[Federal Register Volume 76, Number 139 (Wednesday, July 20, 2011)]
[Proposed Rules]
[Pages 43219-43225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-18046]



[[Page 43219]]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 905

[Docket No. FR-5361-P-01]
RIN-2577-AC81


Public Housing: Physical Needs Assessment

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

ACTION: Proposed rule.

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

SUMMARY: This rule proposes to revise HUD's existing regulations 
governing a physical needs assessment (PNA) undertaken by a public 
housing agency (PHA). A PNA identifies all of the work that a PHA would 
need to undertake to bring each of its projects up to the applicable 
modernization and energy conservation standards. This rule would 
require PHAs to project the current modernization and life-cycle 
replacement repair needs of its projects over a 20-year period, rather 
than a 5-year period, because the 20-year period coincides better with 
the useful life of individual properties and their building components 
and systems to ensure the long-term viability of the property. 
Additionally, this rule proposes to integrate the performance of the 
PNA with the performance of an energy audit.

DATES: Comments Due Date: September 19, 2011.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Regulations Division, Office of General 
Counsel, Department of Housing and Urban Development, 451 7th Street, 
SW., Room 10276, Washington, DC 20410-0500. Communications must refer 
to the above docket number and title. There are two methods for 
submitting public comments. All submissions must refer to the above 
docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street, SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
http://www.regulations.gov Web site can be viewed by other commenters 
and interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
rule.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an advance appointment to review the public comments must be 
scheduled by calling the Regulations Division at 202-402-3055 (this is 
not a toll-free number). Individuals with speech or hearing impairments 
may access this number via TTY by calling the Federal Relay Service, 
toll free, at 800-877-8339. Copies of all comments submitted are 
available for inspection and downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Kevin Gallagher, Capital Program 
Division, Office of Public and Indian Housing, Department of Housing 
and Urban Development, 451 7th Street, SW., Room 4116, Washington, DC 
20410-8000; telephone number 202-402-4192 (this is not a toll-free 
number). Hearing- or speech-impaired individuals may access this number 
through TTY by calling the toll-free Federal Relay Service at 800-877-
8339.

SUPPLEMENTARY INFORMATION:

I. Background

    A PNA provides PHAs with critical information on the physical 
condition of each project in its inventory and assists PHAs with 
identifying and prioritizing work items that require repair and 
modernization. The requirement to conduct a PNA has long been part of 
the regulations for HUD's Public Housing Modernization program, found 
in 24 CFR part 968. HUD's proposed rule on the Public Housing Capital 
Fund, published on February 7, 2011, at 76 FR 6654, proposes to remove 
part 968 and incorporate public housing modernization requirements in 
the regulations governing the Public Housing Capital Fund program in 24 
CFR part 905.
    Although the requirement to conduct a PNA has long been part of the 
regulations for HUD's Public Housing Modernization program, HUD, on 
July 21, 2009; September 29, 2010; October 14, 2010; and December 2, 
2010, hosted meetings with PHAs and their representatives to discuss 
how repair and modernization needs should be assessed, and the costs 
and benefits of obtaining that information to PHAs and to HUD. At these 
meetings, PHAs raised a number of issues regarding costs, the content 
of the PNAs, and the methodologies that would be involved. Information 
about these meetings is available at http://portal.hud.gov/huddoc/report-on-pna.pdf.
    This rule proposes to revise the regulations governing the 
completion and submission of a PNA, currently found in 24 CFR part 968, 
based on consideration of issues raised at the above meetings, 
experience with funding for public housing capital expenditures under 
the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5, 
approved February 13, 2009 (Recovery Act)), the PNA requirement imposed 
on PHAs receiving Recovery Act capital funds, and HUD's further 
consideration of how a PNA should be undertaken, completed, and 
submitted by a PHA.
    The existing requirements of 24 CFR part 968, subpart C 
(Comprehensive Grant Program), provide that PHAs with 250 or more units 
are required to periodically complete a PNA in conjunction with their 
Comprehensive Plan (see Sec.  968.315(e)(2)). There is currently no 
requirement for PHAs with fewer than 250 units to conduct a PNA. 
Throughout this preamble where ``small'' PHAs are referenced, it is in 
the context of 24 CFR part 968, subpart B, which applies to PHAs with 
fewer than 250 public housing units. Section 5A of the United States 
Housing Act of 1937 (1937 Act) (42 U.S.C. 1437c-1(a)(1)), which 
establishes the PHA 5-year Plan, requires each PHA to submit to HUD, 
not less than once every 5 years, a plan that includes a statement of 
the mission of the PHA for serving the needs of low-income and very 
low-income families, and ``a statement of the goals and objectives * * 
* that will enable the housing authority to serve the needs 
identified.'' These needs are, in turn, reflected by PHAs in their 
Annual Statement/Performance and Evaluation Report (form HUD-50075.1) 
and Capital Fund Program--Five-Year Action Plan (form HUD-50075.2) and 
are funded under the capital fund formula authorized at section 9(d)(2) 
of the 1937

[[Page 43220]]

Act (42 U.S.C. 1437g(d)(2)) and established by regulation at 24 CFR 
905.10. In accordance with these requirements, PHAs are expected to 
reflect their capital improvement and spending priorities in their 
Annual Statements and 5-year action plans, which should be based on 
PNAs that are prepared in accordance with the requirements of 24 CFR 
part 968.
    The current PNA regulation at 24 CFR 968.315(e)(2) requires: A 
brief summary of the physical improvements needed to bring each 
development to HUD standards for modernization, energy conservation 
life-cycle cost effective performance standards, and lead-based paint 
testing and abatement standards; the replacement needs of equipment and 
structural elements during the period covered; a preliminary estimate 
of cost; any physical disparities between buildings occupied 
predominantly by one racial or ethnic group and the physical 
improvements required to correct the disparity; and the number of units 
the PHA is proposing for substantial rehabilitation and subsequent 
sale, if any (see 24 CFR 968.315(e)(2)). As to energy audits, HUD 
requires PHAs to complete an energy audit for each PHA-owned project 
under management, not less than once every 5 years (see 24 CFR 
965.302).

II. This Proposed Rule

    The need for PHAs to engage in strategic planning has increased 
considerably over the past decade as PHAs have transitioned to an 
asset-based accounting and management model more closely aligned to 
industry-standard real estate management procedures. A focus on the 
individual project, rather than on the macro level of the entirety of a 
PHA's public housing portfolio, further highlights the need for 
strategic planning over a longer term period. As the public housing 
portfolio ages, the need to strategically plan impacts all PHAs 
regardless of size. The opportunities for PHAs to take advantage of a 
variety of financing vehicles to modernize and develop public housing 
have also increased over the past decade. Thus, in managing their 
public housing portfolios, PHAs are increasingly called upon to make 
long-term reinvestment and portfolio management decisions that may 
entail demolition, disposition, conversion, financing, redevelopment, 
or repositioning of real estate assets. A key tool to accomplishing 
such strategic planning is a PNA.
    This rule proposes to supplement the Public Housing Capital Fund 
Program regulation, published on February 7, 2011, at 76 FR 6654, to 
include new PNA regulations. This proposed rule would add a new 
paragraph (b)(9) to proposed new section Sec.  905.300 in the rule of 
February 7, 2011 (see 76 FR 6665), which would require all PHAs, 
including small PHAs and Moving to Work PHAs, to complete PNAs and 
provide them to HUD so that PHAs may properly administer their Capital 
Fund programs, and so that HUD may effectuate its implementation and 
oversight functions in regard to the Capital Fund. In addition, because 
the rule refers to Moving to Work PHAs, the rule would add a definition 
of such PHAs in new proposed Sec.  905.108, entitled ``Definitions.'' 
(See 76 FR 6661)
    Section 9(d)(1)(L) of the 1937 Act, 42 U.S.C. 1437g(d)(1)(L)), 
includes in the list of eligible activities related to the Capital Fund 
``integrated utility management and capital planning to maximize energy 
conservation and efficiency measures.'' While energy audits are already 
required, HUD is proposing to provide for the most cost-effective, 
useful, and efficient performance of activities funded under 42 U.S.C. 
1437g(d)(1)(L) by requiring PHAs to complete their PNAs in conjunction 
with energy audits, and adopt or consider the findings of an energy 
audit, identify work items that correspond to energy conservation 
measures (ECMs), and incorporate cost-effective data from energy audits 
and PNAs into their assessment.
    The integration of the energy audit and PNA is considered to be 
most effective when both activities are coordinated. In addition, 
coordination between an energy auditor and PNA provider is considered 
to be important for energy efficiency and capital upgrade decision-
making. As the consulting industry that services PHAs and the public 
housing program is introduced to conducting coordinated or integrated 
PNAs and energy audits, the costs associated with performing both of 
these assessments may be reduced. HUD invites comment on the potential 
benefits and challenges of preparing energy audits in conjunction with 
PNAs. HUD is also interested in comment on the effect of aging on 
energy audit information as related to its usefulness for cost 
projection and strategic planning in a PNA.
    This rule proposes to require PHAs to project the current 
modernization and life-cycle replacement repair needs over a 20-year 
period, rather than a 5-year period, in accordance with the useful life 
of individual properties and their building components and systems, to 
ensure the long-term viability of the property. This 20-year period is 
more closely related to the life cycle of buildings and major physical 
components than the current 5-year period. This proposed life-cycle-
based, project-level PNA will enhance capital planning, 
recapitalization, and portfolio management practices by PHAs.
    In addition, PNAs covering 20 years or more of projected capital 
needs are standard in real estate management. PNAs are standard 
requirements for refinancing, purchase of existing real estate, and 
property management. It is recognized that PNAs, especially in the 
later years of the 20-year period, will provide an estimate of future 
costs, not a statement of actual cost. These projections will be 
revised and become more accurate as time passes. The value of this 
order-of- magnitude estimate is the identification that there will be 
future obligations that must be planned and budgeted for in advance. 
Actual cost will be established by a contract for performance of the 
work; a PNA represents an informed estimate of future cost.
    There currently exists no guidance as to the qualifications for the 
PNA provider. In addition, there exists no professional industry 
certification standard for providers of PNAs. Providers of such 
services range from architects and engineers to experienced 
practitioners from the building and inspection trades. Some PHAs 
directly employ staff people that perform physical needs assessment for 
their property. The proposed rule would establish minimum 
qualifications for the PNA provider, which standards would include 
experiential qualifications in property inspection and evaluation, cost 
estimating, energy efficiency and green capital upgrade and 
construction practices, and working knowledge of common information 
technology software. The rule would continue to permit the PHA to have 
its staff perform PNAs, but would give PHAs better guidance as to 
qualifications staff should have to perform this function. Although 
this is intended to minimize the compliance burden on PHAs, HUD 
understands that PHAs must weigh the decreased cost of the in-house 
assessment against the possibly greater objectivity, and hence 
validity, of third-party assessments. PHAs that plan to use PNAs to 
directly support a financial or funding transaction are advised to 
consider contracting with a third-party provider to the extent they are 
financially able. HUD invites public comment regarding appropriate 
qualifications for PNA providers and the appropriateness of PHA staff 
performing PNAs used for internal strategic planning purposes, PNAs 
used to directly support a funding

[[Page 43221]]

or financial transaction, or both. HUD also seeks comment on the 
implications of adopting a requirement that PHAs use independent third-
party providers to conduct their PNAs and the extent to which such a 
requirement would affect the compliance burden on PHAs and the validity 
of the PNA data.
    This rule would require that the PNA and energy audit be completed 
in conjunction with each other once every 5 years to promote 
coordination of capital planning involving the selection of building 
materials and supplies, as well as capital expenditures that address 
life-cycle replacement repairs and energy efficiency improvements. The 
new PNA regulation and PNA form being developed by HUD will record 
energy conservation measures as identified in an energy audit. This 
rule proposes that, using information from the energy audit, the PHA 
shall identify specific work items and their associated costs in the 
PNA that match energy conservation measures (ECMs) identified in the 
energy audit.
    While HUD proposes to require PHAs to update the PNA annually (and 
wholly revise it once every 5 years), HUD proposes to minimize any 
burden associated with the updates by having the PNA submitted 
electronically via a mechanism that will allow HUD to both aggregate 
and analyze the PNA data. Moreover, the annual update of the PNA, as 
proposed to be required by this rule, will provide HUD with the 
information it needs to effectively monitor PHA performance with 
respect to the manner in which the PHA addresses capital repair needs 
and administers the Capital Fund. PNA updates will be used to show how 
PHAs reduce capital repair backlog in their inventory and will enable 
HUD to assess the impact on the physical needs of the entire public 
housing portfolio.
    Annual Update. The specific procedures for annual PNA updates will 
be determined as the new PNA tool is developed, but HUD plans for these 
updates to be a simple process performed by PHA staff in an automated 
format. The PHA, at the conclusion of the fiscal year, would review the 
PNA that it had prepared and would eliminate capital costs for the year 
that just ended by eliminating estimated costs for capital improvements 
actually completed. For capital improvements that were not completed 
during the year that just ended, the costs for those incomplete 
improvements would be moved to a future year. The PHA would continue in 
this manner for each year until the next comprehensive PNA is performed 
to refresh the data. This is the standard process used in the 
management of multifamily real estate portfolios. In this way, the PHA 
and HUD will have continuous visibility of the effectiveness of Capital 
Funds for long- term capital and financial planning.
    Initial Submission and Transition. HUD plans to require that the 
PNAs, as proposed, be required only after the appropriate submission 
and evaluation systems are developed. Additionally, for the first two 
PNAs and first two energy audits, HUD may establish different dates for 
the submission of this information, recognizing that the initial effort 
to aggregate PNA and energy audit data may not allow for integration of 
the information into the 5-year reporting format as contemplated. For 
example, the 5-year planning cycle places many PHAs in a timeframe to 
submit their 5-year plans in Fiscal Year (FY) 2011. The new HUD PNA 
format is not anticipated to be available for use before FY 2012. HUD 
has provided initial guidance to PHAs to extend their existing PNAs and 
delay performance of a wholly new PNA until availability of the new PNA 
tool. It is envisioned that PHAs will report on their 5-year plan in FY 
2011 on the basis of their existing PNA, as extended. The PHA will then 
perform the new PNA when the PNA tool becomes available in 2012. Since 
the new PNA will provide a 20-year schedule and would be updated 
annually by the PHA, adequate information from the 2012 PNA would exist 
for the PHA to use as the basis for its 5-year plan of 2016. The next 
PNA would be performed in 2020, in advance of the PHA's 5-year plan for 
2021. Thereafter, the timing of completion of new PNAs shall be aligned 
to support more directly the 5-year PHA plan cycle.
    The current PNA regulation assesses the needs and costs to ensure 
long-term physical viability, while the proposed rule would require the 
PNA to include all projected capital costs needed to keep the projects 
decent, safe, in good repair, and in compliance with all public housing 
requirements. When preparing capital repair and life-cycle repair cost 
estimates for modernization purposes, PHAs will continue their current 
practice of complying with local building and construction codes, as 
well as with all applicable public housing requirements, including 
uniform physical conditions standards, section 504 of the 
Rehabilitation Act (see 29 U.S.C. 794), and Uniform Federal 
Accessibility Standards (UFAS) (see 24 CFR part 40) requirements.
    HUD believes that the amendments to the PNA regulations as proposed 
to be provided in new Sec.  905.300(b)(9) of this rule will make the 
PNA tool a more effective tool and therefore better address the 
modernization and life-cycle replacement repair needs of a PHA's 
projects. The PNA existing regulation in 24 CFR 968.315(e)(2) was 
already proposed to be removed by the February 7, 2011, proposed rule. 
(See 76 FR 6661)

III. Findings and Certifications

Paperwork Reduction Act

    The information collection requirements contained in this proposed 
rule have been submitted to the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). In 
accordance with the Paperwork Reduction Act, 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 currently valid OMB 
control number.
    The burden of the information collections in this proposed rule is 
estimated as follows:

                                       Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                                                     Estimated
                                                                     Number of     average time      Estimated
                Section reference                    Number of     responses per        for        annual burden
                                                    respondents     respondent      requirement     (in hours)
                                                                                    (in hours)
----------------------------------------------------------------------------------------------------------------
Sec.   905.300(b)(9)--PNA performed every 5                  620               1         \1\ 130          80,600
 years including data collection and site
 inspection.....................................
Sec.   905.300(b)(9)--PNA data analysis and                  620               1          \2\ 45          27,900
 reporting......................................
Sec.   905.300(b)(9)(vii)--annual update........           2,480               1            \3\8          19,840

[[Page 43222]]

 
Quality Assurance...............................             104               1          \4\ 16            1664
                                                 ---------------------------------------------------------------
Total Paperwork Burden for the New Rule                                                                  130,004
----------------------------------------------------------------------------------------------------------------
Total Burden from current OMB ICR 2577-0157\5\                                                            47,740
----------------------------------------------------------------------------------------------------------------
Total Additional Burden as a result of this rule                                                          82,264
----------------------------------------------------------------------------------------------------------------

    In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
from members of the public and affected agencies concerning this 
collection of information to:
---------------------------------------------------------------------------

    \1\ PHAs are only required to complete PNAs once every 5 years. 
This entry reflects the data collection and inspections. Therefore, 
to reflect the annual burden, a weighted average was derived by 
taking \1/5\ of the total burden required of PHAs once every 5 
years.
    \2\ This entry reflects the time to analyze the collected data, 
prepare a report, and upload the data to HUD.
    \3\ Per the new rule, PHAs will be required to complete an 
annual update in the years that they are not required to do a full 
PNA (thus annual updates will be required 4 out of every 5 years). 
Therefore, to reflect an annual burden, a weighted average was 
derived by taking \4/5\ of the burden for PHAs to fulfill the annual 
update requirement.
    \4\ Quality Assurance will be performed by HUD on a sample of 
approximately 521 PNAs after each 5-year PNA cycle. Since all of the 
sampled PHAs would already have collected the basic quantity, 
component age, and other data into a PNA, the additional burden on 
the sampled PHAs is expected to be minimal.
    \5\ In the currently effective Information Collection Request 
(ICR), the burden is 15.4 hours annually for 3,100 PHAs.
---------------------------------------------------------------------------

    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond; including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this rule. Under the provisions 
of 5 CFR part 1320, OMB is required to make a decision concerning this 
collection of information between 30 and 60 days after today's 
publication date. Therefore, a comment on the information collection 
requirements is best assured of having its full effect if OMB receives 
the comment within 30 days of today's publication date. This time frame 
does not affect the deadline for comments to the agency on the proposed 
rule, however. Comments must refer to the proposal by name and docket 
number (FR-5361-P-01) and must be sent to:

HUD Desk Officer, Office of Management and Budget, New Executive Office 
Building, Washington, DC 20503, Fax number: 202-395-6947;
and one of the two options below:
Colette Pollard, HUD Reports Liaison Officer, Office of the Chief 
Information Officer, Department of Housing and Urban Development, 451 
7th Street, SW., Room 2204, Washington, DC 20410; or

    Interested persons may submit comments regarding the information 
collection requirements electronically through the Federal eRulemaking 
Portal at http://www.regulations.gov. HUD strongly encourages 
commenters to submit comments electronically. Electronic submission of 
comments allows the commenter maximum time to prepare and submit a 
comment, ensures timely receipt by HUD, and enables HUD to make them 
immediately available to the public. Comments submitted electronically 
through the http://www.regulations.gov Web site can be viewed by other 
commenters and interested members of the public. Commenters should 
follow the instructions provided on that site to submit comments 
electronically.

Regulatory Planning and Review

    OMB reviewed this proposed rule under Executive Order 12866 
(entitled ``Regulatory Planning and Review''). This rule is a 
``significant regulatory action'' as defined in 3(f) of the order 
(although not an economically significant regulatory action, as 
provided under section 3(f)(1) of the order).
    The rule is not expected to have a significant economic impact. It 
is estimated that full compliance with the rule as proposed would cost 
PHAs, collectively, up to $29 million once every 5 years or an average 
of $5.9 million annually. The rule would not have any budgetary impact 
to the Federal Government, as costs to implement the PNA would be 
accommodated within HUD's existing budget authority. However, the 
additional expenses to expand PNA activities would generate some 
transfers from PHAs to those entities performing PNAs. These changes, 
however, are necessary for the transition to asset management and to 
accommodate the growing flexibility of financing granted to PHAs.
    This proposed rule would require all PHAs to project the current 
modernization life-cycle replacement repair needs over a 20-year 
period.\6\ This rule would coordinate the performance of the PNA with 
the performance of an energy audit and would expand the PNA 
requirements to apply to PHAs with fewer than 250 units.
---------------------------------------------------------------------------

    \6\ The current PNA regulation assesses the needs and costs to 
ensure long-term physical and social viability over a 5-year period.
---------------------------------------------------------------------------

    The cost to perform PNAs can be approximated using existing 
examples and HUD's own experience.
    HUD is using the PNA format of HUD's Green Retrofit Program (GRP), 
a Recovery Act program, as a source for the development of the PNA to 
be used in public housing and the new HUD PNA will be comparable in 
complexity/comprehensiveness.\7\ HUD's Office of

[[Page 43223]]

Affordable Housing Programs (OAHP), in the Office of Housing, has 
shared a summary of its costs to perform PNAs during 2009/10 using its 
format for a set of 66 projects nationwide. These projects averaged 96 
units per project, making them very comparable to the average project 
size of small PHAs of 84 units.
---------------------------------------------------------------------------

    \7\ HUD's Office of Affordable Housing Programs, in the Office 
of Housing, manages the GRP, which involves direct engagement of 
providers to perform Physical Needs Assessment and Energy Audits for 
affordable housing projects. The GRP PNA is a baseline PNA including 
all of the components generally understood to be found in a PNA. It 
should be noted that the GRP includes an energy audit portion and an 
integrated pest management portion, in addition to the PNA portion. 
Energy audits are already required to be performed every 5 years for 
every PHA regardless of size; integrated pest management is not a 
requirement in public housing and is not required by the new PNA.
---------------------------------------------------------------------------

    The average cost for the PNA portion of the GRP for these projects 
was $6,220 per project or $65.22 per unit.
    During 2010, HUD staff in the Office of Public Housing visited a 
number of PHAs nationwide in an effort to familiarize itself with PNA 
procedures, forms, and formats used by PHAs, as well as to evaluate the 
burden of performance. These visits yielded some cost data that can be 
used as illustrative of the costs to perform PNAs to generally accepted 
industry standards for a baseline PNA. Notably, a large housing 
authority provided a copy of a proposal for its completed PNA 
indicating a cost of $63 per unit in 2007 from a nationally recognized 
high quality third-party provider. Two other PHAs, each of which had 
previously engaged third-party PNA providers to complete PNAs, are 
currently preparing to solicit proposals for new PNAs. Each indicated 
that their respective budget for the effort was $50 per unit in the 
context of having contracted for similar work previously and having 
baseline data from those prior assessments.
    The $50 per-unit cost is used in this analysis as the cost to PHAs 
that are currently performing PNAs.
    Assuming that PHAs are currently spending $50 per unit to perform 
PNAs and that it would cost $65.22 per unit under this rule, Exhibit-1 
shows that compliance with the PNA requirements as proposed would cost 
about $79 million once every 5 years. However, the additional cost 
beyond what PHAs are already doing would be only $29 million. Small 
PHAs will be required to perform PNAs where no requirement previously 
existed. For these authorities, the cost would be estimated based upon 
the GRP cost data for similarly sized projects. This cost would be 
estimated at between $13,286,423 (203,717 units at $65.22 per unit) and 
$15,077,280 (2,424 projects at $6,220 per project) for the first 
performance of the PNA.

                                                                                           Exhibit--1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Universe \1\                            PNA current regulation    PNA proposed regulation    Estimate
                                                                --------------------------------------------------------------------------------------------------------------------  regulatory
                                                                   PHAs     % PHAs   Projects   % Projects    Total     % Units   $/Unit \2\     $Total     $/Unit \3\     $Total        cost
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Under 250 Units................................................     2,424     74.95     2,312        31.67    203,717     16.79     (PNA not required)           65.22   13,286,423   13,286,423
                                                                                                                                --------------------------
Over 250 Units.................................................       810     25.05     4,988        68.33  1,009,436     83.21        50.00   50,471,800        65.22   65,835,416   15,363,616
                                                                --------------------------------------------------------------------------------------------------------------------------------
    Totals.....................................................     3,234    100.00     7,300       100.00  1,213,153    100.00  ...........   50,471,800  ...........   79,121,839   28,650,039
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The number of PIH units is from the PUD records.
\2\ This is the average for Baltimore and Boston, each of which has previously hired third-party PNA contractors.
\3\ HUD is using the Green Retrofit Physical Condition Assessment (GRPCA) as a source for the development of the PNA to be used in public housing and the new HUD PNA will be comparable
  complexity and comprehensiveness. The average cost of the PNA portion of the GRPCA for these assessments was $65.22 per unit.

    Large PHAs that already are required to perform PNAs with 5-year 
terms will now be required to perform PNAs with 20-year terms and to 
potentially higher standards than the current PNA requirement. 
Regardless of the term of the PNA, it is assumed that an assessor would 
still be required to examine virtually every component of a project in 
order to determine its remaining useful life and whether that life 
falls within the term of the PNA. The difference in performance, 
therefore, is primarily the entry of data over a 20-year term rather 
than a 5-year term. The cost of greater standards of performance for 
large PHAs could be estimated at $15,363,616, representing the 
difference between the cost to perform a PNA to the GRP standard 
($65.22 per unit) and the cost to perform a PNA to the PHAs standards 
in the absence of a new standard from HUD ($50 per unit) multiplied by 
the number of units (1,009,436) within larger authorities.
    These estimates are probably high since it is known that some 
proportion of small PHAs (with fewer than 250 units) perform a PNA as a 
capital planning and strategic planning tool. Also, many larger PHAs 
(with 250 units or more) already perform PNAs to generally similar or 
higher standards than the baseline PNA required by the PNA rule and 
many PHAs perform, and will continue to perform, PNAs with in-house 
staff.
    The rule also has significant benefits. Planning is a hallmark of a 
well-managed property. A Physical Needs Assessment (PNA) is a key 
planning tool. HUD distributes several billion dollars in capital and 
operating funds annually to PHAs. The quality and efficiency of 
property management directly impacts the effective use of these funds. 
While it is self-evident that efficiently managed real estate costs 
less to operate, it is not feasible to quantify a dollar cost savings 
owing to efficient management applicable to all properties, since the 
implementation of planning varies over a very broad spectrum. It is 
certainly feasible to assume that such savings would exceed the costs 
for performing PNAs on an aggregate basis. The following is a list (not 
exhaustive) of possible benefits of the rule.
    1. The identification of capital expenditures far enough in advance 
of their required implementation to allow for consideration of the most 
efficient method of paying for the improvement, whether by the 
application of grant funds, borrowing, or other mechanisms, including 
repositioning of the property.
    2. The identification of synergies in the timing and intensity of 
capital improvements, and the avoidance of duplicative or wasteful 
capital expenditures that might be lost in the subsequent comprehensive 
modernization or obsolescence of a property.
    3. Informing a preventative maintenance strategy that most 
efficiently employs maintenance resources to maximize the useful life 
of property components and to potentially extend useful lives beyond 
their expected duration.
    4. Minimizing unexpected component failures and the potential for 
additional costs for tenant relocation, emergency services, premium 
time, liability exposure, and insurance costs, etc.
    5. Promoting the implementation of energy efficiency measures and 
the utility savings that accrue.
    6. Increased occupancy and enhanced health and safety as a result 
of more habitable units.

[[Page 43224]]

    This analysis also considers transfers. The proposed rule has the 
potential to generate about $29 million in additional PNA work every 5 
years. These additional expenses would constitute a transfer from PHAs 
to those entities performing PNAs. There exists an active industry 
engaged in providing PNAs to PHAs.
    HUD's economic analysis can be found at http://www.regulations.gov 
and in the docket file, which is available for public inspection 
between the hours of 8 a.m. and 5 p.m., weekdays, in the Regulations 
Division, Office of General Counsel, Department of Housing and Urban 
Development, 451 7th Street, SW., Room 10276, Washington, DC 20410-
0500. Due to security measures at the HUD Headquarters building, an 
advance appointment to review the docket file must be scheduled by 
calling the Regulations Division at 202-708-3055 (this is not a toll-
free number). Hearing- or speech-impaired individuals may access this 
number through TTY by calling the toll-free Federal Relay Service at 
800-877-8339.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments and the private sector. This proposed rule does not 
impose any federal mandate on any state, local, or tribal government or 
the private sector within the meaning of UMRA.

Environmental Impact

    This proposed rule that does not direct, provide for assistance or 
loan and mortgage insurance for, or otherwise govern, or regulate, real 
property acquisition, disposition, leasing, rehabilitation, alteration, 
demolition, or new construction, or establish, revise or provide for 
standards for construction or construction materials, manufactured 
housing, or occupancy. Accordingly, under 24 CFR 50.19(c)(1), this 
proposed rule is categorically excluded from environmental review under 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
This proposed rule expands the PNA requirements to apply to PHAs that 
have fewer than 250 units. However, all PHAs, including small PHAs, 
have been required to complete energy audits, which essentially review 
building systems for the purpose of assessing whether the project would 
benefit from energy conservation measures.
    With respect to small PHAs that would have to complete PNAs under 
this rule, while there is some burden, it is not considered a 
significant economic impact nor is it considered significant in the 
context of standard operating procedures for real estate management. 
The burden entails assembling existing physical data for the property 
and organizing a brief site survey of a sample of the physical 
property. It is generally acknowledged that the burden is greater the 
first time a PNA is completed, since a completed PNA becomes a data 
repository that is largely reusable. There are a total of approximately 
3,100 PHAs. Of these, approximately 2,300 are small entities that have 
previously not been required to complete a PNA. While these 2,300 PHAs 
represent approximately 74 percent of all PHAs, they only represent 
approximately 20 percent of the units in the public housing portfolio, 
or 200,000 of the 1,200,000 units. The total additional paperwork 
burden imposed by the rule for small entities is 95,220 hours per year 
for 2,300 parties, or 41.4 hours per small PHA. HUD assumes for the 
purpose of this analysis that, in most cases, staff at small PHAs would 
complete the paperwork, thus requiring no additional expenditure beyond 
salaries. Even were the small PHAs to hire third parties to complete a 
PNA, the costs for completing a PNA once every 5 years are expected to 
be minimal when compared to the amount of Capital Funds the PHA will 
receive during that same 5-year period, and enable the PHA to more 
effectively expend those funds. Hence, this rule does not have 
significant economic impact on small PHAs.
    Notwithstanding the determination that this rule would not have a 
significant economic impact on a substantial number of small entities, 
HUD specifically invites any comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating a 
regulation that has federalism implications and either imposes 
substantial direct compliance costs on state and local governments and 
is not required by statute or preempts state law, unless the relevant 
requirements of section 6 of the Executive Order are met. This rule 
does not have federalism implications and does not impose substantial 
direct compliance costs on state and local governments or preempt state 
law within the meaning of the Executive Order.

Catalog of Federal Domestic Assistance Number

    The Catalog of Federal Domestic Assistance number for 24 CFR part 
905 is 14.872.

List of Subjects in 24 CFR Part 905

    Grant programs--housing and community development, Public housing, 
Reporting and recordkeeping requirements.

    Accordingly, for the reasons stated in the preamble, HUD proposes 
to amend 24 CFR part 905, as proposed to be revised at 76 FR 6661, 
February 7, 2011, as follows:

PART 905--THE PUBLIC HOUSING CAPITAL FUND PROGRAM

    1. The authority citation for part 905 continues to read as 
follows:

    Authority:  42 U.S.C. 1437g and 3535(d).

    2. In Sec.  905.108, add the definition of ``Moving to Work PHA'' 
in proper alphabetical order to read as follows:


Sec.  905.108  Definitions.

* * * * *
    Moving to Work PHA means a PHA that participates in the Moving to 
Work (MTW) demonstration program, which provides PHAs the opportunity 
to design and test innovative, locally designed strategies that use 
federal dollars more efficiently, help residents find employment and 
become self-sufficient, and increase housing choices for low-income 
families. MTW is funded through annual appropriations acts.
* * * * *
    3. In Sec.  905.300, add a new paragraph (b)(9) to read as follows:


Sec.  905.300  Capital Fund Submission Requirements.

* * * * *
    (b) * * *
    (9) Physical needs assessment (PNA). Each PHA, including Moving to 
Work PHAs, shall complete and submit a comprehensive PNA at a time and 
in a form and manner prescribed by HUD that incorporates the life-cycle 
repair

[[Page 43225]]

and replacement costs of project systems and components for a 20-year 
period, for each public housing project in its inventory. The PNA will 
provide summary level information for the PHA's overall public housing 
portfolio, as well as information from the energy audit completed in 
conjunction with the PNA.
    (i) The PNA and the associated estimates shall be completed without 
regard to whether funds are available at the time the PNA is completed 
to do the repair and replacement work projected by the PNA.
    (ii) The PNA shall capture all capital costs needed to comply with 
public housing requirements, including section 504 of the 
Rehabilitation Act (see 29 U.S.C. 794), Uniform Federal Accessibility 
Standards (UFAS) requirements (see 24 CFR part 40), and Lead Safe 
Housing Rule (LSHR) requirements (see 24 CFR part 35).
    (iii) The PNA shall account for the impact of any projected or 
actual removal of units from the inventory by the corresponding removal 
of cost associated with physical needs of those removed units.
    (iv) The first two PNAs pursuant to this part and first two energy 
audits completed after [effective date of final rule to be inserted at 
final rule stage] shall be completed in accordance with a timeframe 
delineated by HUD in order to better enable PHAs, after the completion 
of the first PNA pursuant to this part, to better utilize the PNA in 
support of their 5-year planning cycle. After the completion of the 
first two PNAs and first two energy audits, the PHA shall completely 
update the PNA and energy audit no less often than once every 5 years.
    (v) The PNA provider shall be experienced in the performance of 
residential building assessment including building systems, health and 
safety conditions, physical and structural conditions, cost estimating, 
and building modernization. The PNA provider shall have knowledge of 
energy efficiency and green capital upgrade and construction practices. 
The PNA submission shall identify the PNA provider(s). Additional 
qualifications shall include:
    (A) Five (5) years or more of direct experience in physical 
facility inspection and/or assessment;
    (B) Five (5) years or more of direct experience in cost estimating;
    (C) Knowledge of applicable building standards and codes, including 
federal, state, and local requirements as demonstrated by experience, 
training, or certifications;
    (D) Knowledge of energy conservation and energy efficiency and 
green capital upgrade and construction practices, as demonstrated by 
experience, training, or certifications;
    (E) Working knowledge of commonly used computer technology and 
software.
    (vi) The PNA shall be performed in conjunction with an energy audit 
and the energy audit findings shall be integrated into the PNA. PHAs 
that will have completed an energy audit within 2 years of the date 
that the PHA will complete its first PNA, pursuant to this part, shall 
not be required to complete a new energy audit concurrent with its 
first PNA if the existing energy audit contains the cost-effectiveness 
data required by HUD. Using information from the energy audit, the PHA 
shall identify specific work items and their associated costs in the 
PNA that match energy conservation measures (ECMs) identified in the 
energy audit. For each ECM reviewed as part of an energy audit, unless 
otherwise directed by HUD, the PNA shall incorporate the pay back data 
from the energy audit in a form and manner prescribed by HUD.
    (vii) As modernization and repairs of public housing developments 
are completed, the PHA shall make revisions to its PNA to indicate that 
repairs to individual buildings have been addressed. These PNA 
revisions shall be completed on an annual basis.
    (viii) The PHA shall submit its PNAs and annual updates to HUD in a 
time, manner, and format determined by HUD. HUD may evaluate the 
quality and accuracy of PNAs. HUD may require a PHA to revise its PNA 
to correct errors or inaccuracies, or elements of the PNA that do not 
comply with HUD requirements, all as determined by HUD. In addition, 
HUD may directly revise a PHA's PNA to make such corrections. To the 
extent such revisions are made, the PHA shall update the corrected PNA 
in its annual update submission.
    (ix) A PHA shall not obligate or expend Capital Funds for 
administration, for transfers to operations, or for management 
improvements unless:
    (A) A PNA has been submitted in a time, manner, and format 
determined by HUD in accordance with this subpart; and
    (B) Corrections to the PNA required in accordance with paragraph 
(b)(9)(viii) of this section have been completed by the PHA within 3 
months of having been notified of the need for correction by HUD.

    Dated: June 10, 2011.
Sandra B. Henriquez,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 2011-18046 Filed 7-19-11; 8:45 am]
BILLING CODE 4210-67-P