[Federal Register Volume 64, Number 119 (Tuesday, June 22, 1999)]
[Proposed Rules]
[Pages 33348-33366]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-15735]



[[Page 33347]]

_______________________________________________________________________

Part II





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 902



Public Housing Assessment System (PHAS) Amendments to the PHAS; 
Proposed Rule

  Federal Register / Vol. 64, No. 119 / Tuesday, June 22, 1999 / 
Proposed Rules  

[[Page 33348]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 902

[Docket No. FR-4497-P-01]
RIN 2577-AC08


Public Housing Assessment System (PHAS) Amendments to the PHAS

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.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would amend the Public Housing Assessment 
System regulation at 24 CFR part 902 to provide additional information 
and revise certain procedures and establish others for the assessment 
of the physical condition, financial health, management operations and 
resident service and satisfaction in public housing, including the 
technical review of physical inspection results and appeals of PHAS 
scores. The rule would also implement certain recently enacted 
statutory amendments. The purpose of the Public Housing Assessment 
System is to function as a comprehensive management tool that 
effectively and fairly measures a PHA's performance based on standards 
that are objective, uniform and verifiable.

DATES: Comment Due Date: August 23, 1999.

ADDRESSES: Interested persons are invited to submit comments to the 
Rules Docket Clerk, Office of the General Counsel, Room 10276, 
Department of Housing and Urban Development, 451 Seventh Street, SW, 
Washington, DC 20410-0500. Communications should refer to the above 
docket number and title. Facsimile (FAX) responses are not acceptable. 
A copy of each response will be available for public inspection and 
copying during regular business hours (7:30 a.m. to 5:30 p.m. Eastern 
Time at the above address).

FOR FURTHER INFORMATION CONTACT: For further information contact the 
Real Estate Assessment Center (REAC), Attention: Wanda Funk, U. S. 
Department of Housing and Urban Development, 1280 Maryland Avenue, SW, 
Suite 800, Washington DC, 20024; telephone Customer Service Center at 
(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 (800) 877-8339. Additional 
information is available from the REAC Internet Site, http://
www.hud.gov/reac. 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. Background

    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 new system, the Public 
Housing Assessment System (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, and replaces the Public Housing Management 
Assessment Program (PHMAP). HUD's Real Estate Assessment Center (REAC) 
is charged with the responsibility for assessing and scoring the 
performance of PHAs under the PHAS.
    Under the PHAS, HUD evaluates a PHA based on the following four 
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) the residents' assessment (through a resident 
survey) of the PHA's performance. Each of the four PHAS indicators is 
assigned a maximum value 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 
initially based on unaudited financial information prepared in 
accordance with generally accepted accounting principles (GAAP) and 
electronically submitted by the PHA to the REAC. The PHA's submission 
is then audited by an Independent Public Accountant (IPA) and the audit 
results are electronically transmitted to the REAC, which reassesses 
the PHA's score based on the audit results. The financial condition of 
the PHA is assessed on its entire operations.
    (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 
survey results, the PHA's level of implementation of the resident 
survey and the PHA's follow-up actions on survey results. 
Implementation and follow-up plans are in the form of an electronic 
certification made by the PHA. Follow-up plans may be verified by an 
IPA.
    With respect to PHAS Indicators #2, #3 and #4, a PHA is required to 
electronically submit its year-end financial statements, and its 
management operations and resident service and satisfaction 
certifications, within two months after the end of its fiscal year. 
Information necessary to conduct the physical condition assessment will 
be obtained from HUD-contracted inspectors during the fiscal year being 
assessed and scored through electronic transmission of the data.
    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 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 one month 
after the PHA submits its year-end financial data and certifications.
    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 
material differences (as defined in GAAP guidance) are noted between 
the unaudited and audited results, a PHA's PHAS score will be adjusted 
in accordance with the audited results.
    As provided in the PHAS final rule issued on September 1, 1998, a 
PHA will be scored with a corresponding designation of high performer, 
standard performer, or troubled performer, including troubled with 
respect to a PHA's performance under the modernization component under 
PHAS Indicator #3. (As discussed later in this preamble, the reference 
to modernization assistance is replaced with a reference to Capital 
Fund assistance.)
    A PHA designated as troubled will be referred to the appropriate 
HUD office, including but not limited to, HUD's Office of Troubled 
Agency Recovery, for

[[Page 33349]]

oversight and remedial action. A PHA that does not correct identified 
deficiencies within a maximum of two years from the date that the PHA 
is designated as troubled will be referred to the Departmental 
Enforcement Center (DEC) for further action.
    High performer PHAs will be eligible for various incentives. 
However, relief from any standard procedural requirement does not mean 
that a PHA is relieved from compliance with the provisions of Federal 
law and regulations and other handbook requirements.
    This proposed rule would amend the PHAS regulation at 24 CFR part 
902 to provide additional information, and revise certain procedures 
and establish others for the assessment of the physical condition, 
financial health, management operations and resident service and 
satisfaction indicators and for the technical review of physical 
inspection results, and appeals of PHAS scores.

II. Proposed Amendments to PHAS

Brief Overview

    This rule would make the following amendments to the current PHAS 
rule at 24 CFR part 902:
    (A) Revise the PHAS rule to reflect conforming changes made 
necessary by recently enacted statutory amendments.
    (B) Reference a series of notices, published in the Federal 
Register on May 13, 1999, that describe the scoring process for each of 
the four PHAS Indicators, and describe the process for requesting and 
granting a technical review of physical inspection results, or appeal 
of an overall PHAS score.
    (C) Add language, under PHAS Indicator #1, that would clarify that 
vacant units not under lease at the time of inspection will not be 
inspected.
    (D) Modify the designation of ``troubled'' performer to provide a 
subdesignation or category that identifies the particular performance 
area (physical, financial, or management) in which a PHA is troubled.

A. Statutory Amendments Related to the PHAS

    Sections 564 and 565 of the Quality Housing and Work Responsibility 
Act of 1998 (Pub.L. 105-276, 112 Stat. 2461, approved October 21, 1998) 
(Public Housing Reform Act) amend section 6(j) of the United States 
Housing Act of 1937 (1937 Act) (42 U.S.C. 1437d(j)), the statutory 
authority for assessment of public housing. This rule would revise the 
PHAS regulation at 24 CFR part 902 to incorporate these statutory 
amendments, as discussed in this Section III of the preamble.
    Capital Fund Assistance Replaces Modernization Assistance. Section 
564 makes conforming changes to the 6(j) references to modernization 
(mod) funding under section 14 of the 1937 Act by substituting ``the 
Capital Fund under section 9(d)'' for ``section 14''. This rule makes 
the appropriate conforming changes in part 902 to replace the 
references to section 14 and modernization funding.
    Utility Consumption Replaces Energy Consumption. The term ``energy 
consumption'' in the indicator at section 6(j)(1)(D) was statutorily 
changed to ``utility consumption'' and this rule amends part 902 to 
reflect this change.
    Four New Indicators for Assessment of PHAs. Section 564 adds four 
new indicators for the evaluation of performance by public housing 
agencies.
    (1) The first of these indicators requires an evaluation of the 
extent to which a public housing agency coordinates, promotes, or 
provides effective programs and activities to promote the economic 
self-sufficiency of public housing residents. This statutory amendment 
is addressed under PHAS Indicator #3, Management Operations, by 
including economic self-sufficiency grant goals in management sub-
indicator #6, security and economic self-sufficiency. Economic self-
sufficiency is assessed using comparable measurements as PHMAP 
Indicator #7, subcomponent (a) (see 24 CFR 901.40).
    (2) The second new indicator requires an evaluation to the extent 
to which a public housing agency provides public housing residents with 
opportunities for involvement in the administration of public housing. 
The determination that residents are provided the opportunity for 
involvement in the administration of public housing is provided for 
under PHAS Indicator #4, Resident Service and Satisfaction. The 
resident survey includes questions that address the statutory 
amendment, including: (i) Involvement in a resident organization to 
determine the percentage of residents involved in a PHAS recognized 
resident organization, which is the primary vehicle of providing 
opportunities for involvement in the administration of public housing; 
(ii) issues communicated from a PHA to its resident population to 
determine whether a PHA communicates to its residents issues that are 
related to the administration of public housing; and (iii) the 
responsiveness of a PHA to resident input to determine whether a PHA 
acts upon the recommendations of residents regarding involvement in the 
administration of public housing after such communication has taken 
place. In addition, a PHA's follow-up plan, if applicable, will 
specifically address a PHA's provision of opportunities for resident 
involvement in the administration of public housing.
    (3) The third new indicator added by section 564 of the Public 
Housing Reform Act requires an assessment of the extent to which a 
public housing agency implements effective screening and eviction 
policies and other anticrime strategies; and coordinates with local 
government officials and residents in the project on implementation of 
such strategies. The effective policies and anticrime strategies 
portion of this statutory indicator has already been implemented on a 
discretionary basis in the security sub-indicator of PHAS Indicator #3, 
Management Operations. Component #1 of the security sub-indicator 
addresses this statutory requirement and provides for the maximum 
amount of points to a PHA that coordinates with local government 
officials and its residents on the implementation of anticrime 
strategies.
    (4) The fourth indicator added by section 564 examines the extent 
to which the public housing agency is providing acceptable basic 
housing conditions. This indicator is given additional emphasis by a 
related requirement in the section 564 amendment to section 6(j) of the 
1937 Act that provides that an agency ``that fails on a widespread 
basis to provide acceptable basic housing conditions for its residents 
shall be designated as a troubled public housing.'' HUD construes 
``acceptable basic housing conditions'' to be synonymous with the 
standards of decent, safe, sanitary and in good repair (DSS/GR). HUD 
also finds that the statutory amendment is consistent with HUD's 
existing PHAS regulation. Under PHAS, if an agency fails to receive a 
passing score under PHAS Indicator #1, Physical Condition, the agency 
is troubled.
    Amendment to On-site, Independent Assessment Provision. Section 564 
amends the 6(j) provision relating to on-site, independent assessments 
of PHAs by striking the narrow exception that such an assessment will 
not duplicate any ``review conducted under section 14(p)'' and 
replacing it with a broader exception that the assessment will not 
duplicate any ``comparable and recent review''. This amendment permits 
HUD to conduct these assessments through a greater variety of sources, 
including its HUBs and its Troubled Agency Recovery Centers (TARCs).
    Review by Independent Auditor. The section 564 amendment provides 
in relevant part that:


[[Page 33350]]


    To the extent that the Secretary determines such action to be 
necessary in order to ensure the accuracy of any certification made 
under this section, the Secretary shall require an independent 
auditor to review documentation or other information maintained by a 
public housing agency pursuant to this section to substantiate each 
certification submitted by the agency or corporation relating to the 
performance of that agency or corporation.

This section also provides that: ``The Secretary may withhold, from 
assistance otherwise payable to the agency or corporation under section 
9, amounts sufficient to pay for the reasonable costs of any review 
under this paragraph.'' Section 902.60 of the PHAS rule is amended to 
reference HUD's authority to require an independent auditor to review 
documentation or other information maintained by a PHA to substantiate 
a certification.
    Resident Management Corporations. The final provision of section 
564 addressed by this rule provides, that, ``the Secretary shall apply 
the provisions of this subsection to resident management corporations 
in the same manner as applied to public housing agencies.'' This 
provision is already implemented in the PHAS, under which RMCs are 
scored for those functions which they contract to undertake.
    Substantial Default. Section 565 of the Public Housing Reform Act 
makes extensive amendments to the substantial default provisions of 
section 6(j)(3) of the 1937 Act. These amendments, however, are 
consistent with the existing PHAS regulation, or provide additional 
options for HUD to take into account circumstances that constitute a 
substantial default, and require no further regulatory implementation 
by HUD. Section 565(d), titled ``Implementation'', specifically 
provides that, ``The Secretary may administer the amendments made by 
subsection (a) as necessary to ensure the efficient and effective 
initial implementation of this section.''

B. PHAS Scoring Process, Technical Review of Physical Inspection 
Results and PHAS Appeals

    This proposed rule, as noted earlier, in this preamble, includes 
information about the PHAS scoring process for each of the four PHAS 
Indicators, and provides the procedures for requesting and granting a 
technical review of physical inspection results and PHAS appeals, 
generally. This information already was provided by HUD in notices 
published on May 13, 1999 (64 FR 26160; 64 FR 26166; 64 FR 26218; 64 FR 
26222; 64 FR 26232; and 64 FR 26236). Four of these notices discussed 
in detail the scoring process for each of the four PHAS Indicators, and 
the process for requesting and granting a technical review of physical 
inspection results and PHAS appeals.
    This preamble does not repeat the information provided in these 
notices. They will be republished in the Federal Register of June 23, 
1999. Any changes or clarifications to the May 13, 1999, notices will 
be identified in the individual notices published in that issue. The 
proposed regulatory text covers the technical review and appeal 
processes discussed in the May 13, 1999 notice.

C. No Inspection for Vacant Units Not Under Lease

    This proposed rule clarifies that vacant units not under lease at 
the time of inspection will not be inspected under the PHAS. The 
categories of vacant units not under lease are as follows:
    (1) Units undergoing vacant unit turnaround--vacant units that are 
in the routine process of turn over; i.e., the period between which one 
resident has vacated a unit and a new lease takes effect;
    (2) Units undergoing rehabilitation--vacant units that have 
substantial rehabilitation needs already identified, and there is an 
approved implementation plan to address the identified rehabilitation 
needs and the plan is fully funded;
    (3) Off-line units--vacant units that have repair requirements such 
that the units cannot be occupied in a normal period of time 
(considered to be between 5 and 7 days) and which are not included 
under an approved rehabilitation plan.

D. Identification of a PHA's Performance Problems

    The proposed rule modifies the designation of ``troubled'' 
performer to identify the particular performance area (physical, 
financial, or management) in which a PHA is troubled. The proposed rule 
provides that a PHA that achieves less than 60 percent of the points 
under any one of three main PHAS Indicators (Indicator #1--Physical 
Condition; Indicator #2--Financial Condition; or Indicator #3--
Management Operations) will be categorized as substandard physical, 
substandard financial, or substandard management performer.

III. Section-by Section Overview of PHAS Amendments

    For the convenience of the reader, the entire PHAS regulation is 
being published in this proposed rule, although not every section of 
the current PHAS regulation is being amended. The publication of the 
entire rule allows the reader to see how the proposed amendments would 
appear in the codified regulation. HUD is seeking comment on the 
sections of the rule that are proposed to be amended. To assist the 
reader in identifying those sections of the existing PHAS regulations 
that are revised and the new sections that are being added, the 
following provides section-by-section overview of the amendments being 
proposed by this rule. If the section is not listed below, then this 
means that no changes are proposed to be made by HUD to the section.
Subpart A--General Provisions
    Section 902.3 (Scope). Only a minor editorial change is made to 
this section. The last sentence which awkwardly begins with the words 
``PHAs' adherence'' is changed to read ``A PHA's adherence.''
    Section 902.7 (Definitions). This section is amended to revise the 
following definitions: deficiency, improvement plan and work order 
deferred for modernization. The following definitions are added to this 
section: days and property. The definition of ``improvement plan'' is 
revised to change ``indicator'' to ``sub-indicator'' and define the 
acronym ``MOA.'' The definition of ``work order deferred for 
modernization'' is revised to replace the word ``modernization'' with 
``Capital Fund.'' Additionally, in this section, the references to 
numbers are spelled out (for example ``3'' becomes ``three'').
Subpart B--PHAS Indicator #1: Physical Condition
    Section 902.20 (Physical Condition Assessment). This section is 
amended to include the section 564 language pertaining to ``acceptable 
basic housing conditions'' (paragraph a) and to clarify that this 
phrase is synonymous with HUD's physical condition standards of decent, 
safe, sanitary and in good repair. This section also is revised to 
exclude from physical condition assessment, vacant units not under 
lease at the time of physical inspection (paragraph b).
    Section 902.23 (Physical Condition Standards for Public Housing--
Decent, Safe, Sanitary and in Good Repair (DSS/GR)). This section is 
amended by dividing existing paragraph (a) into two paragraphs. New 
paragraph (b) lists the major inspectable areas of public housing. 
Existing paragraph (b) which references Appendix A to part 902 (Areas 
and Items to be Inspected) is removed. The areas and items to be

[[Page 33351]]

inspected are part of the Item Weights and Criticality Levels document, 
which is referenced in this part. Former paragraph (a)(6) which 
addresses health and safety concerns becomes new paragraph (c).
    Section 902.24 (Physical Inspection of Properties). This new 
section is added.
    Section 902.25 (Physical Condition Scoring and Thresholds). This 
section is amended to reference the scoring process described in the 
PHAS Notice on the Physical Condition Scoring Process. A new paragraph 
(c) is added to this section to define the overall PHA Physical 
Condition Indicator score. Former paragraph (c) on Thresholds becomes 
paragraph (d) and adds language that provides that if a PHA's physical 
condition score falls below a minimum threshold of 60 percent of the 
available points, the PHA shall be identified as a substandard physical 
agency. (As noted below, similar changes are made to Secs. 902.33 and 
902.45).
    Section 902.26 (Physical Inspection Report). This new section is 
added.
Subpart C--PHAS Indicator #2: Financial Condition
    Section 902.30 (Financial Condition Assessment). Paragraph (b) of 
this section is amended to cross-reference to the components of the 
PHAS Financial Indicator listed in Sec. 902.33.
    Section 902.33 (Financial Reporting Requirements). Paragraph (a) of 
this section is amended to reference the Financial Data Schedule (FDS). 
Paragraph (b) of this section is amended to provide that a PHA must 
submit its unaudited financial information to HUD two months after the 
end of the PHA's fiscal year. The PHA's audited financial information 
must be submitted within nine months of the end of the PHA's fiscal 
year. Additionally, the time periods designated in days were converted 
to months.
    Section 902.35 (Financial Condition Scoring and Thresholds). 
Paragraph (a) of this section is amended to reference the scoring 
process described in the PHAS Notice of the Financial Condition Scoring 
Process. A new paragraph (b) is added to list the components of PHAS 
Indicator #2, which are currently listed in paragraph (a) of the 
existing regulation, and with the following revisions: ``utility 
consumption'' replaces ``energy consumption''; and under the 
``Occupancy Loss'' component, the phrase ``non-occupancy of dwelling 
units'' replaces ``vacancy''. Existing paragraph (b) on Thresholds 
becomes paragraph (c), and adds language concerning substandard 
financial agency.
Subpart D--PHAS Indicator #3: Management Operations
    Section 902.40 (Management Operations Assessment). Paragraph (b) of 
this section is amended to remove the reference to inclusion of a non-
statutory indicator (security). This indicator is now statutory.
    Section 902.43 (Management Operations Performance Standards). 
Paragraph (a) of this section is amended to note that the components 
and grades for each sub-indicator of the Management Operations 
Indicator are the same as those for the corresponding indicator under 
PHMAP, unless otherwise noted in this section. The term ``indicator'' 
used throughout this section is replaced by ``sub-indicator.'' 
Paragraph (a)(2) is amended to replace reference to modernization 
assistance with the Capital Fund. Paragraph (a)(6) is amended to 
reflect the new statutory indicators added by the Public Housing Reform 
Act.
    Paragraph (b) of this section is amended to clarify that the 
reporting required under PHAS Indicator #3 is to be electronically 
submitted to HUD.
    Section 902.45 (Management Operations Scoring and Thresholds). This 
section is revised to reference the PHAS Notice on the Management 
Operations Scoring Process. Paragraph (b) on Thresholds is revised to 
add the language concerning substandard management agency.
Subpart E--PHAS Indicator #4: Resident Service and Satisfaction
    Section 902.50 (Resident Service and Satisfaction). The heading of 
paragraph (b) of this section is amended. A new paragraph (c) is added 
to clarify that the reporting required under PHAS Indicator #4 is to be 
electronically submitted to HUD.
    Section 902.51 (Updating of Resident Information). This new section 
is added.
    Section 902.52 (Distribution of Survey to Residents). This new 
section is added.
    Section 902.53 (Resident Service and Satisfaction Scoring and 
Thresholds). Paragraph (a) is revised to organize the existing 
information in a more logical fashion. Additionally, a new paragraph 
(a)(2) is added to reference the PHAS Notice on the Resident Service 
and Satisfaction Scoring Process.
Subpart F--PHAS Scoring
    Section 902.60 (Data Collection). This section is amended to change 
the references to days in this section to months (e.g, 60 days is 
changed to two months). In paragraph (e) of this section the reference 
to mod-troubled is replaced by reference to troubled with respect to 
Capital Fund assistance. Paragraph (f) is amended to reflect HUD's 
authority to require an independent auditor to review documentation or 
other information maintained by a PHA to substantiate a certification.
    Section 902.63 (PHAS Scoring). Paragraph (a) is revised to provide 
that a PHAS score will be issued for each PHA one month after a PHA 
submits its year-end financial data certifications, which replaces an 
issuance date of 60 to 90 days after the end of the PHA's fiscal year. 
Paragraph (d) of this section is revised to reference RMCs and AMEs.
    Section 902.67 (Score and Designation Status). Paragraph (c) of 
this section is amended to include language concerning identification 
of the particular area in which a PHA is troubled (e.g., substandard 
physical, substandard financial, substandard management). A new 
paragraph (d) is added to provide that designations may be withheld 
under certain circumstances.
    Section 902.68 (Technical Review of Results of PHAS Indicators #1 
or #4). This new section is added.
    Section 902.69 (PHA Right of Petition and Appeal). Paragraph (a) is 
revised to remove subparagraph (a)(2). A new paragraph (b) is added, 
and existing paragraphs (c) and (d) become part of paragraph (b).
Subpart G--PHAs Incentives and Remedies
    Section 902.71 (Incentives for High Performers). Existing paragraph 
(a)(1) is subdivided into two paragraphs. Subparagraph (a)(1)(A) 
contains the information currently found in existing paragraph (a)(1). 
Subparagraph (a)(1)(B) provides relief for annual physical inspections 
for high scoring PHAs.
    Section 902.73 (Referral to an Area HUB/Program Center). In 
paragraph (g) of this section, reference to remedies for substantial 
default is added.
    Section 902.75 (Referral to a TARC). The introductory paragraph of 
this section is revised to provide that remedial action may include a 
determination of priority of needs and referral the HUD/Program Center. 
Paragraph (a) is revised to reflect that within 30 days of notification 
to a PHA of troubled designation, HUD, not necessarily the TARC, will 
take appropriate action. In paragraph (c)(6) the reference to mod-
troubled is removed and replaced with reference to the new Capital 
Fund. Paragraph (d) is revised to reflect the new statutory language.

[[Page 33352]]

IV. Request for Comment

    In addition to requesting public comment on this proposed rule, HUD 
is specifically requesting comment on the following:
    (1) HUD seeks comment on the four scoring process notices (the 
Physical, Financial, Management and Resident Services and Satisfaction 
scoring process scoring notices) published elsewhere in this issue of 
the Federal Register;
    (2) Although HUD proposes to inspect only occupied units, HUD is 
concerned that PHAs make appropriate efforts to have as many units on 
line and occupied as possible. For example, PHAs should be keeping 
units unoccupied for modernization or unit turnover for the minimum 
possible time. The rule addresses this concern to an extent in the PHAS 
finance and management indicators. HUD requests comments whether this 
concern should be addressed further, and seeks suggestions and 
recommendations on ways to do address this matter in the PHAS rule or 
elsewhere (e.g., other regulations).
    (3) Although HUD has not proposed to penalize PHAs in the PHAS 
score for missing or inoperable smoke detectors because of the extent 
to which this may not be within a PHA's control, HUD is very concerned 
about this issue in view of the critical importance of fire prevention. 
Because of the safety risk presented by missing or inoperable smoke 
detectors, HUD is considering whether the PHAS rule should provide, at 
the final rule stage, some consequence to PHAs for missing or 
inoperable smoke detectors (particularly if the number is high), 
including possibly a reduction in a PHA's physical inspection score. 
HUD requests comments on this option, and solicits suggestions how the 
availability of working smoke detectors can be encouraged further, 
either in the PHAS rule or elsewhere.
    (4) HUD requests comments on ways of improving the economic self-
sufficiency sub-indicator so that it may be implemented more 
effectively, and specifically seeks comments on whether the sub-
indicator is properly weighted and appropriately placed in the rule as 
part of management sub-indicator #6 (see Sec. 902.43(a)(6)).
    (5) HUD seeks comments on the consequences to PHAs of withholding 
designation as provided in new paragraph (d)(2) of Sec. 902.67.
    (6) HUD also requests comments on how PHAs should be assessed with 
respect to their responsibility to submit occupancy data to the 
Multifamily Tenant Characteristics System (MTCS) in an accurate, 
complete and timely manner.

V. Findings and Certifications

Paperwork Reduction Act Statement

    The information collection requirements for the PHAS regulation at 
24 CFR part 902 were approved by the Office of Management and Budget 
(OMB) in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-3520) and assigned OMB control number 2535-0106. This rule adds no 
new information collection requirements to that rule. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless the collection displays a valid 
control number.

Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review. OMB determined 
that this rule is a ``significant regulatory action'' as defined in 
section 3(f) of the Order (although not an economically significant 
regulatory action under the Order). Any changes made to this rule as a 
result of that review are identified in the docket file, which is 
available for public inspection in the office of the Department's Rules 
Docket Clerk, Room 10276, 451 Seventh Street, SW, Washington, DC 20410-
0500.

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 rule will 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 
during regular business hours in the Office of the Rules Docket Clerk, 
Office of General Counsel, Department of Housing and Urban Development, 
Room 10276, 451 Seventh 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 rule 
revises HUD's existing regulations for the assessment of public housing 
at 24 CFR part 902, PHAS, to provide additional information on the PHAS 
scoring process and to revise certain procedures and establish others 
in accordance with recently enacted statutory requirements. The 
additional information and the revision of certain procedures impose no 
significant economic impact on a substantial number of small entities. 
Notwithstanding HUD's determination that this rule will not have a 
significant economic effect on a substantial number of small entities, 
HUD specifically invites comments regarding any less burdensome 
alternatives to this rule that will 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 rule will 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. This 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 rule will not create any new 
significant requirements. As a result, the 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 902

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

    Accordingly, HUD proposes to revise part 902 of title 24 of the 
Code of Federal Regulations to read as follows:

[[Page 33353]]

PART 902--PUBLIC HOUSING ASSESSMENT SYSTEM

Subpart A--General Provisions

Sec.
902.1  Purpose and general description.
902.3  Scope.
902.5  Applicability.
902.7  Definitions.

Subpart B--PHAS Indicator #1: Physical Condition

902.20  Physical condition assessment.
902.23  Physical condition standards for public housing--decent, 
safe, sanitary and in good repair (DSS/GR).
902.24  Physical inspection of PHA properties.
902.25  Physical condition scoring and thresholds.
902.26  Physical Inspection Report.
902.27  Physical condition portion of total PHAS points.

Subpart C--PHAS Indicator #2: Financial Condition

902.30  Financial condition assessment.
902.33  Financial reporting requirements.
902.35  Financial condition scoring and thresholds.
902.37  Financial condition portion of total PHAS points.

Subpart D--PHAS Indicator #3: Management Operations

902.40  Management operations assessment.
902.43  Management operations performance standards.
902.45  Management operations scoring and thresholds.
902.47  Management operations portion of total PHAS points.

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

902.50  Resident service and satisfaction assessment.
902.51  Updating of resident information.
902.52  Distribution of survey to residents.
902.53  Resident service and satisfaction scoring and thresholds.
902.55  Resident service and satisfaction portion of total PHAS 
points.

Subpart F--PHAS Scoring

902.60  Data collection.
902.63  PHAS scoring.
902.67  Score and designation status.
902.68  Technical review of results of PHAS Indicators #1 or #4.
902.69  PHA right of petition and appeal.

Subpart G--PHAS Incentives and Remedies

902.71  Incentives for high performers.
902.73  Referral to an Area HUB/Program Center.
902.75  Referral to a TARC.
902.77  Referral to the Departmental Enforcement Center.
902.79  Substantial default.
902.83  Interventions.
902.85  Resident petitions for remedial action.

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

Subpart A--General Provisions


Sec. 902.1  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, 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 #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 October 1, 1998.


Sec. 902.3  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 Department-wide 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. A 
PHA's adherence to these requirements will be monitored in accordance 
with the applicable program regulations and the PHA's annual 
contributions contract.


Sec. 902.5  Applicability.

    (a) PHAs, RMCs, AMEs. (1) 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.
    (2) This part is applicable beginning October 1, 1999.
    (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. 902.7  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).

[[Page 33354]]

    Alternative management entity (AME) is a receiver, private 
contractor, private manager, or any other entity that is under contract 
with a PHA, or that is otherwise duly appointed or contracted (for 
example, by court order or agency action), to manage all or part of a 
PHA's operations. Depending upon the scope of PHA management functions 
assumed by the AME, in accordance with Sec. 902.5(c), the AME is 
treated as a PHA or an RMC for purposes of this part and, as 
appropriate, the terms PHA and RMC include AME.
    Assessed fiscal year is the PHA fiscal year that has been 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 in this part, unless otherwise specified refer to calendar 
days.
    Days Receivable Outstanding is Tenant Receivables divided by Daily 
Tenant Revenue.
    Deficiency means any PHAS score below 60 percent of the available 
points in any indicator, sub-indicator or component. (In the context of 
physical problem condition and physical inspection, deficiency refers 
to a physical condition and is defined for purposes of subpart B of 
this part in Sec. 902.24)
    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 sub-indicators and 
components within the indicator(s), identified as a result of the PHAS 
assessment when a Memorandum of Agreement (MOA) is not required.
    Property is a project/development with a separate identifying 
project number.
    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) to the vacancy rate of that fiscal year two 
years prior 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 three years is a comparison of the average time 
nonemergency work orders were active in the PHAS assessment year (the 
immediate past fiscal year) to the average time nonemergency work 
orders were active in that fiscal year two years prior 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 three 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 to the Capital Fund Program is any work order 
that is combined with similar work items and completed within the 
current PHAS assessment year, or will be completed in the following 
year when there are less than three months remaining before the end of 
the PHA fiscal year from the time the work order was generated, under 
the PHA's Capital Fund program or other PHA capital improvements 
program.

Subpart B--PHAS Indicator #1: Physical Condition


Sec. 902.20  Physical condition assessment.

    (a) Objective. The objective of the Physical Condition Indicator is 
to determine whether a PHA is meeting the standard of decent, safe, 
sanitary, and in good repair (DSS/GR), as this standard is defined in 
Sec. 902.23 (a standard that provides acceptable basic housing 
conditions) and the level to which the PHA is maintaining its public 
housing in accordance with this standard.
    (b) Physical inspection under PHAS Indicator #1. To achieve the 
objective of paragraph (a) of this section, REAC will provide for an 
independent physical inspection of a PHA's property or properties that 
includes, at minimum, a statistically valid sample of the units in the 
PHA's public housing portfolio to determine the extent of compliance 
with the DSS/GR standard. All occupied units will be inspected. 
However, any vacant units not under lease at the time of the inspection 
will not be inspected. The categories of vacant units not under lease 
are as follows:
    (1) Units undergoing vacant unit turnaround--vacant units that are 
in the routine process of turn over; i.e., the period between which one 
resident have vacated a unit and a new lease takes effect;
    (2) Units undergoing rehabilitation--vacant units that have 
substantial rehabilitation needs already identified, and there is an 
approved implementation plan to address the identified rehabilitation 
needs and the plan is fully funded;
    (3) Off-line units--vacant units that have repair requirements such 
that the units cannot be occupied in a normal period of time 
(considered to be between 5 and 7 days) and which are not included 
under an approved rehabilitation plan.
    (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. 902.43(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. 902.23  Physical condition standards for public housing--decent, 
safe, and sanitary housing in good repair (DSS/GR).

    (a) General. Public housing must be maintained in a manner that 
meets the physical condition standards set forth in this part in order 
to be considered decent, safe, sanitary and in good repair (standards 
that constitute acceptable basic housing conditions). These standards 
measure a PHA's performance in maintaining the major physical areas of 
public housing (paragraph (b) of this section). These standards also 
identify health and safety deficiencies that require correction 
(paragraph (c) of this section).
    (b) Major Inspectable Areas. The five major inspectable areas of 
public housing are the following:
    (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

[[Page 33355]]

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.
    (c) 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 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 
(e.g., propane, natural gas, methane gas), or other observable 
deficiencies. The housing must comply with all regulations and 
requirements related to the ownership of pets, and the evaluation and 
reduction of lead-based paint hazards and have available proper 
certifications of such (see 24 CFR part 35).


Sec. 902.24  Physical inspection of PHA properties.

    (a) The inspection, generally. The score for PHAS Indicator 
1 is based upon an independent physical inspection of a PHA's 
properties provided by REAC and using HUD's uniform physical inspection 
protocols.
    (1) During the physical inspection of a property, an inspector 
looks for deficiencies for each inspectable item within the inspectable 
areas, such as holes (deficiencies) in the walls (item) of a dwelling 
unit (area). The dwelling units inspected in a property are a randomly 
selected, statistically valid sample of the units in the property, 
excluding vacant units not under lease at the time of the physical 
inspection.
    (2) To ensure prompt correction of health and safety deficiencies 
before leaving the site, the inspector gives the property 
representative the list of every observed exigent/fire safety health 
and safety deficiency that calls for immediate attention or remedy. The 
property representative acknowledges receipt of the deficiency report 
by signature.
    (3) After the inspection is completed, the inspector transmits the 
results to REAC where the results are verified for accuracy and then 
scored in accordance with the procedures in this subpart.
    (b) Definitions. The following definitions apply to the physical 
condition scoring process in this subpart:
    Criticality means one of five levels that reflect the relative 
importance of the deficiencies for an inspectable item. (1) Based on 
the importance of the deficiency, reflected in its criticality value, 
points are deducted from the score for an inspectable area.

------------------------------------------------------------------------
                          Criticality                             Level
------------------------------------------------------------------------
Critical.......................................................        5
Very important.................................................        4
Important......................................................        3
Contributes....................................................        2
Slight contribution............................................        1
------------------------------------------------------------------------

    (2) The Item Weights and Criticality Levels document lists all 
deficiencies with their designated levels, which vary from 1 to 5, with 
5 as the most critical, and the point values assigned to them.
    Deficiencies means the specific problems, comparable to Housing 
Quality Standards (HQS), such as a hole in a wall or a damaged 
refrigerator in the kitchen, that can be recorded for inspectable 
items.
    Dictionary of Deficiency Definitions refers to the Dictionary of 
Deficiency Definitions document published as an appendix to the PHAS 
Notice on the Physical Condition Scoring Process that contains specific 
definitions of each severity level for deficiencies under this subpart. 
HUD will publish any significant proposed amendments to this document 
for comment. After comments have been considered HUD will publish a 
notice adopting the final Dictionary of Deficiency Definitions document 
or the amendments to the document.
    Inspectable area (or area) means any of the five major components 
of the property that are inspected, which are: site; building 
exteriors; building systems; common areas; and dwelling units.
    Inspectable item means the individual parts, such as walls, 
kitchens, bathrooms, and other things, to be inspected in an 
inspectable area. The number of inspectable items varies for each area. 
Weights are assigned to each item as shown in the Item Weights and 
Criticality Levels document.
    Item Weights and Criticality Levels Document refers to the Item 
Weights and Criticality Levels document published as an appendix to the 
PHAS Notice on the Physical Condition Scoring Process that contains a 
listing of the inspectable items, item weights, observable 
deficiencies, criticality levels and values, and severity levels and 
values that apply to this subpart. HUD will publish any significant 
proposed amendments to this document for comment. After comments have 
been

[[Page 33356]]

considered HUD will publish a notice adopting the final Item Weights 
and Criticality Levels document or the amendments to the document.
    Normalized weights mean weights adjusted to reflect the inspectable 
items or areas that are present to be inspected.
    Score means a number on a scale of 0 to 100 that reflects the 
physical condition of a property, inspectable area, or sub-area. To 
record a health or safety deficiency, a specific designation (such as a 
letter--a, b, or c) is added to the property score that highlights that 
a health or safety deficiency (or deficiencies) exists. To note that 
smoke detectors are inoperable or missing, another designation (such as 
an asterisk (*)) is added to the property score. Although noted, 
inoperable or missing smoke detectors do not reduce the score.
    Severity means one of three levels, severe, major or minor, that 
reflect the extent of the damage or problem associated with each 
deficiency. The Item Weights and Criticality Levels document shows the 
severity levels for each deficiency. Based on the severity of each 
deficiency, the score is reduced. Points deducted are calculated as the 
product of the item weight and the values for criticality and severity. 
For specific definitions of each severity level, see the REAC's 
``Dictionary of Deficiency Definitions''.
    Sub-area means an inspectable area for one building. For example, 
if a property has more than one building, each inspectable area for 
each building in the property is treated as a sub-area.
    (c) Compliance with Civil Rights/Nondiscrimination Requirements. 
HUD will review certain elements during the physical inspection to 
determine possible indications of noncompliance with the Fair Housing 
Act (42 U.S.C. 3601-19) and section 504 of the Rehabilitation Act of 
1973 (29 U.S.C. 794). A PHA will not be scored on those elements. Any 
indication of possible noncompliance will be referred to HUD's Office 
of Fair Housing and Equal Opportunity.
    (d) HUD Access to PHA properties. PHAs are required by the Annual 
Contributions Contract to provide the government with full and free 
access to all facilities contained in the project. PHAs are required to 
provide HUD or its representative with access to the project, all units 
and appurtenances thereto in order to permit physical inspections under 
this part. Access to the units must be provided whether or not the 
resident is home or has installed additional locks for which the PHA 
did not obtain keys. In the event that the PHA fails to provide access 
as required by HUD or its representative, the PHA will be given ``0'' 
points for the project or projects involved which will be reflected in 
the physical condition and overall PHAS score.


Sec. 902.25  Physical condition scoring and thresholds.

    (a) Scoring. Under PHAS Indicator #1, REAC will calculate a score 
for the overall condition of a PHA's public housing portfolio following 
the procedures described in the PHAS Notice on the Physical Condition 
Scoring Process, issued on [insert date of final rule]. HUD will 
publish any significant proposed amendments to this notice for comment. 
After comments have been considered, HUD will publish a notice adopting 
a final notice or amendment.
    (b) Adjustment for physical condition (property 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 overall physical score 
for a property 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 
property or the overall depressed condition of the immediately 
surrounding neighborhood. The intent of this adjustment is to not 
unfairly penalize the PHA through appropriate application of the 
adjustment.
    (1) Adjustments in three areas. Adjustments to the PHA physical 
property 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 property; 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 properties over 10 years old and 
that have not received substantial rehabilitation in the last 10 years.
    (ii) Neighborhood environment applies to properties located where 
the immediate surrounding neighborhood (that is a majority of the 
population that resides in the census tracts or census block groups on 
all sides of the development) has at least 51 percent of families with 
incomes below the poverty rate as documented by the latest census data.
    (3) Adjustment is for physical condition (property age) and 
neighborhood environment. HUD will adjust the physical score of a PHA's 
property subject to both the physical condition (property 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 property, to which these conditions may apply. A 
PHA is required to certify on form HUD-50072, PHAS Certification, 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 properties. The Date of Full Availability (DOFA) 
shall apply to scattered site properties, where the age of units and 
buildings vary, to determine whether the properties have received 
substantial rehabilitation within the past 10 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 property'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. Properties 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 properties 
and the record of capital improvements, evidencing that these 
particular

[[Page 33357]]

properties have not received capital funds.
    (iii) PHAs shall also document that in all cases, properties that 
were exempted for other reasons were not included in the calculation.
    (c) Overall PHA Physical Condition Indicator score. The overall 
physical inspection score for a PHA is the weighted average of the 
PHA's individual property physical inspection scores, where the weights 
are the number of units in each property divided by the total number of 
units in all properties for the PHA.
    (d) Thresholds. (1) The physical inspection score is reduced to a 
30 point basis for the PHAS Physical Condition Indicator.
    (2) 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 percent of the available points under this 
indicator. If the PHA fails to receive a passing score on the Physical 
Condition Indicator, the PHA shall be categorized as a substandard 
physical agency.


Sec. 902.26  Physical Inspection Report.

    (a) Following the physical inspection and computation of the score 
under this subpart, each PHA receives a Physical Inspection Report, 
which allows the PHA to see the magnitude of the points lost by 
inspectable area, and the impact on the score of the health and safety 
(H&S) deficiencies.
    (b) The following items are listed in the Physical Inspection 
Report:
    (1) Normalized weights as the ``possible points'' by area;
    (2) The area scores, taking into account the points deducted for 
observed deficiencies;
    (3) The H&S deductions for site, buildings and units, with H&S 
deductions for buildings combined for exteriors, systems and common 
areas; a listing of all observed smoke detector deficiencies; and a 
projection of the total number of H&S problems that the inspector 
potentially would see in an inspection of all buildings and all units; 
and
    (4) The overall property score.


Sec. 902.27  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. 902.30  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 by measuring the PHA's entity-wide 
performance in each of the components listed in Sec. 902.35, on the 
basis of the annual financial report provided in accordance with 
Sec. 902.33.


Sec. 902.33  Financial reporting requirements.

    (a) Annual financial reports. PHAs must submit their unaudited and 
audited financial data to HUD on an annual basis. The financial 
information must be:
    (1) Prepared in accordance with Generally Accepted Accounting 
Principles (GAAP) as further defined by HUD in supplementary guidance; 
and
    (2) Submitted electronically in the electronic format using the 
Financial Data Schedule (FDS).
    (b) Annual financial report filing dates. The unaudited financial 
information to be submitted to HUD in accordance with paragraph (a) of 
this section, must be submitted to HUD annually, no later than two 
months after the end of the PHA's fiscal year for the reporting period. 
A PHA must submit its audited data using the FDS within nine months of 
the fiscal year end.
    (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 two months after the PHA's fiscal 
year end, and audited financial statements will 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. 902.35  Financial condition scoring and thresholds.

    (a) Scoring. Under PHAS Indicator #2, REAC will calculate a score 
based on the point values of financial condition components, as well as 
audit and internal control flags. Each financial condition component 
has several levels of performance, with different point values for each 
level. A PHA's score for a financial condition component depends upon 
both the level of the PHA's performance under a component, and the 
PHA's size, based on the number of public housing and section 8 units 
and other units the PHA operates. Under PHAS Indicator #2, the REAC 
will calculate a score following the procedures described in the PHAS 
Notice on the Financial Condition Scoring Process, issued on [insert 
date of final rule]. HUD will publish any significant proposed 
amendments to this notice for comment. After comments have been 
considered, HUD will publish a notice adopting a final notice or 
amendment.
    (b) Components of PHAS Indicator #2. The components of PHAS 
Indicator #2 are:
    (1) Current Ratio is current assets divided by current liabilities.
    (2) Number of Months Expendable Fund Balance is the number of 
months a PHA can operate on the Expendable Fund Balance without 
additional resources. The Expendable Fund Balance is the portion of the 
fund balance representing expendable available financial resources, 
that is, the unreserved and undesignated fund balance.
    (3) Days Receivable Outstanding is the average number of days 
tenant receivables are outstanding.
    (4) Occupancy Loss is the loss of potential rent due to non-
occupancy of dwelling units.
    (5) Net Income or Loss divided by the Expendable Fund Balance 
measures how the year's operations have affected the PHA's viability.
    (6) Expense Management/Utility Consumption is the expense per unit 
for key expenses, including utility consumption, and other expenses 
such as maintenance and security.
    (c) Thresholds. (1) 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 percent of the available points 
under this indicator. If the PHA fails to receive a passing score on 
the Financial Condition Indicator, the PHA shall be categorized as a 
substandard financial agency.

[[Page 33358]]

Sec. 902.37  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. 902.40  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, as provided 
in Sec. 902.43.


Sec. 902.43  Management operations performance standards.

    (a) Management operations sub-indicators. The following sub-
indicators listed in this section will be used to assess a PHA's 
management operations. The components and grades for each sub-indicator 
are the same as those for the corresponding indicator under the Public 
Housing Management Assessment Program (PHMAP) at 24 CFR part 901, 
except as may be otherwise noted in this subpart.
    (1) Management sub-indicator #--vacancy rate and unit turnaround 
time. This management sub-indicator examines the vacancy rate, a PHA's 
progress in reducing vacancies, and unit turnaround time. Implicit in 
this management sub-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 sub-indicator #2--Capital Fund. This management sub-
indicator examines the amount and percentage of funds provided to the 
PHA from the Capital Fund under section 9(d) of the 1937 Act, which 
remain unobligated by the PHA after three years, the timeliness of fund 
obligation, the adequacy of contract administration, the quality of the 
physical work, and the adequacy of budget controls. For funding under 
the HOPE VI Program and the Vacancy Reduction Program, only components 
#3, #4, and #5 of this sub-indicator are applicable. This management 
sub-indicator is automatically excluded if the PHA does not have 9(d) 
capital funding.
    (3) Management sub-indicator #3--rents uncollected. This management 
sub-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 sub-indicator #4--work orders. This management sub-
indicator examines the time it takes to complete or abate emergency 
work orders, the average number of days nonemergency work orders were 
active, and any progress a PHA has made during the preceding three 
years to reduce the period of time nonemergency maintenance work orders 
were active. Implicit in this management sub-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 sub-indicator #5--PHA annual inspection of units and 
systems. This management sub-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 Capital Fund needs. This management 
sub-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 sub-indicator #6--Security and Economic Self-
Sufficiency. (i) This management sub-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 other anticrime strategies; coordination 
with local government officials and residents in the project on 
implementation of such strategies; and as applicable, PHA performance 
under any HUD drug prevention/crime reduction/economic self-sufficiency 
grants.
    (ii) Paragraph (a) of this section provides that the components and 
grades for each sub-indicator are the same as those for the 
corresponding indicator under PHMAP except as may be otherwise noted. 
Instead of using the Grade A description in Component #1, Tracking and 
Reporting Crime Related Problems, of PHMAP Indicator #8, Security, the 
following will be used to describe a Grade of A: The PHA Board, by 
resolution, has adopted policies and the PHA has implemented procedures 
and can document that it:
    (A) Tracks crime and crime-related problems in at least 90 percent 
of its developments;
    (B) Has a cooperative system for tracking and reporting incidents 
of crime to local police authorities to improve law enforcement and 
crime prevention; and
    (C) Coordinates with local government officials and its residents 
on the implementation of anticrime strategies.
    (iii) The economic self-sufficiency sub-indicator measures the 
PHA's efforts to coordinate, promote or provide effective programs and 
activities to promote the economic self-sufficiency of residents. For 
this sub-indicator, PHAs will be assessed for all the programs that the 
PHA has HUD funding to implement. Also, PHAs will get credit for 
implementation of programs through partnerships with non-PHA providers, 
even if the programs are not funded by HUD or the PHA.
    (b) Reporting on performance under the Management Operations 
Indicator. A PHA is required to electronically submit a certification 
of its performance under each of the management operations sub-
indicators.
    (1) If a PHA does not have this capability in-house, the PHA should 
consider utilizing local resources, such as the library or another 
local government entity that has internet access. In the event local 
resources are not available, a PHA may go to the nearest HUD Public and 
Indian Housing program office and assistance will be given to the PHA 
to transmit its management operations certification.
    (2) If circumstances preclude a PHA from reporting electronically, 
HUD will consider granting approval to allow a PHA to submit its 
management operations certification manually. A PHA that seeks approval 
to submit its certification manually must ensure that the REAC receives 
a request for manual submission in writing 60 calendar days prior to 
the submission due date of its Management Operations certification. The 
written request must include the reasons why the PHA cannot submit its 
certification electronically. The REAC will respond to such a request 
and will manually forward its determination in writing to the PHA.


Sec. 902.45  Management operations scoring and thresholds.

    (a) Scoring. The Management Operations Indicator score provides an 
assessment of each PHA's management effectiveness. Under PHAS Indicator 
#3,

[[Page 33359]]

REAC will calculate a score of the overall management operations of a 
PHA that reflects weights based on the relative importance of the 
individual management sub-indicators. Under PHAS Indicator #3, the REAC 
will calculate a score following the procedures described in the PHAS 
Notice on the Management Operations Scoring Process, issued on [insert 
date of final rule]. HUD will publish any significant proposed 
amendments to this notice for comment. After comments have been 
considered, HUD will publish a notice adopting a final notice or 
amendment.
    (b) Thresholds. (1) 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 percent of the available points 
under this PHAS Indicator #3. If the PHA fails to receive a passing 
score on the Management Operations Indicator, the PHA shall be 
categorized as a substandard management agency.


Sec. 902.47  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. 902.50  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) Method of assessment, generally. The assessment required under 
PHAS Indicator #4 will be performed through the use of a resident 
service and satisfaction survey. The survey process will be managed by 
the PHA in accordance with a methodology prescribed by HUD. The PHA 
will be responsible for developing a follow-up plan, if applicable, to 
address issues resulting from the survey, subject to independent audit.
    (c) PHA certification of completion of resident survey process. At 
the completion of the resident survey process as described in this 
subpart, a PHA must certify that the resident survey process has been 
managed as directed by HUD. PHAs are required to electronically submit 
their resident service and satisfaction certification.
    (1) If a PHA does not have this capability in-house, the PHA should 
consider utilizing local resources, such as the library or another 
local government entity that has internet access.
    (2) In the event local resources are not available, the PHA may go 
to the nearest HUD PIH program office and assistance will be given to 
the PHA to transmit its resident service and satisfaction 
certification.
    (3) If circumstances preclude the PHA from reporting 
electronically, HUD will consider granting approval to allow a PHA to 
submit its resident service and satisfaction certification manually. A 
PHA that seeks approval to submit the certification manually must 
ensure that the REAC receives the PHA's written request for manual 
submission 60 calendar days before the submission due date of its 
resident service and satisfaction certification. The written request 
must include the reasons why the PHA cannot submit the certification 
electronically. The REAC will respond to the PHA's request and will 
manually forward its determination in writing to the PHA.


Sec. 902.51  Updating of resident information.

    (a) Electronic updating. The scoring process for the Resident 
Service and Satisfaction Indicator is dependent upon electronic 
updating, submission and certification of resident and unit information 
by PHAs.
    (b) Unit address update and verification. The scoring process for 
PHAS Indicator #4 begins with ensuring accurate information about the 
PHA's units.
    (1) PHAs will be required to electronically update unit address 
information initially obtained by the REAC from the recently revised 
form HUD 50058, Family Report. The REAC will supply a list of current 
units (listed by development) to PHAs via the internet. PHAs will be 
asked to make additions, deletions and corrections to their unit 
address list.
    (2) After updating the list, PHAs must verify that the list of unit 
addresses under their jurisdiction is complete. Any incorrect or 
obsolete address information will have a detrimental impact on the 
survey results. A statistically valid number of residents cannot be 
selected to participate in the survey if the unit addresses are 
incorrect or obsolete. If a PHA does not verify the address information 
within 30 calendar days of submission of the list of current units to 
the PHA by the REAC, and the address information is not valid, the REAC 
will not be able to conduct the survey at that PHA. Under those 
conditions, the PHA would not receive any points for the PHAS Resident 
Service and Satisfaction Indicator.
    (c) Electronic updating of the address list. The preferred method 
for updating a unit address list is electronic updating.
    (1) If a PHA does not have this capability in-house, the PHA should 
consider utilizing local resources, such as the library or another 
local government entity that has internet access.
    (2) In the event local resources are not available, the PHA may go 
to the nearest HUD Public and Indian Housing (PIH) program office and 
assistance will be given to transmit the unit address information. The 
PIH office will assist the PHA in electronically updating and 
transmitting its unit address list to the REAC.
    (3) If circumstances preclude a PHA from updating and submitting 
its unit address list electronically, HUD will consider granting 
approval to allow a PHA to submit the updated unit address list 
information manually. A PHA that seeks approval to update its unit 
address list manually must ensure that the REAC receives the PHA's 
written request for manual submission 30 calendar days before the 
submission due date. The written request must include the reasons why 
the PHA cannot update the list electronically. The REAC will respond to 
the PHA's request within 15 calendar days of receipt of the request.


Sec. 902.52  Distribution of survey to residents.

    (a) Sampling. A statistically valid number of residents will be 
chosen to receive the Resident Service and Satisfaction survey. These 
residents will be randomly selected based on the total number of 
occupied and vacant units of the PHA. The Resident Service and 
Satisfaction assessment takes into account the different properties 
managed by a PHA by organizing the resident sampling based on the 
resident representation of each development in relation to the size of 
the entire PHA resident population.
    (b) Survey distribution by third party organization. The Resident 
Service and Satisfaction survey will be distributed to the randomly 
selected sample of residents of each PHA by a third party organization 
designated by HUD. The third party organization will also be 
responsible for:
    (1) Collecting, scanning and aggregating results of the survey;
    (2) Transmitting the survey result to HUD for analysis and scoring; 
and
    (3) Keeping individual responses to the survey confidential.

[[Page 33360]]

Sec. 902.53  Resident service and satisfaction scoring and thresholds.

    (a) Scoring. (1) Under the PHAS Indicator #4, REAC will calculate a 
score based upon two components that receive points and a third 
component that is a threshold requirement.
    (i) One component will be the point score of the survey results. 
The survey content will focus on resident evaluation of the overall 
living conditions, to include basic constructs such as:
    (A) Maintenance and repair (i.e., work order response);
    (B) Communications (i.e, perceived effectiveness);
    (C) Safety (i.e., perception of personal security);
    (D) Services (i.e., recreation and personal programs); and
    (E) Neighborhood appearance.
    (ii) The second component will be a point score based on the level 
of implementation and follow-up or corrective actions based on the 
results of the survey.
    (iii) The final component, which is not scored for points, but 
which is a threshold requirement, is verification that the survey 
process was managed in a manner consistent with guidance provided by 
HUD.
    (2) Under PHAS Indicator #4, the REAC will calculate a score 
following the procedures described in the PHAS Notice on the Resident 
Service and Satisfaction Scoring Process, issued on [insert date of 
final rule]. HUD will publish any significant proposed amendments to 
this notice for comment. After comments have been considered, HUD will 
publish a notice adopting a final notice or amendment.
    (b) Thresholds. A PHA will not receive any points under PHAS 
Indicator #4 if the survey process is not managed as directed by HUD or 
the survey results are determined to be altered. A PHA will receive a 
passing score on the Resident Service and Satisfaction Indicator if the 
PHA receives at least 6 points, or 60 percent of the available points 
under this PHAS Indicator #4.


Sec. 902.55  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. 902.60  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 (see 
Sec. 902.1(e)).
    (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 two months 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 Service and Satisfaction, of this part not later 
than two months 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 three months past the due date, the 
PHA will receive a presumptive rating of failure in all of the PHAS 
indicators, sub-indicators and components certified to, which shall 
result in a troubled designation or identification as troubled with 
respect to the program for assistance from the Capital Fund under 
section 9(d).
    (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, including 
review by an independent auditor as authorized by 42 U.S.C. 
1437(d)(j)(6). 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), sub-indicator(s) and/or component(s) shall receive a 
score of 0 for the relevant indicator(s), sub-indicator(s) and/or 
component(s), and its overall PHAS score shall be lowered.
    (3) A PHA's PHAS score under individual indicators, sub-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. 902.63  PHAS scoring.

    (a) Issuance of score by HUD. An overall PHAS score will be issued 
by REAC for each PHA one month after a PHA submits its year-end 
financial data and certifications.
    (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

[[Page 33361]]

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 (or RMC or AME 
as the case may be) 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. 902.67  Score and designation status.

    Designation status corresponding to score. A PHA will be scored 
with a corresponding designation of status as follows:
    (a) High Performer. A PHA that achieves a score of at least 60 
percent 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 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, as described in Sec. 902.71.
    (b) Standard Performer. A PHA that is not a high performer but 
achieves a total PHAS score of not less than 60 percent shall be 
designated a standard performer. All standard performers must correct 
reported deficiencies. A PHA that achieves a total PHAS score of less 
than 70 percent, but not less that 60 percent, is required by the HUB/
Program Center to submit an Improvement Plan to correct identified 
deficiencies.
    (c) Troubled Performer. (1) Overall troubled PHAs. A PHA that 
achieves an overall PHAS score of less than 60 percent or achieves less 
than 60 percent of the total points available under more than one of 
the following indicators, PHAS Indicators #1, #2, or #3, shall be 
designated as troubled (overall), and referred to the TARC as described 
in Sec. 902.75.
    (2) Troubled in one area. A PHA that achieves less than 60 percent 
of the total points available under one of the following indicators, 
PHAS Indicators #1, #2, or #3, shall be categorized as substandard 
physical, substandard financial, or substandard management performer, 
and referred to the TARC as described in Sec. 902.75.
    (d) Withholding designation. (1) In exceptional circumstances, even 
though a PHA has satisfied all of the PHAS Indicators for high or 
standard performer designation, HUD may conduct any review as it may 
determine necessary, and may deny or rescind incentives or high or 
standard performer designation, 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 
physical, financial or management performance of a PHA;
    (iii) Is operating under a court order;
    (iv) Demonstrates substantial evidence of fraud or misconduct, 
including evidence that the PHA's certifications, submitted in 
accordance with this part, are not supported by the facts, as evidenced 
by such sources as a HUD review, routine reports, 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 of 
a PHA's required compliance with applicable laws and regulations, 
including areas not assessed under the PHAS. Areas of substantial 
noncompliance include, but are not limited to, noncompliance with civil 
rights, nondiscrimination and fair housing laws and regulations, or the 
Annual Contributions Contract. Substantial noncompliance casts doubt on 
the capacity of a PHA to preserve and protect its public housing 
developments and operate them consistent with Federal laws and 
regulations.
    (2) If high performer designation is denied or rescinded, the PHA 
shall be designated a standard performer. If standard performer 
designation is denied or rescinded, the PHA shall be designated 
troubled.


Sec. 902.68  Technical review of results of PHAS Indicator #1 or #4.

    (a) Request for technical reviews. This section describes the 
process for requesting and granting technical reviews of physical 
inspection results and resident survey results.
    (1) For both reviews, the burden of proof is on the PHA to show 
that an error occurred.
    (2) For both reviews, a request for technical review must be 
submitted in writing to the Director of the Real Estate Assessment 
Center and must be received by REAC no later than 15 days following the 
issuance of the applicable results to the PHA (either the physical 
inspection results or the resident survey results). The request must be 
accompanied by the PHA's reasonable evidence that an error occurred.
    (b) Technical review of physical inspection results. (1) For each 
property inspected, the REAC will provide the results of the physical 
inspection and a score for that property to the PHA. If the PHA 
believes that an objectively verifiable and material error (or errors) 
occurred in the inspection of an individual property, the PHA may 
request a technical review of the inspection results for that property.
    (2) For a technical review of physical inspection results, the 
PHA's request must be accompanied by the PHA's evidence that an 
objectively verifiable and material error has occurred. The 
documentation submitted by the PHA may be photographic evidence, 
written material from an objective source, such as a local fire marshal 
or building code official, or other similar evidence. The evidence must 
be more than a disagreement with the inspector's observations, or the 
inspector's finding regarding the severity of the deficiency.
    (3) A technical review of a property's physical inspection will not 
be conducted based on conditions that were corrected subsequent to the 
inspection, nor will the REAC consider a request for a technical review 
that is based on a challenge to the inspector's findings as to the 
severity of the deficiency (i.e., minor, major or severe).
    (4) Upon receipt of a PHA's request for technical review of a 
property's inspection results, the REAC will review the PHA's file and 
any objectively verifiable evidence produced by the PHA. If the REAC's 
review determines that an objectively verifiable and material error (or 
errors) has been documented, then the REAC may take one or a 
combination of the following actions:
    (i) Undertake a new inspection;
    (ii) Correct the physical inspection report;
    (iii) Issue a corrected physical condition score;
    (iv) Issue a corrected PHAS score.
    (5) In determining whether a new inspection of the property is 
warranted and a new PHAS score must be issued, the REAC will review the 
PHA's file and evidence submitted to determine whether the evidence 
supports that there may have been a significant contractor error in the 
inspection which results in a significant change from the property's 
original physical condition score and the PHAS designation assigned to 
the PHA (i.e., high performer, standard performer, or troubled). If the 
REAC determines that a new inspection is warranted, and the new 
inspection results in a significant change from the original physical 
condition score, and the PHA's PHAS

[[Page 33362]]

score and PHAS designation, the REAC shall issue a new PHAS score to 
the PHA.
    (6) Material errors are the only grounds for technical review of 
physical inspection results. Material errors are those that exhibit 
specific characteristics and meet specific thresholds. The three types 
of material errors are:
    (i) Building data error. A building data error occurs if the 
inspection includes the wrong building or a building that was not owned 
by the property, including common or site areas that were not a part of 
the property. Incorrect building data that does not affect the score, 
such as the address, building name, year built, etc., would not be 
considered material, but is of great interest to HUD and will be 
corrected upon notice to the REAC.
    (ii) Unit count error. A unit count error occurs if the total 
number of units considered in scoring is incorrect. Since scoring uses 
total units, the REAC will examine instances where the participant can 
provide evidence that the total units used is incorrect.
    (iii) Non-existent deficiency error. A non-existent deficiency 
error occurs if the inspection cites a deficiency that does not exist.
    (7) A PHA's subsequent correction of deficiencies identified as a 
result of a property's physical inspection cannot serve as the basis 
for an appeal of the PHA's physical condition score.
    (c) Technical review of resident survey results. The REAC will 
consider conducting a technical review of a PHA's resident survey 
results in cases where the contracted third party organization can be 
shown by the PHA to be in error.
    (1) The burden of proof rests with the PHA to provide objectively 
verifiable evidence that a technical error occurred. Examples include, 
but are not limited to, incorrect material being mailed to residents; 
or the PHA's units addresses were incorrect due to the third party 
organization's error, such as unit numbers being omitted from the 
addresses. A PHA that does not update its unit address list as 
described, above, will not be eligible for a technical review based on 
incorrect addresses.
    (2) Upon receipt of a PHA's request for technical review of a 
resident survey results, the REAC will review the PHA's file and 
evidence submitted by the PHA. If the REAC's review determines that an 
error has been documented, the REAC may take one or a combination of 
the following actions:
    (i) Undertake a new survey;
    (ii) Correct the resident survey results report;
    (iii) Issue a corrected resident services and satisfaction score;
    (iv) Issue a corrected PHAS score.


Sec. 902.69  PHA right of petition and appeal.

    (a) Petition for removal of troubled designation and appeal of 
refusal to remove troubled designation. A PHA may:
    (1) Petition for removal of troubled designation; and
    (2) Appeal any refusal to remove such designation.
    (b) Appeal of PHAS score. (1) If a PHA believes that an objectively 
verifiable and material error (or errors) exists in any of the scores 
for its PHAS Indicators, which, if corrected, will result in a 
significant change in the PHA's PHAS score and its designation (i.e., 
as troubled, standard, or high performer), the PHA may appeal its PHAS 
score. A significant change in a PHAS score is a change that would 
cause the PHA's PHAS score to increase, resulting in a higher PHAS 
designation for the PHA (i.e., from troubled performer to standard 
performer, or from standard performer to high performer).
    (2) To request an appeal of its PHAS score, a PHA must submit its 
request in writing to the Director of the Real Estate Assessment Center 
and must be received by the REAC no later than 30 calendar days 
following the issuance of the PHAS score to the PHA. The request for 
appeal must be accompanied by the PHA's reasonable evidence that an 
objectively verifiable and material error occurred. The REAC will 
review the PHA's file and the evidence submitted by the PHA to support 
that an error occurred. If the REAC determines that an objectively 
verifiable and material error has been documented by the PHA, the REAC 
may undertake a new inspection of the property, and/or a reexamination 
of the financial information, management information, or resident 
information (the components of the PHAS score), depending upon which 
PHAS Indicator the PHA believes was scored erroneously and the type of 
evidence submitted by the PHA to support its position that an error 
occurred. An appeal submitted to the REAC without appropriate 
documentation will not be considered and will be returned to the PHA.
    (3) 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.
    (4) 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. 902.71  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. (i) 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.
    (ii) A PHA's project(s) that receives a physical inspection score 
of 90 percent or greater shall be subject to a physical inspection of 
that project(s) every other year rather than annually. For example, 
project A received a physical inspection score of 94 percent and 
project B received a physical inspection score of 78 percent. Project A 
will receive a physical inspection every other year and project B will 
receive a physical inspection annually.
    (2) Public recognition. High-performer PHAs and RMCs that receive a 
score of at least 60 percent of the points available under each of the 
four PHAS Indicators and achieve an overall PHAS score of 90, 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

[[Page 33363]]

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 be conducted as circumstances may warrant.


Sec. 902.73  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 percent but not less than 60 percent 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 percent 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 
percent 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, sub-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. An 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 percent 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, sub-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, sub-indicator and/or 
component that 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 area 
Troubled Agency Recovery Center (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, including 
the remedies available for substantial default. In the case of a PHA's 
failure to correct deficiencies within the time specified in an 
Improvement Plan or such extensions as may be granted by HUD, if the 
TARC determines that it is appropriate to refer the PHA to the 
Departmental Enforcement Center (DEC), it will only do so after the PHA 
has had one year since the issuance of the PHAS score (or, in the case 
of an RMC, notification of its score from a PHA) to correct its 
deficiencies.


Sec. 902.75  Referral to a Troubled Agency Recovery Center (TARC).

    Upon a PHA's designation of troubled (including PHAs categorized as 
substandard), 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, which may 
include a determination of priority of needs and referral to the HUB/
Program Center. The actions to be taken by HUD and the PHA will include 
actions statutorily required, and such other actions as may be 
determined by HUD:
    (a) Recovery Plan and Memorandum of Agreement (MOA). Within 30 days 
of notification of the designation of a troubled PHA, HUD will take 
action to develop a Recovery Plan or MOA. 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 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 HUD, and 
discuss any recommended changes and target dates for improvement to be 
incorporated in the final MOA. Unless the time period is extended by 
HUD, the MOA is to be executed 15 days following issuance of the 
preliminary MOA.
    (c) Memorandum of Agreement. The final MOA is a binding contractual

[[Page 33364]]

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, sub-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, sub-indicator or 
component 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 designation or troubled with respect to the program for 
assistance from the Capital Fund under section 9(d) 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 controls by HUD, declaration of substantial default and 
subsequent actions, including referral to the DEC for judicial 
appointment of a receiver, limited denial of participation, suspension, 
debarment, or other actions deemed appropriate by the DEC; 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. (1) Upon the expiration of the one-
year period beginning on the date on which the PHA receives initial 
notice of troubled designation or substandard status, or October 21, 
1998, whichever is later, the PHA shall improve its performance, as 
measured by the PHAS Indicators, by at least 50 percent of the 
difference between the most recent performance measurement and the 
measurement necessary to remove the PHA's designation as troubled or 
substandard status.
    (2) Upon the expiration of the two-year period beginning on the 
later of the date on which the PHA receives initial notice of troubled 
or substandard status, or October 21, 1998, the PHA shall improve its 
performance and achieve an overall PHAS score of at least 60 percent, 
and/or achieve a score of at least 60 percent of the total points 
available under each PHAS Indicator.
    (e) Parties to the MOA. An MOA shall be executed by:
    (1) The PHA Board Chairperson (supported 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 a 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 DEC, 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 an increase of at least 50 percent of the 
points needed to achieve a passing PHAS score. The maximum period of 
time for remaining in troubled status before being referred to the DEC 
is two years.
    (2) The following example illustrates the provisions of paragraph 
(g)(1) of this section:

    Example: A PHA receives a score of 50 percent; 60 percent 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 five-point increase, the PHA will be referred 
to the DEC. The maximum period of time for remaining in troubled 
status before being referred to the DEC is two years.

    (h) To the extent feasible, while a PHA is under a referral to a 
TARC, all services to residents will continue uninterrupted.


Sec. 902.77  Referral to the Departmental Enforcement Center.

    (a) Failure of a troubled PHA to execute or meet the requirements 
of a memorandum of agreement in accordance with Sec. 902.75 constitutes 
a substantial default in accordance with Sec. 902.79 and shall result 
in referral to the DEC. The DEC 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 
DEC shall initiate the judicial appointment of a receiver or the 
interventions provided in Sec. 902.83; and may initiate limited denial 
of participation, suspension, debarment, the imposition of other 
sanctions available to the DEC including referral to the appropriate 
Federal government agencies or offices for the imposition of civil or 
criminal sanctions.
    (b) To the extent feasible, while a PHA is under a referral to the 
DEC, all services to residents will continue uninterrupted.


Sec. 902.79  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. 902.75, 
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. 902.75(g), in its PHAS score in 1 year following issuance of the 
failed score is in substantial default.

[[Page 33365]]

    (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 (including but not limited to the Office of Fair Housing 
Enforcement, the Office of the Inspector General, a judicial referral 
or a referral from a mayor or other official) 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 is 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 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. 902.83, and determined to be appropriate to remedy 
the noncompliance, citing Sec. 902.83, 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. 902.83.
    (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. 902.83  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 of any party, when the court determines 
that all defaults have been cured or the public housing agency is 
capable again of discharging its duties.
    (e) HUD may take the actions described in this part sequentially or 
simultaneously in any combination.


Sec. 902.85  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

[[Page 33366]]

organizations of residents whose membership must equal at least 20 
percent of the PHA's residents.

    Dated: June 15, 1999.
Harold Lucas,
Assistant Secretary for Public and Indian Housing.
Donald J. LaVoy,
Acting Director, Real Estate Assessment Center.
[FR Doc. 99-15735 Filed 6-21-99; 8:45 am]
BILLING CODE 4210-33-P