[Federal Register Volume 78, Number 70 (Thursday, April 11, 2013)]
[Notices]
[Pages 21623-21627]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-08519]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5638-N-02]


Public Housing Assessment System (PHAS): Capital Fund Final 
Scoring Notice

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

ACTION: Notice.

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SUMMARY: This notice makes final an interim notice that advised public 
housing agencies (PHAs), as well as members of the public, that HUD 
intended to award 5 points for the occupancy sub-indicator of the 
Capital Fund indicator to all PHAs for the Capital Fund Indicator under 
the PHAS interim rule published February 23, 2011. The award of 5 
points is awarded as a temporary measure to address the transition to 
the scoring system implemented by the PHAS interim rule, especially as 
relates to the Capital Fund sub-indicator that assesses occupancy rate. 
The 5 points for this occupancy sub-indicator is awarded for fiscal 
years ending March 31, 2011, June 30, 2011, September 30, 2011, and 
December 31, 2011. This notice follows an interim notice for comment 
published on June 11, 2012.

DATES: Effective Date: April 11, 2013.

FOR FURTHER INFORMATION CONTACT: Claudia J. Yarus, Real Estate 
Assessment Center (REAC), Office of Public and Indian Housing, 
Department of Housing and Urban Development, 550 12th Street SW., Suite 
100, Washington, DC 20410, telephone 202-475-8830 (this is not a toll-
free number). Persons with hearing or speech impairments may access 
this number through TTY by calling the toll-free Federal Relay Service 
at 800-877-8339. Additional information is available from the REAC 
Internet site at http://www.hud.gov/offices/reac/.

SUPPLEMENTARY INFORMATION:

I. The June 11, 2012 Interim Notice for Comment

    On June 11, 2012, HUD published for public comment an interim 
notice that advised that for PHA's with fiscal years ending March 31, 
2011, June 30, 2011, September 30, 2011 and December 31, 2011, HUD was 
awarding all PHAs 5 points for the occupancy rate sub-indicator under 
the Capital Fund Program Indicator. The score already assigned for 
occupancy rate sub-indicator of the Capital Fund score was made 
advisory only as of the effective date of the interim notice, and 
remains advisory for a period of one year from the date of publication 
of this notice.

II. This Final Notice

    This notice makes final the June 11, 2012 interim notice without 
change.

III. The Public Comments

    The public comment period for the interim notice closed on July 11, 
2012. By the close of the comment period, HUD received 22 public 
comments. Comments were submitted by housing authorities, a consortium, 
and public housing trade associations.
    A summary of the significant issues raised in the comments, and 
HUD's responses, follows.

A. The Occupancy Sub-Indicator of the Capital Fund Indicator

    Issue: Opposition to 2 occupancy indicators. Commenters stated 
that: there should not be two occupancy indicators in a scoring system, 
when they are based on different criteria; Having two occupancy 
standards is duplicative and redundant, even though they are not 
weighted the same; the different uses of the occupancy sub-indicator in 
the management indicator and the Capital Fund indicator appear to 
conflict; it seems odd that 96 percent occupancy is acceptable in the 
Capital Fund indicator, but for the management indicator 98 percent is 
the standard; having an occupancy indicator under both the management 
indicator and the Capital Fund indicator leads to a double penalty for 
one sub-indicator; and that it is incongruous for PHAs to be high 
performing or passing for the occupancy sub-indicator under one 
subsystem and failing in another.
    HUD Response: HUD disagrees that there should not be two occupancy 
sub-indicators. The two sub-indicators are for different purposes. The 
occupancy sub-indicator under the Management (MASS) Indicator is a 
management measure. The occupancy sub-indicator under the Capital Fund 
Indicator is a measure of the use of Capital Funds for modernization 
and other capital needs. HUD believes that success in addressing 
capital needs will be reflected in higher occupancy rates. Because they 
are two different measures, HUD does not agree that there is a 
redundancy or double penalty.
    The percentage difference between the MASS occupancy sub-indicator 
and the Capital Fund occupancy sub-indicator is due to the exclusion of 
all HUD approved vacant units from the MASS occupancy calculation. The 
higher percentage required for full points under the MASS sub-indicator 
reflects that HUD approved vacant units (under 24 CFR 990.145) are not 
considered in the formula used to determine this occupancy percentage. 
Since those same HUD approved vacant units are considered in the 
formula used to calculate the Capital Fund occupancy percentage, the 
percentage required for full points under Capital Fund is lower.
    With the award of five (5) points to all PHAs for the Capital Fund 
occupancy sub-indicator for FY 2011, as provided in this notice, for 
this assessment cycle a PHA cannot ``fail'' one occupancy sub-indicator 
and still be designated a high performer or ``pass'' the other 
occupancy sub-indicator. Furthermore, even were it not for this 
adjustment, as the two occupancy sub-indicators are intended for 
different purposes, it would not be incongruous for PHAs to receive 
differing scores.
    Issue: Commenters stated that standard is too strict. A commenter 
stated that the standard for the occupancy sub-indicator is too 
stringent. Real estate firms in the local area accept 5 percent vacancy 
as normal. If HUD multi-family projects accept 5 percent as normal 
(grade of C), public housing should be no different. Another commenter 
stated that, if the multi-family standard is only 95 percent, PHAs 
should not be held to a different standard and penalized for what is 
acceptable with PHA's private counterparts, as PHA's challenges are 
just as real, if not more so. One commenter stated as an example of the 
problems with the new PHAS rule, that

[[Page 21624]]

although it has always previously maintained high performer status 
under PHAS, ``based on the new flawed PHAS rule'' it received an 89 
initially. The commenter states that it was ``unfairly penalized'' 5 
points in the occupancy sub-indicator of the Capital Fund indicator.
    HUD Response: HUD disagrees that the standard is too stringent. 
Insofar as the comment is directed to the 98 percent threshold for full 
points under the MASS occupancy sub-indicator, that comment is outside 
the scope of this notice. Insofar as the comment relates to the 96 
percent threshold for full points under the Capital Fund occupancy sub-
indicator, HUD sees this sub-indicator as a measure of how the PHA is 
using the Capital Funds to make units available to house families. An 
occupancy rate of 96 percent permits up to 4 percent of a PHA's units 
to be used for non-dwelling purposes and to be vacant in accordance 
with a modernization program.
    Insofar as a commenter claims that the standard is unfair, this 
Notice addresses that issue by providing 5 additional points and thus 
extending the time during which PHAs can prepare to address the new 
standard.
    Although HUD's diverse housing programs provide necessary low-
income housing, the public housing program serves a different 
population than the multifamily program and both of these programs 
serve different needs than conventional multifamily real estate firms. 
With the need for low-income housing and the long waiting lists, the 
occupancy percentages in the PHAS rule are consistent with the 
Department's goals of utilization and housing more low-income families.
    Issue: HUD-approved vacant units. A commenter stated that the 
indicator is flawed because it does not recognize approved vacant units 
under the management indicator (MASS). These include vacant units 
approved and exempt under MASS (e.g., because undergoing modernization, 
litigation, or market conditions), and non-dwellings units (e.g., those 
used for self sufficiency and anti-crime initiatives) that are approved 
and exempt under MASS. A number of commenters stated that the indicator 
fails to account for HUD-approved vacancies for modernization, which 
discourages PHAs from making improvements to the nation's aging stock 
and unfairly punishes PHAs for well-managed renovation programs. 
Occupancy should continue to be evaluated based on a PHAs adjusted 
occupancy rate, as is done in the management indicator. Also, these 
vacancies are needed to improve the living conditions for the 
residents. HUD should be encouraging the modernization of existing 
public housing stock for long-term viability, rather than penalizing 
modernization efforts in the PHAS scoring. One commenter stated that 
PHAs with active and on-schedule construction contracts should be able 
to exclude vacancies for modernization and casualty loss.
    A commenter stated that HUD has a system that recognizes that some 
units are vacant for legitimate reasons. These include having to 
perform modernization work on properties that, in some cases, are now 
approaching the 75 year old mark. Often, vacating these units for 
renovation is more cost-effective and better for the residents. In 
situations where PHAs have HUD approval for this work, they should not 
be penalized for taking these steps to improve their properties and the 
lives of their residents. The Capital Fund occupancy sub-indicator, 
however, does exactly that, by measuring occupancy rates regardless of 
any reason why a unit might be vacant. This method is inherently 
flawed, with ``perverse consequences,'' and fails to measure PHA 
management performance accurately. Occupancy should only measured once, 
and only after HUD-approved vacancies have been excluded.
    One commenter stated that modernization cannot be efficient if a 
PHA has to wait until a contract is signed before moving tenants to do 
the modernization. A commenter stated that renovating dwelling units 
that are located in close proximity, then moving residents permanently 
into the newly renovated units, and placing their previous dwelling 
units on the next annual Capital Fund Program (CFP) renovation program 
is the most efficient way to manage the program and the least 
disrupting to the lives of residents. It is not logical to rent the 
renovated dwelling units and wait for more dwelling units to become 
vacant, which would be scattered throughout the development, to begin 
the next CFP renovation program.
    A commenter stated that it is counter-intuitive that HUD would 
approve modernization initiatives and then penalize the PHA for doing 
exactly what was approved by HUD. Two commenters cited their specific 
experience with having units approved to be offline for rehabilitation 
and being penalized under the Capital Fund indicator, even though they 
were following HUD's requirements. One of these commenters stated that 
the PHAS snapshot taken on the last day of the fiscal year does not 
capture all units leased at the end of the month.
    HUD Response: The calculations of the occupancy percentages for 
each PHAS occupancy sub-indicator are different under the two sub-
indicators because, as stated in the response to the first comment 
above, they are different measures. To measure the number of families 
served, as the Capital Fund occupancy sub-indicator does, dwelling 
units with approved vacancies for modernization and special uses (e.g., 
self sufficiency and anti-crime initiative), as well as units vacant 
due to litigation, disasters and casualty losses that are not included 
in the MASS occupancy calculation are included in the Capital Fund 
calculation. As a result, a PHA's Capital Fund occupancy score reflects 
how well each PHA is serving the families in its communities.
    HUD is concerned about the time that dwelling units are in 
modernization status. The scoring for the Capital Fund occupancy sub-
indicator allows up to 4 percent of the PHA's dwelling units to be 
vacant at any one time for non-dwelling uses and modernization in order 
for the PHA to receive the full 5 points and up to 7 percent of the 
units to receive partial points. To achieve a higher occupancy rate 
that results in a corresponding higher score under this sub-indicator, 
PHAs are encouraged to continue ongoing proactive capital projects, 
strategize and stage their modernization projects minimizing the number 
of units that are off-line as well as the time, and to consider 
performing modernization while units are occupied since not all 
modernization work requires the family to vacate. With the Capital Fund 
occupancy measure being based on the data the PHA enters in the Public 
and Indian Housing Information Center (PIC) as of the last day of the 
PHA's fiscal year, HUD believes that PHAs can effectively plan their 
modernization projects early in the fiscal year in preparation for the 
occupancy percentage calculation at the end of the PHA's fiscal year.
    HUD can legally approve the use of units for a number of purposes 
other than occupancy, but it is the decision of the PHA how to best 
serve the families in its community and minimize the number of units 
that are not occupied by tenants. With respect to HUD's approval of 
units under modernization, this approval is granted under the Operating 
Fund, not for the Capital Fund or occupancy purposes. However, because 
Operating Funds can be used to make certain improvements and repairs, 
for example, to turn a unit over for occupancy, this approval and the

[[Page 21625]]

attendant funding can positively impact a PHA's Capital Fund occupancy 
percentage under PHAS.
    The methodology for counting units for a Uniform Physical Condition 
Standards (UPCS) inspection has no impact on a PHA's occupancy 
percentage or score under PHAS. Units are counted under the UPCS 
inspection protocol, including units vacant for modernization, for the 
purpose of determining the inspection sample size. The calculation of a 
PHA's Capital Fund occupancy percentage, determined based on the data 
the PHA has entered in PIC, is based on units occupied in PIC at the 
FYE of that agency. Unit count issues experienced during a PASS 
inspection may indicate the PHA has data errors in PIC that need to be 
corrected or the PASS protocol counts the units differently to serve 
the inspection process. In instances when there are PIC errors, it is 
incumbent on the PHA to get these errors corrected as, in addition to 
affecting their PHAS Capital Fund indicator score, it can also affect 
the PHA's funding under Capital Fund and Operating Fund.
    Issue: Occupancy sub-indicator should be permanently removed. 
Commenters stated that there should not be an occupancy sub-indicator 
in the Capital Fund section for a number of reasons, namely: it is 
redundant to have two occupancy sub-indicators; the one in the 
management section is more than sufficient with its 16 point value; 
``it serves no useful purpose''; too much emphasis is placed on the 
occupancy factor; occupancy points comprise 21 potential points out of 
100, which is too much weight for one factor; the ``illogic'' of the 
indicator is shown by the fact that Capital Fund has little to do with 
occupancy; the occupancy component of the management indicator is 
extremely important, with a 16 point value, and there is no reason to 
have a second sub-indicator measuring the same thing; and it 
unnecessarily complicates the scoring and appeals process and overall 
efficient administration of the PHAS scoring system. A commenter stated 
that the possibility of receiving an `A' in one and an `F' in the other 
displays a lack of understanding of what it is the Department is trying 
to measure and reduces confidence in the integrity of the scores.
    A commenter stated that this occupancy sub-indicator is presumably 
to measure whether PHAs are adequately using Capital Funds to improve 
units for occupancy. However, there are many factors outside of the use 
of Capital Funds that determine successful occupancy rates, including 
tenant driven factors, property management, and local housing markets.
    HUD Response: The removal of the Capital Fund occupancy sub-
indicator from PHAS is outside the scope of this notice. This notice is 
limited to providing PHAs with a year to adjust to the assessments 
under the Interim PHAS rule by awarding all PHAs the full five (5) 
points for the Capital Fund occupancy sub-indicator for fiscal year 
2011.
    As stated in HUD responses above, HUD does not believe that it is 
redundant to have two occupancy sub-indicators since each one measures 
something different. The emphasis on occupancy in the PHAS rule is 
consistent with HUD's goals that include increasing the number of 
families housed through its low-income rental housing programs.
    HUD disagrees that the Capital Fund occupancy sub-indicator 
discourages renovation and complicates PHAS. The Capital Fund provides 
money for PHAs to modernize units for occupancy by low income families 
and considering occupancy provides a good measure of how well those 
funds are being used for capital expenditures. All PHAs continue to 
request and receive Capital Funds and all PHAs obligate these funds 
timely in order to rehabilitate units and return those units to 
commerce for occupancy by income eligible families. As such, the 
Capital Fund occupancy sub-indicator is a valuable measure of how the 
program funds authorized for improving and modernizing units are being 
used to house families.
    Issue: Change should be made permanent. A commenter stated that the 
final notice should make permanent the restoration of 5 points for the 
occupancy sub-indicator for the duration of the interim rule, as the 
problems with the Capital Fund subsystem will still be present in 
subsequent fiscal years. This notice is only a temporary solution.
    HUD Response: The purpose of the notice is to provide PHAs with a 
one year period of time to adjust to the new occupancy measure under 
Capital Fund in the PHAS interim rule.
    Issue: Other suggested changes to the Capital Fund indicator. A 
commenter stated that the obligation and expenditure of Capital Funds 
should be worth the whole 10 points. This is an important indicator 
that PHAs can use funding in a timely and appropriate manner. Another 
commenter stated that timeliness of the obligation of Capital Funds 
might be preferable.
    HUD Response: HUD disagrees that the obligation and expenditure of 
Capital Funds should be the two measures for the full ten (10) points 
scored under the PHAS Capital Fund indicator. HUD has determined that 
the quantitative expenditure of Capital Funds, alone, is not 
necessarily a good qualitative measure of how well the funds are being. 
Thus, HUD revised the indicator accordingly to consider occupancy as 
one of the two Capital Fund sub-indicators in order to measure the 
outcomes of this funding stream in addition to the timeliness of the 
obligation of the funds as the other sub-indicator.
    Issue: Small PHAs. A commenter stated that the occupancy sub-
indicator is unfair to small PHAs, who can end up with a low score 
because of vacancies due to all kinds of circumstances.
    HUD Response: HUD has addressed all PHAs, both small and large, in 
this notice by providing the full 5 points for the Capital Fund 
occupancy sub-indicator for fiscal years ending in 2011.
    Issue: Snapshot in time. Two commenters stated that the occupancy 
standards do not recognize a PHA's true performance because it only 
measures a single point in time. Taking a snapshot of occupancy at the 
end of the fiscal year is wrong because vacancies could be unusually 
high at that time, and cited an example involving families vacating at 
the end of the fiscal year. The scoring of the occupancy sub-indicator 
affects Capital Fund allocations, and can reduce small PHAs funding 
drastically.
    HUD Response: HUD disagrees with the commenters. This notice has 
provided PHAs with additional time to adjust to this measure of 
performance under the interim PHAS rule. Because PHAs know that under 
the Capital Fund occupancy sub-indicator, they will be measured using 
PIC data as of the last day of the PHA's fiscal year. They can plan 
accordingly starting at the beginning of the fiscal year. With 
planning, for other than resident elective moves that can occur at any 
time during the fiscal year, PHAs can control both the timing of their 
data entries in PIC that is used to calculate the Capital Fund 
occupancy sub-indicator percentage as well as their modernization work. 
With modernization planning and timely entry of data in PIC there 
should be no adverse impact. By itself, the score received for this 
sub-indicator will not cause a PHA to receive an overall PHAS score of 
less than 90 and experience a reduction in funding because the PHA is 
not a high performer. HUD considers the occupancy of units as an 
integral measure of a high performing PHA.
    Issue: Funding issues. Commenters stated that funding shortfalls 
must be taken into account the scoring system.

[[Page 21626]]

Virtually each year the public housing operating fund is funded at less 
than 100 percent eligibility. The Capital Fund is currently receiving 
only about half the necessary amount to keep up with the annual 
accrual, without even considering the $26 billion backlog. As a result, 
agencies do not receive the funding HUD itself says is necessary for 
their management. Other HUD programs, subject to some of the same 
reviews, do receive 100 percent of their eligibility on an annual 
basis. It is not fair to use the same standard on one program, which 
receives 100 percent of its funding, and another, which receives far 
less. HUD must determine a method to take these annual funding 
shortfalls into account in assessing public housing performance.
    HUD Response: With respect to the Capital Fund, which is the 
subject of this notice, HUD declines to prorate the scoring based on 
funding. The funding for PHAs is subject to the availability of 
appropriations, and all PHAs are under the same funding constraints. 
PHAs that make the most effective and efficient use of their available 
resources and efficiently manage modernization, will, and should, score 
the most points under the Capital Fund occupancy sub-indicator.
    Issue: Difficulties with the scoring process. A commenter stated 
that the final scores have been issued for housing authorities well 
after the close of their fiscal years, making it difficult for housing 
authorities to learn from the first year and make changes for following 
years. Many PHAs have had difficulty in obtaining the details of actual 
indicators or reports of scores- making it very difficult to address 
scoring issues or prepare for the following year. There have also been 
unnecessary problems with regard to PIC data submission deadlines. PHAs 
were unaware that REAC was pulling PIC data on the date of a PHA's 
fiscal year end, despite the fact that multiple Departmental guidelines 
and notices allow housing authorities 60 days to enter data into the 
PIC system. This kind of contradictory action by HUD further convolutes 
the implementation process and strengthens the argument that scoring 
under the interim rule should be advisory.
    HUD Response: As to advisory scoring, that issue is beyond the 
scope of this notice. The HUD guidance to which the commenter refers on 
PIC data entry does provide that PHAs have 60 days to enter the data. 
That guidance, however, does not prohibit PHAs from entering their data 
sooner. The 60 day period gives PHAs the time that may be needed for 
entering all of the required information, including information that 
may require additional time to verify such as tenant identification 
issues as well as the resolution of issues regarding certain data 
entries that require HUD assistance. PHAs are encouraged to submit 
their data in PIC and other HUD systems at the first opportunity. In 
light of HUD's continued reliance on PHA submissions and the use of HUD 
systems, prompt and accurate entry of data is becoming more critical. 
HUD acknowledges that there are times when data cannot be entered 
sooner but the majority of information can be done sooner.

B. Issues Outside the Scope of the Interim Capital Fund Notice

    Issue: PHAS generally. Many of the commenters had concerns about 
aspects of PHAS other than the Capital Fund indicator, namely:
    The management occupancy sub-indicator standard is unrealistic and 
unrepresentative, in that a 98 percent occupancy level in order to be 
given an `A' is too high, given that HUD accepts a 3 percent vacancy 
rate as normal because of routine turnovers. Point deductions occur too 
rapidly, with a 95 percent occupancy rate causing the property to lose 
half the possible points. 95 percent should never be a failing grade. 
Since 95 percent is the standard in multi-family, it is not fair 
essentially to fail a public housing property for having an occupancy 
rate that is acceptable in the multifamily program;
    When HUD does a financial pro forma, it is based on 95 percent 
occupancy, and rents are set a high enough level to make sure that the 
development is financially viable at this 95 percent rate. Thus a 95 
percent occupancy rate is the norm in the multifamily program. If 
owners can achieve a higher rate, they are able to earn additional 
money. Under the management occupancy sub-indicator, however, an public 
housing property with a 95 percent occupancy rate will only be awarded 
8 out of 16 possible points, a 50 percent score or the equivalent of 
failing;
    The order of the waiting list, the need to have current screening 
and verifications, the fact that the PHA doesn't always get proper 
notice from families that are vacating, the fact that some applicants 
cannot move until their current lease ends, the fact that applicants 
move and do not tell the PHA their new address, and family situations, 
can all lead to slower turnover. This commenter stated that turnover 
also depends on the condition of the unit and how long maintenance will 
take;
    To receive maximum points on occupancy under the management 
indicator, a small PHA might have to keep all but 2 units occupied at 
all times. Being a small PHA, manpower prevents immediate preparation 
if more than two apartments are vacant at the same time and it is 
especially hard to increase manpower, whether by more employees or 
contractors, when Operating Subsidy cuts require frugality;
    For HUD Section 8 New Construction, 94 percent occupancy is 
considered excellent. Tax Credit developments have an even lower 
occupancy standard than HUD Section 8 New Construction. The scoring 
system for occupancy levels needs to be re-evaluated and made more 
realistic. Each year, 20-30 percent of units turn over for a variety of 
reasons. Routine turnovers are entirely out of the PHA's control; even 
where there is no problem getting an apartment ready, getting it filled 
can be a problem, for instance, with a tenant who decides not to take a 
unit, or has a criminal record, for example, which delays filling the 
unit;
    Due to frequent turnover, which is common in the rental industry, 
it is not unusual to have several apartments vacate within a short time 
of each other. There is always some time needed to prepare the 
apartment for the next renter and to have the new renter sign their 
lease. Since this indicator is worth 16 points it is very critical that 
PHAs have a realistic opportunity to gain the maximum points;
    An occupancy rate of equal to or greater than 97 percent is an 
excellent achievement and should be graded as such. Also, operating 
subsidy full payment is based on 97 percent occupancy. Point deductions 
should begin at equal to or less than 96 percent, with 96 percent being 
a standard rate with minimal points deducted;
    The accounts payable sub-indicator should be eliminated as 
unnecessary, not relevant to evaluating whether properties are fully 
occupied, in good physical condition and in sound financial health, and 
a sign of micromanagement. One commenter described specific issues 
where late court judgments caused problems with the account payable 
indicator score. Another commenter stated that as long as the PHA is 
well-managed, in sound financial health, and occupied, the exact 
arrangements a PHA has with its vendors to pay its bills is not an 
appropriate subject for HUD review and scoring. An agency's performance 
on this subindicator only muddies the scoring of its performance on the 
key indicators of physical status, occupancy

[[Page 21627]]

and financial condition and thus affects the integrity of the PHAS 
score as a measurement of PHA performance;
    Because of the way billing cycles work, there will always be some 
accounts payable. The question should be whether the PHA has the 
ability to pay off the accounts payable;
    The physical indicator scoring system needs to be revised as it 
deducts points for some deficiencies disproportionately to their 
importance, and the scoring system should have an easily understandable 
point value for each deficiency based on a logical standard;
    The physical inspection system continues to have numerous flaws 
including deducting points that are disproportionate to the value of 
the deficiency, failing to take into account differences in the size of 
properties and buildings consistently, including irrelevant and 
redundant deficiencies, and utilizing a complicated scoring system that 
lacks transparency. Deficiencies whose severity is minor can still be 
worth a lot of points, because they have high weights and criticality 
values. Instead of this system, HUD should develop one in which each 
deficiency is assigned an individual point value based upon a logical 
standard. The Department should also undertake a review to determine 
which deficiencies are not necessary and which could be consolidated. 
The scoring standard should account for proportionality. Unrealistic 
point deductions and unessential deficiencies should be eliminated.
    PHAS in its entirely should be advisory as PHAs need more time to 
adjust and plan accordingly and the current schedule is unfair. Since 
it is clear that HUD recognizes the deficiencies in the interim rule, 
including inadequate training and timing, HUD should make all scores 
advisory for FY 2011 and 2012. The time allotted by HUD to agencies to 
meet the new PHAS standards was 24 work days for agencies with a fiscal 
year ending March 31st and 89 work days for agencies with a fiscal year 
ending June 30th. PHAs should be allowed one full year to prepare for 
the entire PHAS;
    The entire PHAS protocol needs to be revised and simplified. The 
accounts payable indicator is unnecessary. The financial indicators do 
not measure what is most important, and the inspection protocol now 
well over a decade old is cumbersome, expensive to administer and adds 
little value to management of property. PHAS can be improved and can be 
supported with fewer resources. The Department should work more closely 
with local housing agencies and industry groups to arrive at a better 
system that will be more useful and beneficial to housing agencies, 
residents, HUD and the public. The number of deficiencies should be 
reduced and similar ones consolidated;
    The presence of brand new, more stringent indicators in the 
Financial, Management Operations, and Capital Fund subsystems 
(including the occupancy subindicator within the Capital Fund), in 
conjunction with the lack of time and training made available to 
housing authorities to learn about the changes in the system, are all 
cause for making scores issued under the interim rule advisory. 
Imposing these new standard puts PHAs' reputations at risk;
    Having standards apply retroactively is not fair, and the 
Department in this notice recognizes that fact. This same logic applies 
to PHAS generally. Numerous other changes, in addition to the Capital 
Fund occupancy sub-indicator were made, and agencies had no more time 
to adjust to these changes than they did to the Capital Fund occupancy 
sub-indicator. This is particularly true with respect to the management 
indicator;
    The scoring system is arbitrary and frustrating to work with and 
does not give a fair assessment of the condition of the property as it 
is intended to do. The system is complex and unwieldy, and can lead to 
excessive deductions for minor issues;
    Health and safety deductions are ``devastating'' because they are 
worth too many points even if only a small item;
    REAC inspectors should not nit-pick minor issues. REAC physical 
inspectors need to be aware of the cost to a PHA for findings of very 
little significance. Common sense should be used for the overall 
evaluation of a property. Major defects and safety issues should be 
written up--however some inspectors are not giving the property the 
overall scoring it should receive;
    For physical inspections, the REAC inspector should accept all 
documentation provided by the PHA and then grade according to that. For 
example, if a PHA has documentation that it does not own a fence that 
runs along its property line then the inspector should not grade the 
fence instead of the inspector grading it and then the PHA having to 
appeal it. This is a waste of everyone's time;
    PHAS should emphasize the units, since that is where residents 
actually live, but the units are only worth 35 percent of the overall 
score;
    There should be ongoing collaboration with the Department in 
continuing to remedy the major issues in the interim rule;
    Since HUD is asking PHAs to act more like private asset managers, 
the PHAs are asking that HUD do the same with respect to PHAs.
    HUD Response: These comments concern matters outside the scope of 
the notice, which is directed only to a temporary change to the 
occupancy sub-indicator of the Capital Fund indicator.

    Dated: April 5, 2013.
Sandra B. Henriquez,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 2013-08519 Filed 4-10-13; 8:45 am]
BILLING CODE 4210-67-P