[Federal Register Volume 63, Number 125 (Tuesday, June 30, 1998)]
[Proposed Rules]
[Pages 35672-35692]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17302]



[[Page 35671]]

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Part V

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Department of Housing and Urban Development





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24 CFR Part 901



Public Housing Assessment System; Proposed Rule

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

[[Page 35672]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR PART 901

[Docket No. FR-4313-P-01]
RIN 2577-AB81


Public Housing Assessment System

AGENCY: Office of the Assistant Secretary for Public and Indian 
Housing, and Office of the Director of the Real Estate Assessment 
Center, HUD.

ACTION: Proposed rule.

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SUMMARY: This proposed rule establishes an entirely new system for the 
assessment of public housing in the United States. The nation's public 
housing system houses 1.2 million families in 20,000 projects across 
the 50 States, Puerto Rico, Guam and the U.S. Virgin Islands, operated 
by 3,400 public housing agencies. The major components of the new 
system include:
    The rule provides for the first-ever assessment of the physical 
condition, financial health, and resident services in public housing. 
For the first time, the physical condition of every project in the 
nation's public housing inventory will be inspected on a regular basis 
with uniform standards to ensure that residents receive decent, safe, 
and sanitary housing. For the first time, the financial condition of 
every public housing agency will be assessed on generally accepted 
accounting principles. For the first time, resident satisfaction with 
public housing services will be measured and counted in HUD's 
assessment of public housing agency management.
    The rule provides for increased flexibility for top performers. 
Public housing agencies which score in the top ten percent in their 
physical condition, financial health, resident satisfaction, and 
management operations will receive substantial flexibility and bonus 
points for funding competitions.
    The rule provides for the establishment of a Troubled Agency 
Recovery Center to improve poor performers. Public housing agencies 
which perform unsuccessfully on these factors will be referred to a new 
Troubled Agency Recovery Center to improve poor performers.
    The rule provides for the establishment of an Enforcement Center 
and Receivership for agencies which fail to improve performance. Public 
housing agencies which fail to post significant improvement within a 
year will be automatically referred to the new HUD Enforcement Center 
which will institute proceedings for judicial receivership to remove 
failed agency management.
    The purpose of the new Public Housing Assessment System is to 
enhance public trust by creating a comprehensive management tool that 
effectively and fairly measures a PHA's performance based on standards 
that are objective, uniform and verifiable, and provides real rewards 
for high performers and consequences for poor performers. As more fully 
discussed in the Supplementary Information section of the preamble, the 
proposed rule was developed with the assistance of public housing 
agency officials, representatives of public housing agency 
organizations, and representatives of public housing residents 
organizations.

DATES: Comment due date: July 30, 1998.

ADDRESSES: Interested persons are invited to submit comments regarding 
this interim rule to the Regulations Division, Office of General 
Counsel, Room 10276, Department of Housing and Urban Development, 451 
Seventh Street, SW, Washington, DC 20410. Communications should refer 
to the above docket number and title. Facsimile (FAX) comments are not 
acceptable. A copy of each communication submitted will be available 
for public inspection and copying between 7:30 a.m. and 5:30 p.m. 
weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: For further information contact the 
Real Estate Assessment Center, Attention William Thorson, Department of 
Housing and Urban Development, 4900 L'Enfant Plaza East, SW, Room 8204, 
Washington, DC 20410; telephone (202) 755-0102 (this is not a toll-free 
number). Persons with hearing or speech impairments may access that 
number via TTY by calling the Federal Information Relay Service at 
(800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. HUD Constituents Participation in the Proposed Rule

    President Clinton's Executive Order on Regulatory Planning and 
Review (E.O. 12866, issued September 30, 1993) provides in section 
(6)(a) that:

    Each agency shall (consistent with its own rules, regulations, 
or procedures) provide the public with meaningful participation in 
the regulatory process. In particular, before issuing a notice of 
proposed rulemaking, each agency should, where appropriate, seek the 
involvement of those who are intended to benefit from and those 
expected to be burdened by any regulation (including, specifically, 
State, local and tribal officials).

    Consistent with President Clinton's Executive and HUD's own 
partnership initiatives with its constituents and clients, the new 
assessment system for public housing was developed with extensive 
discussion and consultation with public housing agency (PHA) officials, 
officials from PHA representative organizations, representatives of 
public housing resident groups, experts in the fields of finance and 
audit and physical inspection of properties, and other interested 
parties such as housing advocacy groups and local government 
representatives. These discussions and consultations began in October 
1997 and continued through April 1998. It was important to HUD that 
these entities and individuals have input in the development of a 
proposal for a new assessment system for public housing.
    The consultation and discussions with PHA agency officials and 
representative groups will continue through the final rulemaking 
process and in the implementation of this new system. During the 
transition period to the new system, HUD will work closely with PHAs 
and resident groups to make any necessary refinements to the system. 
HUD, PHAs and public housing residents all want to see an effective and 
efficient management system for public housing, and will work together 
to make this a successful system for all concerned.

II. HUD 2020 Management Reforms

    On June 26, 1997, HUD released its plan, the ``HUD 2020 Management 
Reform Plan,'' for significant management reforms at HUD. HUD published 
the plan in the Federal Register on August 12, 1997 (62 FR 43204). The 
HUD 2020 Management Reform Plan is directed to (1) empowering people 
and communities to improve themselves, and (2) restoring HUD's 
reputation and credibility by improving the efficiency and 
effectiveness of HUD's programs, operations, and delivery of services. 
To improve the efficiency and effectiveness of HUD's programs, 
operations, and delivery of services, the HUD 2020 Management Reform 
Plan calls for the restructuring of HUD's internal operations to 
reallocate resources and consolidate major functions.
    Under the HUD 2020 Management Reform Plan, resources will be 
allocated in a way that is designed to align HUD's resources with its 
long-term mission of empowering people and communities to improve 
themselves and succeed in today's world. Consolidation of functions is 
designed to avoid duplication of effort, achieve

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consistency and uniformity in the performance of these functions, and 
ensure fairness. With respect specifically to HUD's public housing 
programs, the consolidation of certain functions is critical to the 
survival of public housing as an affordable housing option for low-
income persons. Those consolidated functions that will significantly 
impact and benefit public housing operations include the establishment 
of a Real Estate Assessment Center, a Troubled Agency Recovery Center 
(TARC) and an Enforcement Center. These centers provide the backbone of 
HUD's new system for Federal management of the nation's public housing. 
The following provides a brief overview of the functions of the three 
centers and their relationship to public housing, as well as to other 
HUD assisted properties.

A. Measuring Program Performance--the Real Estate Assessment Center

    The Real Estate Assessment Center (the ``Assessment Center'' or 
``REAC'') is charged with the responsibility for assessing and scoring 
the condition of properties in which HUD has an interest and the 
performance of entities that manage and own those properties. Until the 
establishment of the Assessment Center, HUD's Office of Housing and the 
Office of Public and Indian Housing independently operated separate 
real estate assessment operations, yet the administration of both 
organization's multifamily portfolios is a common function of asset 
management. Under the Assessment Center, the assessment of all of the 
properties of the Office of Housing and the Office of Public and Indian 
Housing is consolidated and the evaluation standards and procedures are 
made uniform, to the greatest extent feasible.
    The establishment of the Assessment Center marks an important 
change in HUD's way of doing business. Until the establishment of the 
Assessment Center, HUD has never had an effective and comprehensive 
property assessment system. Under HUD 2020 Management Reform, for the 
first time in HUD's history, all properties will be physically 
inspected and financially assessed using a comprehensive and uniform 
protocol. The Assessment Center will play a key role in evaluating and 
scoring the condition of public housing properties and the performance 
of PHAs, and it also will play a key role in evaluating and scoring the 
condition of other HUD-assisted housing and FHA-insured properties, and 
the performance of the entities that manage and own those properties. 
The Assessment Center will be staffed with individuals who are experts 
in the areas of finance and audit, real estate functions, and housing 
management operations.
    In order for the Assessment Center to effectively perform its 
functions, certain assessment tools--specifically, physical condition 
standards for HUD properties, and financial information from HUD 
reporting entities--need to be made uniform to the greatest extent 
possible. As discussed later in this preamble, establishment of uniform 
protocols for assessing physical condition and financial information is 
underway. These new standardized protocols will become significant 
diagnostic tools for the Assessment Center. For public housing, as will 
be discussed in more detail later, these uniform protocols will form 
part of the basis by which the Assessment Center will analyze the 
performance of public housing agencies (PHAs) and assign a score. The 
score assigned to a PHA will identify that PHA as a high performer, 
standard performer or troubled PHA. High performers will receive 
increased regulatory flexibility, bonus points and other incentives. 
Those PHAs designated as troubled will be referred to the Troubled 
Agency Recovery Center to improve performance.
    The uniform protocols to be used by the Assessment Center, although 
standardized, will not be static. The Assessment Center will provide an 
ongoing analysis and evaluation of assessment methods to determine the 
accuracy, the effectiveness and the relevance of inspection, management 
and financial protocols, including factors, scoring, weights, sampling 
and algorithms. The Assessment Center will keep the public and HUD 
program participants advised of the findings obtained through this 
ongoing analysis and of any recommended changes to the protocols and 
indicators through issuance of Federal Register notice or other 
appropriate notice.
    One of HUD's objectives under HUD 2020 Management Reform is not 
only to identify where performance by program participants fails to 
meet acceptable standards, but to assist these participants in raising 
their level of performance. For PHAs, such assistance will be provided 
either by the appropriate HUD area HUB/Program Center, or by the TARC 
if the PHA is designated as troubled.

B. Assisting Troubled Public Housing Agency Performers--Troubled Agency 
Recovery Centers (TARCs)

    The Troubled Agency Recovery Centers established by HUD will assist 
PHAs designated as troubled to reach improved performance through the 
development and implementation of sustainable solutions. Upon 
designation as troubled, a PHA will be referred to the TARC for 
assistance. The TARC will work with the PHA to develop and implement an 
intervention strategy to help raise the PHA's level of performance. The 
TARC will provide technical assistance to troubled PHAs on a variety of 
public housing operation issues, including: property needs and 
maintenance; occupancy procedures; resident and applicant relations; 
and financial management. One of the principal objectives of the TARC 
is to determine the appropriate course of action for the troubled PHA 
to achieve recovery, considering the resources and the recovery period 
best suited for the individual PHA, its community and the families the 
PHA serves. If a troubled PHA is found to be making substantial 
progress toward addressing its problems, consideration may be given to 
allowing the PHA additional time to continue the recovery effort. If a 
troubled PHA's problems are not addressed within the period established 
by this rule, the PHA will be referred to the Enforcement Center.

C. Restoring Public Trust--the Enforcement Center

    The greatest breach of the public trust at HUD is the waste, fraud 
and abuse in HUD's existing portfolio of millions of housing units. 
Until recently, each of HUD's program offices (the Offices of Public 
and Indian Housing, Housing, and Community Planning and Development) 
operated independent enforcement functions, with different standards 
and procedures. HUD has combined non-civil rights enforcement actions 
for the program offices into one authority--the Enforcement Center. The 
Enforcement Center is a fundamental programmatic reform that HUD will 
take to restore public trust in fulfilling its mission to provide 
decent, safe and sanitary housing for lower and moderate income 
households. The Enforcement Center is intended to be the central 
Departmental focus for taking aggressive action against owners of HUD's 
troubled assisted housing and public housing portfolios. The 
Enforcement Center will be responsible for correcting long-standing 
noncompliance issues with HUD grantees, and will take action against 
owners who do not cooperate with HUD during any recovery process or who 
may have put housing projects in jeopardy by engaging in waste, fraud 
or abuse.
    With respect to public housing, the Enforcement Center will be 
responsible for troubled PHAs that fail to improve their performance 
during the

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established time period. The actions taken by the Enforcement Center 
against such PHAs include judicial receivership to remove failed 
management, and referrals for the imposition of civil and criminal 
sanctions to the applicable Federal government agencies or offices, 
where appropriate.

D. Achieving Fairness By Transferring Responsibility to Independent 
Units

    Each of the three centers, the Assessment Center, the TARC, and the 
Enforcement Center, will be separate units, independent from 
traditional HUD program areas and functions. This separation from 
traditional program areas reflects a key objective of HUD 2020 
Management Reform and that is to treat program participants and assess 
program performance on the basis of uniform standards, not on the basis 
of which HUD program office administers the assistance. Before the HUD 
2020 Management Reforms, program office staff all too often were handed 
conflicting mandates. On the one hand, staff were asked to provide 
assistance to HUD program participants (communities, housing agencies, 
multifamily owners, etc.) to help them meet their housing and urban 
development needs; and on the other hand, these employees were directed 
to monitor the actions of the program participants. HUD realizes that 
both roles are important to HUD's mission and have a place in HUD, but 
the role of facilitator and the role of monitor are inherently in 
conflict. The creation of the Assessment Center, the TARC and the 
Enforcement Center as independent units is designed to address the 
inconsistent responsibilities previously handled by program staff. 
Dividing the important functions of community facilitator and program 
monitor into different offices is a critical step in restoring public 
trust in HUD.
    Restoring public trust not only will be achieved through 
independence of the Assessment Center, TARC and the Enforcement Center, 
but in the consistent uniform approach the centers take to the 
performance of their respective functions. As discussed earlier, for 
the Assessment Center, a consistent and fair approach to the evaluation 
of HUD properties requires uniform assessment standards in two critical 
areas: (1) The physical condition of properties receiving HUD financial 
assistance; and (2) the financial condition of the owners and managers 
of these properties.

E. Standardization of Physical Assessment of Properties--Uniform 
Physical Condition Standards

    As part of the HUD 2020 Management Reform objective to create a 
uniform, assessment process for all HUD assisted properties, HUD is 
establishing uniform physical conditions standards and inspection 
procedures for its assisted housing, FHA related properties and public 
housing. These standards are intended to ensure that such housing is 
decent, safe, sanitary and in good repair--the physical condition 
standard to which HUD assisted housing always has been subject. HUD's 
Section 8 housing, public housing, HUD-insured multifamily housing, and 
other HUD assisted housing currently must undergo an annual physical 
inspection to determine that the housing qualifies as decent, safe, 
sanitary and in good repair. The description or components of what 
constitutes acceptable physical housing quality and the physical 
inspection procedures by which the standards are determined to be met, 
however, vary from HUD program to HUD program. To the extent possible, 
HUD believes that housing assisted under its programs should be subject 
to uniform physical standards, regardless of the source of the subsidy 
or assistance. Additionally, to the extent feasible, HUD believes that 
the physical inspection procedures by which the standards will be 
assessed should be uniform in the covered programs. Therefore, for the 
physical condition indicator of the Public Housing Assessment System 
(PHAS), this proposed rule provides for public housing properties to be 
evaluated on the basis of uniform physical condition standards that 
ensure that the public housing is decent, safe, and sanitary. Through 
separate rulemaking, HUD will propose to apply these uniform physical 
condition standards to properties assisted under other HUD housing 
programs. These standards are discussed in greater detail later in this 
preamble.

F. Standardization of the Financial Assessment of Program 
Participants--Uniform Financial Reporting

    The uniform assessment of HUD properties under HUD 2020 Management 
Reform also includes a uniform financial assessment process. To achieve 
this objective, HUD is establishing uniform standards for annual 
financial reporting for HUD's public housing, Section 8 housing, and 
multifamily insured housing programs, and will require public housing 
agencies, project owners, and managers (if applicable) of HUD-assisted 
housing to submit to HUD annually in an electronic mode and 
standardized format, to be established by HUD, certain financial 
information, prepared in accordance with generally accepted accounting 
principles (GAAP), as prescribed by the Governmental Accounting 
Standards Board (GASB). Electronic submission is necessary because the 
manual submission of annual financial information has become a 
significant administrative burden to PHAs, project owners, and 
mortgagees, as well as to HUD. HUD is developing a standardized format 
for the reporting of the annual financial information, which will be 
ready for dissemination in sufficient time to allow PHAs to comply with 
the provisions of this rule. This format will be substantially the same 
for all covered programs, but the format may vary in certain respects 
to reflect different types of reporting entities (e.g., owners of 
multifamily/Federal Housing Administration (FHA)-related entities vs. 
PHAs). The objective of the uniform financial reporting requirements is 
to standardize the annual financial information submission process and, 
through standardization, bring consistency to the evaluation of the 
financial condition of housing assisted under HUD programs. Therefore, 
for the financial condition indicator of the PHAS, this proposed rule 
provides for PHAs to submit electronically to HUD annual financial 
reports prepared in accordance with GASB GAAP. Through separate 
rulemaking, HUD will propose to apply these uniform financial reporting 
requirements to program participants in other HUD housing programs. The 
financial reporting requirements are discussed in greater detail later 
in this preamble.

G. Enhancing Public Trust Through Improved Assessment of Public Housing 
and PHAs

    The new Public Housing Assessment (PHAS), proposed by this rule, is 
designed to enhance public trust by creating a comprehensive oversight 
tool that effectively and fairly measures a PHA based on standards that 
are objective and uniform. The PHAS represents a major rethinking of 
public housing management. The parties most involved in, and affected 
by, public housing--PHAs and public housing residents--have expressed 
concerns that the existing system largely ignores the physical 
conditions of public housing. 1

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Under the current system, a PHA's management performance may be 
assessed as acceptable when its residents are living in unacceptable 
housing conditions. Other concerns are that the current system is 
almost totally dependent on PHA self-certification, rather than on 
objective evidence or third-party verification; does not focus on basic 
real estate functions; and does not provide for opportunity for input 
from those directly served by the PHA--the public housing residents. 
The new PHAS responds to these concerns by adding indicators that 
provide for independent assessment and specifically assess these 
components of a PHA's operation--physical condition of the property; 
financial condition; and resident feedback.
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    \1\ The current Public Housing Management Assessment Program 
(PHMAP), for which the regulations are codified at 24 CFR part 901, 
was established in accordance with section 502 of the Cranston-
Gonzalez National Affordable Housing Act (Pub. L. 101-625, approved 
November 29, 1990) (NAHA), which amended section 6(j) of the U.S. 
Housing Act of 1937 (42 U.S.C. 1437d(j)) (the 1937 Act).
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    Under the PHAS, HUD will evaluate a PHA based on the following 
indicators: (1) the physical condition of the PHA's public housing 
properties; (2) the PHA's financial condition; (3) the PHA's management 
operations; and (4) residents' assessment (through a resident survey) 
of the PHA's performance. The management indicator of this new 
assessment system will incorporate the majority of the existing 
statutory management assessment indicators (the remaining statutory 
indicators will be part of the other PHAS indicators). Each of these 
major indicators is comprised of components. The PHAS indicators are 
discussed in further detail below. The PHAS, although applicable only 
to public housing, reflects HUD's approach under HUD 2020 Management 
Reform to all properties assisted by HUD. HUD will assess all HUD-
related properties in a manner similar to that outlined in this 
proposed rule, utilizing uniform financial and physical indicators, and 
resident feedback.

III. The Public Housing Assessment System (PHAS)

A. Overview of the PHAS

    The new PHAS is designed to instill trust in public housing as a 
cost effective and affordable housing option by demonstrating that 
there is in place an assessment system that accurately determines 
whether a PHA is doing an outstanding, acceptable, or unacceptable job 
in providing decent, safe and sanitary housing to its residents. An 
accurate assessment of a PHA's performance is critical because the 
consequences of that assessment can be significant. For PHAs determined 
to be performing well, the consequences will be less scrutiny and 
additional flexibility. For PHAs determined not to be performing well, 
the consequences will be intensive technical assistance, deadlines for 
improvement and possible punitive actions for failure to improve during 
established periods.
    The approach provided by the PHAS maximizes the best use of public 
funds by concentrating resources on those PHAs in most need of 
attention and recognizing outstanding performers. The system is 
fundamentally designed to provide relevant and verifiable measures that 
directly relate to PHA performance. Additionally, the system is 
designed to allow HUD to act upon the findings produced from four 
comprehensive indicators.
    Under the PHAS, the Assessment Center assumes responsibility from 
the Office of Public and Indian Housing for assessing the performance 
of PHAs. The Assessment Center will examine four essential areas of 
housing operations to determine a PHA's performance in delivering HUD 
programs and services. These indicators are: (1) the physical condition 
of public housing (addressed in subpart B of the rule); (2) the 
financial condition of a PHA (addressed in subpart C of the rule); (3) 
the management operations capabilities of PHAs, which will incorporate 
the majority of the existing statutory assessment requirements 
(addressed in subpart D of the rule); and resident service and 
satisfaction (addressed in subpart E of the rule). To assess the 
performance of a PHA on the basis of the first two indicators, the 
Assessment Center will utilize comprehensive and standardized protocols 
to conduct physical inspections of public housing properties, as 
described above, and to assess the financial condition of PHAs. For the 
Management Operations Indicator and the Resident Service and 
Satisfaction Indicator, the Assessment Center will gather and analyze 
data and information provided by the PHA.
    In order to determine a composite score for each PHA, the four 
indicators of the PHAS will be individually scored and then combined to 
present a composite score that reflects the overall performance of PHAs 
for a total of 100 possible points. The 100 points are distributed as 
follows:
    30 total points for the physical condition;
    30 total points for the financial condition;
    30 total points for management operations; and
    10 total points for resident service and satisfaction.
    The following discussion presents a brief overview of each of the 
four indicators to be used under the PHAS.
1. PHAS Indicator #1--Physical Condition of Public Housing Properties
    Subpart B of part 901 of this proposed rule addresses the Physical 
Condition Indicator. This indicator provides for the assessment of the 
physical condition of a PHA's public housing. A PHA must maintain its 
housing in decent, safe, and sanitary condition.
    Statutory Standard of Decent, Safe and Sanitary. This well 
established and longstanding physical condition standard has several 
statutory sources, including section 3(b)(1) of the 1937 Act, which 
provides in relevant part as follows:

    The term ``low-income housing'' means decent, safe, and sanitary 
dwellings assisted under this Act. The term ``public housing'' means 
low-income housing, and all necessary appurtenances thereto, 
assisted under this Act other than under section 8.

    Section 14 of the 1937 Act, which addresses public housing 
modernization, also emphasizes a decent, safe, and sanitary housing 
standard. Section 14(j)(2) provides, in relevant part, that ``the 
Secretary shall issue rules and regulations establishing standards 
which provide for decent, safe, and sanitary living conditions in low-
rent public housing projects. * * *'' 2 In adopting uniform 
physical condition standards for public housing, this proposed rule 
would not alter the statutory standard for maintaining public housing. 
Instead, the proposed rule, by using the statutory terminology, clearly 
acknowledges that public housing must be maintained in ``decent, safe, 
and sanitary'' condition.3
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    \2\  The current regulatory provisions addressing the physical 
condition of public housing projects are found in several sections 
of HUD's regulations in Title IX of 24 CFR: Secs. 901.30 (of the 
PHMAP regulations), 941.203 (of the Public Housing Development 
regulations), 965.704 (of the PHA-Owned or Leased Projects 
regulations), and 968.315 (of the Comprehensive Improvement Program 
Regulations).
    \3\  As the proposed regulatory text will show, the physical 
condition standards are referred to as ``decent, safe, sanitary and 
in good repair.'' As the preamble discussion notes the statutory 
physical condition standard for public housing is expressed in terms 
of ``decent, safe and sanitary.'' For FHA-related properties, the 
statutory standard is expressed in terms of ``good repair and 
condition.'' In adopting physical condition standards that are 
applicable to both public housing and FHA-related properties, HUD 
uses the descriptive term--``decent, safe, sanitary and in good 
repair.''
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    No Preemption of State and Local Building and Maintenance Codes. 
The new uniform physical condition standards established by HUD do not 
supersede or preempt State and local building and maintenance codes 
with

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which the PHA's public housing must comply. PHAs must continue to 
adhere to these codes.
    Uniform Physical Condition Standards. The uniform physical 
standards being established would set parameters under which public 
housing (as well as other HUD assisted housing) must be maintained and 
will be evaluated. These standards are designed to analyze, score, and 
rank the overall and general physical condition of a project. This 
evaluation would not focus on a single element, but would take into 
consideration significant observable deficiencies and score compliance 
taken as a whole. A single critical element with a major defect (for 
example, an inoperable heating system), however, could have a 
significant impact on a project's overall evaluation. The standards 
address six major areas of the housing to be evaluated: (1) site; (2) 
building exterior; (3) building systems; (4) dwelling units; (5) common 
areas; and (6) health and safety. The standards emphasize health and 
safety considerations as essential to housing that is decent, safe, and 
sanitary. Appendix A to the proposed rule lists the items to be 
inspected within each of the six major areas.
    Physical Inspection of Public Housing. Public housing is not only 
currently subject to a standard of decent, safe and sanitary, there is 
also an obligation on the PHA to ``inspect'' public housing units. 
Section 6(j)(1)(G) of the 1937 Act requires the PHA to inspect units to 
ascertain ``maintenance or modernization needs.'' This corresponding 
regulatory requirement is found in HUD's regulations at 24 CFR 901.30. 
Section 901.30, captioned ``Indicator #5, Annual Inspection of Units 
and Systems,'' provides in relevant part that: ``All occupied units are 
required to be inspected.'' This rule would not change the current 
requirement for an annual inspection. That requirement remains and is 
provided for under subpart D of this proposed rule, Management 
Operations.
    Under this proposed rule, an assessment of the physical condition 
of a PHA's properties would be determined by an independent inspection 
of the properties by HUD. Consistent with HUD's responsibilities under 
the Assessment Center, HUD intends to conduct independent physical 
inspections, using a new uniform, objective, and computerized 
inspection software developed by HUD, of a statistically valid number 
of public housing units for each PHA, in order to confirm compliance 
with the uniform physical condition standards. The determination of 
whether public housing meets the standard of decent, safe, and sanitary 
would be based on a review of observable deficiencies of the site, the 
building exterior, the building systems, the dwelling units, the common 
areas, and the health and safety conditions of such housing. The 
computer program will generate a score for these components. The scores 
will allow HUD to assess the overall physical condition of the public 
housing as determined by the computer-based inspection.
    To ensure the independence of the physical inspection, HUD intends 
to contract with private inspection firms to perform the inspections. 
All inspectors will be trained under HUD auspices in the use of the 
inspection protocol. Upon being certified, inspectors will obtain their 
PHA inspection assignment from the Assessment Center. The inspector 
will download property profile information on the selected PHA's 
projects via the Internet from the HUD Home page. The inspector will 
complete the inspection using a hand-held computer that uses the HUD 
software. After the inspection is completed, the inspector will upload 
the inspection results to HUD's central information data repository 
(CIDR) where it will be verified for accuracy and then scored using 
predetermined weights based on the relative importance of the property 
areas inspected and factual observed deficiencies identified during the 
inspection. HUD will exercise quality control procedures over the 
contractor inspections to assure the validity and quality of the 
inspections.
    Total Points for PHAS Indicator #1. The total point value of the 
Physical Condition Indicator is 30 of the 100 points available under 
the PHAS. In order to receive a passing score on the Physical Condition 
Indicator, a PHA must receive a score of at least 60 percent of the 30 
points available.
2. PHAS Indicator #2--Financial Condition
    Subpart C of this proposed rule addresses the Financial Condition 
Indicator and would establish the process for the assessment of a PHA's 
financial condition. The rule would require PHAs to submit to HUD, on 
an annual basis, certain financial information, prepared in accordance 
with generally accepted accounting principles (GAAP), as those 
principles are prescribed by the Governmental Accounting Standards 
Board (GASB). The rule also requires that the annual financial report 
due to HUD must be submitted electronically and in a uniform format, 
with the electronic mode and format to be determined by HUD. The 
objective of the Financial Condition Indicator is to measure the 
financial condition of PHAs for the purpose of evaluating whether they 
have sufficient financial resources and are managing those financial 
resources effectively to support the provision of decent, safe, and 
sanitary housing.
    Generally Accepted Accounting Principles (GAAP). Accounting and 
reporting in accordance with GAAP would bring much needed consistency 
to HUD program evaluation. GAAP requires the participant to manage its 
accounting and reporting in accordance with a standard set of rules 
published by auditing and accounting professionals and recognized both 
within and outside of government. The use of GAAP, therefore, would 
enable HUD and program participants to account for transactions and 
report results of operations using widely accepted protocols. The audit 
process would be enhanced by the use of GAAP, reducing audit costs. The 
resulting reports are widely accepted by industry and government and 
are, therefore, widely understood. The relative consistency of GAAP 
would allow HUD to perform analysis on its large housing portfolio in 
ways that assure the overall reliability and validity of the results.
    The discussions that HUD had with PHAs, PHA representatives, 
residents and other interested parties about the new PHAS included 
conversion of PHA financial reports to GAAP. From these discussions, 
HUD has learned that GAAP accounting and reporting is more meaningful 
than present HUD accounting, and that the majority of PHAs seek the 
benefits of the change. A number of PHAs already have begun using GAAP 
or are in the process of converting to GAAP. At least two States 
(Louisiana and Tennessee) require that all PHAs in those States convert 
their HUD basis of accounting financial statements to a GAAP basis for 
State reporting purposes. Therefore, PHAs, as well as the accountants 
and auditors in those two States, have experience with the GAAP 
conversion process. Additionally, several large PHAs (New York, 
Chicago, Denver, Seattle, and Baltimore, for example) have already 
converted to GAAP. Further, it is expected that many PHAs have 
quantified the effect of the differences between GAAP and the HUD basis 
of accounting because of the guidance given in the Public and Indian 
Housing Low Rent Technical Accounting Guide and because of other 
business and operating needs (e.g., the need to fund liabilities for 
sick and vacation leave).
    For those PHAs that may not be familiar with GAAP or that have not 
had

[[Page 35677]]

occasion to prepare GAAP financial reports for other submissions (for 
example, reports that may be required to be submitted to State or local 
governments), accounting support services are an eligible expense under 
the Performance Funding System (PFS). To ease the conversion, the 
current PHA accounting guide and chart of accounts will not be modified 
except to add those additional accounts needed to record new 
transactions in accordance with GAAP or to enhance the existing chart 
of accounts to address current business operation requirements. Some 
illustrative examples of these new accounts are: (1) an allowance for 
uncollectible receivables and the related bad debt expense; (2) an 
allowance for depreciation of buildings, structures and equipment and 
the related depreciation expense; and (3) liability and expense 
accounts for probable losses expected from litigation, claims, and 
other contingencies. While a PHA's accounting staff will have to 
quantify the amounts to be recorded in these new accounts, the PHA's 
independent public accountants can provide guidance on GAAP. HUD also 
will offer guidance for purposes of standardizing the conversion 
results. Since HUD funds all audit costs as an add-on to the 
performance funding system (PFS), PHAs should not bear any increase in 
the costs of an audit that may result in converting to GAAP.
    Electronic Submission. HUD is aware that automated systems are 
being used more extensively among the various entities that participate 
in HUD programs, and the use of such systems is expanding within HUD 
itself. Vice President Gore's Report of the National Performance Review 
has, as a stated objective, the expanded use of new technologies and 
telecommunications to create an electronic government. (September 7, 
1993, Report of the Vice President's National Performance Review, pp. 
113-117, Ref. 2). Requiring the electronic submission of financial data 
in HUD housing programs is another step in implementing the Vice 
President's objective. The electronic submission of information results 
in significant benefits, such as increasing the speed of information 
preparation and exchange, cost savings from reduced need for storage 
space, improved product because electronic preparation generally 
results in reduced errors, and faster HUD review and analysis.
    This rule would require PHAs to submit their financial reports to 
HUD electronically, via the Internet, rather than through tape, 
diskette, or paper. HUD, however, may approve transmission of the data 
by tape or diskette if HUD determines that the cost of electronic 
Internet transmission would be excessive. HUD anticipates that the 
instances in which covered entities will not be able to comply with 
submission of financial data electronically via Internet will be very 
few. This rule would help to bring HUD up to speed with its program 
partners in terms of modern technology.
    Assessing Financial Condition. The key indicators used to 
distinguish PHAs in strong financial condition from those which may be 
financially troubled include: (1) A measure of liquidity, the Current 
Ratio (defined as current assets divided by current liabilities), and 
(2) a measure of viability, the Number of Months Expendable Fund 
Balance (defined as the Expendable Fund Balance divided by monthly 
Operating Expenditures); (3) Days Receivable Outstanding (defined as 
the average number of days tenant receivables are outstanding); (4) 
Vacancy Loss (defined as the loss of potential rental income due to 
vacancy); (5) Expense Management/Energy Consumption (defined as expense 
per unit for key expenses); and (6) Net Income or Loss divided by the 
Expendable Fund Balance (defined as the net income or loss, if any, for 
the operating year, divided by the expendable fund balance).
    The liquidity measure is evidence of the property's ability to 
cover its near term obligations with resources available in the near 
term. The viability measure is evidence of the PHA's ability to operate 
using its expendable fund balance without relying on additional 
funding. Prudent financial management practices, appropriate to the PHA 
environment, suggest that these components be maintained at certain 
levels, although a range may be acceptable for peer groups of PHAs.
    The Days Receivable Outstanding component measures the ability of 
the PHA to collect its tenant receivables in a timely fashion. The 
inability to collect tenant receivables in a timely fashion might help 
explain poor performance in the liquidity and viability measures.
    The Vacancy Loss component measures the extent to which the PHA is 
maximizing its revenue from operations.
    The Expense Management/Energy Consumption component, adjusted for 
size and region, and includes energy consumption expenses as well as 
any other factors that would reasonably contribute to differences in 
expense ratios, will provide a measure of the PHA's ability to maintain 
its expense ratios at a reasonable level relative to its peers.
    Net Income or Loss divided by the Expendable Fund Balance will 
provide a measure of how the year's operations have affected the PHA's 
viability to a substantial degree.
    Total Points for PHAS Indicator #2. The total point value of the 
Financial Condition Indicator is 30 of the 100 points available under 
the PHAS. In order to receive a passing score on the Financial 
Condition Indicator, a PHA must receive a score of at least 60 percent 
of the 30 points available.
    Financial Reporting Compliance Dates. HUD intends that the 
requirement of electronic submission of GAAP-based financial reports, 
in the manner and in the format prescribed by HUD, will begin with 
those PHAs with fiscal years ending September 30, 1999 and later. This 
compliance schedule will allow sufficient conversion time for PHAs that 
are not currently using GAAP. Unaudited financial statements will be 
required 60 days after the PHA's fiscal year end (i.e., November 30, 
1999), and audited financial statements will then be required no later 
than 9 months after the PHA's fiscal year end, in accordance with the 
Single Audit Act and OMB Circular A-133. A PHA with a fiscal year 
ending September 30, 1999 that elects to submit its unaudited financial 
report earlier than the due date of November 30, 1999 must submit its 
report electronically and prepared in accordance with GAAP, in the 
manner and in the format prescribed by HUD, as provided by this rule. 
On or after September 30, 1998 but prior to November 30, 1999 (except 
for a PHA with its fiscal year ending September 30, 1999), PHAs may 
submit their financial reports in accordance with the financial 
reporting requirements of this rule, but would not be required to do 
so.
3. PHAS Indicator #3--Management Operations
    Subpart D of this proposed rule addresses the Management Operations 
Indicators of PHAs and provides for the assessment of a PHA's 
management operations. PHAS Indicator #3 (Management Operations) 
basically reflects the requirements of the existing PHMAP system.
    The PHAS preserves the statutory indicators found in section 6(j) 
of the 1937 Act, with some minor reorganization (from that in the 
existing system) which is designed to reflect their integration into 
the broader PHAS assessment and to establish their new point values 
within the PHAS. The statutory indicators are: (1) Vacancy rate; (2) 
unexpended Section 14 (of the

[[Page 35678]]

1937 Act) funds; (3) rents uncollected; (4) energy consumption; (5) 
unit turn-around time; (6) outstanding work orders; and (7) annual 
inspection of units. The Management Operations Indicator of the PHAS 
incorporates the seven statutory indicators. As is currently the case 
under the existing system, statutory indicators (1) and (5) are 
combined under the new PHAS. The statutory energy consumption indicator 
is part of PHAS Indicator 2 (Financial Condition), just as it was 
folded into the financial management indicator of existing system. The 
energy/utility consumption expenses faced by a PHA on an annual basis 
will be part of the PHA's annual financial report to HUD.
    With respect to non-statutory indicators, the security indicator 
remains part of the Management Operations assessment under the PHAS. 
The resident services and community building indicator is now replaced 
by a separate indicator (PHAS Indicator #4--Resident Service and 
Satisfaction). Similarly, the financial condition indicator is now 
replaced by a separate indicator (PHAS Indicator #2--Financial 
Condition).
    The analysis of the individual statutory management indicators will 
not deviate significantly from the existing assessment system. Scores 
will continue to be based on a PHA's certification to the various 
management operations indicators. For example, under Management 
Indicator #1 (Vacancy Rate and Unit Turnaround Time), a low vacancy 
rate will score higher than a high vacancy rate. Under Management 
Indicator #4 (Work Orders) a high percentage of emergency work orders 
completed or abated within 24 hours or less will score better than a 
lower percentage of emergency work orders completed or abated within 24 
hours or less.
    As under the existing system, for the Management Operations 
Indicator of the PHAS, a PHA will continue to submit certifications as 
to its performance under each of the management indicators, and a PHA's 
certifications will be subject to independent verification. Appropriate 
sanctions for intentional false certification will be imposed, 
including civil penalties, suspension or debarment of the signatories.
    Total Points for PHAS Indicator #3. The total point value of the 
Management Operations Indicator is 30 of the 100 points available under 
the PHAS. In order to receive a passing score on the Indicator #3 
(Management Operations), a PHA must receive a score of at least 60 
percent of the 30 points available.
4. PHAS Indicator #4--Resident Service and Satisfaction
    Subpart E of this rule addresses PHAS Indicator #4, Resident 
Service and Satisfaction. This indicator assesses the level of resident 
satisfaction with PHA housing and services. This assessment would 
consist of existing PHMAP Indicator #7, resident services and community 
building, revised to (1) be consistent with the framework of the new 
PHAS, and (2) provide a separate resident services satisfaction survey. 
The objective of this Indicator #4 is to seek input from all public 
housing residents. To achieve an acceptable score under this indicator, 
a PHA must obtain a response from a statistically significant sample of 
public housing residents. The PHA will be responsible for maintaining 
original copies of completed survey data, subject to independent audit, 
and for developing a follow-up plan to address issues resulting from 
the survey.
    The resident service and satisfaction assessment score will include 
three components of the survey process.
    The first component will be the score of the survey results. The 
survey content will focus on resident evaluation of overall living 
conditions to include topics such as: (1) Resident organizations; (2) 
program activities; (3) surrounding environment; (4) management 
responsiveness; (5) safety; (6) involvement; (7) resources; and (8) 
communication.
    The second component will be a score based on the PHA's level of 
implementation and its follow-up or corrective actions based on the 
results of the survey.
    The third component is verification that the data collection, 
tabulation and submission was undertaken consistent with guidelines to 
be provided by HUD. HUD reserves the right to conduct the survey at any 
time on its own.
    Total Points for PHAS Indicator #4. The total point value of the 
Resident Service and Satisfaction Indicator is 10 of the 100 points 
available under the PHAS. A PHA will not receive any points if the 
survey is not conducted in accordance with HUD prescribed methodology 
or if the survey results are determined to be altered by the PHA.
5. Scoring Performance Under the PHAS and Consequences of the Score
    Issuance of the PHAS Score. An overall PHAS score will be issued by 
HUD for each PHA 60 to 90 days after the end of the PHA's fiscal year. 
As discussed earlier in this preamble, each of the four PHAS indicators 
will be graded individually and these four indicators will then be used 
to determine an overall score for the PHA. Components within each of 
the four PHAS indicators will be graded individually and will be used 
to determine a single score for the major indicator. Based on the 
score, a PHA will fall into one of three categories:
    High Performer PHAs. A PHA that achieves a score of at least 60% of 
the points available for each of the four indicators and achieves an 
overall score of 90% or greater shall be designated as a high 
performer. A PHA shall not be designated as a high performer if it 
scores below the threshold established for any of the four indicators. 
High performers will be afforded incentives and include relief from 
reporting and other requirements as described in the rule.
    Standard Performer PHAs. A PHA that achieves a total score of less 
than 90% but not less than 60% shall be designated as a standard 
performer. All standard performers must correct reported deficiencies. 
A standard performer PHA that receives a score of less than 70% but not 
less than 60% shall be referred to the appropriate HUD area HUB/Program 
Center and will be required to submit an improvement plan to correct 
and eliminate deficiencies in the PHA's performance. Standard 
performers that receive a score over 70% may also be required to submit 
an improvement plan to correct or eliminate any deficiency.
    Troubled Performer PHAs. A PHA that receives a total score of less 
than 60% shall be designated as a troubled performer. Upon designation 
as troubled, in accordance with the requirements of section 6(j)(2)(B) 
of the 1937 Act and in accordance with the requirements of this rule, 
the PHA shall be referred to the TARC for longer term intensive 
assistance in raising its performance level.
    The actions that HUB/Program Centers and the TARC with respect to 
PHAs receiving low or failing scores under the PHAS are discussed 
further in the following section.
6. Consequences of a PHAS Score
    As under the existing system, PHAS scores will be made public. PHAs 
designated as high performers will be relieved of certain HUD 
requirements, effective upon notification of a high performer 
designation. Additionally, high performer PHAs may be eligible for 
bonus points for funding competitions, where permissible by the statute 
and regulations governing the grant program. High performer PHAs also 
will receive a Certificate of Commendation from HUD and public 
recognition of their

[[Page 35679]]

outstanding performance. Representatives of high performer PHAs may be 
requested to serve on HUD working groups that will advise HUD in such 
areas as troubled PHAs and performance standards for all PHAs.
    Referral to the HUB Program Center. PHAs that are designated as 
standard performer and have a score of less than 70% but not less than 
60% will be referred to HUD's area HUB/Program Center. The HUB/Program 
Center will work with the PHA to correct any deficiency indicated in 
its assessment within a period of 90 days, as described in the 
Improvement Plan to be submitted to HUD. The Improvement Plan will, 
among other things, describe the procedures that the PHA will follow to 
correct the deficiencies. If the PHA fails to submit an acceptable 
Improvement Plan or correct deficiencies within the time specified in 
an Improvement Plan, the HUB/Program Center will refer the PHA to the 
TARC for appropriate action.
    Referral to the TARC. PHAs that are designated as troubled are 
referred to the TARC. The TARC will require the troubled PHA to prepare 
and execute a Memorandum of Agreement (MOA), a binding contractual 
agreement by which the PHA will commit to take certain action that will 
lead to its recovery from a troubled status. The scope of the MOA may 
vary depending upon the extent of the problems present in the PHA, but 
shall include, among other things, annual and quarterly performance 
targets and strategies to be used by the PHA in achieving the 
performance targets. The TARC may impose budget and/or management 
controls on a PHA referred to the TARC.
    Referral to the Enforcement Center. A troubled PHA that fails to 
execute or meet the requirements of the MOA will be referred to the 
Enforcement Center. The Enforcement Center shall initiate judicial 
appointment of a receiver, and where appropriate, the Enforcement 
Center may investigate the PHA and seek the imposition of civil or 
criminal penalties through the appropriate Federal government agencies 
or offices.
    The purpose of the referral to one of the three centers discussed 
above is to provide for a more effective, efficient and expeditious 
resolution of a PHA's problems than is currently the case under the 
existing assessment system. The HUB/Program Center and the TARC will 
work with PHAs to quickly address performance deficiencies. The 
Enforcement Center will seek quick action to replace the management of 
PHAs that fail or refuse to address their performance deficiencies.
    Appeal of ``Troubled'' Designation. As provided by section 6(j) of 
the 1937 Act, a PHA may appeal designation as a trouble agency 
(including designation as troubled with respect to the modernization 
program); petition for removal of such designation; and appeal any 
refusal to remove such designation as permitted under section 
6(j)(2)(A)(iii) of the 1937 Act. The appeal shall be submitted by a PHA 
to the Assessment Center within 30 days of a PHA's receipt of its 
score, and shall include supporting documentation and justification of 
the reasons for the appeal. Appeals submitted to the Assessment Center 
without appropriate documentation will not be considered and will be 
returned to the PHA. Upon receipt of an appeal from a PHA, the 
Assessment Center will convene a Board of Review (the Board) to 
evaluate the appeal and its merits for purpose of determining whether a 
reassessment of the PHA is warranted. Board membership will be 
comprised of a representative from REAC, the Office of Public and 
Indian Housing, and such other office or representative as the 
Secretary may designate (excluding, however, representation from the 
TARC).
    HUD will make final decisions of appeals within 30 days of receipt 
of an appeal, and may extend this period an additional 30 days if 
further inquiry is necessary. Failure by a PHA to submit requested 
information within the time period provided is grounds for denial of an 
appeal.
7. Timeline for Implementation of Inspection and Reporting Dates Under 
the PHAS
    The new PHAS is proposed to become effective for PHAs with fiscal 
years ending September 1999 and later. Financial reports due for PHAs' 
fiscal years ending in September, 1999 and later must be prepared on a 
GAAP basis. The first scores under the new PHAS will be issued not 
later than December, 1999 for PHAs with FYs ending in September, 1999. 
Thus, PHAs will have at least one year before the new PHAS scores are 
issued. Until September 30, 1999, PHAs will continue to be scored under 
the current PHMAP. During this one year transition period, advisory 
scores for physical condition and financial management may be issued to 
provide guidance to PHAs. The implementation schedule for inspection of 
public housing properties and reporting is as described in the 
following table:

                                      Real Estate Assessment Center (REAC)                                      
                                    [Assessment Periods and Reporting Dates]                                    
----------------------------------------------------------------------------------------------------------------
       REAC assessment results            Financial           Physical          Management      Resident survey 
-------------------------------------     reporting          inspection         operations    ------------------
                     Period covered  ---------------------------------------------------------                  
   Score issued     fiscal year end                       Inspection dates    Submission due    Survey dates (5)
                          (1)            Due date (2)           (3)              date (4)                       
----------------------------------------------------------------------------------------------------------------
12/1999..........        9-30-99           11-30-99            7/99-9/99         11-30-99            4/99-9/99  
03/2000..........       12-31-99            2-28-2000        10/99-12/99          2-28-2000        10/99-12/99  
06/2000..........        3-31-2000          5-31-2000      1/2000-3/2000          5-31-2000      1/2000-3/2000  
09/2000..........        6-30-2000          8-31-2000      4/2000-6/2000          8-31-2000      4/2000-6/2000  
12/2000..........        9-30-2000         11-30-2000      7/2000-9/2000         11-30-2000     7/2000-9/2000   
----------------------------------------------------------------------------------------------------------------
Notes:                                                                                                          
1. The period covered for each indicator will be the PHA's entire fiscal year ending on dates shown above. Once 
  the new PHAS is effective, a PHA cannot change its fiscal year for a period of three years.                   
2. PHAs with fiscal years ending 9-30-99 and later must provide GAAP financial reports. These reports must be   
  provided by electronic submission not later than 60 days after the end of the PHA's FY. Audited GAAP reports  
  (due 9 months after the close of the FY in accordance with the Single Audit Act and OMB Circular A-133) will  
  be used to update and confirm unaudited financial results. If significant differences are noted between       
  unaudited and audited results, scoring penalties will apply. For those PHAs that spend less than $300,000 of  
  Federal funds, HUD cannot require or pay for an audit in accordance with the Single Audit Act. HUD, however,  
  can require and pay for an ``Agreed-Upon Procedures'' report that could be specifically directed at verifying 
  calculations.                                                                                                 
3. Physical inspections will be scheduled to approximate the new PHAS calculation dates; i.e. within the final  
  quarter of the PHA's fiscal year.                                                                             

[[Page 35680]]

                                                                                                                
4. The certifications and supporting documentation required for the Management Operations Indicator will be due 
  60 days after the end of the PHA's fiscal year.                                                               
5. Resident surveys will be required to be conducted during the course of a PHA's fiscal year and will be       
  required to be submitted by a PHA at the time that the PHA submits the certifications required under the      
  Management Operations Indicator.                                                                              

8. Other Issues Related to the New PHAS
    PHA Fiscal Year for First Three Years of the new PHAS. As noted in 
footnote 1 to the chart, to allow for a period of consistent 
assessments to refine and make necessary adjustments to the new PHAS, a 
PHA is not permitted to change its fiscal year for the first three full 
fiscal years following the effective date of the PHAS.
    Compliance with Other Departmentwide and Program Specific 
Requirements. The PHAS is a strategic measure of a PHA's essential 
housing operations. The PHAS, however, does not evaluate a PHA's 
compliance with every departmentwide or program specific requirement. 
For example, a PHA must comply with fair housing and equal opportunity 
requirements, requirements under Section 504 of the Rehabilitation Act 
of 1973, and requirements of programs under which the PHA is receiving 
assistance. A PHA's adherence to these requirements will be monitored 
in accordance with the applicable program regulations and the PHA's 
annual contributions contract.
    Adding, Subtracting and Modifying Indicators. HUD reserves the 
right to add new indicators or components of indicators, or remove 
indicators or modify indicators of the new PHAS if HUD believes that 
such action will contribute to a comprehensive and more accurate 
assessment of a PHA's performance. For example, HUD may include in the 
Management Operations Indicator a component on verification of tenant 
income by a PHA. PHAs and the public will be notified of any change in 
indicators or components through issuance of the appropriate type of 
notice.
    Streamlining of Regulation. Consistent with Executive Order 12866 
on Regulatory Planning and Review, HUD reviews its regulations to 
determine, among other things, whether the regulations are redundant or 
duplicative of other HUD or other agency regulations, and should 
therefore be streamlined or consolidated. As part of this review, 
streamlining or consolidation changes may be made to this rule at the 
final rule stage.

IV. Justification for 30-Day Comment Period

    In general, it is HUD's policy that notices of proposed rulemaking 
are to afford the public not less than 60 days for submission of 
comments, in accordance with its regulations on rulemaking in 24 CFR 
part 10. However, HUD has determined that there is good cause to reduce 
the public comment period for this proposed rule to 30 days. As 
discussed in more detail earlier in this preamble, the announcement, 
through this proposed rule, of HUD's new PHAS has been developed with 
the participation of PHAs, PHA representatives, residents, 
representatives from resident organizations, and experts in the field 
of finance and real estate. Therefore, the proposal of a new assessment 
system, and the fundamental concepts and components of this new system 
are not unfamiliar to PHAs and public housing residents. As discussed 
earlier in the preamble and in this section, the diagnostic tools 
(physical assessment, financial assessment and resident services and 
satisfaction) that are added to the current ``management'' assessment 
of the existing system are requirements and standards familiar to PHAs.
    With respect to the uniform standards for physical condition and 
financial reporting, the components of these standards are not 
significantly ``new.'' HUD's physical condition standards closely 
resemble the Section 8 housing quality standards and, are therefore, 
standards that the PHAs are familiar with. The financial reporting 
requirements, as discussed earlier in this preamble, provide for a new 
submission format, electronic and in a uniform format prescribed by 
HUD, but the overall content of the report largely includes the 
financial information that PHAs are already submitting in their annual 
financial reports. The requirement to prepare the financial reports in 
accordance with GAAP will be a change for some PHAs, but many PHAs are 
already preparing GAAP financial reports. The rule provides a 
sufficient period for PHAs to convert to GAAP. HUD also will offer 
guidance for purposes of standardizing the conversion results, and 
since HUD funds audit costs, PHAs should bear minimal, if any, increase 
in the costs of an audit that may result in converting to GAAP.
    With respect to the Management Operations Indicator, this is 
substantially the same as in existing PHMAP, and therefore already 
familiar to PHAs.
    With respect to the new Resident Service and Satisfaction 
Indicator, this indicator builds on the existing resident indicator in 
PHMAP.
    For the above reasons, HUD has determined that the 30-day comment 
period for this proposed rule should provide sufficient notice and 
opportunity for interested entities to comment. In order to provide the 
fullest and most expedient access to the provisions of this proposed 
rule, HUD will make it available on the HUD Home Page on the World Wide 
Web at http://www.hud.gov, on the date of publication in the Federal 
Register.

V. Findings and Certifications

Paperwork Reduction Act Statement

    The proposed information collection requirements contained at 
Secs. 901.25(b)(3) (Certification of the extent to which the physical 
condition and neighborhood environment adjustment applies; 901.25(b)(5) 
(Maintenance of supporting documentation for physical condition and 
neighborhood environment adjustment); 901.33(a) (Annual financial 
reports); 901.50(b) (Reporting information on resident service and 
satisfaction); 901.60 (Data collection); 901.63 (Exclusion request); 
901.69 (PHA right of petition and appeal); 901.75 (MOA); 901.77 
(Improvement Plan); and 901.81 (Notice and response), of this rule have 
been submitted to the Office of Management and Budget (OMB) for review, 
under section 3507(d) of the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35).
    (a) In accordance with 5 CFR 1320.5(a)(1)(iv), HUD is setting forth 
the following concerning the proposed collection of information:
    (1) Title of the information collection proposal:
Public Housing Assessment System (PHAS)
    (2) Summary of the collection of information:
    PHAs shall be required to maintain certain records and submit 
certain information, as specified in the rule text, for the purpose of 
HUD review. The HUD review will result in a numerical score and the 
designation of a PHA's status. A PHA's status may result in: the award 
of recognition and incentives from HUD, the requirement

[[Page 35681]]

to design and implement a plan to increase the PHAS score, or the 
referral of the PHA for enforcement action. The PHA may petition or 
appeal certain aspects of the scoring and designation, and is provided 
an opportunity to respond before the imposition of enforcement actions.
    (3) Description of the need for the information and its proposed 
use:
    The information is needed to assess the performance of a PHA in 
essential housing operations. The information will be used to reward 
good performance and improve or correct deficient performance.
    (4) Description of the likely respondents, including the estimated 
number of likely respondents, and proposed frequency of response to the 
collection of information:
    Respondents will be PHAs. The estimated number of respondents is 
included in paragraph (5), immediately below. The proposed frequency of 
responses is once annually.
    (5) Estimate of the total reporting and recordkeeping burden that 
will result from the collection of information:

                                       Reporting and Recordkeeping Burden                                       
----------------------------------------------------------------------------------------------------------------
                                                                                  Est. avg. time                
                                                                   Annual freq.         for         Est. annual 
          Section reference                Number of parties      of requirement    requirement   burden (hours)
                                                                                      (hours)                   
----------------------------------------------------------------------------------------------------------------
901.25(b)(3).........................  3,268....................               1              .5           1,634
901.25(b)(5).........................  750......................               1              .5             375
901.33(a)............................  3,268....................               1             1.0           3,268
901.50(b)............................  3,268....................               1            10.0          32,680
901.50(b)............................  1.2 million..............               1              .5         600,000
901.60...............................  3,268....................               1            25.0          81,700
901.63...............................  350......................               1             2.0             700
901.69...............................  200......................               1             2.0             400
901.75...............................  100......................               1            25.0           2,500
901.77...............................  500......................               1            10.0           5,000
901.81...............................  5........................               1             2.0              10
                                                                                                 ---------------
    Total Reporting and Recordkeeping  .........................  ..............  ..............         728,267
     Burden (Hours).                                                                                            
----------------------------------------------------------------------------------------------------------------

    (b) In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting 
comments from members of the public and affected agencies concerning 
the proposed collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond; including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this proposal. Comments must be 
received within sixty (60) days from the date of this proposal. 
Comments must refer to the proposal by name and docket number (FR-4313) 
and must be sent to:

Joseph F. Lackey, Jr., UD Desk Officer, Office of Management and 
Budget, New Executive Office Building, Washington, DC 20503

and

Reports Liaison Officer, Office of the Assistant Secretary for Public 
and Indian Housing, Department of Housing & Urban Development, 451--7th 
Street, SW, Room 4244, Washington, DC 20410

Unfunded Mandates Reform Act

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

Environmental Review

    A Finding of No Significant Impact with respect to the environment 
was made in accordance with HUD regulations in 24 CFR part 50 that 
implement section 102(2)(C) of the National Environmental Policy Act of 
1969 (42 U.S.C. 4223). The Finding is available for public inspection 
between 7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules 
Docket Clerk, Office of General Counsel, Room 10276, Department of 
Housing and Urban Development, 451 7th Street, SW, Washington, DC 
20410.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this rule, and in so doing 
certifies that this rule is not anticipated to have a significant 
economic impact on a substantial number of small entities. This 
proposed rule would revise HUD's existing regulations for the 
assessment of public housing (PHMAP). The new the PHAS incorporates the 
statutory indicators of PHMAP, and adds three additional indicators. 
One of the new indicators--physical condition--would assess the extent 
to which PHAs are providing public housing that is decent, safe, and 
sanitary. As explained above, public housing has always been subject to 
a statutory standard of ``decent, safe, and sanitary.'' This rule 
proposes to simply provide a clear and objective statement of the 
standard. This indicator would also entail an annual independent HUD 
inspection of public housing, but it would not impose additional 
inspection requirements upon PHAs. The clarity and consistency of this 
new indicator would provide a fair, accurate, and reliable assessment 
of the physical condition of the large public housing portfolio. 
However, since this proposed rule would not alter the statutory 
standard for physical condition, nor impose additional inspection 
obligations, the new physical condition indicator would not have a

[[Page 35682]]

significant economic impact on a substantial number of small entities.
    The second indicator--financial condition--would assess the 
financial condition of PHAs, requiring them to submit financial reports 
to HUD electronically and in accordance with GAAP. HUD estimates that 
electronic submission of financial information will be less burdensome 
to PHAs, since many PHAs are making more extensive use of automated 
systems. This proposed rule would allow exceptions if the cost of 
electronic submission would be excessive. GAAP-based accounting 
reports, which are widely accepted and recognized, are not 
substantially different than the reports that PHAs are currently 
submitting. A number of PHAs are already required to use GAAP or are 
otherwise using GAAP, and the majority of the PHAs with which HUD has 
consulted support the change to GAAP. For those PHAs that are not yet 
using GAAP, HUD is taking several steps to ease the conversion, 
including making only simple additions to the current PHA accounting 
guide and chart of accounts, and providing other conversion guidance 
and training, particularly to small entities. Increasing the speed of 
information exchange (through electronic submission) and the 
consistency and accuracy of the information (through GAAP) would 
greatly enhance the assessment of a PHA's financial condition. However, 
this new indicator would not have a significant economic impact on a 
substantial number of small entities.
    The fourth indicator--resident service and satisfaction--entails a 
new resident service and satisfaction survey. This survey is key to 
obtaining input from public housing residents, which is an important 
aspect of assessing public housing. HUD intends that this survey will 
be conducted through an automated process, and accordingly, will 
present a minimal administrative burden for PHAs in terms of 
administering and evaluating the survey. HUD intends to provide the 
survey format and the electronic reporting format, as well as software 
specifications. Therefore, this survey would not have a significant 
economic impact on a substantial number of small entities.
    HUD is also seeking to minimize any burden on PHAs by allowing a 
significant transition period for converting to the new PHAS. PHAs will 
have at least one year before new scores are issued under the PHAS. 
During that transition period, HUD intends to issue advisory scores 
regarding physical condition and financial management to provide 
guidance to PHAs and to ease the conversion to the new PHAS.
    The new PHAS is fundamentally designed to provide relevant and 
verifiable measures that directly relate to a PHA's performance and 
that result in an accurate and reliable score. This improved assessment 
process will allow HUD to target its oversight resources on those PHAs 
most in need of attention; high-performing PHAs will receive 
recognition, along with reduced HUD scrutiny and additional 
flexibility. Since the revised assessment system in this rule would not 
impose any significant new requirements upon PHAs, and since HUD will 
assist PHAs in their conversion to the system, this rule would not have 
a significant economic impact on a substantial number of small 
entities. However, HUD specifically invites comments regarding any less 
burdensome alternatives to this proposed rule that would meet HUD's 
objectives as described in this preamble.

Federalism

    The General Counsel, as the Designated Official under Executive 
Order 12612, Federalism, has determined that the policies contained in 
this proposed rule would not have substantial direct effects on States 
or their political subdivisions, on the relationship between the 
Federal Government and the States, or on the distribution of power and 
responsibilities among the various levels of government. The proposed 
rule is intended to promote good management practices by including, in 
HUD's relationship with PHAs, continuing review of PHAs' compliance 
with already existing requirements. The proposed rule would not create 
any new significant requirements. As a result, the proposed rule is not 
subject to review under the Order.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers for Public 
Housing is 14.850.

List of Subjects in 24 CFR Part 901

    Administrative practice and procedure, Public housing, reporting 
and recordkeeping requirements.

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

PART 901--PUBLIC HOUSING ASSESSMENT SYSTEM

Subpart A--General Provisions

Sec.
901.1  Purpose and general description.
901.3  Scope.
901.5  Applicability.
901.7  Definitions.

Subpart B--PHAS Indicator #1: Physical Condition

901.20  Physical condition assessment.
901.23  Physical condition standards for public housing--decent, 
safe, sanitary and in good repair (DSS/GR).
901.25  Physical condition scoring and thresholds.
901.27  Physical condition portion of total PHAS points.

Subpart C--PHAS Indicator #2: Financial Condition

901.30  Financial condition assessment.
901.33  Financial reporting requirements.
901.35  Financial condition scoring and thresholds.
901.37  Financial condition portion of total PHAS points.

Subpart D--PHAS Indicator #3: Management Operations

901.40  Management operations assessment.
901.43  Management operations performance standards.
901.45  Management operations scoring and thresholds.
901.47  Management operations portion of total PHAS points.

Subpart E--PHAS Indicator #4: Resident Service and Satisfaction

901.50  Resident service and satisfaction assessment.
901.53  Resident service and satisfaction scoring and thresholds.
901.55  Resident service and satisfaction portion of total PHAS 
points.

Subpart F--PHAS Scoring

901.60  Data collection.
901.63  PHAS scoring.
901.67  Score and designation status.
901.69  PHA right of petition and appeal.

Subpart G--PHAS Incentives and Remedies

901.71  Incentives for high performers.
901.73  Referral to an Area HUB/Program Center.
901.75  Referral to a TARC.
901.77  Referral to the Enforcement Center.
901.79  Substantial default.
901.83  Interventions.
901.85  Resident petitions for remedial action.

Appendix A to Part 901--Areas and Items to be Inspected

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

Subpart A--General Provisions


Sec. 901.1  Purpose and general description.

    (a) Purpose. The purpose of the Public Housing Assessment System 
(PHAS) is to enhance trust in the public housing system among public 
housing agencies (PHAs), public housing residents, HUD and the general 
public by providing a comprehensive management tool for effectively and 
fairly measuring the performance of a public housing agency in 
essential housing operations,

[[Page 35683]]

including rewards for high performers and consequences for poor 
performers.
    (b) Responsible office for PHAS assessments. The Real Estate 
Assessment Center (REAC) is responsible for assessing and scoring the 
performance of PHAs.
    (c) PHAS indicators of a PHA's performance. REAC will assess and 
score a PHA's performance based on the following four indicators:
    (1) PHAS Indicator (Apprentice)#1--the physical condition of a 
PHA's properties (addressed in subpart B of this part);
    (2) PHAS Indicator #2--the financial condition of a PHA (addressed 
in subpart C of this part);
    (3) PHAS Indicator #3--the management operations of a PHA 
(addressed in subpart D of this part); and
    (4) PHAS Indicator #4--the resident service and satisfaction 
feedback on a PHA's operations (addressed in subpart E of this part).
    (d) Assessment tools. REAC will make use of uniform and objective 
protocols for the physical inspection of properties and the financial 
assessment of the PHA, and will gather relevant data from the PHA on 
the management operations indicator and the resident service and 
satisfaction indicator. On the basis of this data, REAC will assess and 
score the results, advise PHAs of their scores and identify low scoring 
and failing PHAs so that these PHAs will receive the appropriate 
attention and assistance.
    (e) Limitation of change of PHA's fiscal year. To allow for a 
period of consistent assessment of the PHAS indicators, a PHA is not 
permitted to change its fiscal year for the first three full fiscal 
years following [effective date of final rule to be inserted at final 
rule stage].


Sec. 901.3  Scope.

    The PHAS is a strategic measure of a PHA's essential housing 
operations. The PHAS, however, does not evaluate a PHA's compliance 
with or response to every departmentwide or program specific 
requirement or objective. Although not specifically referenced in this 
part, PHAs remain responsible for complying with such requirements as 
fair housing and equal opportunity requirements, requirements under 
section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) and 
requirements of programs under which the PHA is receiving assistance. 
PHAs' adherence to these requirements will be monitored in accordance 
with the applicable program regulations and the PHA's annual 
contributions contract.


Sec. 901.5  Applicability.

    (a) PHAs, RMCs, AMEs. This part applies to PHAs, Resident 
Management Corporations (RMCs) and Alternate Management Entities 
(AMEs). The management assessment of an RMC/AME differs from that of a 
PHA. Because an RMC/AME enters into a contract with a PHA to perform 
specific management functions on a development-by-development or 
program basis, and because the scope of the management that is 
undertaken varies, not every indicator that applies to a PHA would be 
applicable to each RMC/AME.
    (b) PHA ultimate responsible entity under ACC. Due to the fact that 
the PHA and not the RMC/AME is ultimately responsible to HUD under the 
Annual Contributions Contract (ACC), the PHAS score of a PHA will be 
based on all of the developments covered by the ACC, including those 
with management operations assumed by an RMC or AME (pursuant to a 
court ordered receivership agreement, if applicable).
    (c) Assumption of management operations by AME. When a PHA's 
management operations have been assumed by an AME:
    (1) If the AME assumes only a portion of the PHA's management 
operations, the provisions of this part that apply to RMCs apply to the 
AME (pursuant to a court ordered receivership agreement, if 
applicable); or
    (2) If the AME assumes all, or substantially all, of the PHA's 
management functions, the provisions of this part that apply to PHAs 
apply to the AME (pursuant to a court ordered receivership agreement, 
if applicable).


Sec. 901.7  Definitions.

    As used in this part:
    Adjustment for physical condition (project age) and neighborhood 
environment is a total of three additional points added to PHAS 
Indicator #1 (Physical Condition). The three additional points, 
however, shall not result in a total point value over the total points 
available for PHAS Indicator #1 (established in subpart B of this 
part).
    Assessed fiscal year is the PHA fiscal year that has been assessed 
under the PHAS.
    Average number of days nonemergency work orders were active is 
calculated:
    (1) By dividing the total of--
    (i) The number of days in the assessed fiscal year it takes to 
close active nonemergency work orders carried over from the previous 
fiscal year;
    (ii) The number of days it takes to complete nonemergency work 
orders issued and closed during the assessed fiscal year; and
    (iii) The number of days all active nonemergency work orders are 
open in the assessed fiscal year, but not completed;
    (2) By the total number of nonemergency work orders used in the 
calculation of paragraphs (1)(i), (ii) and (iii) of this definition.
    Days Receivable Outstanding is Tenant Receivables divided by Daily 
Tenant Revenue.
    Deficiency means any PHAS score below 60% of the available points 
in an indicator or component.
    Improvement plan is a document developed by a PHA, specifying the 
actions to be taken, including timetables, that shall be required to 
correct deficiencies identified under any of the indicators and 
components within the indicator(s), identified as a result of the PHAS 
assessment when an MOA is not required.
    Reduced actual vacancy rate within the previous three years is a 
comparison of the vacancy rate in the PHAS assessed fiscal year (the 
immediate past fiscal year) with the vacancy rate of that fiscal year 
which is two years previous to the assessed fiscal year. It is 
calculated by subtracting the vacancy rate in the assessed fiscal year 
from the vacancy rate in the earlier year. If a PHA elects to certify 
to the reduction of the vacancy rate within the previous three years, 
the PHA shall retain justifying documentation to support its 
certification for HUD post review.
    Reduced the average time nonemergency work orders were active 
during the previous 3 years is a comparison of the average time 
nonemergency work orders were active in the PHAS assessment year (the 
immediate past fiscal year) with the average time nonemergency work 
orders were active in that fiscal year that is 2 years previous to the 
assessment year. It is calculated by subtracting the average time 
nonemergency work orders were active in the PHAS assessment year from 
the average time nonemergency work orders were active in the earlier 
year. If a PHA elects to certify to the reduction of the average time 
nonemergency work orders were active during the previous 3 years, the 
PHA shall retain justifying documentation to support its certification 
for HUD post review.
    Vacancy loss is vacant unit potential rent divided by gross 
potential rent.
    Work order deferred for modernization is any work order that is 
combined with similar work items and completed within the current PHAS 
assessment year, or will be completed in

[[Page 35684]]

the following year if there are less than three months remaining before 
the end of the PHA fiscal year when the work order was generated, under 
the PHA's modernization program or other PHA capital improvements 
program.

Subpart B--PHAS Indicator #1: Physical Condition


Sec. 901.20  Physical condition assessment.

    (a) Objective. The objective of the Physical Condition Indicator is 
to determine whether a PHA is maintaining its public housing in a 
condition that is decent, safe, sanitary and in good repair (DSS/GR), 
as this standard is defined Sec. 901.23.
    (b) Physical inspection under PHAS Indicator #1. REAC will provide 
for an independent physical inspection of, at minimum, a statistically 
valid sample of the units in the PHA's public housing portfolio to 
determine compliance with DSS/GR standard.
    (c) PHA physical inspection requirement. The HUD-conducted physical 
inspections required by this part do not relieve the PHA of the 
responsibility to inspect public housing units as provided in section 
6(j)(1) of the U.S. Housing Act of 1937 (42 U.S.C. 1437d(j)(1)), and 
Sec. 901.43(a)(5).
    (d) Compliance with State and local codes. The physical condition 
standards in this subpart do not supersede or preempt State and local 
building and maintenance codes with which the PHA's public housing must 
comply. PHAs must continue to adhere to these codes.


Sec. 901.23  Physical condition standards for public housing--decent, 
safe, sanitary and in good repair (DSS/GR).

    (a) Public housing must be maintained in a manner that meets the 
physical condition standards set forth in this section in order to be 
considered decent, safe, sanitary and in good repair. These standards 
address the major areas of public housing: the site; the building 
exterior; the building systems; the dwelling units; the common areas; 
and health and safety considerations.
    (1) Site. The site components, such as fencing and retaining walls, 
grounds, lighting, mailboxes/project signs, parking lots/driveways, 
play areas and equipment, refuse disposal, roads, storm drainage and 
walkways must be free of health and safety hazards and be in good 
repair. The site must not be subject to material adverse conditions, 
such as abandoned vehicles, dangerous walks or steps, poor drainage, 
septic tank back-ups, sewer hazards, excess accumulations of trash, 
vermin or rodent infestation or fire hazards.
    (2) Building exterior. Each building on the site must be 
structurally sound, secure, habitable, and in good repair. Each 
building's doors, fire escapes, foundations, lighting, roofs, walls, 
and windows, where applicable, must be free of health and safety 
hazards, operable, and in good repair.
    (3) Building systems. Each building's domestic water, electrical 
system, elevators, emergency power, fire protection, HVAC, and sanitary 
system must be free of health and safety hazards, functionally 
adequate, operable, and in good repair.
    (4) Dwelling units. (i) Each dwelling unit within a building must 
be structurally sound, habitable, and in good repair. All areas and 
aspects of the dwelling unit (for example, the unit's bathroom, call-
for-aid, ceiling, doors, electrical systems, floors, hot water heater, 
HVAC (where individual units are provided), kitchen, lighting, outlets/
switches, patio/porch/balcony, smoke detectors, stairs, walls, and 
windows) must be free of health and safety hazards, functionally 
adequate, operable, and in good repair.
    (ii) Where applicable, the dwelling unit must have hot and cold 
running water, including an adequate source of potable water.
    (iii) If the dwelling unit includes its own sanitary facility, it 
must be in proper operating condition, usable in privacy, and adequate 
for personal hygiene and the disposal of human waste.
    (iv) The dwelling unit must include at least one battery-operated 
or hard-wired smoke detector, in proper working condition, on each 
level of the unit.
    (5) Common areas. The common areas must be structurally sound, 
secure, and functionally adequate for the purposes intended. The 
basement/garage/carport, restrooms, closets, utility, mechanical, 
community rooms, day care, halls/corridors, stairs, kitchens, laundry 
rooms, office, porch, patio, balcony, and trash collection areas, if 
applicable, must be free of health and safety hazards, operable, and in 
good repair. All common area ceilings, doors, floors, HVAC, lighting, 
outlets/switches, smoke detectors, stairs, walls, and windows, to the 
extent applicable, must be free of health and safety hazards, operable, 
and in good repair.
    (6) Health and safety concerns. All areas and components of the 
housing must be free of health and safety hazards. These areas include, 
but are not limited to, air quality, electrical hazards, elevators, 
emergency/fire exits, flammable materials, garbage and debris, handrail 
hazards, infestation, and lead-based paint. For example, the buildings 
must have fire exits that are not blocked and are accessible to all 
residents, and have hand rails that are undamaged and have no other 
observable deficiencies. The housing must have no evidence of 
infestation by rats, mice, or other vermin, or of garbage and debris. 
The housing must have no evidence of electrical hazards, natural 
hazards, or fire hazards. The dwelling units and common areas must have 
proper ventilation and be free of mold, odor, or other observable 
deficiencies. The housing must comply with all requirements related to 
the evaluation and reduction of lead-based paint hazards and have 
available proper certifications of such (see 24 CFR part 35).
    (b) Appendix A to this part lists the areas to be inspected and the 
items in each area to be inspected.


Sec. 901.25  Physical condition scoring and thresholds.

    (a) Scoring. Under PHAS Indicator #1, REAC will calculate a score 
of the overall condition of the PHA's public housing portfolio which 
reflects weights based on the relative importance of the individual 
inspectable areas and the deficiencies observed.
    (b) Adjustment for physical condition (project age) and 
neighborhood environment. In accordance with section 6(j)(1)(I)(2) of 
the 1937 Act (42 U.S.C. 1437d(j)(1)(I)(2)), the physical score for a 
project will be upwardly adjusted to the extent that negative 
conditions are caused by situations outside the control of the PHA. 
These situations are related to the poor physical condition of the 
project or the overall depressed condition of the immediately 
surrounding neighborhood. The intent of this adjustment is to not 
unfairly penalize the PHA, and to appropriately apply the adjustment.
    (1) Adjustments in three areas. Adjustments to the PHA physical 
project score will be made in three factually observed and assessed 
areas (inspectable areas):
    (i) Physical condition of the site;
    (ii) Physical condition of the common areas on the project; and
    (iii) Physical condition of the building exteriors.
    (2) Definitions. Definitions and application of physical condition 
and neighborhood environment factors are:
    (i) Physical condition applies to projects over ten years old and 
that have not been had substantial rehabilitation in the last 10 years.
    (ii) Neighborhood environment applies to projects located where the 
immediate surrounding neighborhood (that is a majority of the census 
tracts or

[[Page 35685]]

census block groups on all sides of the development) has at least 51% 
of families with incomes below the poverty rate as documented by the 
latest census data.
    (3) Adjustment is for physical condition (project age) neighborhood 
environment. HUD will adjust the physical score of a PHA's project 
subject to both the physical condition (project age) and neighborhood 
environment conditions. The adjustments will be made to the scores 
assigned to the applicable inspectable areas so as to reflect the 
difficulty in managing. In each instance where the actual physical 
condition of the inspectable area (site, common areas, building 
exterior) is rated below the maximum score for that area, 1 point will 
be added, but not to exceed the maximum number of points available to 
that inspectable area.
    (i) These extra points will be added to the score of the specific 
inspectable area, by project, to which these conditions may apply. A 
PHA is required to certify on form HUD-50072, PHAS Certification (which 
is available from the Department of Housing and Urban Development, HUD 
Custom Service Center, 451 Seventh Street, SW, Room B-102, Washington, 
DC 20410; telephone (800) 767-7468), the extent to which the conditions 
apply, and to the inspectable area the extra scoring point should be 
added.
    (ii) A PHA that receives the maximum potential weighted points on 
the inspectable areas may not claim any additional adjustments for 
physical condition and/or neighborhood environments for the respective 
inspectable area(s). In no circumstance shall a PHA's score for the 
inspectable area, after any adjustment(s) for physical condition and/or 
neighborhood environments, exceed the maximum potential weighted points 
assigned to the respective inspectable area(s).
    (4) Scattered site projects. The Date of Full Availability (DOFA) 
shall apply to scattered site projects, where the age of units and 
buildings vary, to determine whether the projects have received 
substantial rehabilitation within the past ten years and are eligible 
for an adjusted score for the Physical Condition Indicator.
    (5) Maintenance of supporting documentation. PHAs shall maintain 
supporting documentation to show how they arrived at the determination 
that the project's score is subject to adjustment under this section.
    (i) If the basis was neighborhood environments, the PHA shall have 
on file the appropriate maps showing the census block groups 
surrounding the development(s) in question with supporting census data 
showing the level of poverty. Projects that fall into this category but 
which have already been removed from consideration for other reasons 
(permitted exemptions and modifications and/or exclusions) shall not be 
counted in this calculation.
    (ii) For the physical condition factor, a PHA would have to 
maintain documentation showing the age and condition of the projects 
and the record of capital improvements, indicating that these 
particular projects have not received modernization funds.
    (iii) PHAs shall also document that in all cases, projects that 
were exempted for other reasons were not included in the calculation.
    (c) Thresholds. In order to receive a passing score under the 
Physical Condition Indicator, the PHA's score must fall above a minimum 
threshold of 18 points or 60% of the available points under this 
indicator. Further, in order to receive an overall passing score under 
the PHAS, the PHA must receive a passing score on the Physical 
Condition Indicator.


Sec. 901.27  Physical condition portion of total PHAS points.

    Of the total 100 points available for a PHAS score, a PHA may 
receive up to 30 points based on the Physical Condition Indicator.

Subpart C--PHAS Indicator #2: Financial Condition


Sec. 901.30  Financial condition assessment.

    (a) Objective. The objective of the Financial Condition Indicator 
is to measure the financial condition of a PHA for the purpose of 
evaluating whether it has sufficient financial resources and is capable 
of managing those financial resources effectively to support the 
provision of housing that is decent, safe, sanitary and in good repair.
    (b) Financial reporting standards. A PHA's financial condition will 
be assessed under this indicator on the basis of the annual financial 
report provided in accordance with Sec. 901.33.


Sec. 901.33  Financial reporting requirements.

    (a) Annual financial reports. PHAs must provide to HUD, on an 
annual basis, such financial information, as required by HUD. The 
financial information must be:
    (1) Prepared in accordance with Generally Accepted Accounting 
Principles (GAAP) as further defined by HUD in supplementary guidance;
    (2) Submitted electronically in the electronic format designated by 
HUD; and
    (3) Submitted in such form and substance prescribed by HUD.
    (b) Annual financial report filing dates. The financial information 
to be submitted to HUD in accordance with paragraph (a) of this 
section, must be submitted to HUD annually, no later than 60 days after 
the end of the fiscal year of the reporting period, and as otherwise 
provided by law.
    (c) Reporting compliance dates. The requirement for compliance with 
the financial reporting requirements of this section begins with PHAs 
with fiscal years ending September 30, 1999 and thereafter. Unaudited 
financial statements will be required 60 days after the PHA's fiscal 
year end, and audited financial statements will then be required no 
later than 9 months after the PHA's fiscal year end, in accordance with 
the Single Audit Act and OMB Circular A-133 (See 24 CFR 84.26). A PHA 
with a fiscal year ending September 30, 1999 that elects to submit its 
unaudited report earlier than the due date of November 30, 1999 must 
submit its financial report as required in this section. On or after 
September 30, 1998, but prior to November 30, 1999 (except for a PHA 
with its fiscal year ending September 30, 1999), PHAs may submit their 
financial reports in accordance with this section.


Sec. 901.35  Financial condition scoring and thresholds.

    (a) Scoring. Under PHAS Indicator #2, REAC will calculate a score 
that relies on the key components of financial health and management as 
well as audit and internal control flags.
    (1) The key components of PHAS Indicator #2 include:
    (i) Current Ratio--current assets divided by current liabilities;
    (ii) Number of Months Expendable Fund Balance--number of months a 
PHA can operate on the Expendable Fund Balance without additional 
resources; Expendable Fund Balance is the portion of the fund balance 
representing expendable available financial resources; unreserved and 
undesignated fund balance;
    (iii) Days Receivable Outstanding--average number of days tenant 
receivables are outstanding;
    (iv) Vacancy Loss--loss of potential rent due to vacancy;
    (v) Expense Management/Energy Consumption--expense per unit for key 
expenses, including energy consumption; and
    (vi) Net Income or Loss divided by the Expendable Fund Balance--
measures how the year's operations have affected the PHA's viability.
    (2) Additional components. Additional components may be used to 
identify circumstances in which there

[[Page 35686]]

exists the possibility of higher risk of waste, fraud and abuse. These 
components will be used to detect fraud and will be used to generate 
``flags'' that will signal field staff, Enforcement Center staff, or 
fraud investigators to take appropriate action. These components will 
primarily relate to financial management, but may also be used to 
provide a PHA with benchmarking information to allow the PHA to measure 
its own performance against its peers.
    (b) Thresholds. In order to receive a passing score under the 
Financial Condition Indicator, the PHA's score must fall above a 
minimum threshold of 18 points or 60% of the available points under 
this indicator. Further, in order to receive an overall passing score 
under the PHAS, the PHA must receive a passing score on the Financial 
Condition Indicator.


Sec. 901.37  Financial condition portion of total PHAS points.

    Of the total 100 points available for a PHAS score, a PHA may 
receive up to 30 points based on the Financial Condition Indicator.

Subpart D--PHAS Indicator #3: Management Operations


Sec. 901.40  Management operations assessment.

    (a) Objective. The objective of the Management Operations Indicator 
is to measure certain key management operations and responsibilities of 
a PHA for the purpose of assessing the PHA's management operations 
capabilities.
    (b) Management assessment. PHAS Indicator #3 pertaining to 
Management Operations incorporates the majority of the statutory 
indicators of section 6(j) of the U.S. Housing Act of 1937, and an 
additional non-statutory indicator (security) as provided in 
Sec. 901.43.


Sec. 901.43  Management operations performance standards.

    (a) Management operations indicators. The following indicators will 
be used to assess a PHA's management operations:
    (1) Management Indicator #1--Vacancy rate and unit turnaround time. 
This management indicator examines the vacancy rate, a PHA's progress 
in reducing vacancies, and unit turnaround time. Implicit in this 
management indicator is the adequacy of the PHA's system to track the 
duration of vacancies and unit turnaround, including down time, make 
ready time, and lease up time.
    (2) Management Indicator #2--Modernization. This management 
indicator is automatically excluded if a PHA does not have a 
modernization program. This management indicator examines the amount of 
unexpended funds over three Federal fiscal years (FFY) old, the 
timeliness of fund obligation, the adequacy of contract administration, 
the quality of the physical work, and the adequacy of budget controls. 
All components of this management indicator #2 apply to the 
Comprehensive Grant Program (CGP), the Comprehensive Improvement 
Assistance Program (CIAP), the HOPE VI assistance, vacancy reduction, 
and lead based paint risk assessment funding (1992-1995), and any 
successor program(s) to the CGP or the CIAP.
    (3) Management Indicator #3--Rents uncollected. This management 
indicator examines the PHA's ability to collect dwelling rents owed by 
residents in possession during the immediate past fiscal year by 
measuring the balance of dwelling rents uncollected as a percentage of 
total dwelling rents to be collected.
    (4) Management Indicator #4--Work orders. This management indicator 
examines the time it takes to complete or abate emergency work orders, 
the average number of days non-emergency work order were active, and 
any progress a PHA has made during the preceding three years to reduce 
the period of time non-emergency maintenance work orders were active. 
Implicit in this management indicator is the adequacy of the PHA's work 
order system in terms of how a PHA accounts for and controls its work 
orders, and its timeliness in preparing/issuing work orders.
    (5) Management Indicator #5--PHA annual inspection of units and 
systems. This management indicator examines the percentage of units 
that a PHA inspects on an annual basis in order to determine short-term 
maintenance needs and long-term modernization needs. This management 
indicator requires a PHA's inspection to utilize the HUD uniform 
physical condition standards set forth in subpart B of this part. All 
occupied units are required to be inspected.
    (6) Management Indicator #6--Security. This management indicator 
evaluates the PHA's performance in tracking crime related problems in 
their developments, reporting incidence of crime to local law 
enforcement agencies, the adoption and implementation, consistent with 
section 9 of the Housing Opportunity Program Extension Act of 1996 
(One-Strike and You're Out) (42 U.S.C. 1437d(r)), of applicant 
screening and resident eviction policies and procedures, and, as 
applicable, PHA performance under any HUD drug prevention or crime 
reduction grant(s). A PHA may receive credit for performance under non-
HUD funded programs if it provides auditable financial and statistical 
documentation for these programs. A PHA with fewer than 250 units will 
not be assessed under this management indicator unless it provides 
auditable financial and statistical documentation for these programs.
    (b) Reporting on performance under the Management Operations 
Indicator. Each PHA will provide to HUD a certification on its 
performance under each of the management indicators in paragraph (a) of 
this section. The certifications shall comply with the requirements of 
Sec. 901.60.


Sec. 901.45  Management operations scoring and thresholds.

    (a) Scoring. Under PHAS Indicator #3, REAC will calculate a score 
of the overall management operations of a PHA which reflects weights 
based on the relative importance of the individual management 
indicators.
    (b) Thresholds. In order to receive a passing score under the 
Management Operations Indicator, the PHA's score must fall above a 
minimum threshold of 18 points or 60% of the available points under 
this PHAS Indicator #3. Further, in order to receive an overall passing 
score under the PHAS, the PHA must receive a passing score on the 
Management Operations Indicator.


Sec. 901.47  Management operations portion of total PHAS points.

    Of the total 100 points available for a PHAS score, a PHA may 
receive up to 30 points based on the Management Operations Indicator.

Subpart E--PHAS Indicator #4: Resident Service and Satisfaction


Sec. 901.50  Resident service and satisfaction assessment.

    (a) Objective. The objective of the Resident Service and 
Satisfaction Indicator is to measure the level of resident satisfaction 
with living conditions at the PHA.
    (b) Reporting information on resident service and satisfaction. The 
assessment will be performed through the use of a resident service and 
satisfaction survey to be administered by the PHA in accordance with a 
methodology prescribed by HUD. The PHA will be responsible for 
maintaining original copies of completed survey data, subject to 
independent audit, and for developing a follow-up plan to address 
issues resulting from the survey.

[[Page 35687]]

Sec. 901.53  Resident service and satisfaction scoring and thresholds.

    (a) Scoring. Under PHAS Indicator #4, REAC will calculate a score 
that includes three components of the survey process. One component 
will be the score of the survey results. The survey content will focus 
on resident evaluation of overall living conditions, to include topics 
such as: resident organizations; program activities; surrounding 
environment; management responsiveness; safety; involvement; resources; 
and communication. The second component will be a score based on the 
level of implementation and follow-up or corrective actions based on 
the results of the survey. The final component is verification that the 
data collection, tabulation and submission was conducted in a manner 
consistent with guidance provided by HUD.
    (b) Thresholds. A PHA will not receive any points under this PHAS 
Indicator if the survey is not conducted in accordance with a HUD 
prescribed methodology or the survey results are determined to be 
altered by the PHA. A PHA will receive a passing score on the Resident 
Service and Satisfaction Indicator if it receives at least 6 points, or 
60% of the available points under this PHAS Indicator #4.


Sec. 901.55  Resident service and satisfaction portion of total PHAS 
points.

    Of the total 100 points available for a PHAS score, a PHA may 
receive up to 10 points based on the Resident Service and Satisfaction 
Indicator.

Subpart F--PHAS Scoring


Sec. 901.60  Data collection.

    (a) Fiscal Year Reporting Period--limitation on changes after PHAS 
effectiveness. An assessed fiscal year for purposes of the PHAS 
corresponds to a PHA's fiscal year. To allow for a period of consistent 
assessments to refine and make necessary adjustments to the PHAS, a PHA 
is not permitted to change its fiscal year for the first three full 
fiscal years following the effective date of this part.
    (b) Physical Condition information. Information necessary to 
conduct the physical condition assessment under subpart B of this part 
will be obtained from HUD inspectors during the fiscal year being 
scored through electronic transmission of the data.
    (c) Financial Condition information. Year-end financial information 
to conduct the assessment under subpart C, Financial Condition, of this 
part will be submitted by a PHA through electronic transmission of the 
data to HUD not later than 60 days after the end of the PHA's fiscal 
year. An audited report of the year-end financial information is due 
not later than 9 months after the end of the PHA's fiscal year.
    (d) Management Operations and Resident Service and Satisfaction 
Information. A PHA shall provide certification to HUD as to data 
required under subpart D, Management Operations, of this part and 
subpart E, Resident Services Satisfaction, of this part not later than 
60 days after the end of the PHA's fiscal year.
    (1) The certification shall be approved by PHA Board resolution, 
and signed and attested to by the Executive Director.
    (2) PHAs shall maintain documentation for three years verifying all 
certified indicators for HUD on-site review.
    (e) Failure to submit data by due date. If a PHA without a finding 
of good cause by HUD does not submit its certifications or year-end 
financial information, required by this part, or submits its 
certifications or year-end financial information more than 15 days past 
the due date, appropriate sanctions may be imposed, including a 
reduction of 1 point in the total PHAS score for each 15 day period 
past the due date. If all certifications or year-end financial 
information are not received within 90 days past the due date, the PHA 
will receive a presumptive rating of failure in all of the PHAS 
indicators and components certified to, which shall result in troubled 
and mod-troubled designations.
    (f) Verification of information submitted. (1) A PHA's 
certifications, year-end financial information and any supporting 
documentation are subject to verification by HUD at any time. 
Appropriate sanctions for intentional false certification will be 
imposed, including civil penalties, suspension or debarment of the 
signatories, the loss of high performer designation, a lower score 
under individual PHAS indicators and a lower overall PHAS score.
    (2) A PHA that cannot provide justifying documentation to REAC, or 
to the PHA's independent auditor for the assessment under any 
indicator(s) or component(s) shall receive a score of 0 for the 
relevant indicator(s) or component(s), and its overall PHAS score shall 
be lowered.
    (3) A PHA's PHAS score under individual indicators or components, 
or its overall PHAS score, may be changed by HUD pursuant to the data 
included in the independent audit report, or obtained through such 
sources as HUD on-site review, investigations by HUD's Office of Fair 
Housing and Equal Opportunity, or reinspection by REAC, as applicable.
    (g) Management operations assumed by an RMC. For those developments 
of a PHA where management operations have been assumed by an RMC, the 
PHA's certification shall identify the development and the management 
functions assumed by the RMC. The PHA shall obtain a certified 
questionnaire from the RMC as to the management functions undertaken by 
the RMC. Following verification of the RMC's certification, the PHA 
shall submit the RMC's certified questionnaire along with its own. The 
RMC's certification shall be approved by its Executive Director or 
Chief Executive Officer or responsible party.


Sec. 901.63  PHAS scoring.

    (a) Issuance of score by HUD. An overall PHAS score will be issued 
by REAC for each PHA 60 to 90 days after the end of the PHA's fiscal 
year.
    (b) Computing the PHAS score. Each of the four PHAS indicators in 
this part will be scored individually, and then will be used to 
determine an overall score for the PHA. Components within each of the 
four PHAS indicators will be scored individually, and the scores for 
the components will be used to determine a single score for each of the 
PHAS indicators.
    (c) Adjustments to the PHAS score. Adjustments to the score may be 
made after a PHA's audit report for the year being assessed is 
transmitted to HUD. If significant differences (as defined in GAAP 
guidance materials provided to PHAs) are noted between unaudited and 
audited results, a PHA's PHAS score will be raised or lowered, as 
applicable, in accordance with the audited results.
    (d) Posting and publication of PHAS scores. Each PHA shall post a 
notice of its final PHAS score and status in appropriate conspicuous 
and accessible locations in its offices within two weeks of receipt of 
its final score and status. In addition, HUD will publish every PHA's 
score and status in the Federal Register.


Sec. 901.67  Score and designation status.

    (a) Designation status corresponding to score. A PHA will be scored 
with a corresponding designation of status as follows:
    (1) High Performer. A PHA that achieves a score of at least 60% of 
the points available under each of the four PHAS Indicators (addressed 
in subparts B through E of this part) and achieves an overall PHAS 
score of 90% or greater shall be designated a high performer. A PHA 
shall not be designated a high performer if it scores below the 
threshold established for any indicator.

[[Page 35688]]

High performers will be afforded incentives that include relief from 
reporting and other requirements, as described in Sec. 901.71.
    (2) Standard Performer. A PHA that achieves a total PHAS score of 
less than 90% but not less than 60% shall be designated a standard 
performer. All standard performers must correct reported deficiencies. 
A standard performer that receives a score less than 70% but not less 
than 60% shall be subject to other oversight, as described in 
Sec. 901.73. A PHA that achieves a score of less than 60% of the total 
points available under PHAS Indicators 1, 2 or 3 shall not be 
designated a standard performer, but shall be designated a troubled 
performer, as provided in paragraph (a)(3) of this section.
    (3) Troubled Performer. A PHA that achieves a total PHAS score of 
less than 60%, or achieves a score of less than 60% of the total points 
available under PHAS Indicators 1, 2, or 3, shall be designated as 
troubled, and referred to the TARC as described in Sec. 901.75. In 
accordance with section 6(j)(2) of the 1937 Act, a PHA that receives 
less than 60% of the maximum calculation for the modernization 
indicator under PHAS Indicator #3 (Management Operations, subpart D of 
this part) may be subject to the following sanctions: under the 
Comprehensive Grant Program to a reduction of formula allocation or 
other sanctions (24 CFR part 968, subpart C); under the Comprehensive 
Improvement Assistance Program to disapproval of new funding or other 
sanctions (24 CFR part 968, subpart B); or disapproval of funding under 
the HOPE VI Program.
    (b) Exceptional circumstances of high performer or standard 
performer--(1) Independent reviews, rescission of incentives or status. 
In exceptional circumstances, even though a PHA has received 
designation as a high performer or standard performer, the HUB/Program 
Center may conduct any review as necessary, and deny or rescind 
incentives or high performer or standard performer status in the case 
of a PHA that:
    (i) Is operating under a special agreement with HUD;
    (ii) Is involved in litigation that bears directly upon the 
management of a PHA;
    (iii) Is operating under a court order;
    (iv) Demonstrates substantial evidence of fraud or misconduct, 
including evidence that the PHA's certification of indicators is not 
supported by the facts, resulting from such sources as an independent 
review, routine reports and reviews, an Office of Inspector General 
investigation/audit, an independent auditor's audit or an investigation 
by any appropriate legal authority; or
    (v) Demonstrates substantial noncompliance in one or more areas 
(including areas not assessed by the PHAS). Areas of substantial 
noncompliance include, but are not limited to, noncompliance with 
statutes (e.g., Fair Housing and Equal Opportunity statutes); 
regulations (e.g., 24 CFR part 85); or the Annual Contributions 
Contract (ACC) (e.g., the ACC, form HUD-53012A, Section 4, Mission of 
the PHA). Substantial noncompliance would cast doubt on the PHA's 
capacity to preserve and protect its public housing developments and 
operate them consistent with Federal law and regulations.
    (2) When a HUB/Program Center acts for any of the reasons stated in 
paragraph (b)(1) of this section, the HUB/Program Center will send 
written notification to the PHA with a specific explanation of the 
reasons. An informational copy will be forwarded to the Assistant 
Secretary for Public and Indian Housing.


Sec. 901.69  PHA right of petition and appeal.

    (a) Appeal of troubled designation and petition for removal. As 
permitted under section 6(j)(2)(A)(iii), a PHA may:
    (1) Appeal designation as a troubled agency (including designation 
as troubled with respect to the modernization program);
    (2) Petition for removal of such designation; and
    (3) Appeal any refusal to remove such designation.
    (b) Appeal process. The appeal shall be submitted by a PHA to the 
REAC within 30 days of a PHA's receipt of its score, and shall include 
supporting documentation and justification of the reasons for the 
appeal. Appeals submitted to the REAC without appropriate documentation 
will not be considered and will be returned to the PHA.
    (c) Consideration of appeal by REAC. Upon receipt of an appeal from 
a PHA, the REAC will convene a Board of Review (the Board) to evaluate 
the appeal and its merits for the purpose of determining whether a 
reassessment of the PHA is warranted. Board membership will be 
comprised of a representative from REAC, the Office of Public and 
Indian Housing, and such other office or representative as the 
Secretary may designate (excluding, however, representation from the 
Troubled Agency Recovery Center). For purposes of reassessment, the 
REAC will schedule a reinspection and/or acquire audit services, as 
determined by the Board, and a new score will be issued, if 
appropriate.
    (d) Final appeal decisions. HUD will make final decisions of 
appeals within 30 days of receipt of an appeal, and may extend this 
period an additional 30 days if further inquiry is necessary. Failure 
by a PHA to submit requested information within the 30-day period or 
any additional period granted by HUD is grounds for denial of an 
appeal.

Subpart G--PHAS Incentives and Remedies


Sec. 901.71  Incentives for high performers.

    (a) Incentives for high-performer PHAs. A PHA that is designated a 
high performer will be eligible for the following incentives:
    (1) Relief from specific HUD requirements. A PHA that is designated 
high performer will be relieved of specific HUD requirements (for 
example, fewer reviews and less monitoring), effective upon 
notification of high performer designation.
    (2) Public recognition. High-performer PHAs and RMCs that receive a 
score of at least 90% on each of the indicators for which they are 
assessed, will receive a Certificate of Commendation from HUD as well 
as special public recognition, as provided by the HUB/Program Center.
    (3) Bonus points in funding competitions. A high-performer PHA will 
be eligible for bonus points in HUD's funding competitions, where such 
bonus points are not restricted by statute or regulation governing the 
funding program.
    (b) Compliance with applicable Federal laws and regulations. Relief 
from any standard procedural requirement that may be provided under 
this section, does not mean that a PHA is relieved from compliance with 
the provisions of Federal law and regulations or other handbook 
requirements. For example, although a high performer or standard 
performer may be relieved of requirements for prior HUD approval for 
certain types of contracts for services, the PHA must still comply with 
all other Federal and State requirements that remain in effect, such as 
those for competitive bidding or competitive negotiation (see 24 CFR 
85.36).
    (c) Audits and reviews not relieved by designation. A PHA 
designated as a high performer or standard performer remains subject 
to:
    (1) Regular independent auditor (IA) audits.
    (2) Office of Inspector General (OIG) audits or investigations will 
continue to

[[Page 35689]]

be conducted as circumstances may warrant.
    (d) HUB/Program Center to impose requirements. The HUB/Program 
Center will have discretion to subject a PHA to any requirement that 
would otherwise be omitted under the specified relief, in accordance 
with Sec. 901.67(b)(1).


Sec. 901.73  Referral to an Area HUB/Program Center.

    (a) Standard performers will be referred to the HUB/Program Center 
for appropriate action. A standard performer that receives a total 
score of less than 70% but not less than 60% shall be required to 
submit an Improvement Plan to eliminate deficiencies in the PHA's 
performance. A standard performer that receives a score of not less 
than 70% may be required, at the discretion of the appropriate area 
HUB/Program Center, to submit an Improvement Plan to address specific 
deficiencies.
    (b) Submission of an Improvement Plan. (1) Within 30 days after a 
PHAS score is issued, a standard performer with a score less than 70% 
is required to submit an Improvement Plan, which includes the 
information stated in paragraph (d) of this section and determined 
acceptable by the HUB/Program Center, for each indicator and/or 
component identified as deficient as well as other performance and/or 
compliance deficiencies as may be identified as a result of an on-site 
review of the PHA's operations. A RMC that is required to submit an 
Improvement Plan must develop the plan in consultation with its PHA and 
submit the Plan to the HUB/Program Center through its PHA.
    (2) The HUB/Program Center may require, on a risk management basis, 
a standard performer with a score of not less than 70% to submit within 
30 days after receipt of its PHAS score an Improvement Plan, which 
includes the information stated in paragraph (d) of this section, for 
each indicator and/or component of a PHAS indicator identified as 
deficient.
    (c) Correction of deficiencies--(1) Time period for correction. 
After a PHA's receipt of its PHAS score and designation as a standard 
performer or, in the case of an RMC, notification of its score from a 
PHA, a PHA or RMC shall correct any deficiency indicated in its 
assessment within 90 days, or within such period as provided in the HUD 
approved Improvement Plan if an Improvement Plan is required.
    (2) Notification and report to HUB/Program Center. A PHA shall 
notify the HUB/Program Center of its action to correct a deficiency. A 
PHA shall also forward to the HUB/Program Center an RMC's report of its 
action to correct a deficiency.
    (d) Improvement Plan. An Improvement Plan shall:
    (1) Identify baseline data, which should be raw data but may be the 
PHA's score under each individual PHAS indicator and/or component which 
was identified as a deficiency;
    (2) Describe the procedures that will be followed to correct each 
deficiency;
    (3) Provide a timetable for the correction of each deficiency; and
    (4) Provide for or facilitate technical assistance to the PHA.
    (e) Determination of acceptability of Improvement Plan (1) The HUB/
Program Center will approve or deny a PHA's (or RMC's Improvement Plan 
submitted to the HUB/Program Center through the RMC's PHA), and notify 
the PHA of its decision. A PHA that submits an RMC's Improvement Plan 
must notify the RMC in writing, immediately upon receipt of the HUB/
Program Center notification, of the HUB/Program Center approval or 
denial of the RMC's Improvement Plan.
    (2) An Improvement Plan that is not approved will be returned to 
the PHA with recommendations from the HUB/Program Center for revising 
the Improvement Plan to obtain approval.
    (f) Submission of revised Improvement Plan. A revised Improvement 
Plan shall be resubmitted by the PHA within 30 calendar days of its 
receipt of the HUB/Program Center recommendations.
    (g) Failure to submit acceptable Improvement Plan. If a PHA fails 
to submit an acceptable Improvement Plan, or to correct deficiencies 
within the time specified in an Improvement Plan or such extensions as 
may be granted by HUD, the HUB/Program Center will notify the PHA of 
its noncompliance. The PHA (or the RMC through the PHA) will provide 
the HUB/Program Center its reasons for lack of progress in submitting 
or carrying out the Improvement Plan within 30 calendar days of its 
receipt of the noncompliance notification. HUD will advise the PHA as 
to the acceptability of its reasons for lack of progress and, if 
unacceptable, will notify the PHA that it will be referred to the TARC 
for remedial actions or such actions as the TARC may determine 
appropriate in accordance with the provisions of the ACC, this part and 
other HUD regulations.


Sec. 901.75  Referral to a TARC.

    Upon designation of a PHA as troubled, in accordance with the 
requirements of section 6(j)(2)(B) of the 1937 Act and in accordance 
with this part, the REAC shall refer each troubled PHA to the PHA's 
area TARC for remedial action. The actions to be taken by the TARC and 
the PHA shall be as follows:
    (a) Recovery plan and MOA. Within 30 days of notification of the 
designation of a troubled PHA within its area, the appropriate TARC 
will deploy an on-site team to develop a Recovery Plan. The Recovery 
Plan shall include recommendations for improvements to correct or 
eliminate deficiencies that resulted in a failing PHAS score and 
designation as troubled. The Recovery Plan will incorporate a 
memorandum of agreement (MOA) as described in paragraph (c) of this 
section.
    (b) PHA review of recovery plan and MOA. The PHA will have 10 days 
to review the recovery plan and the MOA. During this 10-day period, the 
PHA shall resolve any claimed discrepancies in the plan with its area 
TARC, and discuss any recommended changes and target dates for 
improvement to be incorporated in the final MOA. Unless the time period 
is extended by the TARC, the MOA is to be executed 15 days following 
issuance of the preliminary MOA.
    (c) Memorandum of Agreement (MOA). The final MOA is a binding 
contractual agreement between HUD and a PHA. The scope of the MOA may 
vary depending upon the extent of the problems present in the PHA, but 
shall include:
    (1) Baseline data, which should be raw data but may be the PHA's 
score in each of the PHAS indicators or components identified as a 
deficiency;
    (2) Annual and quarterly performance targets, which may be the 
attainment of a higher score within an indicator that is a problem, or 
the description of a goal to be achieved;
    (3) Strategies to be used by the PHA in achieving the performance 
targets within the time period of the MOA;
    (4) Technical assistance to the PHA provided or facilitated by HUD, 
for example, the training of PHA employees in specific management areas 
or assistance in the resolution of outstanding HUD monitoring findings;
    (5) The PHA's commitment to take all actions within its control to 
achieve the targets;
    (6) Incentives for meeting such targets, such as the removal of 
troubled or mod-troubled designation and Departmental recognition for 
the most improved PHAs;
    (7) The consequences of failing to meet the targets, including, but 
not limited to, such sanctions as the imposition of budget and 
management

[[Page 35690]]

controls by the TARC, declaration of substantial default and subsequent 
actions, including referral to the Enforcement Center for judicial 
appointment of a receiver, limited denial of participation, suspension, 
debarment, or other actions deemed appropriate by the Enforcement 
Center; and
    (8) A description of the involvement of local public and private 
entities, including PHA resident leaders, in carrying out the agreement 
and rectifying the PHA's problems. A PHA shall have primary 
responsibility for obtaining active local public and private entity 
participation, including the involvement of public housing resident 
leaders, in assisting PHA improvement efforts. Local public and private 
entity participation should be premised upon the participant's 
knowledge of the PHA, ability to contribute technical expertise with 
regard to the PHA's specific problem areas and authority to make 
preliminary/tentative commitments of support, financial or otherwise.
    (d) Maximum recovery period. Unless extended by the TARC and 
documented in the MOA, the maximum recovery period for a troubled PHA 
is the first full fiscal year following execution of the MOA.
    (e) Parties to the MOA. An MOA shall be executed by:
    (1) The PHA Board Chairperson and accompanied by a Board 
resolution, or a receiver (pursuant to a court ordered receivership 
agreement, if applicable) or other AME acting in lieu of the PHA Board;
    (2) The PHA Executive Director, or a designated receiver (pursuant 
to a court ordered receivership agreement, if applicable) or other AME-
designated Chief Executive Officer;
    (3) The Director of the area TARC; and
    (4) The appointing authorities of the Board of Commissioners, 
unless exempted by the HUB/Program Center.
    (f) Involvement of resident leadership in the MOA. HUD encourages 
the inclusion of the resident leadership in the execution of the MOA.
    (g) Failure to execute MOA or make substantial improvement under 
MOA.
    (1) If a troubled PHA does not execute an MOA within the period 
provided in paragraph (b) of this section, or the TARC determines that 
the PHA does not show a substantial improvement toward a passing PHAS 
score following the issuance of the failing PHAS score by the REAC, the 
TARC shall refer the PHA to the Enforcement Center, which shall 
initiate proceedings for judicial appointment of a receiver, and other 
sanctions as may be appropriate. For purposes of this paragraph (g), 
substantial improvement is defined as 50% of the points needed to 
achieve a passing score.
    (2) The following example illustrates the provisions of paragraph 
(g)(1) of this section:

    Example. A PHA receives a score of 50; 60 is a passing score. 
The PHA is referred to the TARC. Within one year after the score is 
issued to the PHA, the PHA must achieve a five point increase to 
continue recovery efforts in the TARC. If the PHA fails to achieve 
the 5 point increase, the PHA will be referred to the Enforcement 
Center.


Sec. 901.77  Referral to the Enforcement Center.

    Failure of a troubled PHA to execute or meet the requirements of a 
memorandum of agreement in accordance with Sec. 901.75 constitutes a 
substantial default in accordance with Sec. 901.79 and shall result in 
referral to the Enforcement Center. The Enforcement Center is 
officially responsible for recommending to the Assistant Secretary for 
Public and Indian Housing that a troubled performer PHA be declared in 
substantial default. The Enforcement Center shall initiate the judicial 
appointment of a receiver or the interventions provided in Sec. 901.83; 
and may initiate limited denial of participation, suspension, 
debarment, the imposition of other sanctions available to the 
Enforcement Center including referral to the appropriate Federal 
government agencies or offices for the imposition of civil or criminal 
sanctions.


Sec. 901.79  Substantial default.

    (a) Events or conditions that constitute substantial default. The 
following events or conditions shall constitute substantial default.
    (1) HUD may determine that events have occurred or that conditions 
exist that constitute a substantial default if a PHA is determined to 
be in violation of Federal statutes, including but not limited to, the 
1937 Act, or in violation of regulations implementing such statutory 
requirements, whether or not such violations would constitute a 
substantial breach or default under provisions of the relevant ACC.
    (2) HUD may determine that a PHA's failure to satisfy the terms of 
a Memorandum of Agreement entered into in accordance with Sec. 901.75 , 
or to make reasonable progress to execute or meet requirements included 
in a Memorandum of Agreement, are events or conditions that constitute 
a substantial default.
    (3) HUD shall determine that a PHA that has been designated as 
troubled and does not show substantial improvement, as defined in 
Sec. 901.75(h), in its PHAS score in one year following issuance of the 
failed score is in substantial default;
    (4) HUD may declare a substantial breach or default under the ACC, 
in accordance with its terms and conditions.
    (5) HUD may determine that the events or conditions constituting a 
substantial default are limited to a portion of a PHA's public housing 
operations, designated either by program, by operational area, or by 
development(s).
    (b) Notification of substantial default and response. If 
information from an annual assessment or audit, or any other credible 
source indicates that there may exist events or conditions constituting 
a substantial breach or default, HUD shall advise a PHA of such 
information. HUD is authorized to protect the confidentiality of the 
source(s) of such information in appropriate cases. Before taking 
further action, except in cases of apparent fraud or criminality, and/
or in cases where emergency conditions exist posing an imminent threat 
to the life, health, or safety of residents, HUD shall afford the PHA a 
timely opportunity to initiate corrective action, including the 
remedies and procedures available to PHAs designated as ``troubled 
PHAs,'' or to demonstrate that the information is incorrect.
    (1) Form of notification. Upon a determination or finding that 
events have occurred or that conditions exist that constitute a 
substantial default, the Assistant Secretary shall provide written 
notification of such determination or finding to the affected PHA. 
Written notification shall be transmitted to the Executive Director, 
the Chairperson of the Board, and the appointing authority(ies) of the 
Board, and shall include, but are not limited to:
    (i) Identification of the specific covenants, conditions, and/or 
agreements under which the PHA is determined to be in noncompliance;
    (ii) Identification of the specific events, occurrences, or 
conditions that constitute the determined noncompliance;
    (iii) Citation of the communications and opportunities to effect 
remedies afforded pursuant to paragraph (a) of this section;
    (iv) Notification to the PHA of a specific time period, to be not 
less than 10 calendar days, except in cases of apparent fraud or other 
criminal behavior, and/or under emergency conditions as described in 
paragraph (a) of this section, nor more than 30 calendar days, during 
which the PHA shall be required to demonstrate that the

[[Page 35691]]

determination or finding is not substantively accurate; and
    (v) Notification to the PHA that, absent a satisfactory response in 
accordance with paragraph (b) of this section, HUD will refer the PHA 
to the Enforcement Center, using any or all of the interventions 
specified in Sec. 901.83, and determined to be appropriate to remedy 
the noncompliance, citing Sec. 901.83, and any additional authority for 
such action.
    (2) Receipt of notification. Upon receipt of the notification 
described in paragraph (b)(1) of this section, the PHA must 
demonstrate, within the time period permitted in the notification, 
factual error in HUD's description of events, occurrences, or 
conditions, or show that the events, occurrences, or conditions do not 
constitute noncompliance with the statute, regulation, or covenants or 
conditions to which the PHA is cited in the notification.
    (3) Waiver of notification. A PHA may waive, in writing, receipt of 
explicit notice from HUD as to a finding of substantial default, and 
voluntarily consent to a determination of substantial default. The PHA 
must concur on the existence of substantial default conditions which 
can be remedied by technical assistance, and the PHA shall provide HUD 
with written assurances that all deficiencies will be addressed by the 
PHA. HUD will then immediately proceed with interventions as provided 
in Sec. 901.83.
    (4) Emergency situations. In any situation determined to be an 
emergency, or in any case where the events or conditions precipitating 
the intervention are determined to be the result of criminal or 
fraudulent activity, the Secretary or the Secretary's designee is 
authorized to intercede to protect the residents' and HUD's interests 
by causing the proposed interventions to be implemented without further 
appeals or delays.


Sec. 901.83  Interventions.

    (a) Interventions under this part (including an assumption of 
operating responsibilities) may be limited to one or more of a PHA's 
specific operational areas (e.g., maintenance, modernization, 
occupancy, or financial management) or to a single development or a 
group of developments. Under this limited intervention procedure, HUD 
could select, or participate in the selection of, an AME to assume 
management responsibility for a specific development, a group of 
developments in a geographical area, or a specific operational area, 
while permitting the PHA to retain responsibility for all programs, 
operational areas, and developments not so designated.
    (b) Upon determining that a substantial default exists under this 
part, HUD may initiate any interventions deemed necessary to maintain 
decent, safe, and sanitary dwellings for residents. Such intervention 
may include:
    (1) Providing technical assistance for existing PHA management 
staff;
    (2) Selecting or participating in the selection of an AME to 
provide technical assistance or other services up to and including 
contract management of all or any part of the public housing 
developments administered by a PHA;
    (3) Assuming possession and operational responsibility for all or 
any part of the public housing administered by a PHA;
    (4) Entering into agreements, arrangements, and/or contracts for or 
on behalf of a PHA, or acting as the PHA, and expending or authorizing 
the expenditure of PHA funds, irrespective of the source of such funds, 
to remedy the events or conditions constituting the substantial 
default;
    (5) The provision of intervention and assistance necessary to 
remedy emergency conditions;
    (6) After the solicitation of competitive proposals, select an 
administrative receiver to manage and operate all or part of the PHA's 
housing; and
    (7) Petition for the appointment of a receiver to any District 
Court of the United States or any court of the State in which real 
property of the PHA is located.
    (c) The receiver is to conduct the affairs of the PHA in a manner 
consistent with statutory, regulatory, and contractual obligations of 
the PHA and in accordance with such additional terms and conditions 
that the court may provide.
    (d) The appointment of a receiver pursuant to this section may be 
terminated upon the petition to the court by the PHA, the receiver, or 
HUD, and upon a finding by the court that the circumstances or 
conditions that constituted substantial default by the PHA no longer 
exist and that the operations of the PHA will be conducted in 
accordance with applicable statutes and regulations, and contractual 
covenants and conditions to which the PHA and its public housing 
programs are subject.
    (e) HUD may take the actions described in this part sequentially or 
simultaneously in any combination.


Sec. 901.85  Resident petitions for remedial action.

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

Appendix A to Part 901--Areas and Items To Be Inspected

AREA: Site

Items

Fencing and Retaining Walls
Grounds
Lighting
Mail Boxes/Project Signs
Market Appeal
Parking Lots/Driveways
Play Areas and Equipment
Refuse Disposal
Roads
Storm Drainage
Walkways

AREA: Building Exterior

Items

Doors
Fire Escapes
Foundations
Lighting
Roofs
Walls
Windows

AREA: Building Systems

Items

Domestic Water
Electrical System
Elevators
Emergency Power
Fire Protection
HVAC
Sanitary System

AREA: Dwelling Unit

Items

Bathroom
Call-for-Aid
Ceiling
Doors
Electrical System
Floors
Hot Water Heater
HVAC System
Kitchen
Lighting
Outlets/Switches
Patio/Porch/Balcony
Smoke Detector
Stairs
Walls
Windows

AREA: Common Areas

Items

Basement/Garage/Carport
Closets/Utility/Mechanical
Community Room
Day Care

[[Page 35692]]

Halls/Corridors/Stairs
Kitchen
Laundry Room
Lobby
Office
Other Community Spaces
Patio/Porch/Balcony
Pools and Related Structures
Restroom
Storage
Trash Collection Areas

AREA: Health and Safety

Items

Air Quality
Electrical Hazards
Elevator
Emergency/Fire Exits
Fire Escapes
Flammable Materials
Garbage and Debris
Ground Fault Interrupters
Handrails
Hazards
Hot Water Heater
Infestation
Lead Paint
Pools and Related Structures
Smoke Detectors

    Dated: June 5, 1998.
Deborah Vincent,
General Deputy Assistant Secretary for Public and Indian Housing.

Donald J. LaVoy,
Director, Real Estate Assessment Center.
[FR Doc. 98-17302 Filed 6-29-98; 8:45 am]
BILLING CODE 4210-33-P