[Federal Register Volume 71, Number 136 (Monday, July 17, 2006)]
[Notices]
[Pages 40534-40536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-11282]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5066-N-02]


Public Housing Assessment System; Financial Condition Scoring 
Process

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

ACTION: Final notice.

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SUMMARY: This final notice provides information to public housing 
agencies (PHAs) and members of the public about HUD's process for 
issuing scores under the Financial Condition Indicator of the Public 
Housing Assessment System (PHAS). This notice includes revised 
threshold values and associated points/scores for the expense 
management component of the Financial Condition Indicator based on 
available data for PHAs with fiscal years ending March 31, 2004, June 
30, 2004, September 30, 2004, and December 31, 2004. The data analyzed 
is based on generally accepted accounting principles (GAAP) information 
submitted by PHAs as part of the financial data schedule submission.

FOR FURTHER INFORMATION CONTACT: Contact the Office of Public and 
Indian Housing, Real Estate Assessment Center (REAC), Attention: Wanda 
Funk, Department of Housing and Urban Development, Real Estate 
Assessment Center, 550 12th Street, SW., Suite 100, Washington, DC 
20410; telephone the PIH-REAC Technical Assistance Center at (888) 245-
4860 (this is a toll free number). Persons with hearing or speech 
impairments may access this number through TTY by calling the toll-free 
Federal Information Relay Service at (800) 877-8339. Additional 
information is available from the PIH-REAC Internet site at http://www.hud.gov/reac/.

SUPPLEMENTARY INFORMATION:

I. Background

    HUD published the first Public Housing Assessment System; Financial 
Condition Scoring Process notice in the Federal Register on May 13, 
1999 (64 FR 26222). HUD republished the notice to coincide with the 
June 22, 1999, publication of the PHAS proposed rule. Subsequently, HUD 
revised the notice twice to reflect additional changes to the financial 
scoring process. The third notice was published on June 28, 2000 (65 FR 
40008), and the fourth notice was published on December 21, 2000 (65 FR 
80685). This notice is an update of the financial condition scoring 
process notice published on December 21, 2000. In the December 21, 
2000, notice HUD stated that any changes to the scoring process and any 
modifications to the thresholds would be communicated through a 
subsequent Federal Register notice. Accordingly, this notice updates 
the December 21, 2000, notice and provides information on the revisions 
made to the financial condition scoring process. HUD revised the 
thresholds based on a full year's worth of unaudited and available 
audited financial information.
    This change has been made in accordance with the threshold 
revaluation schedule set forth in the December 21, 2000, notice. The 
December 21, 2000, notice stated that the thresholds established in 
that notice would remain in effect for all unaudited and audited PHA 
financial submissions for PHAs for a three year period, unless REAC 
found a need for revisions. In October 2001, July 2003, November 2004, 
and May 2005, REAC conducted an analysis of the thresholds established 
in the December 21, 2000, notice and determined not to revise the 
established thresholds. In August 2005 another analysis was conducted 
of the threshold established in the December 21, 2000, notice and it 
was determined that a revision to the expense management component was 
warranted.

II. Discussion of Public Comments

    There were three comments received on the May 2, 2006, notice, two 
from public housing industry groups and one from a PHA. Several of the 
issues addressed in the comments pertained to future Financial 
Condition Indicator changes as a result of asset management and project 
based accounting and budgeting, as well as related changes to PHAS. 
Those comments that were not directly related to the revision of the 
expense management component as set forth in the May 2, 2006, notice 
are not addressed in this final notice.
    Comment: One commenter suggested that the entire Financial 
Condition Indicator be suspended until a new, project-specific 
indicator is developed. Until that time, REAC may wish to continue 
providing scores on the indicator but these scores should be advisory 
only.
    HUD Response: HUD disagrees that the Financial Condition Indicator 
should be suspended until a new indicator is developed that addresses 
project based accounting and budgeting, and asset management. With 
HUD's focus on asset management and project based accounting and 
budgeting, HUD realizes that there is a need for property based 
assessments and will develop a revised Public Housing Assessment System 
(PHAS) to accommodate asset management. Until that time, HUD will 
continue to score the Financial Condition Indicator, and the indicator 
score will be part of the overall PHAS score.
    Comment: One commenter stated that the thresholds for the expense 
management component, published on May 2, 2006, demonstrates that these 
have not been revised frequently enough over the past several years, 
and felt that more frequent reevaluations will be even more critical 
when the new funding formula is put in place beginning in 2007. Another 
commenter stated that the revision to the expense management component 
is long overdue, and these thresholds should be analyzed and indexed on 
an annual basis.
    HUD Response: The financial indicator scoring thresholds have been 
reevaluated in October 2001, July 2003, November 2004, May 2005 and 
August 2005. HUD determined that there was a need for revision as a 
result of the August 2005 analysis. HUD will continue to evaluate the 
thresholds and provide revisions as needed, at a maximum of every three 
years.
    Comment: One commenter stated that the proposed rule calls for the 
use of total units available to determine the size category, but HUD's 
automated

[[Page 40535]]

system appears to utilize total units leased instead.
    HUD Response: Peer groupings are established according to the size 
of the PHA, based on the total number of units operated by the PHA, for 
all programs and activities. Accordingly, the Financial Condition 
Indicator of PHAS calculates the peer groupings based on the PHA's 
financial data schedule (FDS) input for line 1120, units months 
available. FDS line 1120 is defined as the number of months available 
for all low rent, Section 8, and other subsidized units except those 
unit months vacant due to demolition, conversion, ongoing 
modernization, and units approved for non-dwelling purposes. After the 
PHA's peer group size has been determined, scoring for the six 
financial components of the Financial Condition Indicator are based on 
the threshold value for the PHA's size as discussed, above. Expense 
management/utility consumption measures the PHA's ability to manage key 
areas of its annual expenditures at a level relative to its peers, 
adjusted for size and geographic location. This component compares 
summary expenditures to unit months leased for the fiscal year for the 
Low-Rent Public Housing Program only. Total routine expenses measured 
include the following six expense categories: Administrative, tenant 
services, utilities, ordinary maintenance and operation, protective 
services, and general expenses. The summed number is compared to the 
threshold for the PHA's size as discussed, above, and regional peer 
group. This component enables PHA management to determine if the per 
unit cost is reasonable or if unnecessary operating expenditures should 
be reduced and/or further analyzed.

III. Appendix 2, Expense Management, Revision

    The analysis of the thresholds conducted in August 2005 is based on 
the financial information submitted by PHAs with fiscal years ending 
March 31, 2004, June 30, 2004, September 30, 2004, and December 31, 
2004. As a result of this analysis, it was determined that a revision 
to the expense management thresholds was warranted, but not to the 
remaining component thresholds for current ratio, months expendable 
fund balance, tenants receivable outstanding, occupancy loss and net 
income and loss. The thresholds for the five financial condition 
components that will not be changed are included in Appendix 2, 
Thresholds for Entity-Wide GAAP Scoring, of the December 21, 2000, 
Public Housing Assessment System; Financial Condition Scoring Process. 
The table, below, includes the new thresholds for expense management.
    The revised expense management thresholds included in this notice, 
and the remaining five component thresholds included in the December 
21, 2000, financial condition notice, which are based on a full year of 
unaudited and audited financial data based on GAAP, will remain in 
effect for all unaudited and audited PHA financial submissions for PHAs 
with fiscal year end on or after September 30, 2006, for a three year 
period, unless the REAC finds a need for revisions. Any revisions to 
the thresholds will be communicated through a notice.
    The expense management table can be interpreted in the following 
manner:
     Identify a size category for expense management;
     The rows under that size category identify ranges of 
possible values for expense management; and
     The column to the right labeled ``Points/Score'' 
identifies the points/scores that is awarded to each expense management 
value for that size category.
    The thresholds presented here have been rounded for presentation 
purposes, whereas those used to calculate scores at the REAC are not 
rounded.

                                             Expense Management (EM)
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                                     Very small and    Low medium and high    Large and extra
             Region                      small                medium               large           Points/score
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                                  EM<$112.39           EM<$108.52           EM<$128.15                       1.5
0...............................  EM>=$112.39          EM>=$108.52          EM>=$128.15                      0
1...............................  EM<$114.12           EM<$107.69           EM<$112.87                       1.5
1...............................  EM>=$114.12          EM>=$107.69          EM>=$112.87                      0
2...............................  EM<$94.59            EM<$118.23           EM<$117.07                       1.5
2...............................  EM>=$94.59           EM>=$118.23          EM>=$117.07                      0
3...............................  EM<$89.22            EM<$86.68            EM<$101.71                       1.5
3...............................  EM>=$89.22           EM>=$86.68           EM>=$101.71                      0
4...............................  EM<$91.51            EM<$97.55            EM<$103.73                       1.5
4...............................  EM>=$91.51           EM>=$97.55           EM>=$103.73                      0
5...............................  EM<$86.66            EM<$95.36            EM<$110.68                       1.5
5...............................  EM>=$86.66           EM>=$95.36           EM>=$110.68                      0
6...............................  EM<$79.96            EM<$82.36            EM<$122.17                       1.5
6...............................  EM>=$79.96           EM>=$82.36           EM>=$122.17                      0
7...............................  EM<$99.87            EM<$71.81            EM<$86.02                        1.5
7...............................  EM>=$99.87           EM>=$71.81           EM>=$86.02                       0
8...............................  EM<$111.02           EM<$133.50           EM<$97.86                        1.5
8...............................  EM>=$111.02          EM>=$133.50          EM>=$97.86                       0
9...............................  EM<$120.96           EM<$109.90           EM<$136.55                       1.5
9...............................  EM>=$120.96          EM>=$109.90          EM>=$136.55                      0
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[[Page 40536]]

    Dated: June 29, 2006.
Orlando J. Cabrera,
Assistant Secretary for Public and Indian Housing.
 [FR Doc. E6-11282 Filed 7-14-06; 8:45 am]
BILLING CODE 4210-67-P