[Federal Register Volume 65, Number 109 (Tuesday, June 6, 2000)]
[Rules and Regulations]
[Pages 36042-36046]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14160]



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Part VI





Department of Housing and Urban Development





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24 CFR Part 902



Public Housing Assessment System (PHAS): Technical Correction; Final 
Rule



Public Housing Assessment System (PHAS); Transition Assistance for 
Certain PHAs; Notice

  Federal Register / Vol. 65, No. 109 / Tuesday, June 6, 2000 / Rules 
and Regulations  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 902

[Docket No. FR-4497-C-06]
RIN 2577-AC08


Public Housing Assessment System (PHAS): Technical Correction

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

ACTION: Technical correction.

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SUMMARY: On January 11, 2000, HUD published a final rule that made 
certain amendments to the Public Housing Assessment System regulations, 
issued as final regulations by HUD on September 1, 1998. This document 
makes certain technical and editorial corrections to the January 11, 
2000, final rule. Elsewhere in this edition of the Federal Register, 
HUD is publishing a notice concerning additional PHAS transition 
assistance for certain PHAs.

DATES: Effective Date: February 10, 2000.

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 Technical Assistance 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.

SUPPLEMENTARY INFORMATION:

I. Background

    On January 11, 2000 (65 FR 1712), HUD issued a final rule that made 
certain amendments to the Public Housing Assessment System (PHAS) 
regulations. The PHAS was implemented by final regulations published on 
September 1, 1998. The amendments published to the PHAS regulations on 
January 11, 2000, followed a proposed rule published on June 22, 1999, 
and the amendments were prompted by both statutory and administrative 
changes to the PHAS. The Quality Housing and Work Responsibility Act of 
1998 (Pub.L. 105-276, approved October 21, 1998) (referred to as the 
``Public Housing Reform Act'') made certain amendments to section 6(j) 
of the U.S. Housing Act of 1937, which necessitated changes to the PHAS 
regulations. Additionally, HUD determined that certain changes were 
needed to the regulations as a result of the transition period to the 
new PHAS that HUD provided following issuance of the September 1, 1998, 
final rule. The September 1, 1998 final rule did not provide for 
immediate implementation of PHAS, but rather provided for a year's 
transition period in which HUD tested its PHAS systems, provided 
advisory scores, and continued discussions and meetings with public 
housing agencies (PHAs) and residents, and their respective 
representatives about the PHAS. As a result of this transition period, 
extended by HUD at the request of PHAs, and discussions and meetings 
which continued well into the fall and winter of 1999, HUD determined 
certain changes were needed. The changes, both statutory and regulatory 
were discussed in the preambles to the June 22, 1999, proposed rule, 
and the January 11, 2000, final rule.

II. Technical Corrections

    This document corrects certain errors that appeared in the January 
11, 2000 final rule. Three primary corrections are made by this 
document:
     First, in Sec. 902.43, HUD reinstates ``vacant unit 
turnaround time'' as a Management Operations sub-indicator.
    In the preamble to the January 11, 2000, final rule, HUD advised 
that it was persuaded by public comment on the proposed rule and 
discussions with PHAs that assessing vacancy rate under the Management 
Operations Indicator was duplicative of assessing ``occupancy loss'' 
and ``tenant receivable outstanding'' under the Financial Condition 
Indicator. HUD therefore agreed that the vacancy rate sub-indicator 
under the Management Operations Indicator would be removed. (See 
discussion at 65 FR 1716). In removing ``vacancy rate'' from 
Sec. 902.43, HUD inadvertently also removed ``vacant unit turnaround 
time.'' These two components were combined together as one sub-
indicator under PHAS (just as they had been under the predecessor 
system--the Public Housing Management Assessment Program (PHMAP)). 
Vacant unit turnaround time is a statutorily required indicator and is 
not covered by any other sub-indicator in either the Financial 
Condition Indicator or the Management Operations Indicator, and the 
removal of this sub-indicator was not part of the discussions between 
HUD and the PHAs, nor was vacant unit turnaround time raised by public 
commenters on the June 22, 1999, proposed rule as an assessment 
component found under more than one PHAS Indicator (again, as was the 
case with vacancy rate).
    HUD is therefore reinstating this sub-indicator through this 
correction document. In revised Sec. 902.43, HUD makes the vacant unit 
turnaround time the first sub-indicator, and the remaining sub-
indicators are redesignated accordingly. For the convenience of the 
reader, the entire section is republished, as corrected.
     Second, the Board of Review process provided in 
Sec. 902.69 is applicable to appeal of PHAS scores, and not just to 
appeal of troubled designation or petition for removal of troubled 
designation. This was made clear in the preamble discussion at page 
1728, third column, continuing on page 1729, first column. In this 
discussion, in response to a comment from the public that the appeal 
process did not allow for reviewing of the scoring process itself, and 
the process was too abbreviated, HUD responded by referring to the 
process in Sec. 902.69, and noted that this appeal process provides for 
referral to the Board of Review.
    HUD, therefore, revises the language in Sec. 902.69 to clarify that 
this process is applicable to appeal of PHAS scores, consistent with 
the discussion in the preamble.
     Third, with the extension of advisory scores to PHAs with 
fiscal years ending March 31, 2000, HUD has corrected this section to 
reflect implementation of PHAS begins with PHAs with fiscal years 
ending on and after June 30, 2000, and to allow for flexibility if 
further changes are considered necessary that will not require another 
correction or amendment to the rule.
    Other corrections made by this document are as follows:
     In Sec. 902.20, HUD removes in paragraph (b)(2) the 
reference to the assessment of vacant units under the Management 
Operations Indicator. (See 65 FR 1741, first column.) In the January 
11, 2000, final rule, HUD determined that unit vacancy only would be 
assessed by the occupancy loss sub-indicator under the Financial 
Condition Indicator. Therefore this reference is incorrect.
     In Sec. 902.20, the regulatory reference in paragraph (c) 
should be Sec. 902.43(a), not Sec. 902.43(a)(5). (See 65 FR 1741, first 
column.) HUD corrects this cross-reference.
     In Sec. 902.25, HUD replaces the word ``latest'' in 
paragraph (b)(2)(ii) which appears before the term ``census data'' with 
the word ``most recent.'' (See 65 FR 1743, first column.) HUD believes 
that

[[Page 36043]]

the phrase ``most recent'' is a more clear description of the type of 
census data needed.
     In Sec. 902.25, HUD clarifies in paragraph (c)(3) that 
adjustments for modernization work-in-progress are not limited to units 
but encompass modernization work-in-progress being undertaken in other 
areas in a PHA's development, which areas are subject to physical 
inspection by HUD. (See 65 FR 1744, first column.)
     In Sec. 902.35, HUD corrects the definition of ``Tenant 
Receivable Outstanding'' to further clarify its meaning.
     In Sec. 902.43, the use of the term ``unobligated'' in the 
first sentence of paragraph (a)(1) is incorrect. (See 65 FR 1745, third 
column.) The correct term should be ``unexpended.'' HUD makes this 
correction.
     In Sec. 902.43, the regulatory reference in paragraph 
(b)(1) should be to Sec. 902.60(d), not 902.69(d). (See 65 FR 1746, 
middle column.) HUD corrects this cross-reference.
     In Sec. 902.45, HUD clarifies that a PHA that receives 
less than 60 percent of the maximum calculation for the Capital Fund 
subindicator under PHAS Indicator #3 (Management Operations) is 
troubled with respect to program assistance under the Capital Fund. 
(See 65 FR 1746, end of middle column, top of third column.) This is 
clearly stated in Sec. 902.67(c)(2)(ii), but should also be stated in 
Sec. 902.45.
     In Sec. 902.60, paragraph (e)(2) is amended to clarify 
that a PHA's failure to submit a certification required under the PHAS 
regulations or to submit year-end financial information will result in 
a score of zero only for the PHAS Indicator for which the certification 
or financial information is required and not received. Without this 
correction, the rule indicates that the PHA would receive a score of 
zero for all of the PHAS Indicators which require certifications, even 
if certifications are received for some of them. (See 65 FR 1748, first 
column.)
    This section is also amended to clarify that HUD may not extend the 
reporting deadline for audited financial statements. OMB Circular A-133 
provides that an audited financial statement must be submitted within 
nine months after an entity's fiscal year-end. This deadline may not be 
extended by HUD, and the revised language clarifies this.
     In Sec. 902.67, the regulatory reference in paragraph 
(c)(2)(ii) should be to Sec. 902.43(a), not Sec. 902.43(a)(2). (See 65 
FR 1749, first column.) HUD corrects this cross-reference.
     In Sec. 902.69, HUD replaces the term ``final PHAS score'' 
in the first sentence of paragraph (c)(1)) with the term ``overall PHAS 
score.'' (See 65 FR 1750, middle column.) As stated in Sec. 902.63(c), 
a PHA's overall PHAS score becomes its final PHAS score after any 
adjustments are made in accordance with the regulatory provisions and 
following the appeals process provided in Sec. 902.69.
     In Sec. 902.77, the regulatory reference in the second 
sentence of paragraph (a)(1) should be Sec. 902.79, not Sec. 902.69. 
(See 65 FR 1753, first column.) HUD corrects this cross-reference.
    In Sec. 902.79, the reference in paragraph (b)(1)(iv) to 
``paragraph (a) of this section'' is incorrect. (See 65 FR 1753, third 
column.) The reference should be to ``paragraph (b)(4) of this 
section.'' HUD corrects this reference.

III. Responses to Post-Final Rule Questions

    In addition to the regulatory changes described above, other issues 
or concerns were raised to HUD after publication of the January 11, 
2000, final rule, as follows.
    HUD was asked to correct the January 11, 2000, final rule to 
include a definite period of time in which HUD must respond to a 
request for an appeal. HUD points out that Sec. 902.69(e) provides that 
HUD will make final decisions of appeals within 30 days of receipt of 
an appeal, and may extend this period for an additional 30 days if 
further inquiry is necessary. No correction is needed since the rule 
does address this issue.
    HUD was asked how a PHA designated as troubled under PHMAP and in 
receivership can obtain an acceptable PHMAP rating to get out of 
receivership since there are no more PHMAP ratings. As noted in the 
preamble to the first PHAS rule issued in 1998, and discussed in other 
PHAS notices and the 1999 rule, PHAS Indicator #3 (Management 
Operations) covers the majority of areas covered by PHMAP. As noted in 
the PHAS Transition Notice, published on October 21, 1999 (64 FR 
56676), PHAs with fiscal years ending September 30, 1999, or December 
31, 1999, will receive an assessment score solely on the basis of HUD's 
assessment of the PHA's management operations in accordance with 24 CFR 
part 902, subpart D of the PHAS regulations (PHAS Indicator #3, 
Management Operations). (See 64 FR 56677, middle column). As the 
October 21, 1999, notice provided, PHAs with fiscal years ending on or 
after March 31, 2000, will receive a PHAS score; and therefore, either 
an assessment score under PHAS Indicator #3, for PHAs with fiscal years 
ending September 30, 1999, or December 31, 1999, or a PHAS score for 
PHAs with fiscal years ending on or after March 31, 2000, take the 
place of the PHMAP score. (As noted earlier, and as discussed further 
below, PHAS advisory scores are extended to PHAs with fiscal years 
ending on March 31, 2000, and the October 21, 1999, and December 16, 
1999, PHAS Transition Assistance Notices are revised by this document.) 
HUD also was asked about a statement in the preamble concerning HUD's 
discussions with GAO concerning the GAO report on its analysis of the 
PHAS. (See 65 FR 1713, first column.) HUD acknowledges that this 
preamble language requires clarification. At the time the Conference 
Report to the FY 2000 HUD Appropriations Act was issued (October 13, 
1999), GAO's planned review of the physical inspection process focused 
only on HUD's multifamily housing, not public housing. Although, GAO 
subsequently expanded the scope of its review to include public 
housing, GAO acknowledged that its analysis of implementation of PHAS 
in public housing and compilation of a report would take several 
months. Postponing implementation of PHAS until the GAO report was 
completed would have caused a significant delay. HUD advised both GAO 
and Congressional staff before publication of the January 11, 2000, 
final rule that HUD would proceed with its PHAS implementation plans. 
When the GAO report is complete, HUD will examine the GAO findings and 
make any changes to the PHAS physical inspection process that will 
refine and improve this system.

IV. Related Document--Notice on Additional Transition Assistance

    HUD also was asked to provide further transition assistance to 
certain PHAs. Please see HUD's notice published elsewhere in this 
edition of the Federal Register that addresses PHAS transition 
assistance for certain PHAs.

List of Subjects in 24 CFR Part 902

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

    Accordingly, 24 CFR part 902 is corrected by making the following 
correcting amendments:

PART 902--PUBLIC HOUSING ASSESSMENT SYSTEM

    1. The authority citation for 24 CFR part 902 continues to read as 
follows:

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

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    2. Revise Sec. 902.5 to read as follows.


Sec. 902.5  Applicability.

    (a) PHAs, RMCs, AMEs. (1) Scoring of RMCs and AMEs. This part 
applies to PHAs, Resident Management Corporations (RMCs) and Alternate 
Management Entities (AMEs), as described in this section. As described 
in this section, this part is also applicable to RMCs that receive 
direct funding from HUD in accordance with section 20 of the 1937 Act 
(DF-RMCs).
    (i) RMCs and DF-RMCs will be assessed and issued their own numeric 
scores under the PHAS based on the public housing developments or 
portions of public housing developments that they manage and the 
responsibilities they assume which can be scored under PHAS. References 
in this part to PHAs include RMCs and this part is applicable to RMCs 
unless stated otherwise. References in this part to RMCs include DF-
RMCs and this part is applicable to DF-RMCs unless otherwise stated.
    (ii) AMEs are not issued PHAS scores. The performance of the AME 
contributes to the PHAS score of the PHA or PHAs for which they assumed 
management responsibilities.
    (2) PHA ultimate responsible entity under ACC, except where DF-RMC 
assumes management operations. (i) Because the PHA and not the RMC/AME 
is ultimately responsible to HUD under the 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 (including a 
court ordered receivership agreement, if applicable).
    (ii) A PHA's PHAS score will not be based on developments managed 
by a DF-RMC.
    (b) Implementation of PHAS. The regulations in this part are 
applicable to PHAs with fiscal years ending on and after June 30, 2000, 
unless HUD, through Federal Register, notice revises the implementation 
date to later date.
    (1) For PHAs that are not issued PHAS scores. Under certain 
circumstances, PHAs may not be issued PHAS scores. For these PHAs, in 
lieu of a PHAS score, HUD will issue the following:
    (i) PHAS Advisory Score. A PHA will be issued a PHAS advisory score 
for all PHAS indicators--Indicators #1 (Physical), #2 (Financial), #3 
(Management Operations), and #4 (Resident Service and Satisfaction). 
The PHA must comply with the requirements of this part so that HUD may 
issue the advisory score. Physical inspections required to be conducted 
by PHAs under the Management Operations Indicator will be conducted 
using HUD uniform physical inspection protocol, unless HUD provides, 
through Federal Register notice, that PHAs may use HUD's Housing 
Quality Standards.
    (ii) Management Assessment Score. A PHA will receive an assessment 
score on the basis of HUD's assessment of the PHA's management 
operations in accordance with subpart D of this part.

    3. In Sec. 902.20, revise paragraphs (b)(2) introductory text and 
(c) to read as follows:


Sec. 902.20  Physical condition assessment.

* * * * *
    (b) * * *
    (2) Only occupied units will be inspected as dwelling units (except 
units approved by HUD for non-dwelling purposes, e.g., daycare or 
meetings, which are inspected as common areas). Vacant units that are 
not under lease at the time of the physical inspection will not be 
inspected, but vacant units are assessed under the Financial Condition 
Indicator #2 (Sec. 902.35(b)(4)). The categories of vacant units not 
under lease that are exempted from physical inspection are as follows:
* * * * *
    (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(f)(3) of the Act (42 U.S.C. 1437d(f)(3)), and Sec. 902.43(a).
* * * * *

    4. In Sec. 902.25, revise paragraphs (b)(2)(ii), (c)(3) 
introductory text, and (c)(3)(i) to read as follows:


Sec. 902.25  Physical condition scoring and thresholds.

* * * * *
    (b) * * *
    (2) * * *
    (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 most recent census 
data.
* * * * *
    (c) * * *
    (3) Adjustments for modernization work in progress. HUD may 
determine that an occupied dwelling unit or other areas of a PHA 
development, subject to physical inspection under this subpart, which 
are undergoing modernization work in progress require an adjustment to 
the physical condition score.
    (i) An occupied dwelling unit or other areas of a PHA development 
undergoing modernization are subject to physical inspection; the unit 
and other areas of the PHA development are not exempt from physical 
inspection. All elements of the unit or of the other areas of the PHA 
development that are subject to inspection and are not undergoing 
modernization at the time of the inspection (even if modernization is 
planned) will be subject to HUD's physical inspection protocol without 
adjustment. For those elements of the unit or of the development that 
are undergoing modernization, deficiencies will be noted in accordance 
with HUD's physical inspection protocol, but the PHA may request 
adjustment of the physical condition score as a result of modernization 
work in progress.
* * * * *

    5. In Sec. 902.35, revise paragraph (b)(3) to read as follows:


Sec. 902.35  Financial condition scoring and thresholds.

* * * * *
    (b) * * *
    (3) Tenant Receivable Outstanding is the average number of days 
tenant receivables are outstanding and it is calculated by dividing 
tenant accounts receivable by Daily Tenant Revenue (rental revenue/
365).
* * * * *

    6. Revise Sec. 902.43 to read as follows:


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 provided in Appendix 1 to the PHAS Notice on the 
Management Operations Scoring Process, except as may be otherwise noted 
in this subpart.
    (1) Management sub-indicator #1--Vacant Unit Turnaround Time. This 
sub-indicator measures the PHA's efforts to reduce unit turnaround time 
and assesses the adequacy of the PHA's system to track unit 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 Act, which remain 
unexpended by the PHA after three years, the timeliness of fund 
obligation,

[[Page 36045]]

the adequacy of contract administration, the quality of the physical 
work, and the adequacy of budget controls. For funding under the HOPE 
VI 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 section 9(d) capital funding.
    (3) Management sub-indicator #3--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.
    (4) Management sub-indicator #4--PHA Annual Inspection of Units and 
Systems. This management sub-indicator examines the percentage of units 
and systems 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.
    (5) Management sub-indicator #5--Security. (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 6(j)(1)(I) (42 U.S.C. 1437d(j)(1)(I)), of applicant 
screening and resident eviction policies and procedures, and other 
anticrime strategies; coordination with local government officials and 
residents in the development on implementation of such strategies; and 
as applicable, PHA performance under any HUD drug prevention/crime 
reduction 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 provided in Appendix 1 to the PHAS Notice on 
the Management Operations Scoring Process, except as may be otherwise 
noted. For Component #1, Tracking and Reporting Crime Related Problems, 
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.
    (6) Management sub-indicator #6--Economic Self-Sufficiency. 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 receive 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. (1) A PHA is required to submit electronically a 
certification of its performance under each of the management 
operations sub-indicators in accordance with Sec. 902.60(d).
    (2) If circumstances preclude a PHA from reporting electronically, 
HUD will consider granting short-term 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 REAC 
receives a request for manual submission in writing two months 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. REAC will respond to such a request and 
will manually forward its determination in writing to the PHA.
    7. In Sec. 902.45, paragraph (b) is revised to read as follows:


Sec. 902.45  Management operations scoring and thresholds.

* * * * *
    (b) Thresholds. (1) In order to receive a passing score under the 
Management Operations Indicator, the PHA must achieve a score of at 
least 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.
    (2) A PHA that receives less than 60 percent of the maximum 
calculation for the Capital Fund subindicator under Management 
Operations Indicator, shall be subject to the sanctions provided in 
section 6(j)(4) of the Act (see Sec. 902.67(c)(2)(ii).)

    8. In Sec. 902.60, paragraph (e)(2) is revised to read as follows:


Sec. 902.60  Data collection.

* * * * *
    (e) * * *
    (2) If any certification or year-end financial information, with 
the exception of the PHA's audited financial statement, is not received 
within three months after the due date, the PHA will receive a 
presumptive rating of failure for each PHAS Indicator for which the 
certification or year-end financial information is not received. The 
PHA's audited financial statement must be received no later than 9 
months after the PHA's fiscal year-end, in accordance with OMB Circular 
A-133 (see Sec. 902.33(c)). If the audited financial statement is not 
received by that date, the PHA will receive a presumptive rating of 
failure for the PHAS Financial Indicator. If the PHA receives a 
presumptive rating failure for any PHAS Indicator due to failure to 
submit a certification or year-end financial information by the due 
date, including any extension of the due date, as provided in this 
paragraph (except for the audited financial statement for which the due 
date is established by OMB Circular A-133), the PHA shall be designated 
as troubled or identified as troubled with respect to the program for 
assistance from the Capital Fund under section 9(d) of the Act.

     9. In Sec. 902.67, revise paragraph (c)(2)(ii) to read as follows:


Sec. 902.67  Score and designation status.

* * * * *
    (c) * * *
    (2) * * *
    (ii) In accordance with section 6(j)(2) of the Act, a PHA that 
receives less than 60 percent of the maximum calculation for the 
Capital Fund sub-indicator under PHAS Indicator #3 (Management 
Operations, subpart D of this part; see Sec. 902.43(a)) will be subject 
to the sanctions, provided in section 6(j)(4), as appropriate.
* * * * *

    10. Revise Sec. 902.69 to read as follows:


Sec. 902.69  PHA right of petition and appeal.

    (a) Appeal of troubled designation and petition for removal 
troubled designation. A PHA may:
    (1) Appeal its troubled designation (including designation as 
troubled with

[[Page 36046]]

respect to its performance under the Capital Fund subindicator as 
provided in Sec. 902.67(c)(2)); and
    (2) Petition for removal of troubled designation.
    (b) Appeal of PHAS score. 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 in accordance with the procedures of paragraphs (c), (d) and (e) 
of this section. 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).
    (c) Appeal and petition procedures. (1) To appeal troubled 
designation or a PHAS score, a PHA must submit a request in writing to 
the Director of the Real Estate Assessment Center that must be received 
by REAC no later than 30 days following the issuance of the overall 
PHAS score to the PHA. To petition removal of troubled designation, a 
PHA also must submit its request in writing to the Director of the Real 
Estate Assessment Center. The written request must be received by REAC 
no later than 30 days after HUD's decision to refuse to remove the 
PHA's troubled designation.
    (2) An appeal of troubled designation or petition for removal of 
troubled designation must include the PHA's supporting documentation 
and reasons for the appeal. An appeal of a PHAS score must be 
accompanied by the PHA's reasonable evidence that an objectively 
verifiable and material error occurred. An appeal submitted to REAC 
without appropriate documentation will not be considered and will be 
returned to the PHA.
    (d) Consideration of appeal. (1) Consideration of appeal of PHAS 
score. Upon receipt of an appeal of a PHAS score from a PHA, REAC will 
review the PHA's file and the evidence submitted by the PHA to support 
that an error occurred. If REAC determines that an objectively 
verifiable and material error has been documented by the PHA, REAC will 
convene a Board of Review, in accordance with the procedures of 
paragraphs (d) and (e) of this section, to evaluate the appeal and its 
merits for purposes of determining whether a reassessment of the PHA is 
warranted. For appeal of PHAS scores, the Board of Review may determine 
that REAC should 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.
    (2) Consideration of appeal of troubled designation or refusal to 
remove troubled designation. Upon receipt of an appeal of a troubled 
designation from a PHA, 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, from the Office of Public 
and Indian Housing, and from such other office or representative as the 
Secretary may designate (excluding, however, representation from the 
Troubled Agency Recovery Center). For purposes of reassessment, REAC 
will schedule a reinspection and/or acquire audit services, as 
determined by the Board, and a new score will be issued, if 
appropriate. Decisions by the Board will be reported to the PHA by the 
Assistant Secretary for Public and Indian Housing.
    (e) Final appeal decisions. HUD will make final decisions of 
appeals, made under this section, within 30 days of receipt of an 
appeal, and may extend this period for an additional 30 days if further 
inquiry is necessary. Failure by a PHA to submit supporting 
documentation with its request for appeal, or within any additional 
period granted by HUD is grounds for denial of an appeal. Final appeal 
decisions will be reported to the PHA by the Assistant Secretary for 
Public and Indian Housing.

    11. In Sec. 902.77, revise paragraph (a)(1) to read as follows:


Sec. 902.77  Referral to the Departmental Enforcement Center (DEC).

    (a) Referral of Troubled PHA to the DEC for failing to execute or 
meet MOA requirements. (1) Failure of a troubled PHA to execute or meet 
the requirements of a MOA in accordance with Sec. 902.75 constitutes a 
substantial default under Sec. 902.79 and may result in referral of the 
PHA to the DEC. The TARC will recommend to the Assistant Secretary for 
Public and Indian Housing that a troubled performer PHA be declared in 
substantial default. In accordance with Sec. Sec. 902.79, the Assistant 
Secretary shall notify the PHA of the default and allow the PHA an 
opportunity to cure the default. A PHA shall be referred to the DEC if 
the PHA fails to cure the default within the a period not to exceed 30 
days unless the Assistant Secretary for Public and Indian Housing 
determines that a longer period is appropriate.
* * * * *

    12. In Sec. 902.79, revise paragraph (b)(1)(iv) to read as follows:


Sec. 902.79  Substantial default.

* * * * *
    (b) * * *
    (1) * * *
    (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 (b)(4) 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
* * * * *

    Dated: May 26, 2000.
Harold Lucas,
Assistant Secretary for Public and Indian Housing.
Donald J. LaVoy,
Director, Real Estate Assessment Center.
[FR Doc. 00-14160 Filed 6-5-00; 8:45 am]
BILLING CODE 4210-33-P