[Federal Register Volume 64, Number 92 (Thursday, May 13, 1999)]
[Notices]
[Pages 26160-26163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11911]



[[Page 26159]]

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Part IV





Department of Housing and Urban Development





_______________________________________________________________________



Public Housing Assessment System (PHAS) Information About PHAS Scoring: 
Introduction; Notice

  Federal Register / Vol. 64, No. 92 / Thursday, May 13, 1999 / 
Notices  

[[Page 26160]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4509-N-01]


Public Housing Assessment System (PHAS) Information About PHAS 
Scoring: Introduction

AGENCY: Office of the Director of the Real Estate Assessment Center, 
HUD.

ACTION: Notice.

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SUMMARY: HUD's Public Housing Assessment System (PHAS), established by 
final rule published on September 1, 1998, provides for a new system 
for the assessment of America's public housing. Under the PHAS, HUD 
evaluates a public housing agency (PHA) based on four key indicators: 
(1) The physical condition of the PHA's properties; (2) the PHA's 
financial condition; (3) the PHA's management operations; and (4) the 
resident's assessment (through a resident survey) of the PHA's 
performance. This notice, together with five other notices published in 
today's Federal Register, provide additional information about the PHAS 
scoring process under each of the four indicators and other relevant 
information about PHAS scoring.

FOR FURTHER INFORMATION CONTACT: For further information contact, Wanda 
Funk, Real Estate Assessment Center, Department of Housing and Urban 
Development, 1280 Maryland Avenue, SW, Suite 800, Washington, DC 20024; 
telephone Customer Service Center at 1-888-245-4860 (this is a toll-
free number). Persons with hearing or speech impairments may access 
that number via TTY by calling the Federal Information Relay Service at 
1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background--The Public Housing Assessment System (PHAS)

A. Overview of the PHAS

    On September 1, 1998 (63 FR 46596), HUD published a final rule, 
codified at 24 CFR part 902, that established a new system for the 
assessment of America's public housing. The PHAS 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 becomes effective for all PHAs with 
fiscal years ending on and after September 30, 1999. HUD's Real Estate 
Assessment Center (REAC) is charged with the responsibility for 
assessing and scoring the performance of PHAs under the PHAS.
    This notice provides an overview of the PHAS. The information 
provided in this notice is based largely on the preamble to the PHAS 
final rule published on September 1, 1998. Although the Quality Housing 
and Work Responsibility Act of 1998 (title V of the FY 1999 HUD 
Appropriations Act, Pub. L. 105-276, 112 Stat. 2461, approved October 
21, 1998) (QHWRA) makes changes to the U.S. Housing Act of 1937 (1937 
Act) that affect the PHAS, these changes will be the subject of future 
proposed rulemaking.
    Under the PHAS, HUD examines four essential areas of public housing 
operations to determine a PHA's performance in delivering HUD programs 
and services. These areas of operations (or indicators of a PHA's 
performance) are:
    (1) The physical condition of a PHA's public housing properties;
    (2) The PHA's financial condition;
    (3) The PHA's management operations; and
    (4) The resident's satisfaction (through a resident survey) with 
the PHA's services.
1. PHAS Indicator #1--Physical Condition of PHA Properties
    The Physical Condition Indicator, PHAS Indicator #1, provides for 
the assessment of the physical condition of the PHA's properties. A PHA 
must maintain its public housing in a manner that meets HUD's Uniform 
Physical Condition Standards, established in a September 1, 1998 final 
rule of the same name (63 FR 46566) and incorporated in the PHAS final 
rule. These standards are intended to ensure that public housing (as 
well as other HUD assisted housing) are maintained in a condition that 
is decent, safe, sanitary and in good repair. 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.

    In establishing uniform physical condition standards, HUD believed 
that housing assisted under its programs should be subject to uniform 
standards, and that the source of the HUD subsidy should not determine 
the standards to which the housing is subject. Additionally, HUD 
believes that the physical inspection procedures by which the standards 
will be assessed should be uniform and consistent. To provide for 
uniformity in inspection, HUD developed and has implemented a new 
computer-driven physical inspection protocol. The computer program 
guides an inspector through the inspection prompting the necessary 
observations to be made regarding the condition of the property. The 
computer program is based on substantially objective observations, 
which significantly minimize the possibility for subjective 
interpretation of the physical condition standards. The results of the 
inspection are electronically transferred to HUD.
    To ensure the independence of the physical inspection, HUD has 
entered into contracts with private inspection firms to perform the 
inspection. All inspectors are trained under HUD auspices in the use of 
the inspection protocol. Upon becoming certified, inspectors obtain 
their PHA inspection assignment from the REAC. The inspector downloads 
the property profile information on the selected PHA's development via 
the internet from the HUD Home page. The inspector then completes 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.
    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
    The Financial Condition Indicator, PHAS Indicator #2, provides for 
the assessment of the PHA's financial condition. Specifically, this 
indicator measures whether a PHA has sufficient financial resources and 
is managing those financial resources effectively to support the 
provision of decent, safe, and sanitary housing to its residents. A 
PHA's financial condition is measured on the basis of uniform financial 
reporting standards.
    In a final rule published on September 1, 1998 (63 FR 46582), HUD 
issued uniform financial reporting standards for HUD housing programs. 
This final rule requires PHAs and owners of multifamily properties to 
prepare the financial information that these entities already submit to 
HUD annually, in accordance with generally accepted accounting 
principles (GAAP) and to submit these reports electronically. While the 
September 1, 1998 final rule titled ``Uniform

[[Page 26161]]

Financial Reporting Standards for HUD Housing Programs'' applies to 
PHAs, the September 1, 1998 PHAS final rule incorporates these 
standards and requirements.
    The key indicators used to determine a PHA's financial condition 
include:
    (1) Current Ratio--current assets divided by current liabilities;
    (2) 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;
    (3) Days Receivable Outstanding--average number of days tenant 
receivables are outstanding;
    (4) Vacancy Loss--loss of potential rent due to vacancy;
    (5) Expense Management/Energy Consumption--expense per unit for key 
expenses, including energy consumption, and other expenses such as 
utilities, maintenance, security; and
    (6) Net Income or Loss divided by the Expendable Fund Balance--
measures how the year's operations have affected the PHA's viability.
    Additional components may be used to identify circumstances in 
which there 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. For example, HUD will 
look to the Audit Opinion to provide an additional basis for accepting 
or adjusting financial indicator scores.
    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.
3. PHAS Indicator #3--Management Operations.
    The Management Operations Indicator, PHAS Indicator #3, provides 
for the assessment of a PHA's management operations. This indicator 
basically reflects the requirements of the Public Housing Management 
Assessment Program (PHMAP), the predecessor to the PHAS.
    The PHAS preserves the statutory indicators found in section 6(j) 
of the U.S. Housing Act of 1937 Act (1937 Act), with some minor 
reorganization (from that in the PHMAP) 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 1937 Act) funds; 1
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    \1\ Note that although unexpended section 14 funds was a 
statutory indicator at the time of issuance of the PHAS final rule, 
section 522 of QHWRA repeals section 14 of the 1937 Act. QHWRA 
replaces the unexpended section 14 funds indicator with amount and 
percentage of funds provided to the PHA from the Capital Fund which 
remains unobligated by the PHA after 3 years. HUD is currently 
undergoing negotiated rulemaking to develop a proposed rule for the 
Capital Fund. The change in indicators will be addressed by the 
proposed rule, to be published later, that will make changes to the 
PHAS.
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(3) Rents uncollected;
(4) Energy consumption; 2
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    \2\ The QHWRA replaces energy consumption with utility 
consumption. Again this change will be made in the upcoming PHAS 
proposed rule.
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(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 of section 6(j) of the 1937 Act. As is the 
case under PHMAP, statutory indicators (1) and (5) are combined under 
the new PHAS. The statutory energy consumption indicator is part of 
PHAS Indicator #2 (Financial Condition). Under PHMAP, the energy 
consumption indicator is part of the financial management indicator. 
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 PHMAP 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. As under PHMAP, for the Management 
Operations Indicator of the PHAS, a PHA will 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.
    The Resident Service and Satisfaction Indicator, PHAS Indicator #4, 
assesses the level of resident satisfaction with PHA housing and 
services. This PHAS Indicator consists 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 PHAS Indicator #4 is to 
measure the level of resident satisfaction with living conditions at 
the PHA's properties.
    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 developing a follow-
up plan to address issues resulting from the survey. The resident 
service and satisfaction assessment score will include two components 
of the survey process, plus a threshold requirement.
    (1) 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: (i) maintenance and repair (i.e., 
work order response); (ii) communications (i.e. perceived 
effectiveness); (iii) safety (i.e., perceived perception of personal 
security; (iv) services (i.e., recreation and personal programs); and 
(v) neighborhood appearance.
    (2) 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.
    (3) The third component, the threshold requirement, which is not 
scored, is verification that the survey process was managed in a manner 
consistent with guidance provided by HUD, or if the survey results are 
determined to be altered by the PHA.

[[Page 26162]]

    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.

B. PHAS Assessment Periods and Reporting Dates

    The September 1, 1998 PHAS final rule provides for the new PHAS to 
become effective for PHAs with fiscal years ending September 1999 and 
later. Financial reports due for PHAs with fiscal years ending in 
September 1999 and later must be prepared on a GAAP basis.
    The first scores under PHAS will be issued not later than December 
1999 for PHAS with fiscal years ending September 1999. From the date of 
the September 1, 1998 PHAS final rule, PHAs are provided one year 
before the new PHAS scores are issued. Until September 30, 1999, PHAs 
will continue to be scored under the current PHMAP. The implementation 
schedule for PHAS reporting by PHAs is described on the following 
table:

                                       Real Estate Assessment Center (REAC) Assessment Periods and Reporting Dates
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                             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\
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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
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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 3 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.
\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.

C. PHAS Advisory Scores

    During this one year transition period, the September 1, 1998 final 
rule advised that advisory scores for physical condition and financial 
management may be issued to provide guidance to PHAs. On December 31, 
1998 (63 FR 72319), HUD published a notice that advised of REAC's 
intent to issue advisory scores. The notice provided in relevant part 
as follows:

    The REAC intends to provide every PHA with an advisory score 
before the PHA receives its official PHAS score. The REAC, however, 
will issue advisory PHAS scores only after it has a complete set of 
data for all four indicators. With respect to Indicator #1 (Physical 
Condition), the REAC is responsible for assessing the physical 
condition of PHA properties and therefore receives this indicator 
information firsthand. Information regarding the other indicators is 
provided to the REAC by the PHAs (as for example, the PHA annual 
financial reports). If the PHA fails to timely submit this 
information to the REAC, then issuance of the PHAS advisory score 
will be delayed until the REAC receives the necessary information. 
(63 FR 72319)

The December 31, 1998 Notice also presented the schedule for providing 
advisory scores to PHAs.

D. Scoring Performance Under the PHAS and Consequences of the Score

    In order to determine a composite score for each PHA, the four PHAS 
Indicators 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. Again, the 100 points are distributed 
among the four PHAS Indicators as follows:
    (1) Physical Condition--Maximum 30 Points: The PHA's score is based 
on the results of physical inspections of PHA properties performed by 
REAC contractors. The results are electronically transmitted to the 
REAC.
    (2) Financial Condition--Maximum 30 Points: The PHA's score is 
based on unaudited generally accepted accounting principles (GAAP) 
electronically submitted by the PHA to the REAC. The PHA's submission 
is audited by an Independent Public Accountant (IPA), as required under 
the Office of Management and Budget Circular A-133, and the audit 
results electronically transmitted to the REAC.
    (3) Management Operations--Maximum 30 Points: The PHA's score is 
based on an electronic certification made by the PHA and verified by an 
IPA. This performance indicator uses six of the same indicators as the 
current Public Housing Management Assessment Program.
    (4) Resident Service and Satisfaction--Maximum 10 Points: The PHA's 
score is based, in part, on responses to a resident survey managed by 
the PHA and collected by the REAC. The PHA's score is also based on the 
PHA's implementation of the resident survey and the PHA's follow-up 
actions on survey results. This part of the score is an electronic 
certification made by the PHA and verified by an IPA.
    On the basis of these four indicators, HUD's REAC calculates a 
composite score for each PHA. The PHAS composite score represents a 
single score for a PHA's entire operation under the four indicators. 
The PHAS composite score will determine whether a PHA is performing 
well or is not performing well. The PHAS composite

[[Page 26163]]

score is derived from the scores calculated for each of the four 
indicators. The composite PHAS score will be issued by the REAC for 
each PHA 60 to 90 calendar days after the end of a PHA's fiscal year. 
Adjustments to the PHAS score may be made after a PHA's audit report 
for the year being assessed is transmitted to the REAC. If significant 
differences (as defined in GAAP guidance materials provided to PHAs) 
are noted between the unaudited and audited results, a PHA's PHAS score 
will be raised or lowered, as applicable, in accordance with the 
audited results.
    Based on its overall PHAS score, a PHA will fall into one of three 
categories:
    High Performer. A PHA that achieves a score of at least 60 percent 
of the points available under each of the four PHAS Indicators, and 
achieves an overall PHAS score of 90 percent 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. High performers will be afforded incentives that include 
relief from reporting and other requirements.
    Standard Performer. 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% will 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. A PHA that achieves a score of 
less than 60 percent 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.
    Troubled Performer. A PHA that achieves a total PHAS score of less 
than 60 percent, or achieves a score of less than 60 percent of the 
total points available under PHAS Indicators #1, #2, or #3, shall be 
designated as troubled, and referred to HUD's Troubled Agency Recovery 
Center (TARC) for oversight and remedial action. A PHA that does not 
correct identified deficiencies within a maximum of two years will be 
referred to HUD's Departmental Enforcement Center for further action. 
In accordance with section 6(j)(2) of the 1937 Act, a PHA that receives 
less than 60 percent of the maximum calculation for the modernization 
indicator under the PHAS Management Indicator (Indicator #3) may be 
subject to certain sanctions as provided in 24 CFR 902.67.

II. Information About the PHAS Scoring Process

    Section I of this notice provided an overview of the new PHAS. More 
detailed information about the PHAS is available in the preamble to the 
PHAS final rule published on September 1, 1998, and in the PHAS 
regulations, codified in 24 CFR part 902. In the preamble to the 
September 1, 1998 PHAS final rule, HUD stated that before the PHAS 
became fully operational in October 1999, HUD would make available 
additional documents, guidance, and assistance about the processes of 
the new PHAS (63 FR 46598). HUD's December 31, 1998 notice provided 
information about the advisory score process. The notices that follow 
this introductory notice are specifically directed to providing further 
information about the PHAS scoring process for each of the four 
indicators. The notices, published in today's Federal Register, and 
that immediately follow this introductory notice are:

 Notice of PHAS Physical Condition Scoring
 Notice of PHAS Appeals and Technical Review of Physical 
Inspection Results
 Notice of PHAS Financial Condition Scoring
 Notice of Management Operations Scoring
 Notice of Resident Service and Satisfaction Scoring

    As the notices describing the processes will show, the PHAS is 
designed to provide relevant and verifiable measures that directly 
relate to PHA performance.

    Dated: May 6, 1999.
Barbara L. Burkhalter,
Deputy Director, Real Estate Assessment Center.
[FR Doc. 99-11911 Filed 5-12-99; 8:45 am]
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