
conditions, a PHA may get no more than one additional point for each of 
the three indicators that can be adjusted under the rule.
    Response: This comment is correct, and the Department believes that 
this represents a fair and equitable adjustment for the physical 
condition and neighborhood environment of a PHA's developments.
    Comment: One comment stated that the proposed rule also excludes 
``developments that have received comprehensive modernization funds 
within the past ten year'' from eligibility for the adjustment based on 
physical condition. This should be revised to make it clear that 
``comprehensive modernization'' does not simply mean the use of any CGP 
money, but contemplates, for example, ``significant capital investments 
that addresses more than 80% of a development's assessed capital 
need.''
    Response: The Department has defined modernization to include not 
only the CIAP and CGP, but also the Vacancy Reduction Program, Hope VI 
Program, and any successor program(s) to the CGP or the CIAP. For 
indicator #2, modernization, all components apply to both the CGP and 
the CIAP. Only components #3, #4 and #5 apply to funding under the Hope 
VI Program and the Vacancy Reduction Program for the assessment of 
indicator #2.
    Comment: One comment thought this section should be more explicit 
in order to allow anyone to actually compute a PHA's score following 
the instructions, and examples should be provided.
    Response: The Department agrees, and examples of how to compute a 
PHA's score will be included in the revision to the PHMAP Handbook 
7460.5.
    Comment: One comment stated that the provision for ``adjustment for 
physical condition and neighborhood environment'' makes reference to 
units located in developments over 10 years old that require major 
capital investment. HUD needs to clarify how that applies to scattered-
site projects where the age of the units and buildings will vary 
greatly.
    Response: For scattered site projects, where the age of the units 
and buildings vary, the Date of Full Availability (DOFA) should be 
applied. Normally, when a PHA purchases scattered site units, they are 
rehabilitated prior to occupancy. DOFA also applies in cases where 
scattered site units are built under new construction.
    Comment: One comment pointed out that HUD needs to define how to 
compute the 5% (of the units) to which the limiting conditions apply 
for the ``adjustment for physical condition and neighborhood 
environment.'' Is it individually computed or cumulative (i.e., 5% of 
physical condition vs. 3% of physical condition plus 2% of neighborhood 
environment condition).
    Response: The percent of units to which the limiting conditions 
apply is computed as the total number for physical condition (PC) and 
neighborhood environment (NE) with each unit counted only once if both 
apply to it (so that a PHA with 10 units both PC and NE + 5 units PC 
only + 5 units NE only would have 20 eligible units that would be used 
for purposes of computing the percent applicable to indicators #1, #4 
and #5; unless the PHA received a grade of A in indicators #4 and #5, 
then indicators #4 and #5 would have zero eligible units, and indicator 
# 1 would have 15 eligible units for purposes of computing the 
percent). This procedure of adding the number of units to which both 
conditions apply to the number of units to which only one condition 
applies is followed because the rule reads, ``Any PHA with 5% or more 
of its units subject to either or both of the above conditions shall, 
if they so choose, be issued a weighted PHMAP score in addition to the 
regular score based solely upon the certification of the PHA.''
    Comment: One comment stated that the provision for ``adjustment for 
physical condition and neighborhood environment'' states that PHAs will 
certify to ``which of the indicators the extra scoring will be added.'' 
How is the PHA to make this determination? What would preclude the PHA 
to add the points to all three indicators? The sample certification 
form offers no clarification of this issue, nor does the rule. The PHA 
should be required to certify the data used to claim the 
``adjustment.''
    Response: A PHA does certify to the adjustment for physical 
condition (PC) and neighborhood environment (NE). It could and should 
add the points to each of the three indicators to which the weights 
apply. Example: a 100 unit (scattered site) PHA has 10 units both PC 
and NE + 10 units PC only + 10 units NE only. In this case .8 is added 
to indicators #1, #4 and #5 (because both or either conditions apply to 
at least 30% but less than 40% of the units, and .8 is the weight added 
for this percentage range), except if indicators #4 and #5 get grades 
of A, zero is added to indicators #4 and #5, and .7 is added to 
indicator #1 (because PC does not apply for purposes of indicator #1 
when indicators #4 and #5 get grades of A, and so the 10 units would 
not be counted for indicator #1, leaving 20 eligible units, 20% of the 
total, for which .7 is the added weight).
    Comment: One comment suggested that Sec. 901.105(d)(3)(ii) should 
read: Units in developments that have received comprehensive 
modernization within the past ten years are not eligible to be included 
in the calculation of total PHA units subject to ``management 
difficulties'' due to physical condition only.
    Response: The Department agrees and has rephrased that section to 
read: Units in developments that have received substantial 
rehabilitation within the past ten years are not eligible to be 
included in the calculation of total PHA units due to physical 
condition only.
    Comment: One comment felt that Sec. 901.105(d)(3)(iv) should be 
clarified since it is confusing.
    Response: The Department agrees, and this has been clarified in the 
new rule to state that a PHA's score for indicators #1, #4 and/or #5, 
after any adjustment(s) for physical condition and/or neighborhood 
environment, may not exceed the maximum potential weighted points 
assigned to the respective indicator(s).
PHA Request for Exclusion or Modification--Sec. 901.110
    Comment: Two comments stated that the previous interim rule permits 
a PHA to submit a request if the PHA were to discover and demonstrate 
``highly unusual circumstances.'' The commenters urge HUD to retain 
this mechanism to permit consideration of first-time exclusion/
modification requests at the appellate level. It is recognized and 
expected that HUD would subject such requests to strict scrutiny, but 
there is no reason why such matters cannot be solved by State/Area 
Office Directors of Public Housing as part of the appellate process 
rather than at the Assistant Secretary level.
    Response: This stipulation was eliminated because it restricted the 
grounds for appeal.
    Comment: One comment reflected that this section requires that a 
request for an exclusion or modification be submitted at the time of 
certification. There has been no understanding from HUD on how it 
grades certain items or

[[Page 68929]]

what time periods are considered for the indicators that HUD grades. 
PHAs should have the right to request an exclusion or modification on 
the HUD-graded indicators after HUD has announced the preliminary 
grades on them.
    Response: The indicators scored by HUD are based on information 
that a PHA submits to HUD on other reports. Therefore, a PHA should 
know what its HUD graded scores are based on. The interim and proposed 
rules clearly state ``annual'' and ``immediate past fiscal year,'' 
except for components #2-1 and #2-2, where they clearly state Federal 
fiscal year.
PHA Score and Status--Sec. 901.115
    Comment: Seventeen comments felt that denying high performer status 
to a PHA if it scores below a C on any indicator is not a good change. 
It does not make sense to punish a PHA for only one low score; the 
total numerical rating should be the only determination in high/
standard/troubled performer. The commenters noted that under the 
proposed rule, PHAs with the same overall score could receive different 
ratings; this does not seem equitable. The overall performance of the 
PHA operation is being graded, not an indicator. Denying high performer 
status to a PHA that gets less than a C in any indicator should be 
dropped from the rule. Two other comments felt that a system that 
really identifies and rewards outstanding performance is much more 
desirable.
    Response: The Department believes that high performer designation 
should identify outstanding management performance, and thus stipulates 
that a PHA shall not be designated as a high performer if it receives 
less than a C for any indicator. The intent in not to punish a PHA, but 
rather to recognize PHAs for outstanding management performance. It has 
always been possible for PHAs to have the same score, but a different 
designation, when high performer designation was awarded or when 
troubled designation was withheld.
    Comment: One comment notes that Sec. 901.115(g)(1) stipulates that 
PHMAP incentives or high performer status could be rescinded in the 
case of a PHA that is operating under a special agreement with HUD. The 
commenter asks what a special agreement is and how does it bear on a 
PHA's actual performance rating under PHMAP? Three additional comments 
strongly opposes sections 901.115(g)(2) and (3), which would allow the 
State/Area HUD Office to deny or rescind incentives or high performer 
status for PHAs either involved in litigation that bears directly upon 
the management of PHAs or are operating under a court order. HUD should 
require that the ``specific explanation'' referred to in 
Sec. 901.115(g) include, at least, a summary of proven fraud, 
misconduct, or substantial noncompliance. PHAs that can achieve high 
performer status while operating under these conditions should not be 
penalized by HUD for continuing to manage operations efficiently and 
demonstrate positive effort to eliminate obstacles while improving 
housing conditions for families.
    Response: Section 901.115(k) only delineates the exceptional 
circumstances under which State/Area Offices may deny or rescind 
initiatives or high performer status. Such actions are not automatic 
when these exceptional circumstances are present, but are determined on 
a case by case basis with consideration of the specific circumstances 
involved. In addition, these determinations may be appealed to the 
Assistant Secretary, providing an additional safeguard that they will 
not be made without due deliberation.
    Comment: One comment suggested that HUD should submit a written 
explanation of any PHMAP score of C or below on any indicator not 
directly certified by the PHA because PHAs are required to submit an 
Improvement Plan for indicators with grades under C.
    Response: The indicators scored by HUD are based on information 
that a PHA submits to HUD on other reports. Therefore, a PHA should 
know on what its HUD graded scores are based. Improvement plans are 
only required for a grade of F and a State/Area Office may require it 
for every indicator with a grade of D or E.
    Comment: One comment observed that in the preamble to the previous 
interim rule, HUD stated that it would address how the State/Area 
Offices will determine at which PHAs it would conduct confirmatory 
reviews in handbook guidance. HUD should at least provide handbook 
guidance on the factors that the State/Area Office will consider to 
select a PHA for a confirmatory review.
    Response: The Department has provided such guidance in the Field 
Office Monitoring of Public Housing Agencies (PHAs) Handbook 7460.7 
REV-2.
    Comment: One comment stated that Sec. 901.115(e) suggests that a 
``small'' PHA (100 units or less) will not be designated as mod-
troubled, no matter how bad their program is. This is not reasonable.
    Response: Section 901.115(e) of the proposed rule reads, ``PHAs 
with more than 100 units that achieve a total weighted score of less 
than 60% on indicator (2), modernization, shall be designated as mod-
troubled.'' The Department agrees that these ``small'' PHAs should also 
be assessed on their modernization program, and will amend this section 
accordingly.
    Comment: One comment stated that in Sec. 901.115(h), the reference 
to ``paragraph (e)'' should be a reference to ``paragraph (g).''
    Response: HUD agrees and has amended Sec. 901.115(l) to reference 
Sec. 901.115(k).
Posting of PHA PHMAP Scores
    Comment: Four comments felt that the posting of PHA PHMAP scores 
should be required at all offices, rather than in all developments, 
since many developments are too small to have an office or any other 
building where such notice could be posted, and it is virtually 
impossible to do with scattered site projects. Notice can be mailed to 
residents where it is impractical or inappropriate to post the notice.
    Response: The Department agrees and has amended this section 
accordingly.
    Comment: Three comments felt that it was not clear why the posting 
of PHMAP scores is necessary, or why are PHAs being singled out when 
reviews of other public entities are not held up for public scrutiny. 
To post a score with no explanation is silly and there would be no way 
to post an explanation. By the same token, to publish in the Federal 
Register is not really fair without offering a PHA an opportunity to 
explain why they may have scored poorly in a particular area.
    Response: This provision was recommended by the Office of 
Management and Budget in the course of its review of the proposed rule 
in accordance with Executive Order 12866. These requirements are 
intended to make the community, and tenants in particular, aware of 
their PHA's management score and to encourage dialogue among the PHA, 
residents and the community.
    Comment: One comment felt that the rule should make clear that PHAs 
are only required to post and report out final PHMAP scores and do not 
have to post and report any score that is appealed in a timely basis 
and is under consideration by HUD.
    Response: The Department agrees and has amended this section 
accordingly.
    Comment: One comment observed that Sec. 901.120(b) references a 
``handicapped'' score. This term is not used elsewhere in the rule. It 
should be changed to ``adjustment for physical

[[Page 68930]]

condition and neighborhood environment''.
    Response: The Department agrees and will amend this section 
accordingly.
    Comment: One comment stated that Sec. 901.120(c) should explicitly 
state that a normal ``confirmatory review'' is to be conducted prior to 
the issuance of the initial notification letter. This way, the 
statement in paragraph (c)(1) about ``exceptional circumstance'' will 
make sense.
    Response: The Department agrees and has added appropriate language 
to the rule.
    Comment: One comment reflects that Sec. 901.120(c)(1) states that 
the results of a confirmatory review should be explained in writing if 
the review is conducted after the issuance of the initial notification 
letter. The results of confirmatory reviews should always be explained 
in writing to the PHA, regardless of when conducted.
    Response: The Department agrees and has added appropriate language 
to the rule.
Making the Right Decision
    The Department specifically expressed its interest in receiving 
comments concerning ways in which PHAs can receive positive recognition 
within the context of this regulation for making the right decision.
    Comment: One comment stated that it is unreasonable to put forth an 
assessment system which rewards highly graded performance and not 
expect actions to be guided by that system.
    Response: The Department recognizes that PHMAP scores should not be 
interpreted as the sole determinant of a PHA's performance, nor should 
actions be solely guided by the PHMAP. Good management recognizes and 
balances all variables in the day-to-day operations of a PHA.
    Comment: One comment agrees with a PHA doing the right thing. If 
doing the right thing is important for the PHA, then HUD should also do 
the right thing. HUD should ensure that PHMAP scores can be adjusted 
appropriately for any situation that results in lower grading of any 
indicator that occurs while doing the right thing. Recognition is nice, 
but PHMAP should be designed in such a way as to actually reward PHAs 
for right decisions, not simply recognize them outside the program 
structure.
    Response: The Department believes that the ability to request a 
modification or exclusion of any indicator will usually result in the 
appropriate adjustments for making the right decision. The Department 
will continue to explore ways to provide incentives to PHAs for making 
the right decisions that result in the long-term improvement of overall 
PHA operations and of a PHA's housing stock. In addition, the 
Department will recognize such PHAs at the Performance Awards Ceremony.
State/Area Office Functions--Sec. 901.120
    Comment: One comment reflected that Sec. 901.120(2)(c) states the 
purpose of on-site confirmatory reviews but does not provide a standard 
applied circumstance under which or manner in which they will be 
carried out. The new rule should stipulate that an on-site confirmatory 
review is required before a State/Area Office can decide to change the 
PHMAP score certified by a PHA, and should include specifically what 
documentation State/Area Offices must review as a basis for determining 
the validity of PHA performance certifications. The confirmatory review 
documentation requirements should be adequate to meet HUD's 
verification needs while at the same time comply with the Paperwork 
Reduction Act.
    Response: State/Area Offices conduct confirmatory reviews on a risk 
management basis, as discussed in the Field Office Monitoring of Public 
Housing Agencies (PHAs) Handbook 7460.7 REV-2. The confirmatory review 
guidebook and the revised PHMAP Handbook, which will be issued 
subsequent to the publication of the new rule, will include appropriate 
guidance regarding the conduct of confirmatory reviews. The rule 
requires confirmatory reviews of PHAs with 100 or more units before 
removing a designation of troubled or mod-troubled. In addition, the 
rule requires a confirmatory review of any PHA that scores less than 
60% for its total weighted score, or less than 60% on indicator #2, 
modernization, before the designation of a PHA as troubled or mod-
troubled. Although troubled or mod-troubled pre-designation 
confirmatory reviews were not previously mandatory, the Department has 
determined that such reviews can be significant elements of its risk 
management approach to PHMAP and can maximize the efficient use of its 
limited resources.
Appeals--Sec. 901.125
    Comment: One comment urged HUD to extend the deadline for appeals 
to the State/Area to the 30th calendar day after the PHMAP initial 
notification letter is received. The deadline in the proposed rule of 
15 days after mailing is not sufficient time to file a carefully 
crafted appeal, nor should the time to appeal be measured from the date 
of mailing. The losing party in a Federal lawsuit has 30 days to 
appeal. HUD should provide no less time to a PHA that contends it has 
not been fairly or accurately assessed.
    Response: The Department has determined not to change the time 
frame for a PHA to submit an appeal. The experience of HUD has been 
that appeals received in Headquarters are well thought out and 
presented. A PHA that submits an appeal should not have to go through a 
lengthy process in order to appeal; the documentation and information 
should be readily available since the PHA would have researched the 
information in order to submit its certification.
    Comment: One comment stated that the proposed rule does not 
specifically permit an appeal from a State/Area Office rejection of a 
claim for additional scoring adjustment that is based on the physical 
condition or neighborhood environment of housing developments. Although 
the proposed rule appears to cover disputes over the analysis or 
accuracy of data submitted in support of the claim, it would not cover 
disputes over whether a PHA maintained adequate documentation to 
support its claim. The proposed rule covers this type of dispute as it 
relates to denials of exclusion or modification requests but does not 
extend to a dispute over weighted scoring. This appears to be an 
unintended oversight and should be corrected.
    Response: HUD agrees and has amended this section accordingly.
    Comment: One comment urges HUD to reconsider the amorphous term 
``data errors'' that the proposed rule would carry over from the 
previous interim rule or in the PHMAP Handbook 7460.5. HUD's failure to 
explain the meaning of this term could result in ad hoc, overly narrow 
interpretations by State/Area Offices in individual ratings. HUD should 
revise this ground for appeal to encompass any dispute over the 
accuracy, calculation, or interpretation of data employed in the 
grading process that, if resolved in the PHA's favor, would affect its 
regular or weighted score.
    Response: The Department has changed the language to read, ``any 
dispute over the accuracy, calculation, or interpretation of data 
employed in the grading process that would affect a PHA's PHMAP 
score.''
    Comment: One comment stated that according to Sec. 901.125(a), a 
PHA could appeal the denial of an exclusion/modification request if 
that denial has any effect on their total score. This is different from 
the 5% threshold in the current rule. If this is the intent, it should 
be explicitly stated.

[[Page 68931]]

    Response: The Department believes that it is stated explicitly: ``A 
PHA may appeal...the denial of exclusion or modification requests when 
their denial affects a PHA's total weighted score, * * *'' As stated 
previously, a PHA should have the right to appeal its PHMAP score with 
as few restrictions as possible.
    Comment: One comment thought Sec. 901.125(a)(3) should specify how 
long the State/Field Offices have to rule on an appeal.
    Response: State/Area Offices will be required to meet the 30 day 
period for responding to appeals by an internal directive that will be 
as binding upon them as a regulatory requirement.
    Comment: One comment stated that Sec. 901.125(a)(5) is duplicative 
of paragraph (a)(1)(ii).
    Response: The Department agrees and has deleted Sec. 901.125(a)(5) 
from the new rule.
Incentives--Sec. 901.130
    Comment: Five comments stated that HUD should specify the actual 
HUD requirements that it intends to waive for high and standard 
performers and supports the extension of any such incentives to 
standard performers, as the proposed rule accomplishes. The proposed 
rule falls short of offering any true incentives that would encourage 
more PHAs to improve their performance. Besides a certificate, the only 
other incentives mentioned are being relieved from unspecified 
procedural requirements. But the rule also states that the State/Area 
Office has the discretion to continue to hold PHAs accountable for 
those same requirements. HUD must grant additional flexibility, on the 
record, to standard and high performing agencies. In the past, there 
seems to have been recognition, but little or no actual relief from 
administrative burdens.
    Response: The Department will cite specific incentives for high and 
standard performers in the revision of the PHMAP Handbook 7460.5. 
Incentives are presented in the handbook rather than the regulation to 
enable the Department to revise the incentives more quickly as 
conditions and circumstances warrant.
    Comment: One comment felt that the administrative burden on PHAs is 
growing and requested HUD to consider measurable relief such as the 
elimination of Davis-Bacon or project-based accounting for well-managed 
PHAs.
    Response: The Department cannot eliminate administrative burdens 
that are separate statutory requirements, such as Davis-Bacon and 
project-based accounting (applicable to PHAs with 500 or more units). 
However, the Department's Labor Relations Office is intending to 
implement a provision that will allow PHAs to obtain only one HUD-
determined wage rate determination for a PHA's entire fiscal year.
    Comment: One comment suggested that HUD exempt PHAs with three 
consecutive years of standard or high performing determinations from 
having to calculate and certify their PHMAP indicators. Rather, the 
indicators could be subject to the independent public audit (IPA). If, 
and when, the IPA indicates that a PHA is experiencing significant 
management problems, it could again be subject to yearly 
certifications.
    Response: The Department disagrees with this suggestion because the 
independent audit only checks the existence and consistency of a PHA's 
PHMAP documentation; it does not award a score. In addition, a well 
managed PHA should have little or no troubled certifying on an annual 
basis.
    Comment: One comment proposes that PHAs designated as high 
performers for a minimum of three consecutive years be required to 
certify to PHMAP only every other year unless and until they are 
designated as something less than high performers. In the event that 
their PHMAP score slips to standard performer or below, PHAs would 
revert to annual certifications until they, once again, have 
established themselves as high performers for three consecutive years. 
This would not only be a good incentive for PHAs, but also would reduce 
workload of the HUD offices.
    Response: As stated, above, a well managed PHA should have little 
or no troubled certifying on an annual basis.
    Comment: One comment feels that HUD's proposal that representatives 
of high-performing PHAs may be requested to serve on a Departmental 
group working with troubled PHAs is not of sufficient benefit to most 
PHAs. HUD must be willing to provide real cash incentive to the PHAs 
that perform well, not just pat them on the back. For instance, if 
high-performing PHAs are able to enter into ventures that provide 
monies in excess of 100% PFS subsidy, they should be able to keep most, 
if not all, of it. The ability of high-performing PHAs to generate 
revenue should not be used to reward low-performing PHAs.
    Response: The Department already permits the retention of ``other 
income,'' as stipulated in Notice PIH 96-24, Performance Funding System 
Policy Revision to Encourage Public and Indian Housing Authorities to 
Facilitate Resident Employment and Undertake Entrepreneurial 
Initiatives, issued April 3, 1996.
    Comment: One comment stated that the proposed rule limits 
incentives to mod high performers that are also overall high 
performers. This appears to be a change from the previous interim rule, 
and is unfair. Mod high performers that are overall standard performers 
should be able to benefit from mod incentives.
    Response: The Department disagrees with this comment and believes 
that only outstanding performance overall and in modernization warrants 
the high performer designation.
    Comment: One comment encourages HUD to permit the State/Area 
Offices to add incentives to the extent practical and as deemed 
appropriate.
    Response: The Department agrees and has amended the new rule to 
permit State/Area Offices to add incentives to the extent practical and 
as deemed appropriate, with prior concurrence of such action by the 
Assistant Secretary.
    Comment: One comment stated that Sec. 901.130(g) of the proposed 
rule states that the State/Area Office will have discretion to subject 
a PHA to any requirement that would otherwise be omitted under the 
specified relief in accordance with Sec. 901.115. What does this mean? 
It reads like an attempt to catch anything that the rule makers forgot 
without specifying what. Anything significant that might be recognized 
at some later date as omitted should be addressed as an amendment to 
the rule for consistent application nationwide.
    Response: This section refers to cases where the specified unusual 
circumstances listed in Sec. 901.115 exist at a PHA and the State/Area 
Office determines the necessity of reinstating any review or 
requirement.
    Comment: One comment stated that according to Sec. 901.130(a), both 
high performers and standard performers will receive incentives. If so, 
will these incentives be different for each group? If not, what is the 
advantage of achieving high performer status?
    Response: The Department agrees, and will provide separate 
incentives for both standard and high performers.
Memorandum of Agreement--Sec. 901.135
    Comment: One comment stated that an independent assessment team is 
not discussed or defined anywhere else in the rule. What is it? What 
are its functions? How is it assembled? The requirement for an 
``independent assessment'' prior to ``troubled'' designation should be 
thoroughly discussed somewhere in the rule.

[[Page 68932]]

    Response: The Department went through the procurement process to 
contract with the two consultants that conduct the independent 
assessments. The function of the two consultants is to conduct an 
assessment of problem areas independent of HUD, issue a report of 
findings, and perhaps participate in MOA negotiations. Since the 
independent assessment is separate from the PHMAP scoring process, the 
independent assessment is addressed only in Sec. 901.135, Memorandum of 
Agreement, in the new rule.
Improvement Plan--Sec. 901.145
    Comment: One comment stated that the phrase, `` * * * as well as 
other performance and/or compliance deficiencies as may be identified 
as a result of an on-site review of the PHA's operations * * *, is too 
broad and loose. The Improvement Plan shouldn't try to cover 
everything; this muddies the Improvement Plan and the PHMAP process. 
This section should specify that additional issues may be added to the 
Improvement Plan only if HUD and the PHA agree that they are directly 
related to PHA non-performance in the PHMAP deficiencies.
    Response: The Department disagrees with this suggestion and 
believes that the rule should provide the flexibility to permit 
identified deficiencies to be addressed as soon as possible, whether 
they are related to PHMAP or not. This provision allows all identified 
deficiencies to be addressed in one document.
PHMAP Public Record--Sec. 901.155
    Comment: One comment raised several questions, such as: how do FOIA 
requirements apply to PHMAP records, if at all; how do these 
requirements complement each other; are all internal HUD records on the 
PHMAP assessment included in the ``open public record,'' including 
those that would be excluded from the normal FOIA request? This should 
be clarified.
    Response: The FOIA does apply to PHMAP. The items listed in 
Sec. 901.155 (``certifications, the records of exclusion and 
modification requests, appeals, and designations of status based on 
physical condition and neighborhood environment'') are all public 
records, and do not make an exclusive or exhaustive list. Also included 
would be such items as the notification to the PHA, and the State/Area 
Office scoring sheet. Exemptions authorized under FOIA by 5 U.S.C. 
552(b) would still apply. This section is clarified to read, ``...as 
open records, available for public inspection for three years 
consistent with the Freedom of Information Act (5 U.S.C. 552) and in 
accordance with any procedures established by the State/Area Office to 
minimize disruption of normal office operations.''
Substantial Default--Sec. 901.200
    Comment: One comment observed that Sec. 901.200 requires HUD to 
determine a PHA in ``substantial default'' if that PHA has been 
designated as troubled and does not show significant improvement (i.e., 
10 point increase) in its PHMAP score within one year. The preamble 
notes that the rationale for this is that ``troubled PHAs have already 
had more than adequate time to implement corrective action, or will 
have at least one year from the time of its initial troubled 
designation.'' This is not correct. Because of the PHMAP score 
notification process, a PHA would have less than a year to correct 
deficiencies once it is notified and before the next assessment. The 
time frame established for improvement is arbitrary and too short for 
real improvement to take place. It may be reasonable for some PHAs but 
not for others. Improvement in performance is the function of many 
factors. This time frame should be changed.
    Response: The rule is modified to stipulate one year after final 
notification.
Notice and Response--Sec. 901.205
    Comment: One comment stated that section (a) stipulates that if 
information from any other credible source indicates that there may 
exist events or conditions constituting a substantial breach or 
default, HUD shall advise a PHA of such information. Before taking 
further action, except in cases of apparent fraud or criminality, and/
or if emergency conditions exist posing an imminent threat to the life, 
health or safety of residents, HUD shall afford the PHA a timely 
opportunity to initiate corrective action. This provision lends itself 
to unintentional abuse. The use of unidentified credible sources as the 
basis for action on unverified conditions could leave PHAs vulnerable 
to becoming the victims of political witch hunts. Even emergency 
conditions allow 24 hours for corrective action. At minimum, a PHA 
should be afforded 24 hours for emergencies and longer as appropriate 
for non-emergency conditions to respond with verification that the 
condition does or does not exist. This provision should be modified 
accordingly.
    Response: ``Timely opportunity'' varies due to possible individual 
situations and the Department will provide for a reasonable amount of 
time for a PHA to initiate corrective action. The Department will 
consider each situation individually, and on a case by case basis, as 
appropriate.
Resident Participation in Competitive Proposals--Sec. 901.220 and 
Resident Petitions for Remedial Action--Sec. 901.225
    Comment: One comment stated that Sec. 901.220(b) and Sec. 901.225 
require at least 5% of the residents at a PHA in substantial default to 
indicate to HUD their interest in participating in the competitive 
proposal process. This percentage is unreasonably low. There isn't a 
PHA in the country that doesn't have at least five people out of 100 
eager to get rid of the current PHA management. This doesn't 
necessarily mean that they know what they are talking about or are 
right. The Department needs to seriously consider a threshold of 
interest that is high enough to ensure true interest by the resident 
population, not just a handful of disgruntled residents.
    Response: The Department agrees, and has changed the percentage in 
the new rule to require that 20% of the residents at a PHA in 
substantial default indicate to HUD their interest in participating in 
the competitive proposal process.
Technical Assistance--Sec. 901.235
    Comment: One comment felt that this section is confusing and gives 
the impression that it is designed to limit HUD's ability to offer 
technical assistance and should be clarified.
    Response: The Department disagrees and thinks this section very 
specifically states and authorizes under what circumstances HUD may 
provide technical assistance to troubled or near troubled PHAs.

III. Findings and Certifications

Justification for Interim Rulemaking

    Although this rule could have been published as a final rule 
because it was first published as a proposed rule for prior notice and 
comment on May 6, 1996 (61 FR 20358), it is being published as an 
interim rule to communicate HUD's intention to continue to revise and 
improve the rule. Following a period of implementation and experience 
with this rule, HUD will again solicit public comment to further refine 
the PHMAP process.

Paperwork Reduction Act

    The information collection requirements for the Public Housing 
Management Assessment Program have been approved by the Office of 
Management and Budget in accordance

[[Page 68933]]

with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520), and 
assigned OMB control number 2577-0156. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless the collection displays a valid control number.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 establishes 
requirements for Federal agencies to assess the effects of their 
regulatory actions on State, local, local and tribal governments and 
the private sector. This rule does not impose any Federal mandates on 
any State, local or tribal governments or the private sector within the 
meaning of the Unfunded Mandates Reform Act of 1995.

Environmental Review

    A Finding of No Significant Impact with respect to the environment, 
in accordance with HUD regulations at 24 CFR part 50, which implements 
Sec. 102(2)(C) of the National Environmental Policy Act of 1969, was 
prepared for the proposed rule and remains applicable. The Finding of 
No Significant Impact is available for public inspection between 7:30 
a.m. and 5:30 p.m. weekdays in the Office of the Rules Docket Clerk.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) has reviewed and approved this rule, and in so doing 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities, since the rule only establishes 
management assessment criteria which will be utilized by State/Area 
Offices for monitoring purposes and the provision of technical 
assistance to PHAs.

Federalism

    The General Counsel, as the Designated Official under Executive 
Order 12612, Federalism, has determined that the policies contained in 
this rule will not have substantial direct effects on States or their 
political subdivisions, or the relationship between the Federal 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government. The rule is 
intended to promote good management practices by including, in HUD's 
relationship with PHAs, continuing review of PHAs' compliance with 
already existing requirements. In addition, the rule carries out, as 
unobtrusively as possible, a Federal statutory mandate. The rule does 
not create any new significant requirements of its own. As a result, 
the rule is not subject to review under the Order.
    Family Impact. The General Counsel, as the Designated Official 
under Executive Order 12606, The Family, has determined that this rule 
does not have potential for significant impact on family formation, 
maintenance, and general well-being, and, thus, is not subject to 
review under the Order. The rule involves requirements for management 
assessment of PHAs. Any effect on the family would be indirect. To the 
extent families in public housing will be affected, the impact of the 
rule's requirements is expected to be a positive one.

List of Subjects in 24 CFR Part 901

    Public housing, reporting and recordkeeping requirements.

    Accordingly, part 901 of title 24 of the Code of Federal 
Regulations is revised to read as follows:

PART 901--PUBLIC HOUSING MANAGEMENT ASSESSMENT PROGRAM

Sec.
901.1 Purpose, program scope and applicability.
901.5 Definitions.
901.10 Indicator #1, vacancy rate and unit turnaround time.
901.15 Indicator #2, modernization.
901.20 Indicator #3, rents uncollected.
901.25 Indicator #4, work orders.
901.30 Indicator #5, annual inspection of units and systems.
901.35 Indicator #6, financial management.
901.40 Indicator #7, resident services and community building.
901.45 Indicator #8, security.
901.100 Data collection.
901.105 Computing assessment score.
901.110 PHA request for exclusion or modification of an indicator or 
component.
901.115 PHA score and status.
901.120 State/Area Office functions.
901.125 PHA right of appeal.
901.130 Incentives.
901.135 Memorandum of Agreement.
901.140 Removal from troubled status and mod-troubled status.
901.145 Improvement Plan.
901.150 PHAs troubled with respect to the program under section 14 
(mod-troubled PHAs).
901.155 PHMAP public record.
901.200 Events or conditions that constitute substantial default.
901.205 Notice and response.
901.210 Interventions.
901.215 Contracting and funding.
901.220 Resident participation in competitive proposals to manage 
the housing of a PHA.
901.225 Resident petitions for remedial action.
901.230 Receivership.
901.235 Technical assistance.

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


Sec. 901.1  Purpose, program scope and applicability.

    (a) Purpose. This part establishes the Public Housing Management 
Assessment Program (PHMAP) to implement and augment section 6(j) of the 
1937 Act. PHMAP provides policies and procedures to identify public 
housing agency (PHA), resident management corporation (RMC), and 
alternative management entity (AME) management capabilities and 
deficiencies, recognize high-performing PHAs, designate criteria for 
defining troubled PHAs and PHAs that are troubled with respect to the 
program under section 14 (Public Housing Modernization Program), and 
improve the management practices of troubled PHAs and mod-troubled 
PHAs.
    (b) Program scope. The PHMAP reflects only one aspect of PHA 
operations, i.e., the results of its management performance in specific 
program areas. The PHMAP should not be viewed by PHAs, the Department 
or other interested parties as an all-inclusive and encompassing view 
of overall PHA operations. When viewing overall PHA operations, other 
criteria, including but not limited to, the quality of a PHA's housing 
stock, compliance issues, Fair Housing and Equal Opportunity issues, 
Board knowledge and oversight of PHA operation, etc., even though not 
covered under the PHMAP, are necessary in order to determine the 
adequacy of overall PHA operations. The PHMAP can never be designed to 
be the sole method of viewing a PHA's overall operations. A PHA should 
not manipulate the PHMAP system in the short-term in order to achieve a 
higher PHMAP score, thereby delaying or negating long-term improvement. 
Making a correct and viable long-term decision (doing the right thing) 
may hurt a PHA in the short-term (i.e., lower PHMAP score), but will 
result in improved housing stock and better overall management of a PHA 
over the long-term and a higher sustainable PHMAP score.
    (c) Applicability. (1) The provisions of this part apply to PHAs 
and RMC/AMEs as noted in the sections of this part. The management 
assessment of an RMC/AME differs from that of a PHA. Because an RMC/AME 
enters into a contract with a PHA to perform specific management 
functions on a development-by-development or program basis, and because 
the scope of the management that is undertaken

[[Page 68934]]

varies, not every indicator that applies to a PHA would be applicable 
to each RMC/AME.
    (2) Due to the fact that the PHA and not the RMC/AME is ultimately 
responsible to the Department under the ACC, a PHA's score will be 
based on all of the developments covered by the ACC, including those 
with management functions assumed by an RMC or AME (pursuant to a court 
ordered receivership agreement, if applicable). This is necessary 
because of the limited nature of an RMC/AME's management functions and 
the regulatory and contractual relationships among the Department, PHAs 
and RMC/AMEs.
    (3) A significant feature of RMC management is that 24 CFR 
Secs. 964.225 (d) and (h) provide that a PHA may enter into a 
management contract with an RMC, but a PHA may not contract for 
assumption by the RMC of the PHA's underlying responsibilities to the 
Department under the Annual Contributions Contract (ACC).
    (4) When a PHA's management functions have been assumed by an AME:
    (i) If the AME assumes only a portion of the PHA's management 
functions, the provisions of this part that apply to RMCs apply to the 
AME (pursuant to a court ordered receivership agreement, if 
applicable); or
    (ii) If the AME assumes all, or substantially all, of the PHA's 
management functions, the provisions of this part that apply to PHAs 
apply to the AME (pursuant to a court ordered receivership agreement, 
if applicable).
    (5) To ensure quality management results from a contract between an 
AME and a PHA, or between an AME and HUD, minimum performance criteria 
that relate to the PHMAP indicators, as applicable, should be included 
in such contract. Failure to meet the performance criteria would be a 
basis for termination of the contract. However, even in the absence of 
explicit contractual provisions, this part applies to AMEs in 
accordance with paragraph (b)(4) of this section, above.


Sec. 901.5  Definitions.

    Actual vacancy rate is the vacancy rate calculated by dividing the 
total number of vacancy days in the fiscal year by the total number of 
unit days available in the fiscal year.
    Adjusted vacancy rate is the vacancy rate calculated after 
excluding the vacancy days that are exempted for any of the eligible 
reasons. It is calculated by dividing the total number of adjusted 
vacancy days in the fiscal year by the total number of unit days 
available in the fiscal year.
    Alternative management entity (AME) is a receiver, private 
contractor, private manager, or any other entity that is under contract 
with a PHA, or that is otherwise duly appointed or contracted (for 
example, by court order, pursuant to a court ordered receivership 
agreement, if applicable, or agency action), to manage all or part of a 
PHA's operations. Depending upon the scope of PHA management functions 
assumed by the AME, in accordance with Sec. 901.1(b)(2), the AME is 
treated as a PHA or an RMC for purposes of this part and, as 
appropriate, the terms PHA and RMC include AME.
    Assessed fiscal year is the PHA fiscal year that has been reviewed 
for management performance using the PHMAP indicators. Unless otherwise 
indicated, the assessed fiscal year is the immediate past fiscal year 
of a PHA.
    Assistant Secretary means the Assistant Secretary for Public and 
Indian Housing of the Department.
    Available units are dwelling units, (occupied or vacant) under a 
PHA's Annual Contributions Contract, that are available for occupancy, 
after excluding or adjusting for units approved for non-dwelling use, 
employee-occupied units, and vacant units approved for deprogramming 
(units approved for demolition, disposition or units that have been 
combined).
    Average number of days for non-emergency work orders to be 
completed is calculated by dividing the total of the:
    (1) Number of days in the assessed fiscal year it takes to close 
active non-emergency work orders carried over from the previous fiscal 
year;
    (2) The number of days it takes to complete non-emergency work 
orders issued and closed during the assessed fiscal year; and
    (3) The number of days all active non-emergency work orders are 
open in the assessed fiscal year, but not completed, by the total 
number of non-emergency work orders used in the calculation of 
paragraphs (1), (2) and (3), of this definition.
    Average turnaround time is the annual average of the total number 
of turnaround days between the latter of the legal expiration date of 
the immediate past lease or the actual move-out date of the former 
tenant (whenever that occurred, including in some previous fiscal year) 
and the date a new lease takes effect. Each time an individual unit is 
re-occupied (turned around) during the fiscal year, the turnaround days 
for that unit shall be counted in the turnaround time. Average 
turnaround time is calculated by dividing the total turnaround days for 
all units re-occupied during the assessed fiscal year by the total 
number of units re-occupied during the assessed fiscal year.
    Cash reserve is the amount of cash available for operations at the 
end of an annual reporting period after all necessary expenses of a PHA 
or development have been paid or funds have been set-aside for such 
payment. The cash reserve computation takes into consideration both 
short-term accounts receivable and accounts payable.
    Confirmatory review is an on-site review for the purposes of State/
Area Office verification of the performance level of a PHA, the 
accuracy of the data certified to by a PHA, and the accuracy of the 
data derived from State/Area Office files.
    Correct means to improve performance in an indicator to a level of 
grade C or better.
    Cyclical work orders are work orders issued for the performance of 
routine maintenance work that is done in the same way at regular 
intervals. Examples of cyclical work include, but are not limited to, 
mopping hallways; picking up litter; cleaning a trash compactor; 
changing light bulbs in an entryway; etc. (Cyclical work orders should 
not be confused with preventive maintenance work orders.)
    Deficiency means any grade below C in an indicator or component.
    Down time is the number of calendar days a unit is vacant between 
the later of the legal expiration date of the immediate past lease or 
the actual move-out date of the former resident, and the date the work 
order is issued to maintenance.
    Dwelling rent refers to the resident dwelling rent charges 
reflected in the monthly rent roll(s) and excludes utility 
reimbursements, retroactive rent charges, and any other charges not 
specifically identified as dwelling rent, such as maintenance charges, 
excess utility charges and late charges.
    Dwelling rent to be collected means dwelling rent owed by residents 
in possession at the beginning of the assessed fiscal year, plus 
dwelling rent charged to residents during the assessed fiscal year.
    Dwelling rent uncollected means unpaid resident dwelling rent owed 
by any resident in possession during the assessed fiscal year, but not 
collected by the last day of the assessed fiscal year.
    Dwelling unit is a unit that is either leased or available for 
lease to eligible low-income residents.
    Effective lease date is the date when the executed lease contract 
becomes effective and rent is due and payable and all other provisions 
of the lease are enforceable.

[[Page 68935]]

    Emergency means physical work items that pose an immediate threat 
to life, health, safety, or property, or that are related to fire 
safety.
    Emergency status abated means that an emergency work order is 
either fully completed, or the emergency condition is temporarily 
eliminated and no longer poses an immediate threat. If the work cannot 
be completed, emergency status can be abated by transferring the 
resident away from the emergency situation.
    Emergency work order is a work order, from any source, that 
involves a circumstance that poses an immediate threat to life, health, 
safety or property, or that is related to fire safety.
    Employee occupied units refers to units that are occupied by 
employees who are required to live in public housing as a condition of 
their job, rather than the occupancy being subject to the normal 
resident selection process.
    HQS means Housing Quality Standards as set forth at 24 CFR 
Sec. 882.109 and amended by the Lead-Based Paint regulation at 24 CFR 
Sec. 35.
    Improvement Plan is a document developed by a PHA, specifying the 
actions to be taken, including timetables, that may be required to 
correct deficiencies where the grade for an indicator is a grade D or 
E, and shall be required to correct deficiencies of failed indicators, 
identified as a result of the PHMAP assessment when an MOA is not 
required.
    Indicators means the major categories of PHA management functions 
that are examined under this program for assessment purposes. The list 
of individual indicators and the way they are graded is provided in 
Sec. 901.10 through Sec. 901.45.
    Lease up time is the number of calendar days between the time the 
repair of a unit is completed and a new lease takes effect.
    Local occupancy/housing codes are the minimum standards for human 
occupancy, if any, as defined by the local ordinance(s) of the 
jurisdiction in which the housing is located.
    Maintenance plan is a comprehensive annual plan of a PHA's 
maintenance operation that contains the fiscal year's estimated work 
schedule and which is supported by a staffing plan, contract schedule, 
materials and procurement plan, training, and approved budget. The plan 
should establish a strategy for meeting the goals and time frames of 
the facilities management planning and execution, capital improvements, 
utilities, and energy conservation activities.
    Major systems include, but are not limited to, structural/building 
envelopes which include roofing, walls, windows, hardware, flashing and 
caulking; mechanical systems which include heating, ventilation, air 
conditioning, plumbing, drainage, underground utilities (gas, 
electrical and water), and fuel storage tanks; electrical systems which 
include underground systems, above ground systems, elevators, emergency 
generators, door bells, electronic security devices, fire alarms, smoke 
alarms, outdoor lighting, and indoor lighting (halls, stairwells, 
public areas and exit signs); and transformers.
    Make ready time is the number of calendar days between the date the 
unit is referred to maintenance for repair by a work order and 
occupancy is notified that the unit is ready for re-occupancy.
    Memorandum of Agreement (MOA) is a binding contractual agreement 
between a PHA and HUD that is required for each PHA designated as 
troubled and/or mod-troubled. The MOA sets forth target dates, 
strategies and incentives for improving management performance; and 
provides sanctions if performance does not result.
    Move-out date is the actual date when the resident vacates the 
unit, which may or may not coincide with the legal expiration of the 
lease agreement.
    Non-emergency work order is any work order that covers a situation 
that is not an immediate threat to life, health, safety, or property, 
or that is unrelated to fire safety.
    Percent of dwelling rent uncollected is calculated by dividing the 
amount of dwelling rent uncollected by the total dwelling rent to be 
collected.
    PHA means a public housing agency. As appropriate in accordance 
with Sec. 901.1(b)(2), PHA also includes AME.
    Percentage of emergency work orders completed within 24 hours is 
the ratio of emergency work orders completed in 24 hours to the total 
number of emergency work orders. The formula for calculating this ratio 
is: total emergency work orders completed (or emergency status abated) 
in 24 hours or less, divided by the total number of emergency work 
orders.
    PHA-generated work order is any work order that is issued in 
response to a request from within the PHA administration.
    Preventive maintenance program is a program under which certain 
maintenance procedures are systematically performed at regular 
intervals to prevent premature deterioration of buildings and systems. 
The program is developed and regularly updated by the PHA, and fully 
documents what work is to be performed and at what intervals. The 
program includes a system for tracking the performance of preventive 
maintenance work.
    Preventive maintenance work order is any work done on a regularly 
scheduled basis in order to prevent deterioration or breakdowns in 
individual units or major systems.
    Reduced actual vacancy rate within the previous three years is a 
comparison of the vacancy rate in the PHMAP assessment year (the 
immediate past fiscal year) with the vacancy rate of that fiscal year 
which is two years previous to the assessment year. It is calculated by 
subtracting the vacancy rate in the assessment year from the vacancy 
rate in the earlier year. If a PHA elects to certify to the reduction 
of the vacancy rate within the previous three years, the PHA shall 
retain justifying documentation to support its certification for HUD 
post review.
    Reduced the average time it took to complete non-emergency work 
orders during the previous three years is a comparison of the average 
time it took to complete non-emergency work orders in the PHMAP 
assessment year (the immediate past fiscal year) with the average time 
it took to complete non-emergency work orders of that fiscal year which 
is two years previous to the assessment year. It is calculated by 
subtracting the average time it took to complete non-emergency work 
orders in the PHMAP assessment year from the average time it took to 
complete non-emergency work orders in the earlier year. If a PHA elects 
to certify to the reduction of the average time it took to complete 
non-emergency work orders during the previous three years, the PHA 
shall retain justifying documentation to support its certification for 
HUD post review.
    Resident-generated work order is a work order issued by a PHA in 
response to a request from a lease holder or family member of a lease 
holder.
    Resident management corporation (RMC) means the entity that 
proposes to enter into, or that enters into, a management contract with 
a PHA in accordance with 24 CFR 964.120. As appropriate in accordance 
with Sec. 901.1(b)(2), RMC also includes AME.
    Routine operating expenses are all expenses which are normal, 
recurring fiscal year expenditures. Routine expenses exclude those 
expenditures that are not normal fiscal year expenditures and those 
that clearly represent work of such a substantial nature that the 
expense is clearly not a routine occurrence.
    Standards equivalent to HQS are housing/occupancy inspection 
standards that are equal to HUD's Section 8 HQS.

[[Page 68936]]

    Substantial default means a PHA is determined by the Department to 
be in violation of statutory, regulatory or contractual provisions or 
requirements, whether or not these violations would constitute a 
substantial default or a substantial breach under explicit provisions 
of the relevant Annual Contributions Contract (ACC) or a Memorandum of 
Agreement.
    Unit days available are the number of days that the available units 
were available for occupancy in a PHA fiscal year. Unit days available 
are calculated by adding the number of days that each unit was 
available for occupancy in the year.
    Units approved for non-dwelling use refers to units approved for 
non-dwelling status for use in the provision of social services, 
charitable purposes, public safety activities and resident services, or 
used in the support of economic self-sufficiency and anti-drug 
activities.
    Units vacant due to circumstances and actions beyond the PHA's 
control are dwelling units that are vacant due to circumstances and 
actions that prohibit the PHA from occupying, selling, demolishing, 
rehabilitating, reconstructing, consolidating or modernizing the units. 
For purposes of this definition, circumstances and actions beyond the 
PHA's control are limited to:
    (1) Litigation. The effect of court litigation such as a court 
order or settlement agreement that is legally enforceable. An example 
would be units that are required to remain vacant because of fire/
police investigations, coroner's seal, or as part of a court-ordered or 
HUD-approved desegregation effort.
    (2) Laws. Federal or State laws of general applicability, or their 
implementing regulations. This category does not include units vacant 
only because they do not meet minimum housing and building code 
standards pertaining to construction or habitability under Federal, 
State, or local laws or regulations, except when these code violations 
are caused for reasons beyond the control of the PHA, rather than as a 
result of management and/or maintenance failures by the PHA. Examples 
of exempted units under this category are: vacant units that are 
documented to be uninhabitable for reasons beyond the PHA's control due 
to high/unsafe levels of hazardous/toxic materials (e.g., lead-based 
paint or asbestos), by order of the local health department or 
directive of the Environmental Protection Agency, where the conditions 
causing the order are beyond the control of the PHA, and units kept 
vacant because they became structurally unsound (e.g., buildings 
damaged by shrinking/swelling subsoil or similar situations). Other 
examples are vacant units in which resident property has been 
abandoned, but only if State law requires the property to be left in 
the unit for some period of time, and only for the period stated in the 
law and vacant units required to remain vacant because of fire/police 
investigations, coroner's seal, or court order.
    (3) Changing market conditions. Example of units in this category 
are small PHAs that are located in areas experiencing population loss 
or economic dislocations that face a lack of demand in the foreseeable 
future, even after the PHA has taken aggressive marketing and outreach 
measures. Where a PHA claims extraordinary market conditions, the PHA 
will be expected to document the market conditions to which it refers 
(the examples of changing population base and competing projects are 
the simplest), the explicit efforts that the PHA has made to address 
those conditions, the likelihood that those conditions will be 
mitigated or eliminated in the near term, and why the market conditions 
are such that the PHA is prevented from occupying, selling, 
demolishing, rehabilitating, reconstructing, consolidating or 
modernizing the vacant units. In order to justify the adjustment, the 
PHA will need to document the specific market conditions that exist and 
document marketing and outreach efforts. The PHA will need to describe 
when the downturn in market conditions occurred, the location(s) of the 
unit(s) effected, the likelihood that these circumstances will be 
mitigated or eliminated in the near term and why the market conditions 
are such that they are preventing the PHA from occupying, selling, 
demolishing, rehabilitating, reconstructing, consolidating, or 
modernizing the vacant units.
    (4) Natural disasters. These are vacant units that are documented 
to be uninhabitable because of damaged suffered as a result of natural 
disasters such as floods, earthquakes, hurricanes, tornadoes, etc. In 
the case of a ``natural disaster'' claim, the PHA would be expected to 
point to a proclamation by the President or the Governor that the 
county or other local area in question has, in fact, been declared a 
disaster area.
    (5) Insufficient funding. Lack of funding for otherwise approvable 
applications made for Comprehensive Improvement Assistance Program 
(CIAP) funds (only PHAs with less than 250 units are eligible to apply 
and compete for CIAP funds). This definition will cease to be used if 
CIAP is replaced by a formula grant.
    (6) Casualty Losses. Vacant units that have sustained casualty 
damage and are pending resolution of insurance claims or settlements, 
but only until the insurance claim is adjusted, i.e., funds to repair 
the unit are received. The vacancy days exempted are those included in 
the period of time between the casualty loss and the receipt of funds 
from the insurer to cover the loss in whole or in part.
    Vacancy day is a day when an available unit is not under lease by 
an eligible low-income resident. The maximum number of vacancy days for 
any unit is the number of days in the year, regardless of the total 
amount of time the unit has been vacant. Vacancy days are calculated by 
adding the total number of days vacant from all available units that 
were vacant for any reason during the PHA's fiscal year.
    Vacant unit is an available unit that is not under lease to an 
eligible low-income family.
    Vacant unit turnaround work order is a work order issued that 
directs a vacant unit to be made ready to lease to a new resident and 
reflects all work items to prepare the unit for occupancy.
    Vacant unit undergoing modernization as defined in 24 CFR 
Sec. 990.102. In addition, the following apply when computing time 
periods for a vacant unit undergoing modernization:
    (1) If a unit is vacant prior to being included in a HUD-approved 
modernization budget, those vacancy days that had accumulated prior to 
the unit being included in the modernization budget must be included as 
non-exempted vacancy days in the calculation.
    (2) The calculation of turnaround time for newly modernized units 
starts when the unit in turned over to the PHA from the contractor and 
ends when the lease is effective for the new or returning resident. 
Thus, the total turnaround time would be the sum of the pre-
modernization vacancy time, and the post-modernization vacancy time.
    (3) Unit-by-unit documentation, showing when a vacant unit was 
included in a HUD-approved modernization budget, when it was released 
to the PHA by the contractor, and when a new lease is effective for the 
new or returning resident, must be maintained by the PHA.
    (4) Units remaining vacant more than two FFYs after the FFY in 
which the modernization funds are approved, may no longer be exempted 
from the

[[Page 68937]]

calculation of the adjusted vacancy rate if the construction contract 
has not been let. These units may be exempted again, but only after a 
contract is let.
    Vacant units approved for deprogramming exist when a PHA's 
application for the demolition and/or disposition of public housing 
units has received written approval from HUD; or when a PHA's 
application to combine/convert has received written approval from HUD.
    Work order is a directive, containing one or more tasks issued to a 
PHA employee or contractor to perform one or more tasks on PHA 
property. This directive describes the location and the type of work to 
be performed; the date and time of receipt; date and time issued to the 
person or entity performing the work; the date and time the work is 
satisfactorily completed; the parts used to complete the repairs and 
the cost of the parts; whether the damage was caused by the resident; 
and the charges to the resident for resident-caused damage. The work 
order is entered into a log which indicates at all times the status of 
all work orders as to type (emergency, non-emergency), when issued, and 
when completed.
    Work order completed during the immediate past fiscal year is any 
work order that is completed during the PHA's fiscal year regardless of 
when it may have been received.
    Work order deferred for modernization is any work order that is 
combined with similar work items and completed within the current PHMAP 
assessment year, or will be completed in the following year if there 
are less than three months remaining before the end of the PHA fiscal 
year when the work order was generated, under the PHA's modernization 
program or other PHA capital improvements program.


Sec. 901.10  Indicator #1, vacancy rate and unit turnaround time.

    This indicator examines the vacancy rate, a PHA's progress in 
reducing vacancies, and unit turnaround time. Implicit in this 
indicator is the adequacy of the PHA's system to track the duration of 
vacancies and unit turnaround, including down time, make ready time, 
and lease up time. This indicator has a weight of x2.
    (a) For the calculation of the actual and adjusted vacancy rate 
(and, if applicable, unit turnaround time), the following three 
categories of units (as defined in the rule at Sec. 901.5), that are 
not considered available for occupancy, will be completely excluded 
from the computation:
    (1) Units approved for non-dwelling use.
    (2) Employee occupied units.
    (3) Vacant units approved for deprogramming (i.e., demolition, 
disposition or units that have been combined).
    (b) For the calculation of the adjusted vacancy rate and turnaround 
time, the vacancy days for units in the following categories (fully 
defined in the rule at Sec. 901.5) shall be exempted:
    (1) Vacant units undergoing modernization as defined in Sec. 901.5.
    (i) Only vacancy days associated with a vacant unit that meets the 
conditions of being a unit undergoing modernization will be exempted 
when calculating the adjusted vacancy rate or, if necessary, the unit 
turnaround time. Neither vacancy days associated with a vacant unit 
prior to that unit meeting the conditions of being a unit undergoing 
modernization nor 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 be 
exempted.
    (ii) A PHA must maintain the following documentation to support its 
determination of vacancy days associated with a vacant unit that meets 
the conditions of being a unit undergoing modernization:
    (A) The date on which the unit met the conditions of being a vacant 
unit undergoing modernization: and
    (B) The date on which construction work was completed or the time 
period for placing the vacant unit under construction expired.
    (2) Units vacant due to circumstances and actions beyond the PHA's 
control as defined in Sec. 901.5. Such circumstances and actions may 
include:
    (i) Litigation, such as a court order or settlement agreement that 
is legally enforceable.
    (ii) Federal or, when not preempted by Federal requirements, State 
law of general applicability or their implementing regulations.
    (iii) Changing market conditions.
    (iv) Natural disasters.
    (v) Insufficient funding for otherwise approvable applications made 
for CIAP funds. This definition will cease to be used if CIAP is 
replaced by a formula grant.
    (vi) Vacant units that have sustained casualty damage and are 
pending resolution of insurance claims or settlements, but only until 
the insurance claim is adjusted. A PHA must maintain at least the 
following documentation to support its determination of vacancy days 
associated with units vacant due to circumstances and actions beyond 
the PHA's control:
    (A) The date on which the unit met the conditions of being a unit 
vacant due to circumstances and actions beyond the PHA's control;
    (B) Documentation identifying the specific conditions that 
distinguish the unit as a unit vacant due to circumstances and actions 
beyond the PHA's control as defined in Sec. 901.5;
    (C) The actions taken by the PHA to eliminate or mitigate these 
conditions; and
    (D) The date on which the unit ceased to meet such conditions and 
became an available unit.
    (E) This supporting documentation is subject to review and may be 
requested for verification purposes at any time by HUD.
    (c) Component #1, vacancy percentage and progress in reducing 
vacancies. A PHA may choose whether to use the actual vacancy rate, the 
adjusted vacancy rate or a reduction in the actual vacancy rate within 
the past three years. This component has a weight of x2.
    (1) Grade A: The PHA is in one of the following categories:
    (i) An actual vacancy rate of 3% or less; or
    (ii) An adjusted vacancy rate of 2% or less.
    (2) Grade B: The PHA is in one of the following categories:
    (i) An actual vacancy rate of greater than 3% and less than or 
equal to 5%; or
    (ii) An adjusted vacancy rate of greater than 2% and less than or 
equal to 3%.
    (3) Grade C: The PHA is in one of the following categories:
    (i) An actual vacancy rate of greater than 5% and less than or 
equal to 7%; or
    (ii) An adjusted vacancy rate of greater than 3% and less than or 
equal to 4%; or
    (iii) The PHA has reduced its actual vacancy rate by at least 15 
percentage points within the past three years and has an adjusted 
vacancy rate of greater than 4% and less than or equal to 5%.
    (4) Grade D: The PHA is in one of the following categories:
    (i) An actual vacancy rate of greater than 7% and less than or 
equal to 9%; or
    (ii) An adjusted vacancy rate of greater than 4% and less than or 
equal to 5%; or
    (iii) The PHA has reduced its actual vacancy rate by at least 10 
percentage points within the past three years and has an adjusted 
vacancy rate of greater than 5% and less than or equal to 6%.
    (5) Grade E: The PHA is in one of the following categories:

[[Page 68938]]

    (i) An actual vacancy rate of greater than 9% and less than or 
equal to 10%; or
    (ii) An adjusted vacancy rate of greater than 5% and less than or 
equal to 6%; or
    (iii) The PHA has reduced its actual vacancy rate by at least five 
percentage points within the past three years and has an adjusted 
vacancy rate of greater than 6% and less than or equal to 7%.
    (6) Grade F: The PHA is in one of the following categories:
    (i) An actual vacancy rate greater than 10%; or
    (ii) An adjusted vacancy rate greater than 7%; or
    (iii) An adjusted vacancy rate of greater than 6% and less than or 
equal to 7% and the PHA has not reduced its actual vacancy rate by at 
least five percentage points within the past three years.
    (d) Component #2, unit turnaround time. This component is to be 
completed only by PHAs scoring below a grade C on component #1. This 
component has a weight of x1.
    (1) Grade A: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is less than or equal 
to 20 calendar days.
    (2) Grade B: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 20 
calendar days and less than or equal to 25 calendar days.
    (3) Grade C: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 25 
calendar days and less than or equal to 30 calendar days.
    (4) Grade D: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 30 
calendar days and less than or equal to 40 calendar days.
    (5) Grade E: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 40 
calendar days and less than or equal to 50 calendar days.
    (6) Grade F: The average number of calendar days between the time 
when a unit is vacated and a new lease takes effect for units re-
occupied during the PHA's assessed fiscal year, is greater than 50 
calendar days.


Sec. 901.15  Indicator #2, modernization.

    This indicator is automatically excluded if a PHA does not have a 
modernization program. This indicator examines the amount of unexpended 
funds over three Federal fiscal years (FFY) old, the timeliness of fund 
obligation, the adequacy of contract administration, the quality of the 
physical work, and the adequacy of budget controls. All components 
apply to both the Comprehensive Grant Program (CGP), the Comprehensive 
Improvement Assistance Program (CIAP) and lead based paint risk 
assessment funding (1992-1995), and any successor program(s) to the CGP 
or the CIAP. Only components #3, #4 and #5 apply to funding under the 
Hope VI Program and the Vacancy Reduction Program for the assessment of 
this indicator. This indicator has a weight of x1.5.
    (a) Component #1, unexpended funds over three Federal fiscal years 
(FFYs) old. This component has a weight of x1.
    (1) Grade A: The PHA has no unexpended funds over three FFYs old or 
is able to demonstrate one of the following:
    (i) The unexpended funds are leftover funds and will be recaptured 
after audit;
    (ii) There are no unexpended funds past the original HUD-approved 
implementation schedule deadline that allowed longer than three FFYs; 
or
    (iii) The PHA has extended the time within 30 calendar days after 
the expenditure deadline and the time extension is based on reasons 
outside of the PHA's control, such as need to use leftover funds, 
unforeseen delays in contracting or contract administration, 
litigation, material shortages, or other non-PHA institutional delay.
    (2) Grade F: The PHA has unexpended funds over three FFYs old and 
is unable to demonstrate any of the above three conditions; or the PHA 
requests HUD approval of a time extension based on reasons within the 
PHA's control.
    (b) Component #2, timeliness of fund obligation. This component has 
a weight of x2.
    (1) Grade A: The PHA has no unobligated funds over two FFYs old or 
is able to demonstrate one of the following:
    (i) There are no unobligated funds past the original HUD-approved 
implementation schedule deadline that allowed longer than two FFYs; or
    (ii) The PHA has extended the time within 30 calendar days after 
the obligation deadline and the time extension is based on reasons 
outside of the PHA's control, such as need to use leftover funds, 
unforeseen delays in contracting or contract administration, 
litigation, material shortages, or other non-PHA institutional delay.
    (2) Grade F: The PHA has unobligated funds over two FFYs old and is 
unable to demonstrate any of the above two conditions; or the PHA 
requests HUD approval of a time extension based on reasons within the 
PHA's control.
    (c) Component #3, adequacy of contract administration. For the 
purposes of this component, the term ``findings'' means a violation of 
a statute, regulation, Annual Contributions Contract or other HUD 
requirement in the area of contract administration. This component has 
a weight of x1.5.
    (1) Grade A: Based on HUD's latest on-site inspection and/or audit, 
where a written report was provided to the PHA at least 75 calendar 
days before the end of the PHA's fiscal year, there were no findings 
related to contract administration or the PHA has corrected all such 
findings.
    (2) Grade C: Based on HUD's latest on-site inspection and/or audit, 
where a written report was provided to the PHA at least 75 calendar 
days before the end of the PHA's fiscal year, there were findings 
related to contract administration and the PHA is in the process of 
correcting all such findings.
    (3) Grade F: Based on HUD's latest on-site inspection and/or audit, 
where a written report was provided to the PHA at least 75 calendar 
days before the end of the PHA's fiscal year, there were findings 
related to contract administration and the PHA has failed to initiate 
corrective actions for all such findings or those actions which have 
been initiated have not resulted in progress toward remedying all of 
the findings.
    (d) Component #4, quality of the physical work. For the purposes of 
this component, the term ``findings'' means a violation of a statute, 
regulation, Annual Contributions Contract or other HUD requirement in 
the area of physical work quality. This component has a weight of x3.
    (1) Grade A: Based on HUD's latest on-site inspection, where a 
written report was provided to the PHA at least 75 calendar days before 
the end of the PHA's fiscal year, there were no findings related to the 
quality of the physical work or the PHA has corrected all such 
findings.
    (2) Grade C: Based on HUD's latest on-site inspection, where a 
written report was provided to the PHA at least 75 calendar days before 
the end of the PHA's fiscal year, there were findings related to the 
quality of the physical

[[Page 68939]]

work and the PHA is in the process of correcting all such findings.
    (3) Grade F: Based on HUD's latest on-site inspection, where a 
written report was provided to the PHA at least 75 calendar days before 
the end of the PHA's fiscal year, there were findings related to the 
quality of the physical work and the PHA has failed to initiate 
corrective actions for all such findings or those actions which have 
been initiated have not resulted in progress toward remedying all of 
the findings.
    (e) Component #5, adequacy of budget controls. This component has a 
weight of x1.
    (1) Grade A: The CGP PHA has expended modernization funds only on 
work in HUD-approved CGP Annual Statements, CGP Five-Year Action Plan, 
excluding emergencies, or CIAP Budgets, or has obtained prior HUD 
approval for required budget revisions. The CIAP PHA has expended 
modernization funds only on work in HUD-approved CIAP Budgets or 
related to originally approved work or has obtained prior HUD approval 
for required budget revisions.
    (2) Grade F: The CGP PHA has expended modernization funds on work 
that was not in HUD-approved CGP Annual Statements, CGP Five-Year 
Action Plan, excluding emergencies, or CIAP Budgets, and did not obtain 
prior HUD approval for required budget revisions. The CIAP PHA has 
expended modernization funds on work that was not in HUD-approved CIAP 
Budgets or was unrelated to originally approved work and did not obtain 
prior HUD approval for required budget revisions.


Sec. 901.20  Indicator #3, rents uncollected.

    This indicator examines the PHA's ability to collect dwelling rent 
owed by residents in possession during the immediate past fiscal year 
by measuring the balance of dwelling rents uncollected as a percentage 
of total dwelling rents to be collected. This indicator has a weight of 
x1.5.
    (a) Grade A: The percent of dwelling rent uncollected in the 
immediate past fiscal year is less than or equal to 2% of total 
dwelling rent to be collected.
    (b) Grade B: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 2% and less than or equal to 
4% of total dwelling rent to be collected.
    (c) Grade C: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 4% and less than or equal to 
6% of total dwelling rent to be collected.
    (d) Grade D: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 6% and less than or equal to 
8% of total dwelling rent to be collected.
    (e) Grade E: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 8% and less than or equal to 
10% of total dwelling rent to be collected.
    (f) Grade F: The percent of dwelling rent uncollected in the 
immediate past fiscal year is greater than 10% of total dwelling rent 
to be collected.


Sec. 901.25  Indicator #4, work orders.

    This indicator examines the average number of days it takes for a 
work order to be completed, and any progress a PHA has made during the 
preceding three years to reduce the period of time required to complete 
maintenance work orders. Implicit in this indicator is the adequacy of 
the PHA's work order system in terms of how a PHA accounts for and 
controls its work orders, and its timeliness in preparing/issuing work 
orders. This indicator has a weight of x1.
    (a) Component #1, emergency work orders completed within 24 hours 
or less. All emergency work orders should be tracked. This component 
has a weight of x1.
    (1) Grade A: At least 99% of emergency work orders were completed 
or the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (2) Grade B: At least 98% of emergency work orders were completed 
or the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (3) Grade C: At least 97% of emergency work orders were completed 
or the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (4) Grade D: At least 96% of emergency work orders were completed 
or the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (5) Grade E: At least 95% of emergency work orders were completed 
or the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (6) Grade F: Less than 95% of emergency work orders were completed 
or the emergency was abated within 24 hours or less during the PHA's 
immediate past fiscal year.
    (b) Component #2, average number of days for non-emergency work 
orders to be completed. All non-emergency work orders that were active 
during the assessed fiscal year should be tracked (including preventive 
maintenance work orders), except non-emergency work orders from the 
date they are deferred for modernization, issued to prepare a vacant 
unit for re-rental, or issued for the performance of cyclical 
maintenance. This component has a weight of x2.
    (1) Grade A: All non-emergency work orders are completed within an 
average of 25 calendar days.
    (2) Grade B: All non-emergency work orders are completed within an 
average of greater than 25 calendar days and less than or equal to 30 
calendar days.
    (3) Grade C: The PHA is in one of the following categories:
    (i) All non-emergency work orders are completed within an average 
of greater than 30 calendar days and less than or equal to 40 calendar 
days; or
    (ii) The PHA has reduced the average time it takes to complete non-
emergency work orders by at least 15 days during the past three years.
    (4) Grade D: The PHA is in one of the following categories:
    (i) All non-emergency work orders are completed within an average 
of greater than 40 calendar days and less than or equal to 50 calendar 
days; or
    (ii) The PHA has reduced the average time it takes to complete non 
emergency work orders by at least 10 days during the past three years.
    (5) Grade E: The PHA is in one of the following categories:
    (i) All non-emergency work orders are completed within an average 
of greater than 50 calendar days and less than or equal to 60 calendar 
days; or
    (ii) The PHA has reduced the average time it takes to complete non-
emergency work orders by at least 5 days during the past three years.
    (6) Grade F: The PHA is in one of the following categories:
    (i) All non-emergency work orders are completed within an average 
of greater than 60 calendar days; or
    (ii) The PHA has not reduced the average time it takes to complete 
non-emergency work orders by at least 5 days during the past three 
years.


Sec. 901.30  Indicator #5, annual inspection of units and systems.

    This indicator examines the percentage of units that a PHA inspects 
on an annual basis in order to determine short-term maintenance needs 
and long-term modernization needs. Implicit in this indicator is the 
adequacy of the PHA's inspection program in terms of the quality of a 
PHA's inspections, and how a PHA tracks both inspections and needed 
repairs. All occupied units are required to be inspected. This 
indicator has a weight of x1.
    (a) Units in the following categories are exempted and not included 
in the calculation of the total number of units,

[[Page 68940]]

and the number and percentage of units inspected. Systems that are a 
part of individual dwelling units that are exempted, or a part of a 
building where all of the dwelling units in the building are exempted, 
are also exempted from the calculation of this indicator:
    (1) Occupied units where the PHA has made two documented attempts 
to inspect, but only if the PHA can document that appropriate legal 
action (up to and including eviction of the legal or illegal 
occupant(s)), has been taken under provisions of the lease to ensure 
that the unit can be subsequently inspected.
    (2) Units vacant for the full immediate past fiscal year for the 
following reasons, as defined at Sec. 901.5:
    (i) Vacant units undergoing modernization; and
    (ii) Vacant units that are documented to be uninhabitable for 
reasons beyond a PHA's control due to:
    (A) High/unsafe levels of hazardous/toxic materials;
    (B) By order of the local health department or a directive of the 
Environmental Protection Agency;
    (C) Natural disasters; and
    (D) Units kept vacant because they became structurally unsound.
    (b) Component #1, annual inspection of units. This component refers 
to an inspection using either the local housing and/or occupancy code, 
or HUD HQS if there is no local code or the local code is less 
stringent that HQS. This component has a weight of x1.
    (1) Grade A: The PHA inspected 100% of its units and, if repairs 
were necessary for local code or HQS compliance, either completed the 
repairs during the inspection; issued work orders for the repairs; or 
referred similar work items to the current year's modernization 
program, or to next year's modernization program if there are less than 
three months remaining before the end of the PHA fiscal year when the 
inspection was completed.
    (2) Grade B: The PHA inspected less than 100% but at least 97% of 
its units and, if repairs were necessary for local code or HQS 
compliance, either completed the repairs during the inspection; issued 
work orders for the repairs; or referred similar work items to the 
current year's modernization program, or to next year's modernization 
program if there are less than three months remaining before the end of 
the PHA fiscal year when the inspection was completed.
    (3) Grade C: The PHA inspected less than 97% but at least 95% of 
its units and, if repairs were necessary for local code or HQS 
compliance, either completed the repairs during the inspection; issued 
work orders for the repairs; or referred similar work items to the 
current year's modernization program, or to next year's modernization 
program if there are less than three months remaining before the end of 
the PHA fiscal year when the inspection was completed.
    (4) Grade D: The PHA inspected less than 95% but at least 93% of 
its units and, if repairs were necessary for local code or HQS 
compliance, either completed the repairs during the inspection; issued 
work orders for the repairs; or referred similar work items to the 
current year's modernization program, or to next year's modernization 
program if there are less than three months remaining before the end of 
the PHA fiscal year when the inspection was completed.
    (5) Grade E: The PHA inspected less than 93% but at least 90% of 
its units and, if repairs were necessary for local code or HQS 
compliance, either completed the repairs during the inspection; issued 
work orders for the repairs; or referred similar work items to the 
current year's modernization program, or to next year's modernization 
program if there are less than three months remaining before the end of 
the PHA fiscal year when the inspection was completed.
    (6) Grade F: The PHA has failed to inspect at least 90% of its 
units; or failed to correct deficiencies during the inspection or issue 
work orders for the repairs; or failed to refer similar work items to 
the current year's modernization program, or to next year's 
modernization program if there are less than three months remaining 
before the end of the PHA fiscal year when the inspection was 
completed.
    (c) Component #2, annual inspection of systems. This component 
examines the inspection of buildings and sites according to the PHA's 
maintenance plan, including performing the required maintenance on 
structures and systems in accordance with manufacturer's specifications 
and established local/PHA standards, or issuing work orders for 
maintenance/repairs, or including identified deficiencies in this 
year's modernization program, or in next year's modernization program 
if there are less than three months remaining before the end of the PHA 
fiscal year when the inspection was performed. This component has a 
weight of x1.
    (1) Grade A: The PHA inspected all major systems at 100% of its 
buildings and sites, according to its maintenance plan. The inspection 
included performing the required maintenance on structures and systems 
in accordance with manufacturer's specifications and established local/
PHA standards, or issuing work orders for maintenance/repairs, or 
including identified deficiencies in the current year's modernization 
program, or in next year's modernization program if there are less than 
three months remaining before the end of the PHA fiscal year when the 
inspection was performed.
    (2) Grade B: The PHA inspected all major systems of at least a 
minimum of 90% but less than 100% of its buildings and sites, according 
to its maintenance plan. The inspection included performing the 
required maintenance on structures and systems in accordance with 
manufacturer's specifications and established local/PHA standards, or 
issuing work orders for maintenance/ repairs, or including identified 
deficiencies in the current year's modernization program, or in next 
year's modernization program if there are less than three months 
remaining before the end of the PHA fiscal year when the inspection was 
performed.
    (3) Grade C: The PHA inspected all major systems of at least a 
minimum of 80% but less than 90% of its buildings and sites, according 
to its maintenance plan. The inspection included performing the 
required maintenance on structures and systems in accordance with 
manufacturer's specifications and established local/PHA standards, or 
issuing work orders for maintenance/ repairs, or including identified 
deficiencies in the current year's modernization program, or in next 
year's modernization program if there are less than three months 
remaining before the end of the PHA fiscal year when the inspection was 
performed.
    (4) Grade D: The PHA inspected all major systems of at least a 
minimum of 70% but less than 80% of its buildings and sites, according 
to its maintenance plan. The inspection included performing the 
required maintenance on structures and systems in accordance with 
manufacturer's specifications and established local/PHA standards, or 
issuing work orders for maintenance/ repairs, or including identified 
deficiencies in the current year's modernization program, or in next 
year's modernization program if there are less than three months 
remaining before the end of the PHA fiscal year when the inspection was 
performed.
    (5) Grade E: The PHA inspected all major systems of at least a 
minimum of 60% but less than 70% of its buildings and sites, according 
to its maintenance plan. The inspection included performing the 
required maintenance on structures and systems in accordance with 
manufacturer's specifications and established local/PHA standards, or

[[Page 68941]]

issuing work orders for maintenance/ repairs, or including identified 
deficiencies in the current year's modernization program, or in next 
year's modernization program if there are less than three months 
remaining before the end of the PHA fiscal year when the inspection was 
performed.
    (6) Grade F: The PHA failed to inspect all major systems of at 
least 60% of its buildings and sites and perform the required 
maintenance on these systems in accordance with manufacturers 
specifications and established local/PHA standards, or did not issue 
work orders for maintenance/repairs, or did not include identified 
deficiencies in the current year's modernization program, or in next 
year's modernization program if there are less than three months 
remaining before the end of the PHA fiscal year when the inspection was 
performed.


Sec. 901.35  Indicator #6, financial management.

    This indicator examines the amount of cash reserves available for 
operations and, for PHAs scoring below a grade C on cash reserves, 
energy/ utility consumption expenses. This indicator has a weight of 
x1.
    (a) Component #1, cash reserves. This component has a weight of x2.
    (a) Grade A: Cash reserves available for operations are greater 
than or equal to 15% of total actual routine expenditures, or the PHA 
has cash reserves of $3 million or more.
    (2) Grade B: Cash reserves available for operations are greater 
than or equal to 12.5%, but less than 15% of total actual routine 
expenditures.
    (3) Grade C: Cash reserves available for operations are greater 
than or equal to 10%, but less than 12.5% of total actual routine 
expenditures.
    (4) Grade D: Cash reserves available for operations are greater 
than or equal to 7.5%, but less than 10% of total actual routine 
expenditures.
    (5) Grade E: Cash reserves are greater than or equal to 5%, but 
less than 7.5% of total actual routine expenditures.
    (6) Grade F: Cash reserves available for operations are less than 
5% of total actual routine expenditures.
    (b) Component #2, energy consumption. Either option A or option B 
of this component is to be completed only by PHAs that score below a 
grade C on component #1. Regardless of a PHA's score on component #1, 
it will not be scored on component #2 if all its units have tenant paid 
utilities. Annual energy/utility consumption expenses includes water 
and sewage usage. This component has a weight of x1.
    (1) Option A, annual energy/utility consumption expenses.
    (i) Grade A: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have not increased.
    (ii) Grade B: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have not increased by more than 3%.
    (iii) Grade C: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have increased by more than 3% and less than or equal to 5%.
    (iv) Grade D: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have increased by more than 5% and less than or equal to 7%.
    (v) Grade E: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have increased by more than 7% and less than or equal to 9%.
    (vi) Grade F: Annual energy/utility consumption expenses, as 
compared to the average of the three years' rolling base consumption 
expenses, have increased by more than 9%.
    (2) Option B, energy audit.
    (i) Grade A: The PHA has completed or updated its energy audit 
within the past five years and has implemented all of the 
recommendations that were cost effective.
    (ii) Grade C: The PHA has completed or updated its energy audit 
within the past five years, has developed an implementation plan and is 
on schedule with the implementation plan, based on available funds. The 
implementation plan identifies at a minimum, the items from the audit, 
the estimated cost, the planned funding source, and the anticipated 
date of completion for each item.
    (iii) Grade F: The PHA has not completed or updated its energy 
audit within the past five years, or has not developed an 
implementation plan or is not on schedule with its implementation plan, 
or has not implemented all of the recommendations that were cost 
effective, based on available funds.


Sec. 901.40  Indicator #7, Resident Services and Community Building.

    This indicator examines the PHA's efforts to deliver quality 
customer services and to encourage partnerships with residents, 
resident organizations, and the local community, including non-PHA 
service providers, that help improve management operations at the PHA; 
and to encourage programs that promote individual responsibility, self 
improvement and community involvement among residents and assist them 
to achieve economic uplift and develop self-sufficiency. Also, if 
applicable, this indicator examines PHA performance under any special 
HUD grant(s) administered by the PHA. PHAs can get credit for 
performance under non-HUD funded programs if they choose to be assessed 
for these programs. PHAs with fewer than 250 units or with 100% elderly 
developments will not be assessed under this indicator unless they 
request to be assessed at the time of PHMAP certification submission. 
This indicator has a weight of x1.
    (a) Component #1, economic uplift and self-improvement. PHAs will 
be assessed for all the programs that the PHA has HUD funding to 
implement. Also, PHAs can get credit for implementation of programs 
through partnerships with non-PHA providers, even if the programs are 
not funded by HUD or the PHA, if they choose to be assessed for them. 
PHAs must select either to be assessed for all or none of the non-HUD 
funded programs. This component has a weight of x1.
    (1) Grade A: The PHA Board of Commissioners, by resolution, has 
adopted one or more economic uplift and self-improvement programs, 
examples include but are not limited to, the Section 3 program, 
homeownership, PHA support for resident education, training, child-
care, job-placement programs, Head Start, etc., and the PHA can 
document that it has implemented these programs in developments 
covering at least 90% of its family occupied units, either directly or 
through partnerships with non-PHA providers, and the PHA monitors 
performance under the programs and issues reports concerning progress, 
including residents receiving services and residents employed, under 
these programs.
    (2) Grade C: The PHA Board of Commissioners, by resolution, has 
adopted one or more economic uplift and self-improvement programs, 
including but not limited to, the programs described in grade A, above, 
and the PHA can document that it has implemented these programs in 
developments covering at least 60% of its family occupied units, either 
directly or through partnerships with non-PHA providers, and the PHA 
staff monitors performance under the programs and issues reports to the 
Board concerning progress, including residents receiving

[[Page 68942]]

services and residents employed, under these programs.
    (3) Grade F: The PHA Board of Commissioners, by resolution, has not 
adopted one or more economic uplift and self-improvement programs, 
including but not limited to, the programs described in grade A, above, 
or the PHA has not implemented these programs in developments covering 
at least 60% of its family occupied units, either directly or through 
partnerships with non-PHA providers.
    (b) Component #2, resident organization. This component has a 
weight of x1.
    (1) Grade A: The PHA can document formal recognition of, a system 
of communication and collaboration with, and support for resident 
councils where these exist, and where no resident council exists, the 
PHA can document its encouragement for the formation of such councils.
    (2) Grade F: The PHA cannot document formal recognition of, or a 
system of communication and collaboration with, or document its support 
for resident councils where these exist, or where no resident council 
exists, the PHA cannot document its encouragement for the formation of 
such councils.
    (c) Component #3, resident involvement. Implicit in this component 
is the need to ensure a PHA's delivery of quality customer services to 
residents. This component has a weight of x1.
    (1) Grade A: The PHA Board of Commissioners, by resolution, 
provides for resident representation on the Board and committees, and 
the PHA has implemented measures that ensure the opportunity for 
regular resident input into plans and the evaluation for ongoing 
quality of life and housing management conditions, including but not 
limited to, modernization and development programs, screening and other 
occupancy matters, relocation, the operating budget, resident programs, 
security and maintenance programs.
    (2) Grade C: The PHA Board of Commissioners, by resolution, 
provides for resident representation on the Board and committees, and 
the PHA has implemented measures that ensure the opportunity for 
regular resident input into plans and the evaluation for ongoing 
quality of life and housing management conditions in the modernization 
and development programs and at least three of the remaining six areas 
described in grade A, above.
    (3) Grade F: The PHA Board of Commissioners, by resolution, did not 
provide for resident representation on the Board and committees, or the 
PHA has not implemented measures that ensure the opportunity for 
regular resident input into plans and the evaluation for ongoing 
quality of life and housing management conditions in the modernization 
and development programs and at least three of the remaining six areas 
described in grade A, above.
    (d) Component #4, resident programs management. This component 
examines a PHA's management of HUD funded resident programs. However, 
PHAs can also get credit for performance under non-HUD funded programs 
if they choose to be assessed for them. PHAs must select either to be 
assessed for all or none of the non-HUD funded programs. This component 
has a weight of x1.
    (1) Grade A: If the PHA has any HUD funded special programs that 
benefit the residents, including but not limited to, the Family 
Investment Center (FIC), Youth Sports (YS), Food Banks, Health Clinics, 
Youth Apprenticeship Program (YAP), Family Self-Sufficiency (FSS), or a 
Resident Management (RM) or Tenant Opportunity Programs (TOP) where the 
PHA is the contract administrator, the PHA can document that it is 
meeting at least 90% of its goals under the implementation plan for any 
and all of these programs.
    (2) Grade C: If the PHA has any HUD-funded special programs that 
benefit the residents, including but not limited to, the programs 
described in grade A, above, the PHA can document that it is meeting at 
least 60% of its goals under the implementation plan for any and all of 
these programs.
    (3) Grade F: If the PHA has any HUD-funded special programs that 
benefit the residents, including but not limited to, the programs 
described in grade A, above, the PHA cannot document that it is meeting 
at least 60% of its goals under the implementation plan for all of 
these programs.


Sec. 901.45  Indicator #8, security.

    This indicator evaluates the PHAs performance in tracking crime 
related problems in their developments, reporting incidence of crime to 
local law enforcement agencies, the adoption and implementation of 
tough applicant screening and resident eviction policies and 
procedures, and, as applicable, PHA performance under any HUD drug 
prevention or crime reduction grant(s). PHAs can get credit for 
performance under non-HUD funded programs if they choose to be assessed 
for these programs. PHAs with fewer than 250 units will not be assessed 
under this indicator unless they request to be assessed at the time of 
PHMAP certification submission. This indicator has a weight of x1.
    (a) Component #1, Tracking and Reporting Crime Related Problems. 
This component has a weight of x1.
    (1) Grade A: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures and can document that it (1) tracks 
crime and crime-related problems in at least 90% of its developments, 
and (2) has a cooperative system for tracking and reporting incidents 
of crime to local police authorities to improve law enforcement and 
crime prevention.
    (2) Grade C: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures and can document that it (1) tracks 
crime and crime-related problems in at least 60% of its developments, 
and (2) reports incidents of crime to local police authorities to 
improve law enforcement and crime prevention.
    (3) Grade F: The PHA Board, by resolution, has not adopted policies 
and the PHA has not implemented procedures or cannot document that it 
(1) tracks crime and crime-related problems in at least 60% of its 
developments, or (2) reports incidents of crime to local police 
authorities to improve law enforcement and crime prevention.
    (b) Component #2, Screening of Applicants. This component has a 
weight of x1.
    (1) Grade A: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures and can document that it 
successfully screens out and denies admission to a public housing 
applicant who:
    (i) Has a recent history of criminal activity involving crimes to 
persons or property and/or other criminal acts that would adversely 
affect the health, safety or welfare of other residents or PHA 
personnel;
    (ii) Was evicted, because of drug-related criminal activity, from 
housing assisted under the U.S. Housing Act of 1937, for a minimum of a 
three year period beginning on the date of such eviction, unless the 
applicant has successfully completed, since the eviction, a 
rehabilitation program approved by the public housing agency;
    (iii) The PHA has reasonable cause to believe is illegally using a 
controlled substance; or
    (iv) The PHA has reasonable cause to believe abuses alcohol in a 
way that causes behavior that may interfere with the health, safety, or 
right to peaceful enjoyment of the premises by other residents or PHA 
personnel.

[[Page 68943]]

    (2) Grade C: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures, but cannot document results in 
successfully screening out and denying admission to a public housing 
applicant who meets the criteria as described in grade A, above.
    (3) Grade F: The PHA has not adopted policies or has not 
implemented procedures that result in screening out and denying 
admission to a public housing applicant who meets the criteria as 
described in grade A, above, or the screening procedures do not result 
in the denial of admission to a public housing applicant who meets the 
criteria as described in grade A, above.
    (c) Component #3, Lease Enforcement. This component has a weight of 
x1.
    (1) Grade A: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures and can document that it 
appropriately evicts any public housing resident who:
    (i) The PHA has reasonable cause to believe engages in any criminal 
activity that threatens the health, safety, or right to peaceful 
enjoyment of the premises by other residents or PHA personnel;
    (ii) The PHA has reasonable cause to believe engages in any drug-
related criminal activity (as defined at section 6(l) of the 1937 Act 
(42 U.S.C. 1437d(l)) on or off the PHA's property; or
    (iii) The PHA has reasonable cause to believe abuses alcohol in 
such a way that causes behavior that may interfere with the health, 
safety, or right to peaceful enjoyment of the premises by other 
residents or PHA personnel.
    (2) Grade C: The PHA Board, by resolution, has adopted policies and 
the PHA has implemented procedures, but cannot document results in 
appropriately evicting any public housing resident who meets the 
criteria as described in grade A, above.
    (3) Grade F: The PHA has not adopted policies or has not 
implemented procedures that document results in the eviction of any 
public housing resident who meets the criteria as described in grade A, 
above, or the eviction procedures do not result in the eviction of 
public housing residents who meet the criteria as described in grade A, 
above.
    (d) Component #4, Grant Program Goals. This component examines a 
PHA's management of HUD-funded drug prevention or crime reduction 
programs. However, PHAs can also get credit for performance under non-
HUD funded programs if they choose to be assessed for them. PHAs must 
select either to be assessed for all or none of the non-HUD funded 
programs. This component has a weight of x1.
    (1) Grade A: If the PHA has any special drug prevention program or 
crime reduction program funded by any HUD funds, the PHA can document 
that the goals are related to drug and crime rates, and it is meeting 
at least 90% of its goals under the implementation plan for any and all 
of these programs.
    (2) Grade C: If the PHA has any special drug prevention program or 
crime reduction program funded by any HUD funds, the PHA can document 
that the goals are related to drug and crime rates, and it is meeting 
at least 60% of its goals under the implementation plan for any and all 
of these programs.
    (3) Grade F: If the PHA has any special drug prevention program or 
crime reduction program funded by any HUD funds, the PHA does not have 
a system for documenting or cannot document that the goals are related 
to drug and crime rates, or cannot document that it is meeting 60% or 
more of its goals under the implementation plan for any and all of 
these programs.


Sec. 901.100  Data collection.

    (a) Information on some of the indicators will be derived by the 
State/Area Office from existing reporting and data forms.
    (b) A PHA shall provide certification as to data on indicators not 
collected according to paragraph (a) of this section, by submitting a 
certified questionnaire within 60 calendar days after the end of the 
fiscal year covered by the certification:
    (1) The certification shall be approved by PHA Board resolution, 
and signed and attested to by the Executive Director.
    (2) PHAs shall maintain documentation for three years verifying all 
certified indicators for HUD on-site review.
    (3) A PHA may include along with its certification submission, 
rather than through an exclusion or modification request, any 
information bearing on the accuracy or completeness of the data used by 
HUD (corrected data, late reports, previously omitted required reports, 
etc.) in grading an indicator. HUD will consider this assertion in 
grading the affected indicator.
    (4) If a PHA does not submit its certification, or submits its 
certification late, appropriate sanctions may be imposed, including a 
presumptive rating of failure in all of the PHMAP indicators, which may 
result in troubled and mod-troubled designations.
    (5) A PHA that cannot provide justifying documentation to HUD 
during the conduct of a confirmatory review, or other verification 
review(s), for any indicator(s) or component(s) certified to, shall 
receive a failing grade in that indicator(s) or component(s), and its 
overall PHMAP score shall be lowered.
    (6) If the data for any indicator(s) or component(s) that a PHA 
certified to cannot be verified by HUD during the conduct of a 
confirmatory review, or any other verification review(s), the State/
Area Office shall change a PHA's grade for any indicator(s) or 
component(s), and its overall PHMAP score, as appropriate, to reflect 
the verified data obtained during the conduct of such review.
    (7) A PHA that cannot provide justifying documentation to the 
independent auditor for the indicator(s) or component(s) that the PHA 
certified to, as reflected in the audit report, shall receive a grade 
of F for that indicator(s) or component(s), and its overall PHMAP score 
shall be lowered.
    (8) A PHA's PHMAP score for individual indicators or components, or 
its overall PHMAP score, may be changed by the State/Area Office 
pursuant to the data included in the independent audit report, as 
applicable.
    (9) A PHA's certification and supporting documentation will be 
post-reviewed by HUD during the next on-site review as determined by 
risk management, but is subject to verification at any time. 
Appropriate sanctions for intentional false certification will be 
imposed, including suspension or debarment of the signatories, the loss 
of high performer designation, a lower grade for individual indicators 
and a lower PHMAP total weighted score.
    (c) For those developments of a PHA where management functions have 
been assumed by an RMC, the PHA's certification shall identify the 
development and the management functions assumed by the RMC. The PHA 
shall obtain a certified questionnaire from the RMC as to the 
management functions undertaken by the RMC. The PHA shall submit the 
RMC's certified questionnaire along with its own. The RMC's 
certification shall be approved by its Executive Director or Chief 
Executive Officer of whatever title.


Sec. 901.105  Computing assessment score.

    (a) Grades within indicators and components have the following 
point values:
    (1) Grade A = 10.0 points;
    (2) Grade B = 8.5 points;
    (3) Grade C = 7.0 points;
    (4) Grade D = 5.0 points;
    (5) Grade E = 3.0 point; and
    (6) Grade F = 0.0 points.
    (b) If indicators or components are designated as having additional 
weight

[[Page 68944]]

(e.g., x1.5 or x2), the points in each grade will be multiplied times 
the additional weight.
    (c) Indicators will be graded individually. Components within an 
indicator will be graded individually, and then will be used to 
determine a single grade for the indicator, by dividing the total 
number of component points by the total number of component weights and 
rounding off to two decimal places. The total number of component 
weights for this purpose includes a one for components that are 
unweighted (i.e., they are weighted x1, rather than x1.5 or x2).
    (d) Adjustment for physical condition and neighborhood environment. 
The overall PHMAP score will be adjusted by adding additional points 
that reflect the adjustment to be given to the differences in the 
difficulty of managing developments that result from physical condition 
and neighborhood environment:
    (1) Adjustments shall apply to the following three indicators only:
    (i) Indicator #1, vacancy rate and unit turnaround;
    (ii) Indicator #4, work orders; and
    (iii) Indicator #5, annual inspection and condition of units and 
systems.
    (2) Definitions of physical condition and neighborhood environment 
are:
    (i) Physical condition: refers to units located in developments 
over ten years old that require major capital investment in order to 
meet local codes or minimum HQS standards, whichever is applicable. 
This excludes developments that have been comprehensively modernized.
    (ii) Neighborhood environment: refers to units located within 
developments where the immediate surrounding neighborhood (that is a 
majority of the census tracts or census block groups on all sides of 
the development) has at least 51% of families with incomes below the 
poverty rate as documented by the latest census data.
    (3) Any PHA with 5% or more of its units subject to either or both 
of the above conditions shall, if they so choose, be issued an adjusted 
PHMAP score in addition to the regular score based solely upon the 
certification of the PHA. The adjusted score shall be calculated as 
follows:

------------------------------------------------------------------------
     Percent of units subject to physical condition and/or        Extra 
                   neighborhood  environment                      points
------------------------------------------------------------------------
At least 5% but less than 10%..................................       .5
At least 10% but less than 20%.................................       .6
At least 20% but less than 30%.................................       .7
At least 30% but less than 40%.................................       .8
At least 40% but less than 50%.................................       .9
At least 50%...................................................      1.0
------------------------------------------------------------------------

    (i) These extra points will be added to the score (grade) of the 
indicator(s) to which these conditions may apply. A PHA is required to 
certify on form HUD-50072, PHMAP Certification, the extent to which the 
conditions apply, and to which of the indicators the extra scoring 
points should be added.
    (ii) Units in developments that have received substantial 
rehabilitation within the past ten years are not eligible to be 
included in the calculation of total PHA units due to physical 
condition only.
    (iii) A PHA that receives a grade of A under indicators #4 and/or 
#5 may not claim the additional adjustment for indicator #1 based on 
physical condition of its developments, but may claim additional 
adjustment based on neighborhood environment.
    (iv) A PHA that receives the maximum potential weighted points on 
indicators #1, #4 and/or #5 may not claim any additional adjustment for 
physical condition and/or neighborhood environment for the respective 
indicator(s).
    (v) A PHA's score for indicators #1, #4 and/or #5, after any 
adjustment(s) for physical condition and/or neighborhood environment, 
may not exceed the maximum potential weighted points assigned to the 
respective indicator(s).
    (4) If only certain units or developments received substantial 
rehabilitation, the additional adjustment shall be prorated to exclude 
the units or developments with substantial rehabilitation.
    (5) The Date of Full Availability (DOFA) shall apply to scattered 
site units, where the age of units and buildings vary, to determine 
whether the units have received substantial rehabilitation within the 
past ten years and are eligible for a adjusted score for the physical 
condition factor.
    (6) PHAs shall maintain supporting documentation to show how they 
arrived at the number and percentage of units out of their total 
inventory that are subject to adjustment.
    (i) If the basis was neighborhood environment, the PHA shall have 
on file the appropriate maps showing the census tracts or census block 
groups surrounding the development(s) in question with supporting 
census data showing the level of poverty. Units that fall into this 
category but which have already been removed from consideration for 
other reasons (permitted exemptions and modifications and/or 
exclusions) shall not be counted in this calculation.
    (ii) For the physical condition factor, a PHA would have to 
maintain documentation showing the age and condition of the units and 
the record of capital improvements, indicating that these particular 
units have not received modernization funds.
    (iii) PHAs shall also document that in all cases, units that were 
exempted for other reasons were not included in the calculation.


Sec. 901.110  PHA request for exclusion or modification of an indicator 
or component.

    (a) A PHA shall have the right to request the exclusion or 
modification of any indicator or component in its management 
assessment, thereby excluding or modifying the impact of those 
indicator's or component's grades in its PHMAP total weighted score.
    (b) Exclusion and modification requests shall be submitted by a PHA 
at the time of its PHMAP certification submission to the State/Area 
Office along with supporting documentary justification, rather than 
during the appeal process.
    (c) Requests for exclusions and modifications that do not include 
supporting documentary justification will not be considered.
    (d) Indicator #2, modernization, shall be automatically excluded by 
the State/Area Office if a PHA does not have an open modernization 
program.
    (e) Indicator #7, resident services and community building, shall 
be automatically excluded by the State/Area Office for PHAs with fewer 
than 250 units, or with 100% elderly developments, unless they request 
to be assessed at the time of the PHMAP certification submission.
    (f) Indicator #8, security, shall be automatically excluded by the 
State/Area Office for PHAs with fewer than 250 units unless they 
request to be assessed at the time of the PHMAP certification 
submission.


Sec. 901.115  PHA score and status.

    (a) PHAs that achieve a total weighted score of 90% or greater 
shall be designated high performers. A PHA shall not be designated as a 
high performer if it scores below a grade of C for any indicator. High 
performers will be afforded incentives that include relief from 
reporting and other requirements, as described in Sec. 901.130.
    (b) PHAs that achieve a total weighted score of 90% or greater on 
its overall PHMAP score and on indicator #2, modernization, shall be 
designated mod-high performers.

[[Page 68945]]

    (c) PHAs that achieve a total weighted score of less than 90% but 
not less than 60% shall be designated standard. Standard performers 
will be afforded incentives that include relief from reporting and 
other requirements, as described in Sec. 901.130.
    (d) PHAs that achieve a total weighted score of less than 60% shall 
be designated as troubled.
    (e) PHAs that achieve 60% of the maximum calculation for indicator 
#2, modernization, shall be designated as mod-troubled.
    (f) Each PHA shall post a notice of its final PHMAP score and 
status in appropriate conspicuous and accessible locations in its 
offices within two weeks of receipt of its final score and status. In 
addition, HUD will publish every PHA's score and status in the Federal 
Register.
    (g) A PHA that cannot provide justifying documentation to HUD 
during the conduct of a confirmatory review, or other verification 
review(s), for any indicator(s) or component(s) certified to, shall 
receive a failing grade in that indicator(s) or component(s), and its 
overall PHMAP score shall be lowered.
    (h) If the data for any indicator(s) or component(s) that a PHA 
certified to cannot be verified by HUD during the conduct of a 
confirmatory review, or any other verification review(s), the State/
Area Office shall change a PHA's grade for any indicator(s) or 
component(s), and its overall PHMAP score, as appropriate, to reflect 
the verified data obtained during the conduct of such review.
    (i) A PHA that cannot provide justifying documentation to the 
independent auditor for the indicator(s) or component(s) that the PHA 
certified to, as reflected in the audit report, will receive a grade of 
F for that indicator(s), and its overall PHMAP score will be lowered.
    (j) A PHA's PHMAP score for individual an indicator(s), 
component(s) or its overall PHMAP score may be changed by the State/
Area Office pursuant to the data included in the independent audit 
report, as applicable.
    (k) In exceptional circumstances, even though a PHA has satisfied 
all of the indicators for high or standard performer designation, the 
State/Area Office may conduct any review as necessary, including a 
confirmatory review, and deny or rescind incentives or high performer 
status, as described in paragraphs (a) and (b) of this section in the 
case of a PHA that:
    (1) Is operating under a special agreement with HUD;
    (2) Is involved in litigation that bears directly upon the 
management of a PHA;
    (3) Is operating under a court order;
    (4) Demonstrates substantial evidence of fraud or misconduct, 
including evidence that the PHA's certification of indicators is not 
supported by the facts, resulting from such sources as a confirmatory 
review, routine reports and reviews, an Office of Inspector General 
investigation/audit, an independent auditor's audit or an investigation 
by any appropriate legal authority; or
    (5) Demonstrates substantial noncompliance in one or more areas 
(including areas not assessed by the PHMAP). Areas of substantial 
noncompliance include, but are not limited to, noncompliance with 
statutes (e.g., Fair Housing and Equal Opportunity statutes); 
regulations (e.g., 24 CFR Sec. 85); or the Annual Contributions 
Contract (ACC) (e.g., the ACC, form HUD-53012A, Section 4, Mission of 
the PHA). Substantial noncompliance would cast doubt on the PHA's 
capacity to preserve and protect its public housing developments and 
operate them consistent with Federal law and regulations.
    (l) When a State/Area Office Public Housing Director acts for any 
of the reasons stated in paragraph (k) of this section, the State/Area 
Office will send written notification to the PHA with a specific 
explanation of the reasons. An information copy will be forwarded to 
the Assistant Secretary for Public and Indian Housing.
    (m) A PHA may appeal denial of high performer status in accordance 
with Sec. 901.125.


Sec. 901.120  State/Area Office functions.

    (a) The State/Area Office will assess each PHA within its 
jurisdiction on an annual basis:
    (1) The State/Area Office will make determinations for high-
performing, standard, troubled PHAs and mod-troubled PHAs in accordance 
with a PHA's PHMAP weighted score.
    (2) The State/Area Office will also make determinations for 
exclusion and modification requests.
    (b) Each State/Area Office will notify each PHA of the PHA's grade 
and the grade of the RMC (if any) assuming management functions at any 
of the PHA's developments, in each indicator; the PHA's management 
assessment total weighted score and status, and if applicable; its 
adjustment for physical condition and neighborhood environment; any 
determinations concerning exclusion and modification requests; and any 
deadline date by which appeals must be received. PHA notification 
should include offers of pertinent technical assistance in problem 
areas, suggestions for means of improving problem areas, and areas of 
relief and incentives as a result of high performer status. The PHA 
must notify the RMC (if any) in writing, immediately upon receipt of 
the State/Area Office notification, of the RMC's grades.
    (c) An on-site confirmatory review may be conducted of a PHA by 
HUD. The purpose of the on-site confirmatory review is to verify those 
indicators for which a PHA provides certification, as well as the 
accuracy of the information received in the State/Area Office 
pertaining to the remaining indicators.
    (1) Whenever practicable, a confirmatory review should be conducted 
by HUD prior to the issuance of a PHA's initial notification letter. 
The results of the confirmatory review shall be included in the PHA's 
initial notification letter.
    (2) If, in an exceptional circumstance, a confirmatory review is 
conducted after the State/Area Office issues the initial notification 
letter, the State/Area Office shall explain the results of the 
confirmatory review in writing, correct the PHA's total weighted score, 
as appropriate, and reissue the initial notification letter to the PHA.
    (3) The State/Area Office shall conduct a confirmatory review of a 
PHA with 100 or more units under management that scores less than 60% 
for its total weighted score, or less than 60% on indicator #2, 
modernization, before initially designating the PHA as troubled or mod-
troubled. The results of the confirmatory review shall be included in 
the PHA's initial notification letter.
    (4) The State/Area Office shall conduct a confirmatory review on a 
yearly basis of all troubled and mod-troubled PHAs.
    (5) The State/Area Office shall conduct a confirmatory review of a 
PHA with 100 or more units under management prior to the removal of 
troubled or mod-troubled designation.
    (6) Independent confirmatory reviews (team members from other 
State/ Area Offices) shall be conducted of troubled PHAs with 1250 or 
more units under management prior to the removal of troubled 
designation.
    (d) A PHA that cannot provide justifying documentation to HUD 
during the conduct of a confirmatory review, or other verification 
review(s), for any indicator(s) or component(s) certified to, shall 
receive a failing grade in that indicator(s) or component(s), and its 
overall PHMAP score shall be lowered by the State/Area Office. The 
State/Area Office shall explain to the PHA the reason(s) for the 
change(s) in writing,

[[Page 68946]]

correct the PHA's grade for an individual component(s) and/or 
indicator(s) and total weighted score, as appropriate, and reissue the 
initial notification letter to the PHA.
    (e) If the data for any indicator(s) or component(s) that a PHA 
certified to cannot be verified by HUD during the conduct of a 
confirmatory review, or any other verification review(s), the State/
Area Office shall change a PHA's grade for any indicator(s) or 
component(s), and its overall PHMAP score, as appropriate, to reflect 
the verified data obtained during the conduct of such review. The 
State/Area Office shall explain to the PHA the reason(s) for the 
change(s) in writing, correct the PHA's grade for an individual 
component(s) and/or indicator(s) and total weighted score, as 
appropriate, and reissue the initial notification letter to the PHA.
    (f) A PHA that cannot provide justifying documentation to the 
independent auditor for the indicator(s) or component(s) that the PHA 
certified to, as reflected in the audit report, will receive a grade of 
F for that indicator(s), and its overall PHMAP score will be lowered by 
the State/Area Office. The State/Area Office shall explain to the PHA 
the reason(s) for the change(s) in writing, correct the PHA's grade for 
an individual component(s) and/or indicator(s) and total weighted 
score, as appropriate, and reissue the initial notification letter to 
the PHA.
    (g) A PHA's PHMAP score for an individual indicator(s), 
component(s) or its overall PHMAP score may be changed by the Area/
State Office pursuant to the data included in the independent audit 
report, as applicable. The State/Area Office shall explain to the PHA 
the reason(s) for the change(s) in writing, correct the PHA's grade for 
an individual component(s) and/or indicator(s) and total weighted 
score, as appropriate, and reissue the initial notification letter to 
the PHA.
    (h) Determinations on appeals and on petitions to remove troubled 
or mod-troubled status will be made by the State/Area Office.
    (i) Determinations of intentional false certifications will be made 
by the State/Area Office. State/Area Offices shall consult with the 
local Office of Inspector General for guidance in cases of 
determinations of intentional false certification.
    (j) In exceptional circumstances, the State/Area Office may deny or 
rescind a PHA's status as a standard or high performer, in accordance 
with Sec. 901.115(i), so that it will not be entitled to any of the 
areas of relief and incentives.
    (k) The State/Area Office will maintain PHMAP files for public 
inspection in accordance with Sec. 901.155.


Sec. 901.125  PHA right of appeal.

    (a) A PHA has the right to appeal its PHMAP score to the State/Area 
Office, including a troubled designation or a mod-troubled designation. 
A PHA may appeal its management assessment rating on the basis of data 
errors (any dispute over the accuracy, calculation, or interpretation 
of data employed in the grading process that would affect a PHA's PHMAP 
score), the denial of exclusion or modification requests when their 
denial affects a PHA's total weighted score, the denial of an 
adjustment based on the physical condition and neighborhood environment 
of a PHA's developments, or a determination of intentional false 
certification:
    (1) A PHA may appeal its management assessment rating to the State/
Area Office only for the reasons stated in paragraph (a) of this 
section:
    (i) A PHA may not appeal its PHMAP score to the State/Area Office 
unless it has submitted its certification to the State/Area Office.
    (ii) A PHA may not appeal its PHMAP score to the State/Area Office 
if the reason the PHA received a deficient grade in any indicator or 
component was due to the fact the PHA did not submit a required report 
in a timely manner or without an approved time extension.
    (iii) A PHA may not appeal its PHMAP score to the State/Area Office 
if the reason the PHA received a failing grade in any indicator or 
component was due to the fact that the PHA did not provide justifying 
documentation to the independent auditor for any indicator(s) or 
component(s) the PHA certified to.
    (2) The appeal shall be submitted to the State/Area Office and 
shall include supporting documentary justification of the reasons for 
the appeal.
    (3) The State/Area Office will make determinations on initial 
appeals and will transmit the determination of the appeal to the PHA in 
a notification letter that will also include the date and place for 
submitting any further appeal.
    (4) Appeals submitted to the State/Area Office without appropriate 
documentation will not be considered and will be returned to the PHA.
    (b) Appeals of rescission of high performer designation shall be 
made directly to the Assistant Secretary for Public and Indian Housing.
    (c) A PHA may appeal the denial of an initial appeal by the State/
Area Office to the Assistant Secretary for Public and Indian Housing 
for the following reasons:
    (1) Initial appeals denying high performer designation;
    (2) Initial appeals denying the removal of troubled designation;
    (3) Initial appeals denying the removal of mod-troubled 
designation;
    (4) The denial of an appeal of a determination of intentional false 
certification;
    (5) Data errors;
    (6) The denial of exclusion or modification requests when their 
denial affects a PHA's total weighted score;
    (7) The denial of an adjustment based on the physical condition and 
neighborhood environment of a PHA's developments;
    (8) The refusal of a petition in accordance with Sec. 901.140 to 
remove troubled or mod-troubled designations.
    (d) A PHA may appeal its management assessment rating to the 
Assistant Secretary for Public and Indian Housing only for the reasons 
stated in paragraph (c) of this section.
    (e) A PHA may not appeal its PHMAP score to the Assistant Secretary 
unless it has submitted its certification to the State/Area Office.
    (f) Appeals submitted to the Assistant Secretary for Public and 
Indian Housing without appropriate documentation will not be considered 
and will be returned to the PHA.
    (g) The date and place by which any appeal must be submitted will 
be specified in the letter from the State/Area Office notifying the PHA 
of any determination or action. For example, the State/Area Office 
initial notification letter or denial of initial appeal letter will 
specify the date and place by which appeals must be received. The date 
specified will be the 15th calendar day after the letter is mailed, not 
counting the day the letter is mailed. If the 15th day falls on a 
weekend or holiday, the date specified will be the next day that is not 
on a weekend or a holiday. Any appeal not received by the specified 
time and place will not be considered.


Sec. 901.130  Incentives.

    (a) A PHA that is designated high performer or standard performer 
will be relieved of specific HUD requirements, effective upon 
notification of high or standard performer designation.
    (b) A PHA shall not be designated a mod-high performer and be 
entitled to the applicable incentives unless it has been designated an 
overall high performer.
    (c) High-performing PHAs, and RMCs that receive a grade of A on 
each of the indicators for which they are assessed, will receive a 
Certificate of

[[Page 68947]]

Commendation from the Department as well as special public recognition.
    (d) Representatives of high-performing PHAs may be requested to 
serve on Departmental working groups that will advise the Department in 
such areas as troubled PHAs and performance standards for all PHAs.
    (e) State/Area Offices may award incentives to PHAs on an 
individual basis for a specific reason(s), such as a PHA making the 
right decision that impacts long-term overall management or the quality 
of a PHA's housing stock, with prior concurrence from the Assistant 
Secretary.
    (f) Relief from any standard procedural requirements 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 or standard performer may be relieved of requirements 
for prior HUD approval for certain types of contracts for services, it 
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):
    (1) PHAs will still be subject to regular independent auditor (IA) 
audits.
    (2) Office of Inspector General (OIG) audits or investigations will 
continue to be conducted as circumstances may warrant.
    (g) In exceptional circumstances, the State/Area Office will have 
discretion to subject a PHA to any requirement that would otherwise be 
omitted under the specified relief, in accordance with Sec. 901.115(i).


Sec. 901.135  Memorandum of Agreement.

    (a) After consulting the independent assessment team and reviewing 
the report identified in section 6(j)(2)(b) of the 1937 Act, a 
Memorandum of Agreement (MOA), a binding contractual agreement between 
HUD and a PHA, shall be required for each PHA designated as troubled 
and/or mod-troubled. The scope of the MOA may vary depending upon the 
extent of the problems present in the PHA, but shall include:
    (1) Baseline data, which should be raw data but may be the PHA's 
score in each of the indicators identified as a problem, or other 
relevant areas identified as problematic;
    (2) Annual and quarterly performance targets, which may be the 
attainment of a higher grade within an indicator that is a problem, or 
the description of a goal to be achieved, for example, the reduction of 
rents uncollected to 6% or less by the end of the MOA annual period;
    (3) Strategies to be used by the PHA in achieving the performance 
targets within the time period of the MOA;
    (4) Technical assistance to the PHA provided or facilitated by the 
Department, for example, the training of PHA employees in specific 
management areas or assistance in the resolution of outstanding HUD 
monitoring findings;
    (5) The PHA's commitment to take all actions within its control to 
achieve the targets;
    (6) Incentives for meeting such targets, such as the removal of 
troubled or mod-troubled designation and Departmental recognition for 
the most improved PHAs;
    (7) The consequences of failing to meet the targets, including such 
sanctions as the imposition of budgetary limitations, declaration of 
substantial default and subsequent actions, limited denial of 
participation, suspension, debarment, or the imposition of operating 
funding and modernization thresholds; and
    (8) A description of the involvement of local public and private 
entities, including PHA resident leaders, in carrying out the agreement 
and rectifying the PHA's problems. A PHA shall have primary 
responsibility for obtaining active local public and private entity 
participation, including the involvement of public housing resident 
leaders, in assisting PHA improvement efforts. Local public and private 
entity participation should be premised upon the participant's 
knowledge of the PHA, ability to contribute technical expertise with 
regard to the PHA's specific problem areas and authority to make 
preliminary/tentative commitments of support, financial or otherwise.
    (b) A MOA shall be executed by:
    (1) The PHA Board Chairperson and accompanied by a Board 
resolution, or a receiver (pursuant to a court ordered receivership 
agreement, if applicable) or other AME acting in lieu of the PHA Board;
    (2) The PHA Executive Director, or a designated receiver (pursuant 
to a court ordered receivership agreement, if applicable) or other AME-
designated Chief Executive Officer;
    (3) The Director, State/Area Office of Public Housing, except as 
stated in (d) of this section; and
    (4) The appointing authorities of the Board of Commissioners, 
unless exempted by the State/Area Office.
    (c) The Department encourages the inclusion of the resident 
leadership in MOA negotiations and the execution of the MOA.
    (d) Upon designation of a large PHA (1250 or more units under 
management) as troubled, the State/Area Office shall make a referral to 
HUD Headquarters for appropriate recovery intervention and the 
execution of an MOA by the Assistant Secretary for Public and Indian 
Housing.
    (e) A PHA will monitor MOA implementation to ensure that 
performance targets are met in terms of quantity, timeliness and 
quality.


Sec. 901.140  Removal from troubled status and mod-troubled status.

    (a) A PHA has the right to petition the State/Area Office for the 
removal of a designation as troubled or mod-troubled.
    (b) A PHA may appeal any refusal to remove troubled and mod-
troubled designation to the Assistant Secretary for Public and Indian 
Housing in accordance with Sec. 901.125.
    (c) A PHA with fewer that 1250 units under management will be 
removed from troubled status by the State/Area Office upon a 
determination by the State/Area Office that the PHA's assessment 
reflects an improvement to a level sufficient to remove the PHA from 
troubled status, or mod-troubled, i.e., a total weighted management 
assessment score of 60% or more, and upon the conduct of a confirmatory 
review for PHAs with 100 or more units under management.
    (d) A PHA with 1250 units or more under management will be removed 
from troubled status by the Assistant Secretary for Public and Indian 
Housing upon a recommendation by the State/Area Office when a PHA's 
assessment reflects an improvement to a level sufficient to remove the 
PHA from troubled or mod-troubled status, i.e., a total weighted 
management assessment score of 60% or more, and upon the conduct of an 
independent confirmatory review (team members from other State/Area 
Offices).


Sec. 901.145  Improvement Plan.

    (a) After receipt of the State/Area Office notification letter in 
accordance with Sec. 901.120(b) or receipt of a final resolution of an 
appeal in accordance with Sec. 901.125 or, in the case of an RMC, 
notification of its indicator grades from a PHA, a PHA or RMC shall 
correct any deficiency indicated in its management assessment within 90 
calendar days.
    (b) A PHA shall notify the State/Area Office of its action to 
correct a deficiency. A PHA shall also forward to the State/Area Office 
an RMC's report of its action to correct a deficiency.
    (c) If the State/Area Office determines that a PHA or RMC has not 
corrected a deficiency as required within 90 calendar days after 
receipt of its final

[[Page 68948]]

notification letter, the State/Area Office may require a PHA, or a RMC 
through the PHA, to prepare and submit to the State/Area Office an 
Improvement Plan within an additional 30 calendar days:
    (1) The State/Area Office shall require a PHA or RMC to submit an 
Improvement Plan, which includes the information stated in (d) of this 
section, for each indicator that a PHA or RMC scored a grade of F.
    (2) The State/Area Office may require, on a risk management basis, 
a PHA or RMC to submit an Improvement Plan, which includes the 
information stated in paragraph (d) of this section, for each indicator 
that a PHA scored a grade D or E, as well as other performance and/or 
compliance deficiencies as may be identified as a result of an on-site 
review of the PHA's operations.
    (d) An Improvement Plan shall:
    (1) Identify baseline data, which should be raw data but may be the 
PHA's score in each of the indicators identified as a problem in a 
PHA's or RMC's management assessment, or other relevant areas 
identified as problematic;
    (2) Describe the procedures that will be followed to correct each 
deficiency; and
    (3) Provide a timetable for the correction of each deficiency.
    (e) The State/Area Office will approve or deny a PHA's or RMC's 
Improvement Plan, and notify the PHA of its decision. A PHA must notify 
the RMC in writing, immediately upon receipt of the State/Area Office 
notification, of the State/Area Office approval or denial of the RMC's 
Improvement Plan.
    (f) An Improvement Plan that is not approved will be returned to 
the PHA with recommendations from the State/Area Office for revising 
the Improvement Plan to obtain approval. A revised Improvement Plan 
shall be resubmitted by the PHA or RMC within 30 calendar days of its 
receipt of the State/Area Office recommendations.
    (g) If a PHA or RMC fails to submit an acceptable Improvement Plan, 
or to correct deficiencies within the time specified in an Improvement 
Plan or such extensions as may be granted by HUD, the State/Area Office 
will notify the PHA of its or the RMC's noncompliance. The PHA, or the 
RMC through the PHA, will provide HUD its reasons for lack of progress 
in submitting or carrying out the Improvement Plan within 30 calendar 
days of its receipt of the noncompliance notification. HUD will advise 
the PHA as to the acceptability of its reasons for lack of progress 
and, if unacceptable, will notify the PHA that it will be subject to 
sanctions provided for in the ACC and HUD regulations.


Sec. 901.150  PHAs troubled with respect to the program under section 
14 (mod-troubled PHAs).

    (a) PHAs that achieve a total weighted score of less than 60% on 
indicator #2, modernization, may be designated as mod-troubled.
    (b) PHAs designated as mod-troubled may be subject, under the 
Comprehensive Grant Program, to a reduction of formula allocation or 
other sanctions (24 CFR Sec. 968, Subpart C) or under the Comprehensive 
Improvement Assistance Program to disapproval of new funding or other 
sanctions (24 CFR Sec. 968, Subpart B).


Sec. 901.155  PHMAP public record.

    The State/Area Office will maintain PHMAP files, including 
certifications, the records of exclusion and modification requests, 
appeals, and designations of status based on physical condition and 
neighborhood environment, as open records, available for public 
inspection for three years consistent with the Freedom of Information 
Act (5 U.S.C. 552) and in accordance with any procedures established by 
the State/Area Office to minimize disruption of normal office 
operations.


Sec. 901.200  Events or conditions that constitute substantial default.

    (a) The Department may determine that events have occurred or that 
conditions exist that constitute a substantial default if a PHA is 
determined to be in violation of Federal statutes, including but not 
limited to, the 1937 Act, or in violation of regulations implementing 
such statutory requirements, whether or not such violations would 
constitute a substantial breach or default under provisions of the 
relevant ACC.
    (b) The Department may determine that a PHA's failure to satisfy 
the terms of a Memorandum of Agreement entered into in accordance with 
Sec. 901.135 of this part, or to make reasonable progress to meet time 
frames included in a Memorandum of Agreement, are events or conditions 
that constitute a substantial default.
    (c) The Department shall determine that a PHA that has been 
designated as troubled and does not show significant improvement (10 
percentage point increase) in its PHMAP score within one year after 
final notification of its PHMAP score are events or conditions that 
constitute a substantial default:
    (1) A PHA shall be notified of such a determination in accordance 
with Sec. 901.205(c).
    (2) A PHA may waive, in writing, receipt of explicit notice from 
the Department as to a finding of substantial default, and voluntarily 
consent to a determination of substantial default. The PHA must concur 
on the existence of substantial default conditions which can be 
remedied by technical assistance, and the PHA shall provide the 
Department with written assurances that all deficiencies will be 
addressed by the PHA. The Department will then immediately proceed with 
interventions as provided in Sec. 901.210.
    (d) The Department may declare a substantial breach or default 
under the ACC, in accordance with its terms and conditions.
    (e) The Department may determine that the events or conditions 
constituting a substantial default are limited to a portion of a PHA's 
public housing operations, designated either by program, by operational 
area, or by development(s).


Sec. 901.205  Notice and response.

    (a) If information from an annual assessment, as described in 
Sec. 901.100, a management review or audit, or any other credible 
source indicates that there may exist events or conditions constituting 
a substantial breach or default, the Department shall advise a PHA of 
such information. The Department is authorized to protect the 
confidentiality of the source(s) of such information in appropriate 
cases. Before taking further action, except in cases of apparent fraud 
or criminality, and/or in cases where emergency conditions exist posing 
an imminent threat to the life, health, or safety of residents, the 
Department shall afford the PHA a timely opportunity to initiate 
corrective action, including the remedies and procedures available to 
PHAs designated as ``troubled PHAs,'' or to demonstrate that the 
information is incorrect.
    (b) In any situation determined to be an emergency, or in any case 
where the events or conditions precipitating the intervention are 
determined to be the result of criminal or fraudulent activity, the 
Assistant Secretary is authorized to intercede to protect the 
residents' and the Department's interests by causing the proposed 
interventions to be implemented without further appeals or delays.
    (c) Upon a determination or finding that events have occurred or 
that conditions exist that constitute a substantial default, the 
Assistant Secretary shall provide written notification of such 
determination or finding to the affected PHA. Written notification 
shall be transmitted to the Executive Director, the Chairperson of the 
Board, and the appointing

[[Page 68949]]

authority(s) of the Board, and shall include, but need not necessarily 
be limited to:
    (1) Identification of the specific covenants, conditions, and/or 
agreements under which the PHA is determined to be in noncompliance;
    (2) Identification of the specific events, occurrences, or 
conditions that constitute the determined noncompliance;
    (3) Citation of the communications and opportunities to effect 
remedies afforded pursuant to paragraph (a) of this section;
    (4) Notification to the PHA of a specific time period, to be not 
less than 10 calendar days, except in cases of apparent fraud or other 
criminal behavior, and/or under emergency conditions as described in 
paragraph (a) of this section, nor more than 30 calendar days, during 
which the PHA shall be required to demonstrate that the determination 
or finding is not substantively accurate; and
    (5) Notification to the PHA that, absent a satisfactory response in 
accordance with paragraph (d) of this section, the Department will take 
control of the PHA, using any or all of the interventions specified in 
Sec. 901.210, and determined to be appropriate to remedy the 
noncompliance, citing Sec. 901.210, and any additional authority for 
such action.
    (d) Upon receipt of the notification described in paragraph (c) of 
this section, the PHA must demonstrate, within the time period 
permitted in the notification, factual error in the Department's 
description of events, occurrences, or conditions, or show that the 
events, occurrences, or conditions do not constitute noncompliance with 
the statute, regulation, or covenants or conditions to which the PHA is 
cited in the notification.


Sec. 901.210  Interventions.

    (a) Interventions under this part (including an assumption of 
operating responsibilities) may be limited to one or more of a PHA's 
specific operational areas (e.g., maintenance, modernization, 
occupancy, or financial management) or to a single development or a 
group of developments. Under this limited intervention procedure, the 
Department could select, or participate in the selection of, an AME to 
assume management responsibility for a specific development, a group of 
developments in a geographical area, or a specific operational area, 
while permitting the PHA to retain responsibility for all programs, 
operational areas, and developments not so designated.
    (b) Upon determining that a substantial default exists under this 
part, the Department may initiate any interventions deemed necessary to 
maintain decent, safe, and sanitary dwellings for residents. Such 
intervention may include:
    (1) Providing technical assistance for existing PHA management 
staff;
    (2) Selecting or participating in the selection of an AME to 
provide technical assistance or other services up to and including 
contract management of all or any part of the public housing 
developments administered by a PHA;
    (3) Assuming possession and operational responsibility for all or 
any part of the public housing administered by a PHA; and
    (4) The provision of intervention and assistance necessary to 
remedy emergency conditions.
    (c) HUD may take the actions described in this part sequentially or 
simultaneously in any combination.


Sec. 901.215  Contracting and funding.

    (a) Upon a declaration of substantial default or breach, and 
subsequent assumption of possession and operational responsibility, the 
Department may enter into agreements, arrangements, and/or contracts 
for or on behalf of a PHA, or to act as the PHA, and to expend or 
authorize expenditure of PHA funds, irrespective of the source of such 
funds, to remedy the events or conditions constituting the substantial 
default.
    (b) In entering into contracts or other agreements for or on behalf 
of a PHA, the Department shall comply with requirements for competitive 
procurement consistent with 24 CFR 85.36, except that, upon 
determination of public exigency or emergency that will not permit a 
delay, the Department can enter into contracts or agreements on a 
noncompetitive basis, consistent with the standards of 24 CFR 
85.36(d)(4).


Sec. 901.220  Resident participation in competitive proposals to manage 
the housing of a PHA.

    (a) When a competitive proposal to manage the housing of a PHA in 
substantial default is solicited in a Request for Proposals (RFP) 
pursuant to section 6(j)(3)(A)(i) of the 37 Act, the RFP, in addition 
to publishing the selection criteria, will:
    (1) Include a requirement for residents to notify the Department if 
they want to be involved in the selection process; and
    (2) Include a requirement for the PHA that is the subject of the 
RFP to post a notice and a copy of the RFP in a prominent location on 
the premises of each housing development that would be subject to the 
management chosen under the RFP, for the purposes of notifying affected 
residents that:
    (i) Invites residents to participate in the selection process; and
    (ii) Provides information, to be specified in the RFP, on how to 
notify the Department of their interest.
    (b) Residents must notify the Department by the RFP's application 
due date of their interest in participating in the selection process. 
In order to participate, the total number of residents that notify the 
Department must equal at least 20 percent of the residents, or the 
notification of interest must be from an organization or organizations 
of residents whose membership must equal at least 20 percent of the 
PHA's residents.
    (c) If the required percentage of residents notify the Department, 
a minimum of one resident may be invited to serve as an advisory member 
on the evaluation panel that will review the applications in accordance 
with applicable procurement procedures. Resident advisory members are 
subject to all applicable confidentiality and disclosure restrictions.


Sec. 901.225  Resident petitions for remedial action.

    The total number of residents that petition the Department to take 
remedial action pursuant to sections 6(j)(3)(A)(i) through (iv) of the 
1937 Act must equal at least 20 percent of the residents, or the 
petition must be from an organization or organizations of residents 
whose membership must equal at least 20 percent of the PHA's residents.


Sec. 901.230  Receivership.

    (a) Upon a determination that a substantial default has occurred 
and without regard to the availability of alternate remedies, the 
Department may petition the court for the appointment of a receiver to 
conduct the affairs of the PHA in a manner consistent with statutory, 
regulatory, and contractual obligations of the PHA and in accordance 
with such additional terms and conditions that the court may provide. 
The court shall have authority to grant appropriate temporary or 
preliminary relief pending final disposition of any petition by HUD.
    (b) The appointment of a receiver pursuant to this section may be 
terminated upon the petition to the court by the PHA, the receiver, or 
the Department, and upon a finding by the court that the circumstances 
or conditions that constituted substantial

[[Page 68950]]

default by the PHA no longer exist and that the operations of the PHA 
will be conducted in accordance with applicable statutes and 
regulations, and contractual covenants and conditions to which the PHA 
and its public housing programs are subject.


Sec. 901.235  Technical assistance.

    (a) The Department may provide technical assistance to a PHA that 
is in substantial default.
    (b) The Department may provide technical assistance to a troubled 
or non-troubled PHA if the assistance will enable the PHA to achieve 
satisfactory performance on any PHMAP indicator. The Department may 
provide such assistance if a PHA demonstrates a commitment to undertake 
improvements appropriate with the given circumstances, and executes an 
Improvement Plan in accordance with Sec. 901.145.
    (c) The Department may provide technical assistance to a PHA if 
without abatement of prevailing or chronic conditions, the PHA can be 
projected to be designated as troubled by its next PHMAP assessment.
    (d) The Department may provide technical assistance to a PHA that 
is in substantial default of the ACC.
    (e) The Department may provide technical assistance to a PHA whose 
troubled designation has been removed and where such assistance is 
necessary to prevent the PHA from being designated as troubled within 
the next two years.

    Dated: December 10, 1996.
Kevin Emanuel Marchman,
Acting Assistant Secretary for Public and Indian Housing.
[FR Doc. 96-32469 Filed 12-27-96; 8:45 am]
BILLING CODE 4210-33-P