[Federal Register Volume 65, Number 7 (Tuesday, January 11, 2000)]
[Rules and Regulations]
[Pages 1712-1754]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-591]
[[Page 1711]]
Part IV
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Part 902
Public Housing Assessment System (PHAS) Amendments; Final Rule
Federal Register / Vol. 65, No. 7 / Tuesday, January 11, 2000 / Rules
and Regulations
[[Page 1712]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 902
[Docket No. FR-4497-F-05]
RIN 2577-AC08
Public Housing Assessment System (PHAS) Amendments to the PHAS
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, and Office of the Director of the Real Estate Assessment
Center, HUD.
ACTION: Final rule.
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SUMMARY: This rule amends the Public Housing Assessment System (PHAS)
regulation at 24 CFR part 902 to provide additional information and
revise certain procedures and establish others for the assessment of
the physical condition, financial health, management operations and
resident services and satisfaction with PHA services in public housing,
including the technical review of physical inspection results and
resident survey results, and appeals of PHAS scores. The rule also
implements certain recently enacted statutory amendments. The rule
takes into consideration public comments received on the June 22, 1999,
proposed rule, as well as additional input HUD sought on this proposed
rule through informal meetings with representatives of PHAs and public
housing residents, and an analysis of PHAS advisory scores issued in
calendar years 1998 and 1999.
The purpose of the PHAS is to function as a management tool that
effectively and fairly measures a PHA's performance based on standards
that are objective, uniform and verifiable.
DATES: Effective Date: February 10, 2000.
FOR FURTHER INFORMATION CONTACT: For further information contact the
Real Estate Assessment Center (REAC), Attention: Wanda Funk, U.S.
Department of Housing and Urban Development, 1280 Maryland Avenue, SW,
Suite 800, Washington, DC 20024; telephone Technical Assistance Center
at (888) 245-4860 (this is a toll free number). Persons with hearing or
speech impairments may access that number via TTY by calling the
Federal Information Relay Service at (800) 877-8339. Additional
information is available from the REAC Internet Site, http://
www.hud.gov/reac.
SUPPLEMENTARY INFORMATION:
I. Background
HUD's Public Housing Assessment System (PHAS) provides a
significant oversight tool that effectively and fairly measures the
performance of a public housing agency (PHA) based on standards that
are objective and uniform. The final rule implementing the PHAS was
issued September 1, 1998 (63 FR 46596), and became effective October 1,
1998. Although the PHAS regulation became effective October 1, 1998,
the September 1, 1998, final rule provided a delayed implementation
date for the PHAS. The final rule took into consideration that time was
needed by PHAS to become familiar with and make the transition to this
new assessment system. The September 1, 1998, final rule provided that
the PHAS becomes effective for all PHAs with fiscal years ending on and
after September 30, 1999, and at that time, will replace the previous
assessment system, the Public Housing Management Assessment Program
(PHMAP). (As will be discussed later in this preamble, the schedule for
full implementation of PHAS for certain PHAS was revised by notice
published on October 21, 1999 (64 FR 56676).)
Under the PHAS, HUD evaluates a PHA based on the following four
indicators: (1) The physical condition of the PHA's public housing
properties; (2) the PHA's financial condition; (3) the PHA's management
operations; and (4) the residents' assessment (through a resident
survey) of the PHA's performance. HUD's Real Estate Assessment Center
(REAC) is charged with the responsibility for assessing and scoring the
performance of PHAs under the PHAS.
On June 22, 1999 (64 FR 33348), HUD published a rule that proposed
to amend the PHAS regulation, codified at 24 CFR part 902, to provide
additional information about the PHAS scoring systems, revise certain
procedures and establish others for the assessment of the physical
condition, financial health, management operations and resident service
and satisfaction in public housing, including the technical review of
physical inspection results and appeals of PHAS scores. The June 22,
1999, rule also proposed to implement certain recently enacted
statutory amendments. Although the June 22, 1999, rule only proposed to
implement certain provisions of the PHAS regulation, for the
convenience of the reader, HUD published the entire PHAS regulation.
On June 23, 1999, HUD published, in connection with the PHAS rule,
several notices that provide additional information on the scoring
process under the PHAS. These notices pertain to: (1) the Physical
Condition Scoring Process (64 FR 33650); (2) the Financial Condition
Scoring Process (64 FR 33700); (3) the Management Operations Scoring
Process (64 FR 33708); and the Resident Service and Satisfaction Survey
Scoring Process (64 FR 33712). The publication of these notices on June
23, 1999, was the second publication for each of these notices. All
four notices were previously published on May 13, 1999, at 64 FR 26166,
64 FR 26222, 64 FR 26232, and 64 FR 26236. At both the time of the May
1999 publication and the June 1999 publication, HUD solicited comments
on the scoring systems for each of the four PHAS Indicators. The issues
raised by the public commenters on the Notices are addressed in this
rule.
Sections II and III of the preamble to the June 22, 1999, proposed
rule provided a detailed discussion of the changes proposed to be made
to the PHAS regulations (see 64 FR 33348 at 33349-3351). The preamble
to this final rule does not repeat that discussion. HUD refers the
reader back to the June 22, 1999, proposed rule for the discussion of
proposed changes.
The public comment period on the PHAS proposed rule closed on
August 23, 1999. At the close of the public comment period, HUD had
received 29 comments. The commenters included housing authorities,
national organizations representing housing authorities, a law firm and
a national policy organization. All the comments were carefully
considered in the development of this final rule.
In addition to solicitation of public comments through the
rulemaking process, following the close of the public comment period on
the June 22, 1999 proposed rule, HUD held several meetings with PHAs
and their representatives to discuss the PHAS, implementation of the
PHAS, and to seek additional suggestions and recommendations on changes
and refinements. HUD also solicited additional input from residents,
and continued its analysis of the PHAS advisory scores that was started
during the one year transition period following the September 1, 1998
final rule. This additional consultation and continued analysis of the
PHAS was in keeping with HUD's commitment, made during the 1998
rulemaking process, to work closely with PHAs and residents and their
respective representatives in making the transition to the PHAS, to
make any necessary refinements to the PHAS as a result of testing PHAS
and consultation with PHAs and residents, and to make PHAS an effective
and efficient assessment system. This additional consultation and
analysis also satisfies direction provided to HUD
[[Page 1713]]
in the Conference Report to HUD's Fiscal Year 2000 Appropriations Act
(Pub. L. 106-74, 113 Stat 1047, approved October 20, 1999). The
conferees directed HUD to (1) delay implementation of the PHAS until,
in consultation with PHAs and their designated representatives, HUD
conducted a thorough analysis of all advisory PHAS assessments and
reviewed the GAO's analysis of the PHAS, and (2) publish a new
consensus-based PHAS final rule that incorporates any recommendations
resulting from this consultation and review process. Although GAO's
report on its analysis of the PHAS has not been issued in final form,
HUD has had ongoing discussions with GAO on its analysis of the PHAS to
date, and has considered this analysis in the development of the final
rule. This final rule published today reflects input from this
consultation and review process.
Section III of this preamble highlights the changes made at this
final rule stage. Section IV of this preamble addresses the significant
issues raised by the public commenters. Section V of this preamble
addresses the comments received on the scoring process notices
published on June 23, 1999. In the preamble to the June 22, 1999
proposed rule, HUD specifically solicited comments on certain issues.
The comments received on these issues are provided in Section VI of the
preamble to this final rule. Section VII addresses general comments
directed to this rulemaking.
HUD notes that some of the comments from housing authorities raised
issues very specific to their public housing developments or their
advisory scores, and were not issues directed to the regulatory
provisions in the proposed rule or the scoring systems described in the
notices. Accordingly, these comments are not addressed in this rule.
HUD, however, appreciates PHAs advising HUD of these specific concerns.
HUD has followed up with several PHAs and will continue to follow-up
with PHAs where there appear to be issues of discrepancies or problems
with their physical inspections, or with other aspects of the PHAS
particular to the PHA that commented.
Section II of this preamble, which immediately follows, provides a
brief overview of the public comments received on the proposed rule.
II. Overview of Public Comments on Proposed Rule
As noted earlier in this preamble, HUD received 29 comments on the
PHAS proposed rule published on June 22, 1999. The majority of the
commenters expressed their support for a uniform and objective system
to assess a PHA's performance. The majority of the commenters, however,
also believed that neither HUD nor PHAs were ready for full
implementation of the PHAS commencing October 1, 1999, as originally
scheduled. Many of the PHAs stated that they had only recently received
their PHAS advisory scores, and needed additional time to review and
comprehend these scores and prepare for implementation of PHAS. Other
PHAs stated that HUD needed additional time to prepare for PHAS because
PHAs were experiencing problems with electronic data submission to HUD,
as required by the PHAS regulation, and problems were encountered with
HUD systems. These commenters stated that neither HUD nor PHAs were
ready for implementation of PHAS, and requested that HUD delay
implementation of PHAS for another year. (Concerns about specific
components of PHAS are addressed in Section IV of this preamble.)
HUD recognizes that with the start-up of any new system, problems
will arise and aspects of the system will need to be fine-tuned. For
these reasons, HUD provided, in its PHAS final rule issued on September
1, 1998, that PHAS would be implemented for PHAs with fiscal years
ending on and after September 30, 1999. During the year of transition
that preceded the scheduled implementation of PHAS (September 1998 to
September 1999), HUD continued to examine its PHAS processes, tested
PHAS systems, obtained feedback about the PHAS from PHAs and public
housing residents, and, as a result, gained valuable information, which
HUD has used to refine various elements of the PHAS. During this
period, HUD also continued its PHAS education and training program for
PHAs both through HUD's internet site and through training conducted
across the nation. For these reasons, HUD does not believe delaying
implementation of the PHAS for all PHAs for another full year is
necessary. However, as HUD already has shown through publication of its
October 21, 1999 notice, HUD agrees that additional time is necessary
for certain PHAs, and additional time was provided to these PHAs.
HUD recognized that even with the one-year delayed implementation
of PHAS, those PHAs which, under the September 1, 1998 final rule, will
be the first PHAs to be issued PHAS scores (PHAs with fiscal years
ending September 30, 1999 and December 31, 1999), additional time and/
or additional assistance may be necessary to review advisory scores and
prepare for compliance with the requirements of the new assessment
system. For these PHAs, HUD already has advised that it will not issue
PHAS scores for fiscal years ending September 30, 1999 and December 31,
1999. For these PHAs, HUD will issue a PHAS advisory scores for all
four PHAS Indicators. For these PHAS, HUD also will issue an assessment
score based only on the management component of the PHAS (subpart D of
the part 902 regulation). Section III of this preamble discusses this
assistance in more detail.
An additional concern raised by many PHA commenters is that a PHA's
score under PHAS was very different from the score the PHA previously
received under PHMAP, and PHAs were concerned about the discrepancy
between the two scores. As HUD stated in the first PHAS proposed rule
published on June 30, 1998, the PHAS is a different system from PHMAP.
The PHAS was designed to assess more than the management operations of
PHAs. The PHAS provides for an assessment of a PHA's physical
condition, financial condition, management operations, and resident
services and satisfaction, and the PHAS provides for this assessment to
be done using, to the extent feasible, uniform and objective measures.
With this broader assessment, a PHA's overall PHAS score will be
different from the PHA's overall PHMAP score.
Another concern voiced by commenters is that the PHAS is not
consistent with the flexibility provided to PHAs by the Quality Housing
and Work Responsibility Act of 1998 (Pub. L. 105-276, approved October
21, 1998) (commonly referred to as the ``Public Housing Reform Act.'').
This statute which amended the U.S. Housing Act of 1937 (the 1937 Act)
made significant changes to HUD's public housing and Section 8
assistance programs. HUD agrees with the commenters that the Public
Housing Reform Act increased PHA flexibility with respect to management
and operations of their programs. The statute, however, did not relieve
HUD of the obligation to fulfill its public trust responsibilities,
which include the appropriate oversight of the entities receiving
taxpayers funds to administer HUD programs. To the contrary, HUD
believes that the Public Housing Reform Act strengthened HUD's
oversight authority with respect to assessment of the performance of
PHAs.
On the subject of improvement and refinement of the PHAS, HUD notes
that the number of comments and concerns raised about PHAS were
significantly less than those raised during the initial
[[Page 1714]]
rulemaking on the PHAS in 1998. HUD received 776 comments on the first
PHAS proposed rule, published on July 30, 1998. Although 670 of the 776
comments were form letters, in reviewing the comments raised on the
first PHAS proposed rule and this second proposed rule, HUD believes
that it has made significant progress in addressing initial concerns
about the PHAS, and both HUD and PHAs benefitted from the transition
period that followed the September 1, 1998, final rule.
HUD recognizes that there is anxiety about significant change, and
the PHAS represents a marked departure from the PHMAP. HUD believes,
however, that the PHAS represents not only a marked departure from, but
an improvement over, the PHMAP. HUD also acknowledges that the PHAS is
not a perfect system, but no system is perfect. HUD expects that in the
implementation of PHAS, problems will arise from time to time. Where
those problems result from HUD's systems, HUD will work to quickly
remedy the problems and correct any errors. Where the PHAS shows that
problems are with the PHA in the performance of one or more areas, HUD
will work with the PHA to remedy its problems, and, when necessary,
take appropriate actions to ensure that PHAs are in compliance with
applicable laws and regulations. At the foundation of PHAS is the goal
to have all PHAs perform as high performers, which means PHAs are
delivering decent, safe and affordable housing to their residents.
III. Changes Made to the PHAS at the Final Rule Stage
PHAS Scoring Notices
The scoring notices for the four PHAS Indicators were published on
June 23, 1999, and HUD solicited public comment on these notices. As a
result of public comment and further consultation with PHAs and
residents, several clarifying changes and improvements were made to the
notices. Each notice will describe the changes made since the previous
publication. These four notices published in conjunction with this
final rule, to be published soon, establish the scoring processes for
the four PHAS Indicators. These scoring notices will remain in place as
published. As provided in the rule, in the event HUD decides to make
any future substantive changes to these notices, they will be published
for comment before being issued in final form.
Two scoring notices will be published for the Management Operations
Indicator. As will be explained later in this preamble, this final rule
revises the sub-indicators of the Management Operations Indicator. One
Management Operations scoring notice establishes the scoring process
for the Management Operations Indicator, before it was revised by this
final rule, and the second notice establishes the scoring process for
the revised Management Operations Indicator.
PHAS Regulation
In this final rule, HUD has made the following changes to the
regulation:
Section 902.1 (Purpose and General Description), HUD
revised paragraph (e) that provided that a PHA may not change its
fiscal year for the first three full fiscal years following October 1,
1998. HUD added language to this section to provide that a PHA may not
change its fiscal year ``unless the change has been approved by HUD.''
The requirements under the new PHA Plan regulations, published as an
interim rule on February 18, 1999 (64 FR 8170), and as a final rule on
October 21, 1999 (64 FR 56844), may necessitate a change in fiscal
years for some PHAs in future years. This language will provide HUD and
the PHAs with the flexibility to address this matter if necessary.
Section 902.5 (Applicability) was reorganized to include
the discussion of the applicability of the PHAS regulation to Resident
Management Corporations (RMCs) and Alternative Management Entities
(AMEs) in one paragraph of this section, revised paragraph (a). Revised
paragraph (a) recognizes that RMCs may now be direct recipients of
certain HUD funds. Section 532 of the Public Housing Reform Act amended
section 20 of the 1937 Act to provide, among other things that the
Secretary shall directly provide assistance from the Operating and
Capital Funds to a RMC under certain conditions. If the Secretary
provides direct funding to RMCs (DF-RMCs) as provided by section 20,
section 20 provides that the PHA shall not be responsible for the
actions of the RMC.
Revised paragraph (a) provides that RMCs and DF-RMCs will be
assessed and issued their own numeric scores under the PHAS based on
the public housing developments or portions of public housing
developments that they manage and the responsibilities they assume
which can be scored under PHAS. Paragraph (a) provided that because the
PHA and not the RMC/AME is ultimately responsible to HUD under the
Annual Contributions Contract (ACC), the PHAS score of a PHA will be
based on all of the developments covered by the ACC, including those
with management operations assumed by an RMC or AME (including a court
ordered receivership agreement, if applicable). Revised paragraph (a)
includes this language but also provides that the PHAS score of a PHA
will not be based on developments managed by a DF-RMC. Again, a PHA is
not responsible for developments managed by a DF-RMC.
References in the PHAS regulation to PHAs include RMCs, unless
otherwise stated. References in the PHAS regulation to RMCs include DF-
RMCs, unless otherwise stated, and the PHAS regulation is applicable to
RMCs, including DF-RMCs, unless otherwise stated.
Revised paragraph (a) also clarifies that AMEs are not issued PHAS
scores. The performance of the AME contributes to the PHAS score of the
PHA or the PHAs for which they assumed management responsibilities.
In Sec. 902.5, as part of the reorganization of this
section, HUD amended paragraph (b) to reflect the following revised
implementation schedule of PHAS for PHAs with fiscal years ending
September 30, 1999, or December 31, 1999, that was published in the
Federal Register on October 21, 1999. Section 902.5 provides that for
PHAs with fiscal years ending September 30, 1999, or December 31, 1999,
HUD will not issue PHAS scores for the fiscal years ending on these
dates. For these PHAs, in lieu of a PHAS score, HUD will issue the
following:
(1) PHAS Advisory Score. A PHA with a fiscal year ending September
30, 1999, or December 31, 1999, will be issued a PHAS advisory score
for all four PHAS Indicators. The PHA must comply with the requirements
of this part so that HUD may issue the advisory score. Physical
inspections will be conducted using HUD uniform physical inspection
protocol. For these PHAs to successfully make the transition to PHAS,
they must comply with the requirements of PHAS and be assessed by HUD
under the PHAS, if only on an advisory basis.
(2) Management Assessment Score. A PHA with a fiscal year ending
September 30, 1999, or December 31, 1999, will receive an assessment
score on the basis of HUD's assessment of the PHA's management
operations in accordance with subpart D of part 902.
This section also provides that PHAs with fiscal years ending after
December 31, 1999, will be issued PHAS scores.
In Sec. 902.7 (Definitions), HUD added a definition of
``Act'' to refer to the U.S. Housing Act of 1937 (42 U.S.C. 1437 et
seq.), which is referenced throughout the rule.
[[Page 1715]]
In Sec. 902.7, HUD removed language from the definition of
``Alternative Management Entity (AME)'' which was duplicative of the
language in Sec. 902.5. HUD included in the definition of ``AME''
reference to an entity that has entered into a Regulatory and Operating
Agreement with a PHA to clarify that the units managed by an AME under
this agreement are covered by this rule.
In Sec. 902.7, in the definition of ``reduced actual
vacancy rate within the previous three years,'' HUD clarifies that this
rate only applies to PHAs with fiscal years ending September 30, 1999,
and December 31, 1999. As provided in the PHAS Transition Notice,
published on October 21, 1999, PHAs with fiscal years ending September
30, 1999, and December 31, 1999, will be assessed under requirements of
part 902, subpart D, as in effect before issuance of this final rule.
In Sec. 902.7, HUD added definitions for ``unit months
available'' and ``unit months leased.''
In Sec. 902.7, HUD removed the definition of ``vacancy
loss'' and replaced this definition with one for ``occupancy loss.''
In Sec. 902.20 (Physical Condition Assessment), HUD
clarifies that occupied units, which are the units subject to physical
inspection are subject to inspection but not as dwelling units; for
example, units used for daycare or for meetings (units used for such
purposes are inspected as common areas).
In Sec. 902.23 (Physical Condition Standards), HUD added
language to clarify that HUD's Uniform Physical Condition Standards are
concerned with acceptable basic living conditions, not the decor or
cosmetic appearance of the housing.
In Sec. 902.23, HUD added language to clarify that the
five major inspectable areas may include the components for each area
listed in this section, but need not, in each case, include all these
components, or may include other components, similar to those listed,
but unique to the housing being inspected, or referred to by another
name other than the term referenced in the rule.
In Sec. 902.24 (Physical Inspection of Properties), HUD
added language in the definition of ``score'' in paragraph (b) that
highlights that PHAs are notified of health and safety deficiencies at
the time of the physical inspection and the PHA is expected to promptly
address all health and safety deficiencies.
In Sec. 902.25 (Physical Condition Scoring and Thresholds)
HUD revised paragraph (b)(3)(i) to remove reference to outdated form
HUD 50072, and to provide that the certification required under this
paragraph shall be in the manner prescribed by HUD.
In Sec. 902.25, HUD added a new paragraph (c) that
provides for adjustment of the physical condition score based on
certain circumstances that include: (1) Inconsistencies between local
code requirements and HUD's inspection protocol, or conditions which
are permitted by variance or license, or which are preexisting physical
features; (2) deficiencies in the physical condition of the property,
the cause of which were beyond the control of the PHA (but the PHA is
responsible for correction); and (3) modernization work in progress in
a dwelling unit.
In Secs. 902.25, 902.35 (Financial Condition Scoring and
Thresholds) and 902.45 (Management Operations Scoring and Threshold),
HUD clarified that to receive a passing score under the Physical
Condition, Financial Condition and Management Operations Indicators, a
PHA must achieve a score of at least 18 points or 60 percent of the
available points under these indicators.
In Sec. 902.26 (Physical Inspection Report), HUD added new
subparagraphs to paragraph (a) to provide a process for correcting
exigent health and safety deficiencies identified during the physical
inspection and noted on the physical inspection report before the
physical inspection report becomes final.
In Sec. 902.33 (Financial Reporting Requirements), HUD
provides an extension of time to submit the required financial
information. For the following four quarters--September 30, 1999,
December 31, 1999, March 31, 2000 and June 30, 2000--PHAs will receive
an automatic one month extension for the submission of their required
financial information. For fiscal years ending after June 30, 2000, the
final rule provides PHAs with a 15-day ``grace'' period beyond the
submission due date. This same automatic one month extension is
provided for the information required to be submitted under PHAS
Indicator #3 (Management Operations) and Indicator #4 (Resident
Services and Satisfaction) (see discussion of Sec. 902.60 below).
In Sec. 902.33, HUD also revised paragraph (a) to add a
new paragraph (3). New paragraph (3) provides under the scoring process
for the Financial Condition Indicator, no points will be deducted under
the Current Ratio or Monthly Expendable Fund Balance components for a
PHA that has too high liquidity or reserves if the PHA has achieved at
least 90 percent of the points available under the Physical Condition
Indicator, and is not required to prepare a follow-up survey plan under
the Resident Service and Satisfaction Indicator. For a PHA that has too
high liquidity or reserves but does not meet the qualifications
described in paragraph (a)(3)(i), the PHA may appeal point deductions
under the Current Ratio or Monthly Expenditure Fund Balance components
based on mitigating circumstances if the PHA's physical condition score
is at least 60 percent of the total available points under the Physical
Condition Indicator. The appeal may be made without regard to change in
designation. The appeal process is similar to that provided for
adjustments of scores under the Physical Condition Indicator.
In Sec. 902.35 (Financial Condition Scoring and
Thresholds), HUD added a new paragraph (paragraph (a)(2)) to provide
that PHAs with fiscal years ending September 30, 1999, December 31,
1999, March 31, 2000, and June 30, 2000, will receive an advisory score
for HUD's financial assessment of the PHA's entity-wide operations. An
entity-wide assessment includes financial information on other HUD
funds, such as Section 8 or Community Development Block Grant funds
(received from the CDBG grantee), as well as funds from non-HUD
sources.
HUD's notice published on October 21, 1999, already notified PHAs
with fiscal years ending September 30, 1999 or December 31, 1999 that
they would receive a financial advisory score. Although the final rule
extends the entity-wide advisory score to PHAs with fiscal years ending
March 31, 2000, and June 30, 2000, the rule does not exempt these
latter PHAs from a PHAS financial score.
PHAs with fiscal years ending March 31, 2000, and June 30, 2000,
will receive a PHAS financial score based on their public housing
operating subsidies program. PHAs with fiscal years ending after June
30, 2000, will receive PHAS financial scores that are based on the
PHA's entity-wide operations. HUD has extended entity-wide advisory
scores to PHAs with fiscal years ending March 31, 2000, and June 30,
2000, as a result of HUD's consultation with the industry, and because
of the conversion from HUD accounting to GAAP. The chart that follows
provides an overview of the financial scoring process into the year
2000.
[[Page 1716]]
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Financial condition Management
Quarter ---------------------------------------------------------------------------------- Physical Resident
Public Housing Entity-wide Six Indicators Five Indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
9/30/99......................... Advisory........... Advisory........... Score............. N/A............... Advisory.......... Advisory.
12/31/99........................ Advisory........... Advisory........... Score............. N/A............... Advisory.......... Advisory.
3/31/00......................... Score.............. Advisory........... N/A............... Score............. Score............. Score.
6/30/00......................... Score.............. Advisory........... N/A............... Score............. Score............. Score.
9/30/00 and beyond.............. N/A................ Score.............. N/A............... Score............. Score............. Score.
--------------------------------------------------------------------------------------------------------------------------------------------------------
In Sec. 902.35, HUD reversed the order of Net Income or
Loss divided by the Expendable Fund Balance (Net Income) and Expense
Management/Utility Consumption (Expense Management). Expense Management
now precedes Net Income. The order was reversed to be consistent with
the previously published guidance on the PHAS Financial Condition
Indicator.
In Sec. 902.35, HUD revised the definitions of ``Number of
Months Expendable Fund Balance'' and ``Occupancy Loss.''
In Sec. 902.43 (Management Operations Performance
Standards), HUD removed Management sub-indicators #1 (Vacancy Rate and
Unit Turnaround Time) and #3 (Rents Uncollected). HUD agreed with
commenters that stated that these factors are assessed under the
Financial Condition Indicator through the ``Occupancy Loss'' and
``Tenant Receivable Outstanding'' (formerly Days Receivable
Outstanding) components, and the inclusion of these components under
both the Financial Condition Indicator and Management Operations
Indicator was duplicative.
HUD notes, however, that for PHAs with fiscal years ending
September 30, 1999, and December 31, 1999, which are being assessed
under 24 CFR part 902, subpart D (Management Operations) and only
receiving PHAS advisory scores, HUD's assessment will be based on the
requirements of subpart D as in effect before issuance of this final
rule. This means that the management assessment will be based on all
six sub-indicators of the Management Operations Indicator.
The amendment made to the sub-indicators in the Management
Operations Indicator by this final rule now provides for five sub-
indicators. Former sub-indicator #6--Security and Economic Self-
Sufficiency--are now two separate sub-indicators. Although the rule
does not reflect the points for each of the sub-indicators of the
Management Operations Indicator, these are provided in the Management
Operations scoring notice, the points for the six sub-indicators have
been redistributed proportionally among the current five sub-
indicators. As a result of this redistribution, economic self-
sufficiency sub-indicator is assigned greater weight than assigned at
the proposed rule stage. This redistribution of points will be
reflected in the new Management Operations scoring notice.
In Sec. 902.43, HUD removed language from paragraph (b)
that provided that a PHA in reporting under the Management Operations
Indicator which was unable to submit its information electronically,
should consider utilizing library or local government location to
access the internet. This paragraph also provided that in the event
local resources were not available, a PHA should go to the nearest HUD
Public and Indian Housing program office for assistance. This language
was informational only, and not appropriate for the regulatory text. If
a PHA does not have internet capability, the PHA should seek assistance
from local resources in submitting its information electronically to
HUD, and the HUD offices are willing to assist PHAs in meeting their
reporting requirements under the PHAS. This language was included in
the PHAS rule issued in 1998. HUD believes that as we approach the new
millennium the number of PHAs that needed this type of assistance in
1998 are dwindling quickly and it is HUD's intent, consistent with this
Administration's goal, that information is provided and exchanged
electronically.. [Note: HUD made this same change in Sec. 902.50(c) and
902.51(c)].
In Sec. 902.50 (Resident Service and Satisfaction), HUD
added language in paragraph (c) that advises that at the completion of
the resident survey process, a PHA will be audited as part of the
Independent Audit to ensure the resident survey process has been
managed as directed by HUD. HUD also added language to clarify that (1)
implementation plans are to be submitted to HUD via the internet; and
(2) any follow-up plans that a PHA may be required to submit are to be
submitted with the PHA's Annual Plan submission in accordance with 24
CFR part 903.
In Sec. 902.51 (Updating of Resident Information), HUD
added language in paragraph (c) to clarify that the electronic updating
of the public housing unit address list is to be done through the
internet. HUD also revised paragraph (c)(3) to provide that REAC will
respond to a PHA's request to update its list manually upon REAC's
receipt of the PHA request.
In Sec. 902.52 (Distribution of Survey to Residents), HUD
replaced the term ``residents'' with ``units'' in several places to
emphasize that the survey selection process is random and objective; it
is based on occupied units and not on particular information about the
residents in those units.
In Sec. 902.60 (Data Collection), HUD made the same
revision to paragraph (a) as HUD made to Sec. 902.1(e).
In Sec. 902.60, HUD added the extensions in filing
submission that it provided in Sec. 902.33, discussed above.
In Sec. 902.63 (PHAS Scoring), HUD clarified in paragraph
(c) when a PHA's overall PHAS score becomes its final PHAS score. HUD
also reorganized the paragraphs in this section to present a more
logical order. HUD also added a new paragraph (d) to provide that REAC
will perform an audit review of a PHA whose audit has been found
deficient.
In Sec. 902.67 (Score and Designation status), HUD revised
the definition of ``standard performer'' in paragraph (a) to clarify
that to be designated a standard performer a PHA must receive a passing
score in PHAS Indicators #1 (Physical), #2 (Financial), and #3
(Management Operations).
In Sec. 902.67, HUD added language in paragraph (b) that
notes, in accordance with new section 5A(j) of the 1937 Act (42 U.S.C.
1437c-1), that a PHA that achieves a total score of less than 70
percent but not less than 60 percent is at risk of being designated
troubled. New section 5A(j) provides generally that HUD may require,
for each PHA that is at risk of being designated as troubled under
section 6(j)(2) of the 1937 Act, that the public housing agency plan
for such PHA include any additional information that the
[[Page 1717]]
determines to be appropriate. The proposed rule did not clearly
indicate PHAs that are at risk of being troubled.
In Sec. 902.67(c)(2), HUD included language that was in
the previous PHAS rule issued on September 1, 1998, but inadvertently
omitted in the June 22, 1999, proposed rule. This language pertains to
troubled with respect to modernization and was in the previous PHAS
rule at Sec. 902.67(c). The language reinserted, however, is revised
from the September 1, 1998 final rule, to reflect that the Capital Fund
Program is replacing the Comprehensive Improvement Assistance Program
and the Comprehensive Grant Program.
In Sec. 902.67, HUD provides that a PHA whose designation
as a standard or high performer has been withheld or rescinded, as a
result of a PHA's involvement in any of the circumstances described in
Sec. 902.67(d) (e.g., involved in litigation bearing directly upon the
physical, financial or management performance of a PHA, operating under
a court order) may request the Assistant Secretary for Public and
Indian Housing to reinstate the designation and provide the basis for
the reinstatement. HUD clarifies that a designation assigned or
withheld under Sec. 902.67, and any reinstatement determined
appropriate by the Assistant Secretary, does not result in a change in
the PHA's PHAS score.
In Sec. 902.68 (Technical Review of Results of PHAS
Indicators #1 and 4), HUD revised the paragraph concerning ``unit
error'' to clarify that only a PHA's public housing units are
considered in the scoring.
In Sec. 902.69 (PHA Right of Petition and Appeal), HUD
revised paragraph (c) to clarify the procedures that govern appeal of
troubled designation and refusal to remove trouble designation. These
procedures were present in the September 1, 1998 final rule but became
merged, in some aspects inappropriately, with the procedures that
govern appeal of a PHAS score. In paragraphs (d) and (e) of this
section, HUD also clarified how final decisions are reached by the
Board of Review. The Board of Review reaches a decision on the appeal
and the PHA is notified of the final decision by the Assistant
Secretary for Public and Indian Housing.
In Sec. 902.71 (Incentives for High Performers), a new
paragraph (a)(4) is added to reference the performance reward available
to high performing PHAs under the regulations of the Capital Fund
Formula. (See Sec. 905.10(j) of the proposed rule published on
September 14, 1999. A performance reward factor is expected to be part
of this formula and part of the final rule on the Capital Fund Formula
to be published in the near future.)
In Sec. 902.71, HUD clarifies that the bonus points
available to high performers in HUD's funding competitions, where
permissible by statute and regulation, will be provided in HUD's
notices of funding availability.
In Sec. 902.73 (Referral to an Area HUB/Program Center),
HUD removed language in paragraph (b) that described the contents of
the Improvement Plan because this language was duplicative of that in
paragraph (d) of this section.
In Sec. 902.75 (Referral to a Troubled Agency Recovery
Center (TARC)), HUD revised paragraph (a) to include PHAs designated
troubled under the PHMAP regulations in 24 CFR part 901. Since PHAS is
a fairly new system, this revision recognizes that some PHAs were
designated as troubled (and remain under such designation) under the
PHMAP regulations. PHAs designated troubled under PHMAP are subject to
the provisions of Secs. 902.75 through 902.85.
In Sec. 902.75(a), HUD clarifies that the referral by the
TARC of a troubled PHA to a HUB/Program Center is for the purpose of
having the HUB/Program Center assist with the oversight and monitoring
of the PHA's planned recovery. In Sec. 902.75, HUD is also removing the
requirement of a Recovery Plan. On further consideration, HUD believes
that the Memorandum of Agreement (MOA) is the only required document
necessary to address the plan for recovery of a troubled PHA.
In Sec. 902.75, HUD also clarifies in paragraph (b)(2)
that performance targets may be annual, quarterly, or monthly.
In Sec. 902.75(d), HUD clarifies that the PHA must improve
its performance and achieve an overall PHAS score of at least 60
percent, and achieve a score of at least 60 percent of the total points
available under each of PHAS Indicators #1 (Physical Condition), #2
(Financial Condition) and #3 (Management Operations).
In Sec. 902.75(e)(4), HUD clarifies that the Board of
Commissioners will be a party to the MOA unless exempted by the TARC
(not the HUB/Program Center as the rule previously provided). HUD also
revised the example provided in paragraph (g) of this section to be
more helpful to the reader.
In Sec. 902.75, HUD adds a new paragraph (h) to address
the audit review of a PHA designated as troubled. This new provision is
based on practice under the PHMAP regulations.
Under the PHMAP regulations, a troubled PHA with more than 100
units was required to undergo a confirmatory review by HUD before the
PHA's troubled designation was removed. This review is conducted by a
team appointed by the Office of Public and Indian Housing. For large
troubled PHAs, the team is comprised of housing specialists and
financial analysts from throughout the country (as opposed to staff
from HUD's Field Office with jurisdiction over the PHA). This process
provides for an accurate and objective assessment of the PHA and
appropriately removes these duties from the Field Office that provides
the technical assistance to the PHA.
As revised by this final rule, the PHAS will provide a similar
process for PHAS, but only in relation to the PHAS Financial Indicator.
REAC may, at its discretion, select an audit firm that will perform the
audit of PHAs identified as troubled under PHAS, and its predecessor
PHMAP, and REAC will serve as the audit committee for the audit in
question. At its discretion, REAC will either select the auditor from
the existing request for proposals of audit work issued by the PHA, or
REAC will conduct its own request for proposals and will conduct the
selection process. If REAC conduct its own request for proposals and
conducts the selection process, the audit engagement may be paid from
funds assigned to the PHA by HUD for such purposes, as provided by law.
In Sec. 902.77 (Referral to the Departmental Enforcement Center),
HUD clarifies that the Assistant Secretary for Public and Indian
Housing makes the determination that a troubled PHA shall be declared
in substantial default.
In addition to these changes, HUD has made editorial and technical
changes throughout the rule for purposes of clarity.
IV. Discussion of Public Comments
This section presents HUD responses to the significant issues
raised by the public commenters. The organization of the public
comments generally follows the organization of the proposed rule. The
heading ``Comment'' states the comment or comments made by the
commenter or commenters, and the heading ``Response'' presents HUD's
response to the issue or issues raised by the commenters. With respect
to comments about the scoring processes of the PHAS Indicators, the
majority of these comments are discussed in Section V of this preamble,
but there may be some overlap in discussion of the processes between
this Section IV and Section V.
[[Page 1718]]
Subpart A--General Provisions
Section 902.1 Purpose and General Description
Comment. The PHAS fails to consider differences related in the
overall mission and goals of PHAs nationally. The PHAS assessment does
not take relative size, mission, condition, geographic, and other local
variances into consideration. The effect of a ``one-size-fits-all''
construct is in direct opposition to the intent of the Quality Housing
and Work Responsibility Act of 1998, which promotes and encourages
local flexibility. Additionally, PHAs that serve the elderly or persons
with disabilities should not be compared to PHAs that predominantly
serve low-income families.
Response. PHAS, like PHMAP, was never intended to be an all
encompassing assessment tool. There are many aspects of PHA management
that PHMAP did not assess and the PHAS does not assess. Instead, key
indicators of performance, that are common to all PHAs, are identified
for review. In determining how best to structure the PHAS, HUD's
approach was to strike a balance on many issues, including those raised
by this comment. HUD decided that uniform, standardized, and objective
criteria among its programs are essential to effective management. A
standard of decent, safe and sanitary for housing should not be
dependent upon the location of a PHA's public housing or the residents
that it serves. Similarly, the PHA's financial condition or the ability
to manage its operations in accordance with certain standards should
not be dependent upon geography, or residents served. HUD notes that
where local variances should be taken into consideration, they will be,
as provided in the changes made in this final rule.
With respect to flexibility, HUD regulations governing individual
public housing programs provide PHAs with the needed flexibility to
tailor the operation of their programs and to manage their properties
in a manner that is sensible given their particular circumstances. HUD
believes that the PHAS significantly improves upon the PHMAP.
Section 902.5 Applicability
Comment. Private owners or owner entities that operate mixed-income
developments that contain public housing units do not appear to fit the
definition of ``Alternative Management Entity'' (AME) and therefore
should be addressed separately. Additionally, there are concerns about
several aspects of the PHAS to AMEs. All PHAS indicators are not
applicable to mixed-finance owner entities or public housing units
owned and operated by such entities. PHAS Indicator #1 (Physical
Condition) and some but not all of the components of PHAS Indicator #3
(Management Operations) are applicable to these entities but not PHAS
Indicator #2 (Financial Condition) and not PHAS Indicator #4 (Resident
Service and Satisfaction Indicator). These entities should be exempt
from assessment under Indicators #2 and #4.
Response. Entities that manage mixed-income, and/or mixed-finance
developments fall under the definition of an AME. An AME is defined as
``a receiver, private contractor, private manager, or any other entity
that is under contract with a PHA, or that is duly appointed or
contracted (for example, by court order or agency action) to manage all
or part of a PHA's operations'' (24 CFR 902.7). An owner entity
managing a mixed-income, mixed-finance development has a contractual
relationship with the PHA, usually through a Regulatory and Operating
Agreement, to operate the public housing units that are covered by the
PHA's Annual Contributions Contract (ACC) contract with HUD. Therefore,
for the purpose of PHAS, private owners or entities operating mixed-
income developments that include public housing units are treated as
AMEs.
HUD disagrees with the comment that all PHAS Indicators are not
applicable to entities that manage mixed-finance developments.
Components of PHMAP measured the financial condition of these entities
and resident services. Accordingly, HUD does not believe there is a
basis for exempting these entities from the assessments performed under
PHAS Indicators #2 and #4.
Subpart B--PHAS Indicator #1: Physical Condition
Certain comments specifically addressed to the PHAS Notice on the
Physical Condition Scoring Process may be applicable to the regulations
in Subpart B and vice versa. Please see Section V of this preamble.
Section 902.23 Physical Condition Standards for Public Housing--
Decent, Safe, and Sanitary Housing in Good Repair (DSS/GR)
Comment. The definition for ``good repair'' is not defined in the
rule. This term needs to be defined in the rule.
Response. The term ``good repair,'' like the terms ``decent, safe,
and sanitary,'' is defined in Sec. 902.23, and in Sec. 5.703 of HUD's
Uniform Physical Condition Standards rule, published in final on
September 1, 1998 (63 FR 46566). For each of the major inspectable
areas that are inspected as part of a physical condition inspection,
these terms are defined through descriptions such as ``proper operating
condition,'' and ``structurally sound'' of the items that make up the
inspectable areas. These terms were elaborated upon in the PHAS Notice
on the Physical Condition Scoring Process, and in the preamble to both
the June 30, 1998, PHAS proposed rule, and the June 30, 1998, Uniform
Physical Condition Standards proposed rule. As noted in both preambles,
the statutory physical condition standard for public housing required
by the 1937 Act was expressed in terms of ``decent, safe and
sanitary.'' (However, the physical condition standard presently
required under section 2 of the 1937 Act is referred to as ``decent and
safe'' which HUD does not consider a substantive change to the previous
statutory standard.) For FHA-related properties, the statutory standard
is expressed in terms of ``good repair and condition.'' In adopting
physical standards that are applicable to both public housing and FHA-
related properties, HUD uses the descriptive term--``decent, safe,
sanitary and in good repair.''
Comment. The physical condition standards are not clearly defined.
The standards by which PHAs are judged must be defined.
Response. The preceding response addresses this issue to some
extent. Additionally, HUD addressed this issue in its proposed rule on
Uniform Physical Condition Standards, published on June 30, 1998. In
the preamble to that proposed rule, HUD stated that the standards are
intentionally broad and are defined with terms such as in ``proper
operating condition,'' ``adequately functional,'' and ``free of health
and safety hazards.'' Given the differences in design of HUD housing,
and the different types of electrical and utility systems that will be
encountered, a rule cannot define or describe proper operating
condition for every type of system, or every type of element. This
information is rightly placed in supplementary documents, which have
been made available to PHAs directly, through HUD's website, since
1998. This information also was made available through notices
published in the Federal Register in May 1999 and June 1999, as
discussed earlier in this preamble.
[[Page 1719]]
Section 902.24 Physical Inspection of PHA Properties.
Comment. The majority of the commenters commended HUD for removing
vacant units from the physical inspection process. Several commenters,
however, stated that the rule also should exclude from inspection units
that are in the process of being modernized. As an example, commenters
noted that deficiency ratings should not be assigned to units or
buildings to be replaced as part of HOPE VI revitalization. This
information can be obtained by HUD's review of the PHA's on-going
modernization projects and Physical Needs Assessment.
Response. HUD believes that many of the concerns raised by the
commenters with respect to modernization result from advisory
inspections that occurred before HUD issued its proposed rule on June
22, 1999. HUD addressed concerns regarding modernization issues in the
June 22, 1999, proposed rule. The June 22, 1999, proposed rule advised
that it would add to the PHAS rule (and this final rule includes this
amendment), three categories of exemptions which assist PHAs by
providing flexibility in scoring for reasonable unforeseen
circumstances in conducting physical inspections. The exemptions
consist of the following categories of units that are not under lease:
(1) units undergoing vacant unit turnaround--vacant units that are in
the routine process of turn over, i.e., the period between which one
resident has vacated a unit and a new lease takes effect; (2) units
undergoing rehabilitation--vacant units that have substantial
rehabilitation needs already identified, and there is an approved
implementation plan to address the identified rehabilitation needs and
the plan is fully funded; and (3) off-line units--vacant units that
have repair requirements such that the units cannot be occupied in a
normal period of time (considered to be between five to seven days) and
which are not included under any approved rehabilitation plan.
HUD declines to exempt occupied units that are undergoing
modernization from physical inspections. If a unit is occupied it must
be decent, safe, sanitary and in good repair. However, the final rule
provides that HUD may determine occupied dwelling units undergoing
modernization work in progress require an adjustment to the physical
condition score and will consider such adjustment as provided in
Sec. 902.25(c)(3) of this final rule.
Comment. PHAs should be given credit for items needing repair or
modernization and for which repair or modernization is pending but not
yet begun because of lack of funding due to Federal budget decisions.
PHAs should not be penalized for circumstances (such as funding) beyond
their control. Rather than a ``point in time'' physical inspection,
PHAs should be given points for doing their jobs well under difficult
circumstances.
Response. The 1937 Act and the ACC place the responsibility for
maintaining public housing in the hands of the PHA. HUD understands
budgetary constraints, but part of good management is maintaining
housing in a decent, safe and sanitary condition even when funding
sources are limited. Maintaining housing in acceptable living condition
is not just a regulatory standard but also a statutory standard. HUD's
Uniform Physical Condition Standards and the PHAS rule assess the
extent to which PHAs are maintaining public housing in accordance with
the statutory standard.
Of necessity, the inspection of the public housing inventory is an
inspection at ``a point in time.'' HUD believes it would be misleading
to report a condition of public housing other than the actual condition
of the housing. If a PHA maintains its housing in a condition that is
decent, safe, and sanitary despite limited funding, the PHA is
fulfilling its statutory mandate and will receive a passing score under
PHAS Indicator #1.
With respect to modernization needs, HUD notes that the final rule
provides an adjustment to the physical condition score for
modernization work in progress. (Please see earlier discussion on
Sec. 902.25(c)(3).)
Comment. The rule needs to clarify how units are selected for
physical inspection. Rating a PHA only on a certain percentage of the
units inspected is unfair.
Response. To ensure accuracy in the physical condition standards
and inspection requirements, units are chosen for physical inspections
by a statistically valid random sample determined by the size of the
property. The sample does not distinguish between the type of
property(s) (i.e., elderly or family) or units (i.e., one bedroom, two
bedroom, three bedroom, etc.) that are involved. The system generated
sample will evenly distribute the buildings and units to be inspected
among the different types if more than one building type is contained
in a particular property.
In developing the PHAS rule, HUD considered the extent to which it
needed to inspect all units or some lesser number. HUD concluded that
it should not inspect all units because that would be costly and PHAs
are already required to inspect 100% of their units and systems under
PHAS Indicator #3, Management Operations. HUD decided to use a
statistically valid random sample methodology. This methodology is
accepted throughout the scientific and business communities for making
assessments regarding large universes.
Comment. PHAs should not receive deficiency ratings for items that
are outside of a PHA's control, e.g., city or town sidewalks, or roads
near public housing developments.
Response. The physical condition standards and inspection
requirements under the PHAS rule do not hold PHAs accountable for site
areas which are not within their control. The rule only applies to
aspects of the housing that are within the ownership of the PHA. For
instance, a PHA owner is not responsible for maintaining a road,
sidewalk, etc., if the PHA does not own the site area; however, the PHA
will be responsible for maintaining all areas which are legally part of
the property. In instances involving items scored but that are not
within a PHA's control, the PHA may request an adjustment in accordance
with new paragraph (c) of Sec. 902.25.
Comment. The final rule needs to resolve possible conflict with
fair housing issues and issues of reasonable accommodation under
section 504 of the Rehabilitation Act of 1973. A PHA received a
deficiency rating because a unit was not painted, but the unit was not
painted at the request of a tenant who claimed disability on the basis
of allergic reaction. This type of situation needs to be addressed in
the final rule.
Response. Section 902.24 (Physical Inspection of PHA Properties),
introduced by the June 22, 1999 proposed rule, addresses the issue of
compliance with civil rights and accessibility requirements. This
section provides that HUD will review certain elements during the
physical inspection to determine possible indications of noncompliance
with the Fair Housing Act and section 504 of the Rehabilitation Act of
1973, but a PHA will not be scored on those elements. Any indication of
possible noncompliance will be referred to HUD's Office of Fair Housing
and Equal Opportunity.
Comment. The final rule should provide for separate inspection
protocols for high rise buildings and scattered site projects. The
current inspection protocol apparently was designed for both high rise
and townhouse developments, so its treatment of common areas is
somewhat uneven and unreliable. The inspection protocol is even less
accurate when
[[Page 1720]]
applied to scattered sites. Some scattered site ``clusters'' have
communal sites and common areas, but truly scattered single family
homes and duplexes do not.
Response. When HUD introduced its Uniform Physical Condition
Standards in the proposed rule, by the same name, published on June 30,
1998, and in the first PHAS proposed rule, also published on June 30,
1998, HUD specifically advised that one of the objectives in
formulating these standards and in designing a new inspection protocol
was to move away from the different physical condition standards and
inspection procedures that were applicable to housing administered by
HUD programs. The PHAS takes into account all housing types, including
high rise housing (4 stories or more) and other building types, and
proportionately allocates the sample of units between those two types
of buildings. The scoring system only assesses elements that are
present. In cases where there are no common areas, for example, the
scoring system redistributes the available points to the other
inspectable areas.
Comment. PHAs should not receive deficiency ratings for recent
tenant damage or unreported repair needs. Deficiency ratings occurred
even when tenants acknowledged that they had not reported damage or
need for repairs to the PHA. The inspection process should require HUD
to review work order files to determine if the resident has reported
the noted deficiency. The PHA should only be responsible for those
items left unrepaired following proper notification.
Response. HUD's physical inspection system is objective and does
not distinguish those defects that are the fault of the resident, nor
does the system in itself recognize good faith efforts of the owner.
The system is simply a tool for observing and transmitting data
regarding the physical condition of the property at the time of the
inspection. An owner of HUD assisted or insured housing is statutorily
and contractually responsible for maintaining the physical condition of
the property. HUD anticipates that such owners, like all landlords,
would rely on lease provisions regarding the resident maintenance or
destruction of the units, and HUD would encourage them to do so in
furtherance of compliance with the physical condition standards. Good
property management, which includes regular housekeeping and
preventative maintenance inspections throughout the year, coupled with
strict lease enforcement, will result in well-maintained housing that
meets the standard.
Comment. The rule needs to address further the inspection
notification process. The scheduling of the inspection appears to be
kept a secret until the last moment. In one PHA's development, although
some tenants did not want their units inspected, the inspector advised
that the tenants would have to confirm that to the inspector in person.
Advance notice of the inspection needs to be provided and tenant rights
need to be considered and respected by the inspector.
Response. The rule provides the timing of the inspections.
Specifically, PHAs are to be assessed annually. Physical inspections
are to take place in the three months immediately preceding the end of
the PHA's fiscal year. In addition, HUD's ACC does not afford tenants
the right of refusal to have a unit inspected. In accordance with the
ACC, PHA's are required to provide HUD or its representative with full
and free access to all facilities (units and appurtenances) contained
in the project in order to permit physical inspections. In the event
that a PHA fails to provide access as required by HUD or its
representative, the PHA will be given ``0'' points for the project(s)
involved which will be reflected in the physical condition and overall
PHAS score. With respect to notification of the physical inspection,
HUD provides written notification to the PHA that its properties will
be inspected within the next 30 to 90 days. The HUD contract inspector
will schedule the inspection, providing a minimum 10 days notification,
which is confirmed with the PHA in writing by the contractor. HUD's
notification of inspection requires the PHAs to provide proper
notification to tenants. The contractor's confirmation letter also
reminds PHAs of the tenant notification requirement.
Comment. HUD's authority to access tenant dwelling units as
provided in Sec. 902.24(d) is questionable. Section 902.24(d) states
that ``PHAs are required by the Annual Contributions Contract (ACC) to
provide the government with full and free access to all facilities
contained in the project.'' However, the degree of access envisioned by
Section 15 of the ACC is circumscribed by the auditing function, and is
not meant to authorize unbridled access to tenant dwelling units.
Additionally, portions of the public housing program regulation at 24
CFR 966.4(j) do not give HUD full and free access to tenant dwelling
units. The PHAS rule does not justify entry by HUD of a tenant dwelling
unit without notification which specifies a date and time of
inspection, or entry by the HUD without notice because a physical
inspection would not be considered an ``emergency'' within the
regulation.
Response. HUD has the requisite statutory and regulatory authority
to inspect tenant dwelling units. Notification of inspection is
provided to the PHA who is required to provide proper notification to
tenants. However, HUD notes that Sec. 966.4(j) of its regulations does
not require a specific time or date, only reasonable advance
notification, that inspections will be performed during reasonable
hours.
Comment. The PHAS inspections establish unfunded financial burdens
and constitute an unfunded mandate. Although HUD outsources the
inspections, PHAs are required to accompany contractors during
inspections, resulting in added maintenance and managerial costs. When
coordinating inspections for scattered site public housing units, a lot
of time is wasted inspecting units in one part of the city and then
going to an entirely different section of the city on the same day. HUD
should schedule scattered site inspections with regards to geographical
considerations such as zip codes to maximize routing efficiencies and
to keep the already excessive administrative costs of this process to a
minimum.
Response. HUD has a statutory obligation to assess the performance
of PHAs, including the physical condition of their properties.
Additionally, the ACC has always provided that PHAs must provide HUD
with full and free access to their developments. HUD has conducted on-
site reviews of PHAs either through PHMAP confirmatory reviews or other
management reviews for at least two decades. Therefore, Federal
oversight of the physical inspection of public housing units is not new
for PHAs. It is an inherent part of receiving Federal financial
assistance and is customary in most, if not all Federal grant programs,
regardless of the administering agency. HUD believes that there should
be little or no difference in the way a physical inspection should be
conducted between Federal programs. HUD believes that it is important
to have a consistent standard across programs and geographical regions.
In this way, all properties and property owners are treated fairly and
equally.
With respect to inspection of units at scattered sites and the
additional time involved, it is HUD's intent to reduce the
administrative burden to the PHAs to the extent possible. HUD will
examine inspection schedules and make every effort to schedule
inspections that
[[Page 1721]]
minimize the use of resources on the part of the PHA.
Comment. The HUD contract inspectors are poorly organized,
inadequately skilled and highly inefficient, and PHAS physical
inspection quality controls are inadequate. Inspectors did not keep the
inspection schedules as promised, and did not perform the inspection
process as required. Inspectors did not inform PHA staff of inspection
schedules as required. The rule needs to ensure consistency in
inspection. Inspectors in one area may be more lenient, whereas
inspectors in another area may be more stringent in interpreting
inspection standards. Inspection standards should be clarified in the
new rule and independent contractors should communicate their
interpretation of the standards to PHAs before the inspection is
conducted.
Response. HUD contract inspectors, contracted under the national
inspection contract (NIC), successfully conducted approximately 24,000
inspections nationally during the first year. Other contract inspectors
under the baseline inspection contract (BIC) will inspect approximately
16,000 properties by the end of this calendar year. These contract
inspectors were trained using a new and unique protocol, and
successfully scheduled and completed the required inspections. All of
this required a tremendous amount of organization and logistics.
All HUD contract inspectors must meet certain basic qualifications
involving knowledge, experience and/or education in the building trades
or conducting inspections. In addition, these inspectors completed a 5
day training course in the new inspection software and were required to
pass proficiency tests in the use of the software. Since these
inspections started for the first time in October 1, 1998, the initial
start-up involved some refining as one would expect given the size and
magnitude of this effort. In certain cases, problems were encountered
and HUD responded to those problems. HUD believes that the process,
overall, is running smoothly. HUD is striving to constantly improve and
refine the process and will continue to do so in the future. In this
regard, HUD also provides for required periodic retraining of the
inspectors, to ensure that the inspectors are up-to-date and familiar
with any changes made to the PHAS regulation, physical condition
protocols and the physical condition inspection software.
HUD acknowledges that even with qualification and training
requirements imposed on inspectors, some inspectors, as is the case in
any profession, perform better than others. For this reason, HUD has
developed a four tiered quality control/assurance process.
First, each contractor is required to have a quality control
program to ensure that the HUD protocol is being followed. Second, REAC
has its own quality assurance staff, who are employees of the Federal
government. Their sole job is to review the performance of the contract
inspectors to ensure that the inspection protocol is being followed.
Third, REAC also has a Technical Assistance Center and a toll free
telephone number (1-888-245-4860) for program participants to call when
experiencing problems like the inspector failing to show up for
scheduled inspections. In many cases, failure to show up for
inspections is the result of unexpected delays (e.g., weather, more
difficult and complex inspections than anticipated, etc.). Fourth, HUD
has provided a technical review procedure to address material errors in
an inspection. This review procedure was first announced in a notice
published in the Federal Register on May 13, 1999, and was part of the
PHAS proposed rule published on June 22, 1999.
Comment. The sheer volume of inspectable items makes the inspection
even more vulnerable to differences in interpretation and error.
Response. HUD does not believe that the number of inspectable items
is either excessive or makes the inspection vulnerable to different
interpretations. The number of inspectable items is similar to those
contained in the Section 8 Housing Quality Standards (HQS) inspection.
While there is a considerable number of deficiency definitions, all
elements of the inspection protocol, including the definitions, are
contained in the inspection software and are easily retrievable by the
inspector, and are designed to preclude subjective interpretations on
the part of the contract inspectors. The more experience that the
contract inspectors have with the protocol the easier the inspection
process becomes. HUD does not believe that the inspection protocol is
beyond the capabilities of the inspection profession.
With respect to deficiency definitions, HUD has revised a
considerable number of definitions for purposes of clarity and
simplification. The revised Dictionary or Deficiency Definitions is
currently available for review on HUD's website.
Comments. The rule should allow for PHAs to correct minor
deficiencies while an inspector is on site, to avoid potential problems
related to the inspection.
Response. New paragraph (b) in Sec. 902.26 allows for PHAs to
correct deficiencies before HUD issues its final physical inspection
report to the PHA.
Comment. Certain elements of the inspection are equivalent to an
appearance-oriented inspection that is like a military ``white glove''
test and is beyond determining whether the property is decent, safe,
sanitary and good repair, or the property components work and function
properly. The PHAS physical inspection should not be an assessment of
the tenant's housekeeping.
Response. HUD disagrees that elements of the inspection go beyond
the statutory mandate regarding the physical condition of the property.
The PHAS physical inspection is not an appearance-oriented assessment
or an assessment of a resident's housekeeping. The focus of the
inspection is whether the housing is in a condition of decent, safe,
sanitary and in good repair. The inspection assesses the condition of
the PHA's property, including occupied units. HUD has revised the
physical inspection report and the revised report is more user friendly
and clarifies for the PHA the exact nature of the deficiency.
Comment. HUD inspectors should skip the relatively few units with
``problem'' tenants, such as those who are mentally ill and hostile, or
currently bringing legal actions against the PHA.
Response. HUD understands the challenges that PHAs face. HUD,
however, has a statutory obligation to determine the condition of the
PHA's property. Resident evictions and related actions are a normal
part of residential management. Given HUD's statutory obligation, HUD
cannot forgo inspection of occupied units because certain tenants are
considered ``problem'' tenants.
Comment. Tenant-owned appliances and smoke detectors should not be
scored in the physical inspection of a property. One PHAS inspector
cited a defunct battery operated smoke detector which a tenant had
installed, even though the PHA-provided hard-wired smoke detector that
worked. PHAs should not receive deductions for items that are not the
property of the PHA.
Response. Any deductions that may be made for resident-owned
property such as that described in the comment can be accommodated by a
PHA's request for an adjustment in accordance with new paragraph (c) of
Sec. 902.25.
Comment. There should be no deficiency ratings for elements or
items of the public housing development that
[[Page 1722]]
pass local code requirements, and no deductions should be made for
items that are not present and are not required by national codes or
HUD mandates. PHAs should be protected from negative consequences for
meeting local code requirements. Additionally, while objectivity is a
sound principle for inspection, under the PHAS advisory inspection
process, it all too often translated into rigidity.
Response. As noted earlier in Section III of this preamble, HUD has
added a new paragraph (c) to Sec. 902.25 that takes into consideration
local code requirements that may be inconsistent with HUD's physical
inspection protocols, or other conditions, including preexisting
physical features of a building, that are permitted by local variance
or license.
Comment. The PHAS standard for lead-based paint ``owner
certification'' is not clear. Different PHAS inspectors interpret this
standard different ways. This factor should be treated like smoke
detectors, with a separate code appended to the numerical score to
indicate the possible presence of lead-based paint in units, or the
absence of certifications that all units are lead-free.
Response. The certification section, which includes the lead-based
paint certification, is not scored; the certification is only recorded
as submitted. Accordingly, the Lead-Based Paint certification is
currently being treated like smoke detectors, only a separate
identifier is not used.
Comment. Smoke detectors should not be required in unfinished
basements which are not living areas. This is the standard for some
local codes. The PHAS physical inspection protocol is not clear on this
issue.
Response. The PHAS regulation requires smoke detectors on ``each
level of the dwelling unit.'' The basement, whether or not it is a
living area, must have a smoke detector if it is part of the dwelling
unit.
Section 902.25 Physical Condition Scoring and Thresholds
Comment. This section provides that the PHA may claim an adjustment
on its physical property score due to age and neighborhood environment
by certifying to the adjustment on form HUD-50072. The form, as is
currently available on HUD's website, is still the PHMAP certification
form. The section of the form pertaining to this adjustment does not
permit the PHA to specify which developments are qualified to receive
the adjustment.
Response. The new Management Operations Certification Form is now
available on REAC's website, as well as an instruction guidebook for
completing the form. The certification for the physical condition and/
or neighborhood environment includes project number, project name, and
the three areas where the adjustment applies. The PHA is to indicate
for each project which area(s) apply.
Section 902.26 Physical Inspection Report
Comment. The physical inspection reports are difficult to
understand. The report lacks the necessary detail for staff to
understand the nature of the deficiency so that the PHA may take the
appropriate corrective action required.
Response. HUD appreciates the comment and as noted earlier in this
preamble, HUD has revised the physical inspection report so that PHAs
may better understand the nature and location of deficiencies cited for
their properties.
Comment. The final physical inspection report should be supplied to
PHAs within 15 to 30 days after the inspection is completed.
Response. As provided in the rule, the PHA's property
representative will receive the list of every observed exigent/fire
safety, health and safety deficiency that calls for immediate attention
or remedy before the inspector leaves the site. HUD will endeavor to
provide complete inspection results as soon as possible after
inspections are completed. HUD will provide inspection results on its
website as soon as all inspections are completed, rather than waiting
until all data needed to issue a PHAS score is received.
Comment. There should be an exit conference with the inspector to
review the inspection for accuracy in what was inspected. Additionally,
no information about PHAS should be released without the approval of
the PHA. Response. This issue was raised in response to HUD's June 30,
1998, proposed rule on the PHAS (the first PHAS proposed rule). For the
same reasons stated in the preamble to the PHAS final rule (published
September 1, 1998) that addressed this issue, HUD declines to adopt the
suggestion. PHAs are required to designate a representative to
accompany the inspector during the entire inspection. As a result, the
PHA representative will be aware of the inspection and be able to
provide any clarifications that may be required during the inspection.
(See Federal Register of September 1, 1998, at 63 FR 46603.)
Additionally, as noted in the preceding comment, PHAs will be notified
of every exigent/fire safety, health and safety deficiency on the same
day of the inspection, before the inspector leaves the site. Further,
HUD has added a new paragraph to Sec. 902.26 that allows PHAs to
correct deficiencies identified during the inspection process, and
noted on the report, before the final physical inspection report is
issued.
With respect to the confidentiality of PHAS scores, HUD notes that
release of official documents are subject to certain statutes such as
the Freedom of Information Act, the Privacy Act., etc.) HUD is
therefore further examining this issue in an effort to maintain the
confidentiality of the PHAS scores until these scores become final and
are required to be posted by the PHA in an appropriate location and
published by HUD in the Federal Register in accordance with the PHAS
regulations. As noted earlier in this preamble, Sec. 902.63 has been
revised to clarify when a PHA's PHAS score becomes the PHA's final PHAS
score (e.g., any adjustments that needed to be made have been made, and
any technical review or appeal issues have been decided).
Subpart C--PHAS Indicator #2: Financial Condition
Certain comments specifically addressed to the PHAS Notice on the
Financial Condition Scoring Process may be applicable to the
regulations in Subpart C and vice versa. Please see Section V of this
preamble.
Section 902.30 Financial Condition Assessment
Comment. HUD should reconsider its plan to measure the financial
condition of a PHA on an entity-wide basis by comparing a housing
authority to other housing authorities administering a similar number
of units. Additionally, comparison should be limited to public housing
funds only (Operating Fund, Capital Fund, DEG, EDSS, etc.). The
inclusion of other funds (Section 8, CDBG, local development, etc.)
simply distorts any meaningful comparison. The comparison becomes more
distorted if one housing authority administers CDBG and HOME funds.
Response. HUD has considered whether PHAs should be financially
assessed on an entity-wide basis, and has decided that they should. As
discussed in Section III of this preamble, HUD has, however, provided
additional time for PHAs to adjust to financial assessment on an
entity-wide basis. The final rule provides that PHAs with fiscal years
ending September 30, 1999, December 31, 1999, March 31, 2000, and June
30, 2000, will receive an advisory score for HUD's assessment of the
PHA's entity-wide operations. Again, PHAs with fiscal years ending
[[Page 1723]]
September 30, 1999, and December 31, 1999, were already notified
through HUD's notice published on October 21, 1999, that their
financial scores would be advisory. Although PHAs with fiscal years
ending March 31, 2000, and June 30, 2000, will receive advisory scores
on the financial assessment of their entity-wide operations, they are
not exempt under the rule from a PHAS financial score. PHAs with fiscal
years ending March 31, 2000, and June 30, 2000, will receive a PHAS
financial score based on their public housing operating subsidies
program. PHAs with fiscal years ending after June 30, 2000, will
receive PHAS financial scores that are based on the PHA's entity-wide
operations.
HUD believes that there is a valid basis for conducting the
assessment on a PHA's entity-wide operations. In addition to overseeing
its individual grant and subsidy programs, HUD is concerned with the
overall financial condition of entities managing public housing without
regard to additional sources of funding. The focus of the PHAS
Financial Condition Indicator is on the long term viability and
financial performance of PHAs.
In addition, HUD has the authority to assess any factors it
determines appropriate as provided by section 6(j)(1)(K) of the 1937
Act, and the Single Audit Act and OMB Circular A-133 require entity-
wide audits of the financial statements of PHAs receiving federal
funds. To the extent that PHAs enter into non-Federal activities that
contribute to their financial health, these PHAs should receive higher
scores than those PHAs that have entered into arrangements that
negatively affect the financial health of the PHA (e.g. commitments,
contingencies). Generally Accepted Accounting Principles (GASB 14)
requires that an entity include in its financial statement all
operations for which it is financially accountable. The issuance of
entity-wide financial advisory scores for the first four quarters of
PHAS scoring is an accommodation HUD was willing to make based on
consultation with the industry and HUD's recognition of the newness of
the GAAP conversion process for some PHAs.
Comment. Peer groups should not be based on unit counts alone.
Response. With respect to financial assessment, HUD has and
continues to research the possibility of establishing peer groups based
on other common PHA characteristics such as tenant composition (elderly
vs. family), building type (high rise vs. garden style) and location.
Tenant composition and building type have not been incorporated into
the scoring process at this time because PHAs have different mixes of
tenants and building types and such data is not as accurately tracked
as unit count. HUD's research to date shows no clear statistical
differences in PHA financial performance based on the type of tenant or
building. This may change in the future as additional data becomes
available.
Peer groupings based on location, on the other hand, have been
established to evaluate expenses in addition to unit count because
information on PHA location is readily available and accurate. As
additional data becomes available and statistical analysis demonstrates
that peer groupings based on additional factors will improve the
accuracy of scoring, these factors will be taken into consideration.
Comment. The peer group sizes are insufficient for measurement of
financial condition. The PHAS final rule should provide for two
additional PHA size categories: one size category for those PHAs
administering 1,250 to 5,000 units; and a second size category for
extra large PHAs defined as those PHAs administering more than 10,000
units.
Response. HUD has addressed some of these concerns by adding an
extra-large size category of PHAs. The extra-large size category
includes those PHAs administering more than 10,000 units based on
statistical analyses demonstrating that there is a statistical
difference between those PHAs administering between 1,250 and 9,999
units. The addition of an extra-large size category is reflected in the
PHAS Notice on the Financial Condition Scoring Process, which will be
updated and published in the near future. At this time, the PHAS
financial scoring process leaves the other five peer groupings
unchanged. In the future, the PHAS scoring process for the Financial
Condition Indicator may be revised to include additional peer group
sizes should a statistical validity be proven.
Section 902.33 Financial Reporting Requirements
Comment. The requirement for electronic transmission of data using
GAAP principles is of concern because experience in general with data
transmitted to and from HUD has resulted in problems. The experience
has been one of difficulty in getting into HUD systems both in terms of
timeliness and access. Response. HUD continues to improve its ability
to receive and process the electronic submission of data. With any new
system, there is a learning period that must take place. The electronic
submission system has been in development for over a year and has
undergone a series of tests both internally and externally at selected
PHA locations. HUD's Financial Assessment Subsystem (FASS) Release 3.01
has been streamlined to improve performance and will be tested at over
12 pilot locations nationwide. To the extent PHAs have trouble
submitting data as a result of HUD servers or communication problems,
PHAs can enter the reason for late submissions on the FASS template and
REAC will have the ability to waive late submission penalties. Further
guidance will be provided in an upcoming Notice. Additionally, although
the FASS does not allow anyone other than the PHA to enter and/or
change data in the PHA's financial submission, the system provides a
PHA with the ability to review its financial information after the
information has been submitted to HUD if the PHA wishes to verify the
accuracy of the submission.
Comment. The requirement to submit financial reports electronically
via the Financial Data Schedule (FDS) within two months of the PHA's
fiscal year end is unrealistic for the first year of submission. The
conversion to GAAP is complex, particularly for large PHAs
administering many programs, and thus, PHAs need more time to make
certain that all GAAP conversion items are properly recorded in the
initial FDS submission.
Response. HUD understands that conversion to GAAP may not be easy
for some PHAs and may take some time, which is why HUD allowed a year
for PHAs to make the conversion to GAAP. PHAs were informed of the
conversion to GAAP with the issuance of the first PHAs proposed rule on
June 30, 1998, and the PHAs final rule published on September 1, 1998.
With respect to submission of financial reports, as discussed in the
preambles to both of those earlier rules, PHAs were already obligated
to submit, under other program requirements, similar financial
information to HUD within 45 days after the PHA's fiscal year end.
Under PHAs, PHAs are required to submit their financial information
within two months after the PHA's fiscal year end. However, since this
is the first year reporting under GAAP, HUD has provided for an
automatic 30 day extension for PHAs to submit their year-end financial
information. This automatic extension is for the first year of
reporting only.
Comment. REAC should assign a reporting model (Enterprise vs.
Government) for HUD-based programs, and issue guidebooks.
[[Page 1724]]
Response. HUD no longer sets accounting standards and thus cannot
prescribe which accounting model to use. The National Council on
Government Accounting, Statement 1 (NCGA1) entitled ``Governmental
Accounting Reporting Principles'' provides guidance as to which method
best represents the reporting entity business. GAAP Flyer #1, which is
available on REAC's financial website (http://www.hud.gov/reac/
reafin.html), indicates that HUD prefers the Enterprise method for most
PHAs based on our interpretation of NCGA1. In addition, Government
Accounting Standards Board (GASB) Statement #34 provides that all
government entities will be required to report entity wide operations
using full accrual accounting. This reinforces HUD's interpretation
that PHAs should use the enterprise model to report operations.
Section 902.35 Financial Condition Scoring and Thresholds
Comment. The PHAS rule measures operating budget and expenditure
performance through such indicators as net income/loss, number of days
expendable balance, and expense management which is not necessarily
appropriate. PHAs budget and manage funds for a host of programs, both
federal and non-federal, which are not reflected in these indicators. A
more clear measurement is whether a PHA has a sound cost allocation
plan and is adhering to it.
Response. The PHAS measures the overall financial condition of PHAs
without regard to the source of funding. This is referred to as an
entity-wide assessment. See HUD's response to the first comment under
Sec. 902.30 of this preamble. In addition, cost allocation coverage is
obtained through audit procedures in accordance with OMB Circular A-133
(Audits of States, Local Governments and Non-Profit Organizations).
Comment. The PHAS Financial Condition Indicator inappropriately
compares a PHA's management responsibilities to those of private real
estate entities. Without taking into account the unique operating and
related service requirements of the PHA, the comparison to private
sector management is difficult to make on an individual or group basis
for PHAs.
Response. The assessment provided under the PHAS Financial
Condition Indicator does not compare PHA management to management in
the private real estate market. Instead, the PHAS performs a financial
assessment of PHAs based on a peer comparison within the public housing
industry. The private real estate market has capital reserve
requirements for the long-term upkeep of its properties and operates
for-profit. On the other hand, the private real estate market does not
provide the extensive services provided by PHAs to its residents.
The PHAS uses appropriate financial benchmarks used by many
industries to assess the financial condition of their operations. For
example, Current Ratio, Net Income, and Expense Management are
indicators widely used in many industries. Two other indicators,
Occupancy Loss and Tenant Receivable Outstanding, are revised versions
of the previous PHMAP Management indicators modified to better assess
financial condition (and as noted earlier in this preamble, they have
been dropped from the Management Operations Indicator; they are now
only part of the Financial Condition Indicator).
Comment. The PHAS Occupancy Loss component includes vacancy days
that (1) result from units being taken off-line or held for demolition
or major redevelopment, and (2) are counted as income loss if part of
the PHA's Unit Months Available (UMA). Given the capital funding
process for PHAs and the requirements for demolition and disposition,
HUD's inclusion of these types of units in an income loss calculation
is inappropriate and further, is not a fair or rational basis for
comparison to private real estate providers.
Response. During the advisory score process, all units were counted
in the UMA calculation. However, after consultation with several
housing authority representatives and HUD program staff, HUD has
revised its UMA calculation to exclude units approved for demolition/
disposition, including units approved for mandatory conversions, since
these units are also excluded from the Performance Funding System (PFS)
calculations and can be verified through form HUD-52723. In addition,
vacant units approved by HUD to be taken off-line for on-going
modernization or conversion will be excluded from the calculation.
Comment. The PHAS Financial Condition Indicator relies too heavily
on Occupancy Loss, Net Income/Loss, Expense Management, etc., and does
not rely sufficiently on sound financial management. While the PHAS
rule indicates that it will include points for certain items relating
to financial management, these items are secondary. The issue of an
unqualified audit opinion, no material internal control weaknesses and
no material adjusting entries seems to be the most appropriate basis
for measuring financial management coupled with maintaining adequate
working capital which is easily measured by the expendable fund balance
and a sound and adhered to cost allocation plan.
Response. The components of the PHAS Financial Condition Indicator
measure the financial condition of PHAs and are reflective of sound
financial management practices. A PHA can have a clean audit opinion
and good internal controls yet be in poor financial condition due to
many circumstances including unsound management decisions. The rule
states that points will be subtracted, not added, as a result of audit
findings.
Comment. The Expense Management component of the PHAS Financial
Condition Indicator includes utility expenses. HUD needs to examine and
take into consideration regional differences in utility costs. Regional
utility costs will materially impact on comparisons between PHAs.
Therefore, adjustments need to be made if PHAs are to be compared
fairly.
Response. These comments were addressed by adding regional peer
groupings to the Expense Management component to take into account the
impact on PHA expenses because of regional differences. These changes
to the Expense Management component are reflected in the PHAS Notice on
the Financial Condition Scoring Process, which will be updated and
published in the near future.
Comment. Days Receivable Outstanding is also included in the
Management Operations Indicator. This component should be included in
just one PHAS indicator.
Response. HUD agrees with the commenters and this component
(identified in the final rule as Tenant Receivable Outstanding) is now
only part of the Financial Condition Indicator.
Comment. Is occupancy loss expressed in terms of dollars lost?
Response. This measure is not expressed in dollars. Because
different amounts of rent are paid for like units, the financial
indicator measures occupancy loss as a percentage of total units.
Comment. The use of a two year average of accounts when calculating
Days Receivable Outstanding (DRO) will prevent PHAs from immediately
seeing an increase in score if the management has made some significant
improvements.
Response. In calculating non-GAAP advisory scores a two year
average of accounts receivable was used to calculate Tenant Receivable
[[Page 1725]]
Outstanding (formerly titled DRO) because, if a PHA is experiencing an
unusually difficult year in collecting outstanding receivables, the PHA
would be penalized. This method of calculating this component while
preventing some PHAs from immediately seeing a decrease in score also
prevents PHAs from seeing a dramatic increase in score as a result of
significant management improvements such as enforcing evictions. For
purposes of reporting under GAAP, Tenant Receivable Outstanding is
calculated using the accounts receivable balance at a PHA's fiscal year
end.
Comment. HUD should take into consideration differences between
PHAs in tenant-paid utilities versus nontenant-paid utilities when
making the calculation under the Expense Management component.
Response. Differences in PHA costs for those with tenant-paid
utilities versus nontenant-paid utilities have not been incorporated
into the Expense Management component because no accurate data is
available as to an individual PHA's composition of tenant-paid versus
nontenant-paid utilities. As a result, of the six expense categories
that comprises the Expense Management component, the utilities expense
category is worth 3 percent of the overall 1.5 points available under
Expense Management. In short, 95 percent of all PHAs will pass the
utility expense category under the Expense Management component with
only outliers failing.
Subpart D--PHAS Indicator #3: Management Operations
Certain comments specifically addressed to the PHAS Notice on the
Management Operations Scoring Process may be applicable to the
regulations in Subpart D and vice versa. Please see Section V of this
preamble.
Section 902.43 Management Operations Performance Standards
Comment. The rule is not clear concerning the extent to which the
old PHMAP regulation will survive and the extent to which the
management indicators have been modified by the new PHAS rule. The
method of assigning PHMAP letter grades, with their associated
numerical formula value, is not clearly defined in the amendments. This
is critical and substantive information that belongs in the rule.
Response. HUD's PHMAP regulation in 24 CFR part 901 is being
removed by this rule, effective March 31, 2000. Those sections of the
PHMAP regulation that HUD needs to retain have become part of the
Management Operations Scoring Notice. The PHAS Notice on the Management
Operations Scoring Process is referenced in Sec. 902.45 of the PHAS
rule.
Comment. PHAs should not be required to report to the local law
enforcement agency every activity which is investigated by the PHA's
Security Department.
Response. The PHAS does not require PHAs to report every activity
which is investigated by the PHA Security Department to the local law
enforcement agency. The PHAS management sub-indicator #6, which relates
to Security and Economic Self-Sufficiency, recognizes policies adopted
by the PHA Board and the procedures implemented by the PHA which assist
a PHA in accomplishing the following: track crime and crime-related
problems in at least 90 percent of the PHA's developments; have a
cooperative system for tracking and reporting incidents of crime to
local police authorities; and coordinates with local government
officials and residents to implement anticrime strategies. HUD's
expectation is that PHAs will follow their own policies and procedures
for tracking and reporting crime related activities. HUD respects all
good-faith efforts of PHAs to partner with local authorities to address
these important issues.
Comment. PHAs should not be held accountable for rent uncollected
after a resident vacates the unit if the PHA can document activity to
collect the outstanding charges. Such activity can include notifying
the resident by letter at the resident's last known address; detailing
the amount of resident owes and demanding payment; contacting the
credit bureau for slow or no payment; attaching a lien on the
resident's property (if State law allows; and securing the services of
a third party collection agency).
Response. This component is no longer part of the assessment
conducted under the Management Operations Indicator. Rents uncollected
component is now addressed only under ``Tenant Receivable Outstanding''
under the Financial Condition Indicator.
Subpart E--PHAS Indicator #4: Resident Service and Satisfaction
Assessment
Certain comments specifically addressed to the PHAS Notice on the
Resident Service and Satisfaction Survey Scoring Process may be
applicable to the regulations in Subpart E and vice versa. Please see
Section V of this preamble.
Section 902.50 Resident Service and Satisfaction Assessment
Comment. The survey is a tool that residents will use to get back
at managers who enforce regulations and housing standards. As a result,
managers will be less effective in being objective in managing their
properties. There are other ways of measuring the effectiveness of
property management instead of asking residents, who may be subjective
based on their impressions of the manager instead of the facts. HUD
should retain the measurements utilized under PHMAP to assess resident
services and satisfaction.
Response. Based on the results of the pilot test of the resident
service and satisfaction assessment, HUD has been presented no evidence
to support this claim. In developing its resident survey, HUD adhered
to sound principles of survey development in order to minimize
responses that may simply be retaliatory on the part of residents as
suggested by the comment. These survey principles also include that if
the majority of those surveyed identify the same problem, the problem
is assumed to be true, unless found to be otherwise. The PHAS makes
clear that the PHAS score issued to a PHA is not based solely on the
residents assessment of the PHA. The PHAS score represents a
compilation of scores for all four PHAS indicators. HUD strongly
believes, however, that the opinions of residents are important and
that the survey is an effective tool to gauge these opinions. Similar
surveys are recognized in the commercial property sector as effective
management tools. Furthermore, answers to some questions will be used
for informational purposes only and not calculated into the score for
the PHA. Only questions with a statutory and/or regulatory basis (e.g.,
questions that address services which a PHA is legally responsible to
provide) will be ``scored.'' HUD believes that its survey process is a
more effective measurement than the measurements utilized in PHMAP.
Comment. This indicator appears to be the subject of greater
substantive change from the September 1, 1998, final rule than any of
the other indicators. The PHA is removed from the survey process
itself. Surveys will be distributed by ``a third party organization
designated by HUD'' to a ``statistically valid number of residents''
chosen randomly by the third-party organization to participate in the
survey. Aggregate results will be transmitted by the third party
organization to HUD for ``analysis and scoring.'' The scores will be
reported to PHAs as single scores for
[[Page 1726]]
five ``survey sections.'' Because the survey results will not be broken
down by development either to HUD or to the PHA, there will be no
ability to attribute particular survey results to any development
operated by a mixed-finance owner entity (or by an RMC or an AME such
as a private management contractor) as distinguished from the PHA
itself, or for that matter to any particular PHA-managed project as
opposed to another. While this process presumably will preclude
attribution of any particular grade to a mixed-finance project, it also
appears to put in question the ability of the PHA to develop any
reasonably targeted ``Survey Follow-Up Plan.''
It also appears that scoring under this indicator will not be based
on resident satisfaction. Review of the survey form does not reveal
readily which questions can be regarded as ``directly related to
compliance with the regulations or statutes applicable to the
management of public housing.'' An anonymous and unverifiable survey
form appears a dubious basis for compliance assessment in any event.
The pre-survey implementation process and the survey itself are
ill-suited, if not destructive, to a mixed finance project. Separate
treatment or classification of the public housing residents vs. the
non-public housing residents in a mixed-finance project should be
avoided. It is destructive of the cohesiveness of the mixed-income
community.
Response. HUD disagrees that the PHA is removed from the survey
process. The PHA will have an instrumental role in the survey process
by providing unit addresses and marketing the survey to residents using
promotional materials provided by HUD. PHAs also will develop a follow-
up plan, if appropriate, to address any issues surfaced by aggregated
survey results. The third party organization will not select the sample
of residents. Rather, HUD selects the sample and sends it to the third
party organization.
At this time, HUD will not provide responses at the development
level in an effort to protect respondent confidentiality. HUD, however,
will provide survey section scores at the PHA level. HUD does not agree
that this will prevent PHAs from developing a follow-up plan. At this
initial implementation of PHAS, the survey is not intended to identify
individual problems, but rather to identify those at the PHA level. HUD
intends, however, that in the future the survey will provide for
responses at the developmental level, and HUD is proceeding to work
toward that goal. HUD recognizes the benefits that can be achieved by
surveys conducted at the developmental level.
The survey results will account for five out of the ten possible
points for this indicator. Only those survey questions that are based
on statutory and/or regulatory requirements will be ``scored.'' A copy
of the survey instrument and the associated weights for the ``scored''
questions are attached as an appendix to the PHAS Notice on the
Resident Service and Satisfaction Survey Scoring Process, which will be
updated and published in the near future.
HUD also disagrees that the survey process is ill-suited to a mixed
finance project. HUD believes that it is important to assess the
services provided to the residents' satisfaction with these services
for all residents in public housing, including those in public housing
units in mixed-income developments. Therefore, public housing units in
mixed finance projects will not be excluded from the survey. Residents
are selected at random to participate, so no one income group would be
singled out in any given year.
Section 902.51 Updating of Resident Information
Comment. The updating of resident information can be a time
consuming process. Under the pilot testing, a PHA received notification
to appoint a staff person to access the Resident Satisfaction and
Services Assessment System (RASS), review list of addresses from HUD
which are supposed to represent all of a PHA's property and unit
addresses, edit and enter correct information. Staff expended long
hours to correct address information.
Response. HUD recognizes that as a new system, there is some
additional time involved at the outset by both HUD and a PHA to compile
the information and data necessary to perform the assessments required
by the PHAS. Once this information is compiled, however, any revisions
necessary should be considerably less time consuming. For the first
year of implementation, HUD intends to enhance direct communication
with all PHAs to assist PHAs with the updating of resident information.
Also, HUD will assist on an individual basis those PHAs that are
experiencing technical problems or need assistance with entering a
large volume of unit address data in RASS.
Comment. Reliance on the form HUD-50058 for the requisite updating
of units and addresses may pose a problem for PHAs. Industry groups
have met with HUD to discuss ways to improve MTCS reporting, but little
has been accomplished to make reporting easier and accurate. There is a
concern that PHAs will receive incomplete files from HUD and will
require more than 30 days to update and clean their data files. This
process has not been tested under the advisory period and there is no
way of knowing where the problems may lie. PHAs should have 60 days to
update the files. HUD should be more realistic about the limited role
MTCS should play in all its programs--it is not ready to be universally
adopted by all programs.
Response. HUD is aware that the MTCS reporting process needs
improvement. Therefore, for the first year of implementation, HUD
intends to assist on an individual basis those PHAs that are
experiencing technical problems or need assistance with entering a
large volume of unit address data in RASS. Due to limited data reported
in MTCS, HUD must rely on PHAs to validate unit addresses to ensure
survey mailing accuracy. PHAs should make additions, deletions and/or
corrections to unit addresses under their jurisdiction. Any incorrect
or obsolete address information will impact the survey results if the
unit address information is incorrect or incomplete. REAC will be
unable to select a statistically valid number of residents to
participate in the survey. Under those conditions, a survey cannot be
conducted at the PHA site and the PHA would not receive any points for
PHAS Indicator #4. At this time, PHAs have a two month period to
complete unit address certification.
Comment. PHAs were advised to register for IDs to verify unit
addresses via the RASS but given very little time to register. Because
this process of permitting PHAs to verify unit addresses for purposes
of the resident satisfaction survey is crucial for the RASS and
physical inspection, it is essential that HUD improves its
communication with the industry and provide ample lead-time to
implement the RASS. HUD should increase its server capacity for
agencies to adequately transmit data to RASS.
Response. HUD agrees that it is HUD's responsibility to ensure that
PHAs have adequate notice and sufficient time to take the steps and
complete the processes required by this Indicator. To improve
communications between PHAs and HUD on this Indicator, HUD intends to
have regular meetings with industry representatives to discuss the
survey process and continue providing technical assistance to PHA
personnel. HUD is also working to improve its
[[Page 1727]]
server capacity for easier transmission of data to RASS.
Section 902.52 Distribution of Survey to Residents
Comment. A PHA must spend a considerable amount of staff time to
market the survey. The time period set for this process does not appear
to allow adequate time to respond or provide meaningful follow-up.
Response. HUD has allotted 30 days for PHAs at the beginning of the
survey process to market the survey. At the conclusion of the survey
period, the survey results will be posted and the PHA will have 30 days
to access the results via the Resident Assessment Subsystem. Based on
the survey results, PHAs will be required to develop a follow-up plan
to address and resolve performance weaknesses. The follow-up plan must
be available as a supporting document for the PHA's Annual Plan in
accordance with 24 CFR 903.23(d).
Comment. The draft resident survey should have been published as
part of the proposed rule. Publishing the document separately was not
helpful.
Response. In retrospect, HUD recognizes that it would have been
helpful to have published the survey at the time of publication of the
June 22, 1999, proposed rule. HUD, however, had posted the survey, both
in draft and final form on the HUD REAC website for an extensive period
of time, and at this website, the PHAS Notice on the Resident Service
and Satisfaction Survey Scoring Process is also posted. The survey was
also widely distributed to PHAs beginning in February 1999. HUD has
included the survey as an appendix to the PHAS Notice on the Resident
Service and Satisfaction Survey Scoring Process.
Comment. HUD must ensure that the language regarding media
outreach, posting flyers, and using newsletters to notify tenants about
the resident survey on the RASS website is corrected so that it is
consistent with the PHAS Scoring Notice on the Resident Service and
Satisfaction Indicator which does not mandate the use of newsletters.
Response. HUD's website on the RASS and the PHAS Scoring Notice on
the RASS have been made consistent.
Subpart F--PHAS Scoring
Section 902.60 Data Collection
Comment. The rules pertaining to which certifications are needed
and where they must be located should be reasonable and in conformance
with standard industry practice and HUD regulations. These requirements
then must be communicated to PHAs before physical inspections are
conducted and performance judgments made.
Response. HUD has provided copies of the HUD physical inspection
training manuals on REAC's website at www.hud.gov/reac since 1998. The
training manuals, along with the software, which is also on REAC's
website, provides the procedures used by the HUD inspectors including
the need for certifications and where they must be located. These are
available to PHAs at no cost and may be accessed directly from HUD's
website.
Section 902.67 Score and Designation Status
Comment. One commenter praised HUD for adding to the designation of
``troubled,'' the subdesignation of ``substandard.'' The commenter
advised that this subdesignation helped to distinguish among those PHAs
troubled in a particular area (and identify which area a PHA was
experiencing problems) and PHAs that are troubled overall. Two other
commenters, however, stated that the proposed rule added a new
classification, ``sub-standard,'' without explanation of its meaning or
justification for its use. HUD should clearly define the term and
explain its value.
Response. The preamble to the June 22, 1999, proposed rule
explained HUD's addition of term ``substandard'' to the PHAS
regulation. Section II.D. of the preamble (64 FR 33350) stated that the
purpose of introducing the term ``substandard'' in connection with
troubled PHAs was to identify the particular area in which a PHA
received a below passing or standard rating in the three major PHAS
Indicators--Physical Condition, Financial Condition, and Management
Operations--and to distinguish PHAs with a single problem area from
those that have widespread issues. For example, if a PHA received less
than 60 percent of the available points for the Physical Condition
Indicator, but above 60 percent of the available points for the
Financial Condition and Management Operations Indicators, the PHA is
designated troubled (the PHA is troubled in one area), but for purposes
of clarifying how the PHA is troubled, the PHA is categorized as
substandard because it is substandard with respect to the physical
condition of its properties.
HUD believes that the introduction of the term ``substandard'' to
the PHAS regulation is consistent with Congressional directive in the
Public Housing Reform Act. In amending section 6(j) of the 1937 Act (42
U.S.C. 1437d(j)), the Congress directed HUD to establish procedures for
designating troubled PHAs and the procedures are to include
identification of serious and substantial failure to perform as
measured by the performance indicators specified under paragraph (1) of
section 6(j) and such other factors as HUD may determine appropriate.
The substandard categorization helps to identify the area in which the
PHA is troubled, and to distinguish a PHA that is troubled in one area
from a PHA that is overall troubled (that is, troubled in more than one
area or with an overall PHAS score of less than 60 percent).
Comment. HUD should temporarily abandon the thresholds to determine
troubled designation for the first two years of implementation of the
PHAS.
Response. It would be a breach of the public's trust in HUD, and a
breach of HUD's statutory obligation, to abandon the thresholds, and in
essence abandon the designation of troubled for PHAs that are
substandard (and therefore troubled) physically, financially, or with
respect to their management operations. HUD determined that 60% (or 18
points) was the passing mark for the Physical Condition, Financial
Condition and Management Operations Indicators. This was part of the
first PHAS proposed rule published on June 30, 1998, and on which HUD
solicited public comment. HUD will not disregard these thresholds even
for a temporary period. HUD believes that the recent amendments made to
section 6(j) of the 1937 Act support that there should be no halt to
HUD's assessment of PHAs.
Section 902.68 Technical Review of Results of PHAS Indicators #1 or #4
Comments. Fifteen (15) days to request a technical review and 30
days to request an appeal are not enough time for a small PHA with
limited staff resources. The rule provides no limit on the amount of
time REAC has to respond to a request for a technical review or appeal.
The rule should provide for REAC to respond within 30 days of receipt
of the appeal. The 30 day appeal process should follow not only the
issuance of the PHAS score but also any final determination of a
request for a technical review. Another comment suggests that the
period to request a technical review should be extended from 15 days to
60 days.
Response. HUD believes that 15 days, or approximately two weeks, is
sufficient time to review the physical inspection report and request a
technical review, and in the case of an appeal, 30 days is sufficient.
HUD notes that the final rule now provides PHAs with the opportunity to
review the physical inspection report, correct
[[Page 1728]]
exigent health and safety deficiencies identified in the report and
request a reinspection before the physical inspection report is to be
final (see Sec. 902.26(b) of the final rule).
With respect to the physical inspection of properties, the PHA is
present on a site during the inspection, and as a result is aware of
the parameters of the inspection. Further, on the day of inspection,
the PHA's property representative receives a list of every health and
safety deficiency before the inspector leaves the site.
In order to give appropriate consideration to requests for appeals
and technical reviews, HUD is not going to set a time limit but will
make every effort to respond to the request within a 30 day time
period. HUD notes that until it responds to the technical review
request or appeal, the PHAS score is not considered final.
Additionally, HUD notes that under PHMAP, the time for appeal was
15 days. The 30-day period for appeals under the PHAS represents a
substantial increase in time over the PHMAP appeal, and the technical
review was not a procedure provided by PHMAP.
Comment. Technical review should be expanded to include the
erroneous financial scoring results that easily occur in the
transmission of information to HUD over the internet. Another comment
suggests that all four PHAS indicators should be afforded the technical
review process, at least in the first 2 to 4 years of PHAS
implementation. The technical review process is burdensome and the
proposed rule acknowledges this burden by limiting appeals to a narrow
category of areas eligible for technical review. Given the investment
of time and resources being made by the PHA, and given that PHAs must
provide photos and other objective evidence to support a review, it is
difficult to understand why HUD will not revisit the severity of the
deficiency as part of the technical review.
Response. HUD disagrees with these recommendations. While HUD has
acknowledged that the technical review process is a burden on HUD if it
was permitted for all PHAS Indicators, it is a burden HUD would readily
assume if there was a substantial benefit to this process for PHAs for
all four PHAS Indicators. The technical review process was established
as a mechanism to correct unintentional errors caused by a third party.
There is no third party involved in the reporting of financial
information or in the PHA's provision of the management indicator
information as there is in the physical inspection process and the
resident survey. While the technical review process is not available
for the reporting of financial information or in the reporting of
management operations information, this final rule, as already
discussed in this preamble, provides procedures by which PHAs can
notify HUD of errors and seek correction or adjustments to the score
without regard to designation status.
Comment. HUD should permit a technical review where there has been
an inspection of a unit which, as a result of the proposed PHAS
amendments, is now exempt from inspection. Additionally, a technical
review should be permitted where the inspector has failed to adhere to
REAC instructions regarding the conduct of inspections.
Response. Several commenters expressed concern about inspection of
vacant units that are now exempt under the new PHAS regulation. The
inspection of vacant units conducted before issuance of this final rule
were advisory in nature, and will not affect a PHA's PHAS designation.
HUD has exempted vacant units from the physical inspection process for
fiscal years ending September 30, 1999, and thereafter. No official
physical inspection score will be based on an inspection of any unit,
not under lease, that meets one of the three categories of units exempt
from physical inspection as provided in this final rule.
If the HUD contractor fails to adhere to REAC instructions, the PHA
should notify REAC. As noted earlier in this preamble, REAC has its own
quality assurance staff, who are employees of the Federal government.
Their sole job is to review the performance of the contract inspectors
to ensure that the inspection protocol is being followed. REAC also has
a Technical Assistance Center and a toll free telephone number (1-888-
245-4860) and program participants are encouraged to call REAC if they
experience problems with the inspectors. If a contractor's failure to
adhere to REAC requirements results in the type of error, the technical
review process is designed to address, then this process is available
to the PHA.
Comment. HUD also should clarify its intent to permit appeals where
a PHA has been declared ``substandard'' in one major indicator (per
Sec. 902.67(c)(2)), and has been denied ``high-performer'' status due
to withdrawal of designation (per Sec. 902.67(d)), or has been denied
such status pursuant to 902.67(a), due to deficient grade on the
Resident Service and Satisfaction indicator.
Response. ``Substandard'' is a subdesignation under the designation
of ``troubled'' and therefore, appealable. The PHAS rule provides that
a PHA may appeal any of its individual PHAS scores as a result of an
error which the PHA believes, if corrected, would result in a
significant change in the PHA's PHAS score and its designation. A PHA
whose high performer or standard designation has been withheld or
rescinded under the provisions of Sec. 902.67 may request that the
Assistant Secretary of Public and Indian Housing reinstate the
designation as provided in Sec. 902.67(d)(3).
Comment. The rule provides that technical review will not be
granted for challenges to the inspector's findings, or disagreement
with the inspector's obligations. Knowing full well human error will
affect some authorities, PHAs should be allowed to challenge error.
Response. The purpose of this statement is to avoid challenges that
are simply based on a PHA's disagreement with the inspectors findings.
For example, the inspector cites a deficiency as major, but the PHA
believes it is minor. In performing the inspection, the inspector is
guided by HUD's physical inspection software which is to eliminate
subjective findings on the part of inspectors. The purpose of the
inspection protocol is to promote consistency and fairness in the
inspection process. Therefore, a PHA's statement that a deficiency
cited by an inspector as major is really minor is not a sufficient
basis to request a technical review.
Section 902.69 PHA Right of Petition and Appeal
Comment. The present abbreviated appeal process provided by the
rule does not allow for review of the scoring process itself, nor does
it allow for discussion or explanation of items beyond the control of
the local housing authority. A better appeal system would be one that
allows for local, or at least regional, review of PHAS scores and
processing. Additionally, the appeal process should not be limited to
status changes and the appeal process should be extended from 30 to 60
days.
Response. The appeal of a PHAS score, as provided in Sec. 902.69,
necessarily involves the review of the scoring process. The appeal
process is coordinated by REAC because scores are issued by REAC, and
not by HUD's local or regional offices. Additionally, the appeal
process provided in Sec. 902.69 is not an abbreviated process, but
rather requires considerable time and effort. For this reason, the
appeal process is not appropriate for errors that do not result in a
significant change in a PHA's PHAS score and its designation. (HUD,
however, has introduced several procedures in this final rule that
address
[[Page 1729]]
errors of the types raised by the commenters. Please see Section III of
the preamble.)
Through the PHAS appeal process, a PHA may request an appeal of its
PHAS score in writing to the Director of the Real Estate Assessment
Center (REAC) within 30 calendar days following the issuance of the
PHAS score. The appeal must be accompanied by the PHA's reasonable
evidence that an objectively verifiable and material error has
occurred, which if corrected, will result in a significant change in
the PHA's PHAS score. Those errors may be the result of items beyond
the control of the PHA, and the PHA should submit this evidence with
its appeal.
Upon receipt of the appeal, REAC will convene a Board of Review to
evaluate the appeal and its merits for the purpose of determining
whether a reassessment of the PHA is warranted. The Board of Review
will include representation from REAC, the Office of Public and Indian
Housing, and such other office or representative as the Secretary may
designate. HUD will make a final decision on appeals within 30 days of
receipt of an appeal, and may extend this period an additional 30 days
if further inquiry is necessary.
HUD addressed earlier in this preamble the appeal period of 30
days. HUD believes that 30 days is sufficient, and again, notes that it
is an increase in the amount of time provided for the PHMAP appeal
process.
Comment. The Board of Review should be eliminated and the Office of
Public and Indian Housing (PIH) should act on all appeals.
Response. HUD disagrees with this comment. HUD believes that the
Board composition, as provided in the rule (a representative from REAC,
PIH, and other office as the Secretary may designate, excluding the
TARC) ensures fairness and equity in the appeal process.
Comment. A representative of public housing agencies should be
included as a member of the Board of Review discussed in
Sec. 902.69(b)(3).
Response. HUD declines to make this change at the final rule stage,
but is taking this recommendation under advisement.
Subpart G--PHAS Incentives and Remedies
Section 902.71 Incentives for High Performers
Comment. The incentives for becoming a high performer under
Sec. 902.71 are ambiguous. The section does not list what specific HUD
requirements a high performer would be relieved from, as well as how
bonus points for HUD funding competitions would be utilized.
Response. This regulatory section describes the incentives for high
performers broadly to allow HUD the flexibility to create incentives
for high performers as HUD reviews the statutory framework and
regulatory requirements of new and existing programs and initiatives
and identifies appropriate and permissible incentives. For example,
HUD's proposed rule on the ``Allocation of Funds under the Capital
Fund; Capital Fund Formula,'' published on September 14, 1999 (64 FR
49924) provides for a performance reward for high performers in
Sec. 905.10(j) (see 64 FR at 49929). HUD is reviewing aspects of other
programs to determine appropriate and permissible incentives to reward
high performers, and is considering various incentive alternatives. HUD
will notify PHAs of additional incentives when they have been
determined.
With respect to relief from requirements, Sec. 902.71 provides a
few examples of the requirements that high performers would receive
relief from. The rule does not list all requirements because the
requirements from which PHAs may be granted relief may change from time
to time. Bonus points for high performing PHAs may be provided under
future HUD NOFAs.
Comment. The rule should provide as an added incentive for high
performers relief from reporting on financial indicator requirements
such as operating budgets, supporting schedules to include, all
position salaries, and non-routine expenditures and administrative
expense other than salaries. An additional incentive to include in the
rule would be to provide an automatic extension for submission of year-
end financial statements and audit reports, as well as streamlined
budget submissions and year-end financial reports.
Response. There is no longer a requirement for submitting
information of this type, unless a PHA is designated as troubled.
Therefore, to adopt this recommendation would not provide any added
incentive for high performers. PHAS offers other incentive for high
performance, such as public recognition for achievement and bonus
points in funding competitions, where such bonus points are not
restricted by statute or regulation. If by this comment, the
recommendation is to exempt a PHA from submission of the year-end
financial information required under PHAS, HUD will not adopt this
recommendation. The timely submission of year-end financial statements
and audit reports is a principle of good management and, therefore not
an appropriate incentive.
Comments. As incentive for good performance, HUD should reduce
physical inspection to every 3 years for PHAs that score 80% on the
PHAS physical condition assessment. Another comment suggest that high
performers be rewarded with physical inspection reduced to every 3
years.
Response. For the initial implementation of PHAS, HUD believes that
a physical inspection every two years of a property that scored at
least 90 percent on the PHAS Physical Condition Indicator is an
appropriate incentive. As official and full implementation of PHAS gets
underway, HUD will continue its review of all aspects of PHAS, all
aspects of its public housing programs, and determine whether the
incentives provided in this final rule should be revised.
Section 902.73 Referral to an Area HUB/Program Center
Comment. The scoring function of the PHAS under Sec. 902.73 does
not provide guidelines to determine when HUD may request ``other
standard performers'' to submit an Improvement Plan to HUD. Requiring
Improvement Plans for PHAs with scores between 60 and 70 seems clear.
However, for standard performers scoring above 70, the reasons are not
clear. Without guidelines, HUD could require the submission of an
Improvement Plan from a PHA with the highest level (89) of a standard
performer. The rule's discretion to HUD to require Improvement Plans of
PHAs scoring above 70 should be removed.
Response. Public Housing HUBs are required to monitor the PHAs
within their jurisdiction. If a PHA has deficiencies in its performance
regardless of its PHAS score, the PHA must correct those deficiencies.
An Improvement Plan is both a strategic device and a monitoring tool.
The Improvement Plan provides goals and direction to the PHA to correct
its deficiencies. Additionally, the Improvement Plan allows the Public
Housing HUB to ensure that progress is being made in the correction of
the deficiencies.
Comment. The rule needs to clarify the relationship of a troubled
designation to the requirement for submission of Improvement Plans to
the HUB/Program Center and the TARC.
Response. If the confusion arises because of reference in
Sec. 902.75 (Referral to a Troubled Agency Recovery Center (TARC)) to
the HUB/Program Center, this reference is included because there may be
cases in which the
[[Page 1730]]
TARC will refer a troubled PHA to a HUB/Program Center for assistance
in oversight and monitoring. A troubled PHA, however, is not required
to submit both an Improvement Plan and enter into an MOA, nor is a
troubled PHA subject to the provisions of Sec. 902.73 and Sec. 902.75.
PHAs that are categorized as troubled in one area do not submit
Improvement Plans to either the HUB/Program Center or the TARC. PHAs
that are categorized as troubled in one area are required to enter into
a Memorandum of Agreement (MOA), as statutorily required of all
troubled PHAs in accordance with the provisions of Sec. 902.75. A PHA
designated as troubled and that is referred to the HUB/Program Center
will be subject to the actions provided in Sec. 902.75, the same as
those PHAs that remain under the jurisdiction of the TARC. For certain
troubled PHAs, the TARC may determine that the HUB/Program Center is
better suited to work with and monitor the troubled PHA. In an effort
to clarify an ambiguity, HUD has added language to Sec. 902.75 that
states that the referral to the HUB/Program Center is for purposes of
oversight and monitoring.
Section 902.75 Referral to a Troubled Agency Recovery Center (TARC)
Comment. HUD must ensure that the Department has the capacity to
provide constructive technical assistance to PHAs that are classified
as troubled or substandard performer for individual components or the
overall PHAS assessment.
Response. HUD, by adding TARCs to its organizational structure,
made provisions to ensure that it has the requisite capacity.
V. PHAS Scoring Notices
1. Physical Condition Scoring Notice
Comment. The physical condition rating process needs to be refined.
PHAs receive the same deficiency rating whether there are two missing
shingles on a roof or 20, or if there is 1 inch of paint peel or 1 foot
of paint peel. No discretion appears to be built into the process to
determine whether the deficiency is large or small. The same rating for
this type of discrepancy needs to be addressed.
Response. In developing the PHAS, one of the objectives was to
establish, to the extent possible and permissible under law, a uniform
and objective means of assessing the physical condition of properties.
Hence, the physical condition standard defines the inspectable areas
and inspectable items that are required to be examined. The physical
inspection protocol further defines the deficiencies to be identified
and the severity levels that distinguish between the varying levels of
deficiencies for the same item. The levels of severity are level 1
(minor), level 2 (major) and level 3 (severe). This achieves the
objective of the comment to distinguish between large/small
deficiencies of the same nature. It is important to define these
differences to remove subjective judgements in favor of objective
assessments. The inspection protocol only records deficiencies based on
the specific inspectable areas, inspectable items and severity
definitions. It does not record a defect if a defect is not present. As
noted above, however, the protocol does differentiate between the
severity levels for a given deficiency. This differentiation is
important in order to provide scalable scores which represent the
overall condition of the property. HUD, however, is constantly
reviewing and refining the deficiency definitions, and HUD will take
this comment under advisement.
Comment. The physical condition scoring process is overly
complicated. Although the scoring notices detail the item weights and
criticality levels for each inspectable area, it is difficult to
determine the effect of individual deficiencies on the overall score.
The issue is important to PHAs because they will not be granted a
technical review unless it is determined that contractor error resulted
in a significant change in the property score and the PHAS designation
assigned to the PHA. HUD should revise the system to indicate that an
appeal will be considered on the basis of errors in other areas,
including the inspector's judgment of the severity of deficiencies, and
to permit appeals regardless of any change in the performance
designation.
Response. HUD has made considerable effort to simplify and make
more understandable the physical inspection scoring process, and
believes that the Notice on the PHAS Physical Condition Scoring Process
reflects HUD's success in this effort. With respect to appeals, the
final rule provides for additional ways for PHAs to appeal or request
review items in the assessment process that they believe are in error
or inaccurate.
Comment. The PHAS inspection process inspects too many elements.
HQS and local codes should be the standards by which PHA properties are
physically assessed. HUD should revisit the physical inspection
protocols. PHAs are being unfairly penalized in the physical condition
inspection process for items that meet local building codes but do not
meet HUD's physical condition standards.
Response. Before development of HUD's Uniform Physical Condition
Standards and physical inspection protocols, HUD has had a number of
inspections systems in its various programs. Part of HUD's 2020
Management Reform Plan was to develop standardized, uniform and
objective protocols, and HUD sought and obtained industry input in the
development of its standards and inspection protocol. The product of
this effort is HUD's Uniform Physical Condition Standards, which was
the subject of a final rule issued on September 1, 1998, and also was
part of the PHAS final rule published on September 1, 1998. These
standards are also applicable to HUD's multifamily insured, Section 8
project based, Section 202, and multifamily properties with HUD held
mortgages in addition to public housing owned properties. HUD believes
that this consistency is crucial to the effective management of the
properties that receive assistance from the Federal government. PHAs
are still required to meet any applicable local codes or ordinances.
HUD's Uniform Physical Condition Standards notes that the standards do
not supersede or preempt State and local building and maintenance codes
to which HUD program participants must comply (see 24 CFR 5.703(g) and
24 CFR 902.20(d).) Complying with local and Federal standards is not
new. This is the case in developing new public housing, modernizing
public housing as well as maintaining public housing. In any case where
there is conflict, the general rule is that the more stringent standard
is applicable. Accordingly, HUD will maintain the uniform physical
condition standards. In cases where the HUD standard conflicts with
local code, this final rule provides for an adjustment under the
procedures described in Sec. 902.25(c).
Comment. The PHAS physical inspection scoring process allows for
multiple deductions for the existence of only one deficiency. A single
item with a cited deficiency can be included in two inspectable areas.
The scoring system does not include adjustments based on physical
condition of the site, common areas, and building exterior for
properties over 10 years old. The impact of cosmetic deficiencies
should be reduced by exclusion or adjustment in item weight,
criticality or severity values. Restrict the assessment to only the
standards relevant to ``adequately functional and free of health and
safety standards.'' The scoring process is inconsistent within
properties and the
[[Page 1731]]
objective of determining whether a PHA is meeting the standard of
decent, safe, sanitary and in good repair.
Response. One of the unique features of the new uniform physical
condition standard inspection is that it produces a scalable score to
enable PHAs and HUD to better manage the properties. HUD believes that
this is a significant improvement over inspections that produce only a
pass or fail rating. Oftentimes the pass or fail rating is based only
on a single element. This does not give HUD or the PHA an accurate
picture of the overall condition of the property.
In developing a scalable score, HUD believes it is prudent to
distinguish in the scoring between more important elements such as the
heating system and less important elements such as lawns and plantings.
HUD has provided PHAs with an itemized list of each inspectable item
and its criticality level (from 1 to 5, with 5 being the most
critical). This list is found on REAC website at www.hud.gov/reac.
Similarly, it is also important when developing a scalable score to
differentiate between the severity levels of individual deficiencies.
It is also important to note that the scoring process does not deduct
for cosmetic deficiencies. As discussed earlier in this preamble, the
physical condition protocol is concerned with physical condition
deficiencies not cosmetic appearance, but HUD recognizes that several
commenters expressed concern about deductions for cosmetic appearance.
Following consultation with industry, HUD re-examined the Dictionary of
Deficiency Definitions, to assure that cosmetic deficiencies are not
included. The revised Dictionary of Deficiency Definitions is posted on
HUD's website.
Comment. No deductions should be applied to items that were not
present in the design, construction and/or rehabilitation of projects
when they have been maintained substantially the same as at the time of
their acceptance. No deductions also should be made for items that are
not present and that are not required by National Codes or HUD
mandates.
Response. HUD has received comments similar to this one on the
earlier PHAS rulemaking in 1998. While HUD believes that good design
practice calls for the provision of window screens, gutters and down
spouts, HUD recognizes that not all properties were built with these
elements. Similarly, HUD believes that residents should be afforded
privacy in bedrooms and bathrooms through the use of door locks, but
again recognizes that not all properties were built with these
features. Based on these concerns, HUD has modified its protocol to
only assess elements that are present at the time of the inspection.
Comment. The PHAS physical condition scoring process should be
corrected so that excessive point deduction for relatively few
deficiencies do not occur. The system must return reasonable score
results in order to be a valid measure of the physical condition found.
Response. If the deficiencies are severe, then even if they are a
few deficiencies the point deduction will appropriately represent the
severity of the deficiencies. HUD disagrees that the PHAS physical
inspection scoring methodology results in excessive point deduction for
an important element in the scoring system is the concept that not all
inspectable items are of equal importance. Some elements like roofs,
heating systems, etc., are more important than other elements such as
lawns or plantings. Because of that, if a few high criticality level
deficiencies are assessed as severe, and also have relatively high item
weights, the score will be significantly reduced. Given the high item
weights, criticality level and severity, however, the deductions are
appropriate. The weights and levels assigned to the deficiencies are
appropriate given their relative importance in terms of maintaining a
condition that is decent, safe, sanitary and in good repair.
Comment. The contract inspector should share each observed
deficiency noted with the PHA representative accompanying the inspector
so the PHA will have a better understanding of the observed deficiency
location and can ask questions and seek clarification where needed.
Response. HUD has developed an electronic system of capturing and
providing inspection results. HUD believes that it is appropriate to
review the results before conveying them the PHA. Again, however, HUD
points out that the inspector shares the health and safety deficiencies
with the PHA's representative on the day of inspection before the
inspector leaves the site, and HUD, at this final rule stage, provides
for the PHA to review and comment on the physical inspection report
before it is issued in final. Additionally, as noted earlier, HUD has
revised the physical inspection report to make it easier to identify
the deficiencies noted.
Comments. HUD should consider a mechanism for making allowances for
unavoidable downtime conditions resulting from scheduled repairs or
unanticipated equipment problems. Such allowances should reflect a
PHA's actions to minimize inconveniences to building residents. Another
comment suggests that vacant or occupied buildings and units with
substandard conditions that HUD has approved for mandatory conversion,
HOPE VI redevelopment, demolition or disposition, or a comprehensive
modernization plan should be exempt from the PHAS physical inspection.
Response. This final rule amends the inspection protocol to exempt
vacant units from the physical inspection requirement. This accounts
for repairs that are ongoing while the units are not occupied. Occupied
units, however, are subject to inspection (although occupied units
undergoing modernization may be eligible for scoring adjustment, as
provided in Sec. 902.25) HUD must ensure that residents are living in
housing that is decent, safe, sanitary, and in good repair.
Comment. Deductions for ponding should be restricted where it is
evident that standing water is causing visible damage to the roof
surface or underlying materials. HUD should consider accepting ponding
as a natural consequence of flat roof design while it is raining, and
that flat roofs are an acceptable design standard for high-rise
buildings.
Response. Any ponding or standing water on a roof can compromise
the structural integrity if left too long. It is impossible to tell at
the time of the inspection how long or to what extent damage may have
been caused. For these reasons, HUD declines to adopt the suggestion,
but HUD also recognizes the complexity of this issue, and HUD's
inspection protocols now provide that if a measurable precipitation
event has occurred within the previous 48 hours, consideration will be
given to the impact on the extent of ponding.
Comment. Mold and mildew can be a serious problem, but often is not
a result of a PHA's performance. The physical condition scoring process
must allow for judgment to be exercised by the inspector to determine
if the presence of mold/mildew is a result of resident behavior or poor
property management.
Response. While HUD appreciates that not all conditions are the
result of the PHA's performance, the PHA is ultimately responsible for
the condition of the properties. The protocol is designed to determine
the condition of the property, for which the PHA is responsible.
Comment. HUD should explain why maintenance areas are considered
common areas when residents are not allowed in maintenance work area,
boiler rooms, and elevator equipment rooms.
[[Page 1732]]
Response. The physical condition standards of decent, safe,
sanitary and in good repair applies to the total property, not just
areas where residents are allowed. These areas may not permit tenant
access, but there is access to PHA maintenance staff.
In developing the Uniform Physical Condition Standards, HUD
identified the major components of a property (i.e., site, building
exterior, building systems and units). In attempting to not overly
complicate the structure of the standard, HUD classified the remaining
elements under common areas. This is not unlike the system used by HUD
public housing Field Office staff under Handbook 7460.1 REV-1, the
public housing ``Project Engineering Survey'' (Form HUD-52414)--``Other
Items.'' Similarly, the Section 8 Housing Quality Standards Inspection
form (Form HUD-52580), deals with these items under All Secondary Rooms
Not Used for Living. HUD believes that its classification is
reasonable.
Comment. HUD advised that algorithms, which would provide a
methodology to compare vastly different types of housing across the
country, would be included in the Physical Condition Scoring Notice,
but they were not. If the algorithms are not to be used, the Assistant
Secretary for PIH should therefore make a determination of a reasonable
basis for scoring these properties, to take in the differences across
the country.
Response. As HUD has stated frequently, the objective of its
Uniform Physical Condition Standards and its uniform physical condition
inspection protocols is to provide basic standards that are applicable
to all types of housing, located in all types of areas. To the extent
that adjustments to the physical condition inspection and score may be
needed because of unique local building codes, or physical features of
a housing that are unique to a geographic area and not contemplated by
HUD's standards and inspection protocols, the final rule provides the
flexibility to make such adjustments.
Comment. HUD should reconsider the current weights in the PHAS. In
some areas, for example, the common area, which is only 15% of the
entire building score, includes so many items, such as laundry rooms,
lobbies, offices, community space that the deficiencies add up to over
70% of all the deficiencies in the entire inspection.
Response. As noted in this preamble, the weighting system for
physical inspection scoring was the subject of industry and
professional consultations. HUD believes that the current weights
represent reasonable values to attribute to those property components.
Regardless of the number of inspectable items in an inspectable area,
the maximum value of the area is limited to the relative value of the
area.
Comment. Properties should not be downgraded for penetrating
vegetation that are attractive vines on fences and walls. HUD should
not penalize PHAs for features which are considered amenities in the
private market. In some cases, a neighbor would be justifiably upset if
the PHA removed a vine owned by this neighbor from the PHA's fence.
Response. Penetrating vegetation can affect the livability and
structural integrity of the property. HUD believes that the deficiency
is justified.
Comment. The PHAS is still not clear how health and safety
deficiencies affect a PHA's numerical score. The version of this notice
accompanying the final rule needs to provide explicit examples of how
these deficiencies figure into the numerical grade.
Response. Health and safety deductions are treated like all other
deductions in the scoring algorithm, and take into account the assigned
item weights and criticality values. The PHAS physical inspection
protocol emphasizes health and safety because of its crucial importance
to the well-being of residents. All health and safety deductions are
therefore categorized as level 3 (severe).
2. Financial Condition Scoring Notice
Comment. There are contradictory explanations of the scoring of
Expense Management and Net Income under the Financial Condition
Indicator. In Appendix 1 of the PHAS Notice on the Financial Condition
Scoring Process, HUD states that these would be scored based on
deviations from a statistical mean. Those either above or below the
allowable deviation would score 0 and all others would score 1.5. In
Appendix 2 of this Notice, HUD states that these components would be
scored only in one direction. HUD needs to state which of the two
methods will be used.
Response. As specified in Appendix 1 to the PHAS Notice on the
Financial Condition Scoring Process, the deviation from a statistical
mean only applies to the first two indicators: Current Ratio and Months
Expendable Fund Balance. For the remaining indicators the methodology
is clearly delineated. Appendix 2 of this Notice is simply a set of
tables providing the threshold values for each indicator by PHA size
category consistent with the methodology described in Appendix 1.
Comment. Four categories within the expense management indicator:
administrative, utilities, ordinary maintenance, and general expense
are too detailed and unnecessary. Moreover, the cost categories are
more detailed than high performing PHAs are currently required to
report on their budget and subsidy requests. The Financial Condition
Indicator should confine its review to overall routine costs and permit
the PHA to have the discretion of distributing their expenses across
those categories according to its needs and the goals and mandate of
the Public Housing Reform Act.
Response. Six categories are measured under the Expense Management
indicator: administrative, general, tenant service, protective service,
maintenance and operation, and utilities expense. The six expense
categories were modeled after the Statement of Operating Receipts and
Expenditures form (HUD-52599). HUD already has requested this
information annually from PHAs that are using this form. HUD believes
that a review of overall routine costs is insufficient because a PHA's
allocation of its resources has a significant impact on the quality of
housing and services provided to its residents. Thus, in addition to
the above described changes to the Expense Management Indicator to
account for regional differences among PHAs, REAC has revised the
calculation for the expense management component to assign weights to
the six expense categories mentioned above. Weights have been assigned
to non-tenant related expense categories to encourage PHAs to allocate
resources to tenant-related activities.
Comment. PHAs should not be scored on the Expense Management
indicator if they are performing well on other indicators.
Response. HUD believes that a PHA's allocation of resources is a
valuable measure of efficiency and thus, all PHAs should be assessed on
this measure. A PHA whose circumstances show a reasonable business
reason will be able to appeal this indicator.
Comment. Under the scoring process for the Quick Ratio and Months
Expendable Funds Balance, HUD proposes to utilize statistical
distributions as the basis for its scoring. Specifically, HUD proposes
to award the maximum number of points to PHA's with liquidity and
operating values falling between the 30th and 80th percentiles. HUD,
however, will give incrementally fewer points to PHAs with liquidity
and operating reserves, values above the upper level of this range. In
other words, PHAs with very high short term liquidity and very high
operating reserves will be penalized through the loss of points. In
effect, too
[[Page 1733]]
high of reserves and liquidity has now become a bad practice. This type
of scoring does not make sense. PHAs with high liquidity or reserve
values which place them above the 80th percentile range should be given
the full number of points when these PHAs also score high under the
PHAS management practices and physical inspection indicators.
Response. HUD believes that its scoring methodology with respect to
reserves is appropriate but has made accommodations to recognize
circumstances unique to a PHA.
Scoring Methodology. The scoring methodology for indicators 1 and 2
(Current Ratio and Months Expendable Fund Balance) take into account
the difference between for-profit and not-for-profit entities. The
focus of for-profit entities is profit maximization (i.e., high-
retained earnings and liquidity), whereas the focus of not-for-profit
entities, such as PHAs, is to maximize the use of scarce resources to
the benefit of their residents. Thus, HUD believes that PHAs with too
high liquidity or reserves could be better utilizing their resources to
improve the quality of housing or services to their residents.
HUD recognizes there is a much higher risk to HUD associated with
PHAs exhibiting substandard levels of reserves as reflected in a score
that reaches zero for those indicators. Those PHAs with too high
reserves and liquidity, on the other hand, only stand to lose a maximum
of 1.5 points out of 9 possible points for each of the two indicators.
Recognition of Unique Circumstances. The Notice on the PHAS
Financial Condition Scoring Process that will be published in the
Federal Register will provide that a PHA will not lose points under
current ratio or monthly expenditure fund balance if the PHA has too
high liquidity or reserves if the PHA has achieved at least 90 percent
of the points available under the Physical Condition Indicator and is
not required to prepare a follow-up plan under the PHAS Indicator #4
(Resident Service and Satisfaction). Additionally, this final rule
provides that a PHA may appeal on the basis of mitigating circumstances
any point deduction on the basis of too high liquidity or reserves,
without regard to change of designation if the PHA receives a score of
at least 60 percent in the Physical Condition Indicator.
Comment. The use of percentile scoring in the financial condition
scoring process and the fact that the standards are not fixed are of
concern to PHAs. The use of the Bell Curve for scoring PHAs appears to
be inequitable. The use of relational scoring should be discontinued
for all components.
Response. The concern that there is not an absolute value or
standard toward which PHAs may strive is a valid one that has been and
continues to be raised. Based on extensive economic and financial
analysis, it has been concluded that it would be unfair to PHAs for HUD
to identify a single value as the optimum performance measure among
PHAs. Such number or standard would be debatable as it is really
impossible to have a basis for selecting a single value as the optimum
measure for a PHA of a certain size or location. Even PHAs that bear
similar characteristics such as size and location operate differently
due to a number of unique circumstances. It would be difficult to
justify to PHAs that a certain amount of administrative expense or
utility cost is the number to which they should strive because no two
PHAs are the same.
The peer assessment approach is an equitable means of measuring
financial performance because it rewards PHAs in the middle to upper
range of performance with the highest number of points. For example,
PHAs who have a current ratio in the 30th to 80th percentile receive
all of the 9 points allocated to this indicator. Another example is
expense management where only the PHAs in the top 95th percentile do
not receive the full 1.5 points.
Comment. The PHAS financial scoring process may penalize PHAs under
the current ratio component, for making capital improvements with local
operating reserve funds. The PHAS also appears to include a penalty
under the Physical Condition Indicator if PHAs do not make the capital
improvements.
Response. The Current Ratio indicator measures the cash liquidity
of a PHA compared to its peers by dividing current assets by current
liabilities. This is done irrespective of the PHA's operating reserves.
The numerator includes all cash and current assets of the PHA whether
or not reserved for capital activities. The denominator includes all
current liabilities of the PHA. PHAs are not penalized for either
capital or operating expenses under the Current Ratio indicator. This
indicator simply predicts whether or not the PHA can meet its current
obligations as compared to the rest of the PHAs of the same size.
Comment. HUD should remove Payment In Lieu of Taxes (PILOT) when
computing a PHA's General Expenses component. PILOT is a computation
which involves utility costs and thus is subject to regional costs
differences. PILOT's computation also involves input of a local
property tax rate. Additionally, a significant number of PHAs no longer
make PILOT payments, thus their expense level will be significantly
lower when compared to those PHAs making PILOT payments.
Response. HUD's research of over 10,000 Statement of Operating
Receipts and Expenditures forms (HUD-52599) shows over 87 percent of
all PHAs pay PILOT expenses. The Expense Management indicator has been
changed to assign weights to each individual expense management
category. PILOT payments would affect the General Expenses category,
which is weighted at 34 percent of the total 1.5 points, awarded.
Furthermore, the Expense Management indicator awards full points to
PHAs that fall within the 95th percentile of their group. The fact that
the commenter's PILOT payment comprises only 22 percent of its total
General Expense category does not represent a substantial difference
between PHAs that pay PILOT and PHAs that do not.
Comment. The method for scoring Current Ratio and Months Expendable
Fund Balance contain numbers that in the long run do not affect the
overall scoring of the component. These include project loan notes, the
interest payable-development notes, book value of conveyed projects,
cumulative HUD grants, cumulative HUD annual contributions and various
other surplus accounts. Several numbers used for scoring these two
components will change substantially during the changeover to GAAP. The
GAAP conversion can substantially change the Land Structures and
Equipment, the permanent note account and other accounts. This system
should be tested with the GAAP conversion before putting the scoring
system in place.
Response. These concerns are currently being addressed. Analyses
have been conducted to compare the line items in both the HUD-52595--
Balance Sheet for Section 8 and Public Housing and HUD-52599--Statement
of Operating Receipts and Expenditures with the FDS--Financial Data
Schedule to identify the impact of GAAP adjustments on account
balances. Other analyses have focused on comparisons between the
indicator values and scores calculated using the respective thresholds
for Non-GAAP and GAAP. The results of HUD's analyses show that PHAs
that perform well in Non-GAAP performed well in GAAP. The assessment
will remain peer-based, as such all PHAs will be affected the same way.
The GAAP thresholds that were established based on limited data have
been compared to the Non-GAAP
[[Page 1734]]
thresholds using various statistical measures. Though the GAAP
thresholds are not expected to be similar to the Non-GAAP because of
the differences in account balances and the large sample of Non-GAAP
data, the statistical comparisons again showed that performance was
relatively constant. The GAAP thresholds will be closely monitored once
PHAS is implemented and PHAs begin to submit GAAP basis financial
statements. After the first year of submissions they will be re-
evaluated and proposed adjustments will be communicated in future
notices.
Comment. HUD's Uniform Reporting Requirements will also affect the
final scoring for the Financial Condition of PHAs. Until HUD has tested
the scoring system for the overall financial condition of housing
authorities and not just the public housing operating condition, the
upcoming year's score should be based only on the public housing
financials. HUD should review the composite numbers for future scoring
purposes.
Response. HUD has tested the scoring system for several hundred
PHAs currently reporting under GAAP. The testing was conducted for the
entire PHA operations not just public housing programs. In addition,
extensive statistical analysis has been conducted to compare the non-
GAAP to GAAP scores in order to arrive at its scoring methodology. As
discussed earlier in this preamble, HUD is not foregoing financial
assessment of a PHA's entity-wide operations. HUD has, however,
deferred issuance of a PHAS financial score based on a PHA's entity-
wide operations to those PHAs with fiscal years ending after June 30,
2000. (Please see Section III of the preamble for a more detailed
discussion of this issue.)
Comment. PHAs have no control over several accounts that HUD
calculates and PHAs should not be penalized for the balances of these
accounts.
Response. Because scoring is based on peer comparison PHAs are
treated equitably. Although PHAs do not have control over all amounts
in their financial statements, these figures impact the financial
health and viability of PHAs and therefore cannot be ignored. Most
decisions made by HUD and Congress generally treat all PHAs in the same
manner.
Comment. HUD's scoring sheet is not user friendly. The scoring
sheets do not have enough spaces to include all of the digits in longer
numbers and therefore, it is difficult to follow HUD calculations.
Response. HUD assumes by the term ``scoring sheet'' that the
commenter is referring to the electronic Financial Data Schedule (FDS)
in Excel. PHAs wanting to use this spreadsheet can adjust the width of
the columns. Additionally, HUD has reviewed this scoring sheet and has
made other adjustments to make this form more user friendly.
Comment. HUD should consider making exceptions for mitigating
circumstances.
Response. As noted in a response to an earlier comment, this final
rule takes into consideration mitigating circumstances with respect to
too high liquidity, high reserves and expense management. It would be
impossible for HUD, however, to incorporate every mitigating
circumstance that may arise into the scoring process because many of
the circumstances would be specific to only one PHA.
Comment. HUD must revisit the graphs and tables that accompany the
PHAS Notice on the Financial Condition Scoring Process. They are
largely incomprehensible to those who are not trained in statistics.
HUD has embraced the use of plain language in its rulemaking. These
graphs and tables fall short of the plain language goal.
Response. HUD will update its PHAS Notice on the Financial
Condition Scoring Process, will strive to make this notice more
comprehensible and will attempt to simplify the graphs and charts.
Comment. The PHAS Notice on the Financial Condition Scoring Process
states that the scoring of certain components follows generally
recognized business principles. The explanation continues to discuss
certain absolute thresholds that are indicated by these principles.
There is concern about HUD's lack of a definition for sound business
principles. The impression is that GAAP already takes into
consideration sound business principles.
Response. The term ``sound business principles'' in the context of
this paragraph pertains to the setting of thresholds for PHAS scoring
purposes. For example, a PHA with a Current Ratio of less than 1 (i.e.
where current liabilities is greater than current assets) may receive
some points depending on its current ratio compared to other PHAs of
the same size. However, sound business principles would dictate that a
PHA with a Current Ratio of less than 1 would still pose a financial
risk because it may be unable to cover its current obligations and thus
should merit a score of zero for the Current Ratio indicator.
Comment. The Financial Condition scoring process does not
adequately take into consideration decisions by HUD or Congress that
impact PHA resources. This year, HUD funded the PFS at 92.5% of
eligibility and did not allow PHAs to request year-end adjustments or
to retain entrepreneurial income. These decisions will have a direct
impact on a PHA's financial condition. The scoring of this indicator
should have an adjustment for factors beyond a PHA's control.
Response. HUD is sympathetic to PHA concerns about meeting
management responsibilities during times of budgetary setbacks. While
Congressional decisions may impact a PHA's financial resources, the
purpose of the PHAS is to assess a PHA's management of its financial
resources, even when resources are not at the levels desired by PHAs or
HUD. In addition, since the scores are based on a peer comparison and
all PHAs are proportionally affected by partial PFS funding, HUD is
taking into consideration decisions made by Congress that impact PHA
resources. Every organization, whether private or non-profit,
governmental or non-governmental, is expected to fulfill its
responsibilities and carry out it functions within the budget provided.
3. Management Operations Scoring Notice
Comment. The Management Operations Scoring Process Notice states
that one of the graded components of the Security/Economic Self-
sufficiency subindicator is entitled ``grant program goals.''
Presumably, this incorporates the standard for a PHA's economic self-
sufficiency program in 42 U.S.C 1437u(b), as amended by section 509 of
the Public Housing Reform Act, and would also incorporate PHA
activities to promote self-sufficiency in accordance with the statute.
HUD should explain, either in preamble to the final rule or in the
final version of the Management Operations Scoring Notice, how it will
weigh PHA activities under the separate statutory provisions in the
grading process.
Response. PHAs will be graded on the combination of grant program
goals for both drug prevention activities and self-sufficiency
activities met in the appropriate percentage of its developments. As
discussed in more detail under section VI of this preamble, HUD is
continuing to work on this component to strengthen HUD's assessment of
PHA's activities to promote self-sufficiency.
4. Resident Service and Satisfaction Scoring Notice
Comment. Will each of the five components of the survey be worth
one point? This should be made clear in the
[[Page 1735]]
scoring section. Also, since there is more than one question per
section, will some questions count while others will not, or will each
question be scored separately?
Response. HUD agrees that the scoring section should be clarified
for this indicator. Each of the five survey sections (i.e., maintenance
and repair, communication, safety, services, and neighborhood
appearance) will be worth one point. Answers to some questions on the
survey will be used for informational purposes only and will not be
calculated into the overall score. Weights will be associated only with
``scoreable'' questions in each survey section. Scores for each survey
section will be calculated in the following manner: (1) Each section
will be given a score between zero and one; and (2) the total survey
score will be the sum of the five survey section scores, presented in a
numeric format with one decimal place (i.e., 4.3).
Comment. The last section of the survey is called ``neighborhood
appearance.'' PHAs were led to believe that aspects not under the PHAs
control would not be scored. Is this ``development appearance?''
Response. HUD recognizes these concerns. The PHAS rule stipulates
that this section of the survey should be titled ``neighborhood
appearance.'' Nevertheless, the only questions that will be included in
the score for this section will be questions that can be directly
associated with regulations or statutes applicable to the management of
public housing. PHAs will not be held accountable for aspects of
neighborhood appearance for which they are not responsible.
Comment. PHAs have diverse populations with language requirements.
The survey must be translated into these languages for participation of
all residents.
Response. The survey is now available in Spanish, as well as
English. During the first year of operation, RASS asks each PHA to
input information relative to alternative languages needed by more than
20 percent of their residents. Full assessment of other translation
needs will be made prior to the second year of the survey process.
Comment. HUD has stated that not all questions would be scored but
has not stated which specific questions will be scored and what the
questions are worth. HUD should publish the survey and indicate the
scoring weights of individual questions.
Response. The attachment to the PHAS Notice on the Resident Service
and Satisfaction Survey Scoring Process, which will be published in the
near future, provides a copy of the survey instrument and the
associated weights for the ``scored'' questions.
VI. Comments on Specific Issues Raised by HUD
In addition to requesting public comment on the June 22, 1999,
proposed rule, and the four PHAS scoring notices, HUD specifically
requested comment on the following issues. Comments received on these
issues are noted below, and HUD's responses to these comments, where
appropriate, are provided.
1. PHA Efforts to Keep Units Occupied
The June 22, 1999, rule proposed to inspect only occupied units.
HUD noted its concern that PHAs make appropriate efforts to have as
many units on line and occupied as possible. For example, PHAs should
be keeping units unoccupied for modernization or unit turnover for the
minimum possible time. The rule addresses this concern to an extent in
the PHAS finance and management indicators. HUD requested comments
whether this concern should be addressed further, and sought
suggestions and recommendations on ways to do address this matter in
the PHAS rule or elsewhere (e.g., other regulations). Comments and
recommendations were as follows:
Comment--Vacancy is Already Addressed by Two Indicators. Since
occupancy is already measured by both the Financial and Management
Indicators, there is no need for HUD to address occupancy an additional
time in PHAS or other regulations. The assessment indicators for vacant
units and vacancy loss are duplicative and more than adequate for
stressing the importance of keeping units on-line to provide affordable
housing to the maximum extent possible.
Comment--No Need to Further Address This Issue; It's In the
Interest of PHAs to Keep Units Occupied. It is not necessary to address
the matter of keeping units on-line and occupied to any greater extent
in PHAS. It is in the best financial interests of public housing
authorities to keep units off-line and unoccupied for a minimal amount
of time.
Comment-No Additional Constraints or Time Limits Are Necessary. HUD
asked whether the final rule should contain additional time constraints
upon the exemption of unoccupied units from the PHAS inspection
process. The three listed categories of exempt unit are subject to an
inherent time limit and there is no need to superimpose any further
time constraints.
Response. HUD agrees with the comments that no further assessment
is necessary under the PHAS with respect to a PHA's efforts to keeping
units occupied, and as noted earlier, this component is now found under
only one PHAS Indicator (Indicator #2). PHAs are in the business of
providing housing assistance and HUD recognizes that PHAs are aware
that it is in their best interest, the interest of public housing
residents and taxpayers to keep units occupied and on-line.
2. Missing or Inoperable Smoke Detectors
The June 22, 1999, rule did not propose to penalize PHAs in the
PHAS score for missing or inoperable smoke detectors because of the
extent to which this may not be within a PHA's control. HUD, however,
noted its concern about this issue in view of the critical importance
of fire prevention. Because of the safety risk presented by missing or
inoperable smoke detectors, HUD advised that it considered whether the
final rule should provide some consequence to PHAs for missing or
inoperable smoke detectors (particularly if the number is high),
including possibly a reduction in a PHA's physical inspection score.
HUD requested comments on this option, and solicited suggestions as to
the availability of working smoke detectors can be encouraged further,
either in the PHAS rule or elsewhere.
Comment--PHA Should Certify to Certain Actions. PHAs should not be
penalized for missing or inoperable smoke detectors because they truly
are not within the control of PHAs. PHAs should take reasonable
measures to assure that smoke detectors are operable and take
appropriate action when they are found inoperable. These measures could
include certifying that all detectors are tested annually; that they
are immediately (within 24 hours) replaced or defective detectors are
repaired; they are in compliance with Federal, State and local laws
regarding smoke detectors; and PHAs follow an enforcement process when
they find that tenants have tampered with smoke detectors.
Comment--Reflect Missing & Inoperable Smoke Detectors in Physical
Condition Score. The maintenance of operable smoke detectors is a
critical factor in the physical condition of housing. If smoke
detectors are missing or inoperable, this should be reflected in the
physical condition numerical scoring.
Comment--PHAs Should Not Be Held Accountable for Resident Removal
or Tampering with Smoke Detectors. We
[[Page 1736]]
remain adamant that PHAs should not be held responsible when residents
remove batteries or tamper with safety equipment. Even when PHAs have
gone to great expense to hardwire smoke detectors, some residents have
disconnected them. In short, if a PHA can demonstrate that it has smoke
detectors, or it has a system in place that provided smoke detectors,
it should not be held accountable for the removal of batteries or the
removal system of components.
Comment--No Penalty if PHA Records Reflect Appropriate Measures
Taken by PHAs. A PHA should not be penalized for a defective or missing
detector in a dwelling unit if the PHA's records reflect either of the
following: (a) At the most recent PHA inspection, the PHA found that
the dwelling had an operable smoke-detector; (b) inspection revealed
that the detector was missing or inoperable, and the PHA made the
needed replacement or repair; or (c) subsequent to the most recent
inspection, the PHA responded to a work order for repair or replacement
of the detector. In regard to smoke-detectors in common areas, a PHA
should not be penalized if records reflect that the missing or
inoperable detector is scheduled to be replaced or repaired within 24
hours.
Comment--Smoke Detector Maintenance Program. PHAs should not be
penalized for missing or inoperable smoke detectors. PHAs should be
responsible for maintaining a smoke detector maintenance program by
which PHAs could be assessed under the appropriate sub-indicator.
Response. HUD appreciates all the comments on this issue, and at
this time, declines to penalize PHAs for missing or inoperable smoke
detectors. HUD notes, as it has previously in this preamble, that
missing or inoperable smoke detectors constitute health and safety
deficiencies, and health and safety deficiencies are presented to the
PHA before the HUD inspector leaves the site, and health and safety
deficiencies are to be immediately addressed by the PHA. HUD, however,
remains concerned about this issue and is going to continue to examine
this issue and work with PHAs on how to best to promote fire
prevention. HUD is exploring new technology in the area of tamper-proof
smoke detectors. If HUD determines that this is a chronic problem with
PHAs, HUD may take action through rule or other means, as appropriate,
to ensure that this problem is resolved. Such action may include the
imposition of penalties on PHAs or residents, or both.
3. More Effective Implementation of the Economic Self-Sufficiency
Indicator
HUD requested comments on ways of improving the economic self-
sufficiency sub-indicator so that it may be implemented more
effectively, and specifically sought comments on whether the sub-
indicator is properly weighted and appropriately placed in the rule as
part of management sub-indicator #6 (see Sec. 902.43(a)(6)).
Comment--HUD's Treatment of New Indicators Is Inadequate. The
economic self-sufficiency indicator correctly belongs under the
Management Operations Indicator. While the relative weight to be
assigned to a PHAS indicator is undoubtedly a complex judgement, to
attribute less than one point to a PHA's economic self-sufficiency
efforts sends the message that HUD attributes minimal importance to
such efforts. HUD's response to this statutory provision is entirely
inadequate. There are several ways that HUD could provide appropriate
weight to this indicator. HUD could reduce one or more of the
management sub-indicators that are substantially duplicative of sub-
indicators within the Physical Condition or Financial Condition
Indicators, without adverse results. HUD could measure a PHA's degree
of compliance with mandatory HUD programs designed to promote economic
self-sufficiency, including the Family Self-Sufficiency program and
section 3 (section of the Housing and Urban Development Act of 1968).
HUD could include an outcome-base measure that evaluates the progress
PHAs have made in increasing the extent of employment and earnings
among public housing families while they reside in public housing.
Response. HUD appreciates the suggestions for strengthening the
measurement of the economic self-sufficiency assessment. HUD
acknowledges that the June 22, 1999, proposed rule did not reflect
HUD's ultimate goal for this new subindicator, which is to effectively
measure the extent to which the PHA coordinates, promotes or provides
effective programs and activities to promote the economic self-
sufficiency of public housing residents. This final rule provides for
greater weight than that provided in the June 22, 1999, proposed rule
(please see the preamble discussion of the changes made to this sub-
indicator in Sec. 902.43), and on this basis, is an improvement over
the proposed rule. HUD recognizes, however, that this final rule does
not fully provide for the measurement of performance under this sub-
indicator that HUD desires. HUD is continuing to work on this sub-
indicator to better incorporate an appropriate measurement of a PHA's
activities to promote economic self-sufficiency.
4. Withholding Designation
HUD sought comments on the consequences to PHAs of withholding
designation as provided in new paragraph (d)(2) of Sec. 902.67.
Comment--Designation Should Not Be Withheld. Exceptional
circumstances is too subjective a term, and leaves room for
considerable discretion. This is an administratively meddlesome
provision which is tantamount to double jeopardy.
Comment--Withholding of Designation Manifestly Unfair. Withholding
designation because a PHA is involved in litigation that bears directly
upon the physical, financial, or management performance of a PHA, or is
operating under a court order is manifestly unfair and constitutionally
suspect. If HUD is going to permit withholding of designation, HUD
should reinstate the PHMAP procedure that permits a PHA to directly
appeal a Field Office's denial of designation to the Assistant
Secretary for Public and Indian Housing.
Response. The regulatory provision concerning withholding of a
PHA's high performer or standard designation is not unfamiliar to PHAs.
This provision was part of the PHMAP regulation at 24 CFR
Sec. 901.115(k). In egregious situations (as described in the
regulation), HUD has an obligation to protect the Federal investment in
a public housing property as well as the rights of residents. The PHAS
was never intended to be, nor can it be, the only criteria for
assessing the performance of PHAs in all areas, especially in the areas
of civil rights, nondiscrimination and fair housing laws and
regulations. HUD has added a provision to this section of the rule
concerning withholding or rescission of designation that allows for the
PHA to request from the Assistant Secretary for Public and Indian
Housing reinstatement of its designation and provide the basis for its
request for reinstatement.
5. Assessing PHA Responsibility to Submit Accurate and Timely Occupancy
Data to MTCS
HUD also requested comments on how PHAs should be assessed with
respect to their responsibility to submit occupancy data to the
Multifamily Tenant Characteristics System (MTCS) in an accurate,
complete and timely manner.
Comment--Assist PHAs in Becoming Automated and Phase-In Electronic
Submission Requirement. With the
[[Page 1737]]
increased requirements imposed by HUD for electronic submission, PHAs
need technical resources to become fully automated to meet these
requirements. Additionally, PHAs should not be responsible for
submission of up to 85% of its occupancy data for transmission problems
beyond the control of the PHA. Electronic submission requirements
should be phased in.
Comment--Problems with Accurate Submission of Occupancy Data is
Often Beyond Control of PHAs. The difficulty that PHAs have experienced
with respect to MTCS transmission is frequently a problem beyond their
control. In some cases the software utilized by PHAs does not have the
capability to interface with MTCS. Numerous communications with MTCS,
HUD and the software manufacturer to address the problems with
occupancy report transmissions have not resolved the problems. Also, it
appears that MTCS has the same mailbox number for both Section 8 and
conventional housing. As a result, MTCS cannot distinguish between what
reports are coming from conventional housing. For these reasons, HUD
should take no punitive measures against PHAs for their performance
with respect to the submission of occupancy data to MTCS. HUD should
assess PHA by their efforts to meet the MTCS reporting requirement.
Comment--HUD Must Correct MTCS Transmission Problems. It is
essential that HUD expand the capacity of the server for the HUD REAC
website in an effort to correct the continuous transmission problems
associated with the PHAS and MTCS electronic reporting system.
Response. HUD appreciates the comments but advises that MTCS is a
fully functional system. It is HUD's primary data system for
information on public housing and Section 8 family characteristics and
occupancy events. PHAs are required to submit Forms HUD-50058 for every
public housing and Section 8 tenant-based assistance family. HUD issued
Notice PIH 99-2 on January 28, 1999, to clarify the minimum reporting
requirements and to establish a system of monitoring and technical
assistance, semi-annual assessment, and formal review and sanctions.
Under the Notice, HUD may impose sanctions on PHAs that do not meet the
minimum 85 percent reporting level, which is determined at the semi-
annual assessments (following the June and December MTCS Delinquency
reports). PHAs may request forbearance from sanctions in writing. The
request must include an explanation of why the PHA has not attained the
minimum reporting level, steps that it plans to take to improve
reporting, and monthly milestones. PHAs that do not meet the minimum
reporting level and do not obtain forbearance are subject to sanction.
HUD will take into consideration the transmission problems that can
be fully documented are beyond the PHAs control in approving these
forbearance plans. There has and will continue to be industry
consultation on changes required in MTCS to accommodate statutory
changes. As of the June 1999 semi-annual reporting period, public
housing reporting for MTCS has increased to 81% nationally. HUD has and
will continue to work with PHAs to help them meet the minimum reporting
rate.
VII. General Comments
Comment--Delay PHAS Implementation. HUD should consider delaying
the official implementation of PHAS until October 1, 2000. Concern was
expressed by commenters that some PHAs have not provided advisory
scores from REAC, and in order for the PHAS to be an effective and
meaningful system, PHAS should have a full year to understand advisory
scores and prepare for actual implementation. Several issues still need
to be resolved with the PHAS. The advisory score process should be
extended until these issues are resolved.
Response. As discussed earlier in this preamble, HUD does not
believe that a delay in implementation of PHAS until October 1, 2000 is
warranted. HUD has revised the implementation schedule of PHAS to begin
with PHAs with fiscal years ending after December 31, 1999, and even
under that revised schedule, HUD is providing PHAs with fiscal years
ending March 31, 2000, and June 30, 2000, to receive PHAS financial
scores based only on an assessment of their public housing operating
subsidies program. These latter two groups of PHAs will receive
advisory scores on their entity-wide operations.
With respect to advisory scores, PHAs are notified of the
availability of their completed PHAS advisory score by mail, and if
they have access to the Internet, by e-mail. The PHAS scores are posted
to REAC's website on a weekly basis. If a PHA requires assistance in
accessing its advisory score, the PHA is encouraged to contact the REAC
Technical Assistance Center at 1-888-245-4860.
Current reports out of REAC indicate that as of August 10, 1999, 93
percent of all PHAS advisory scores have been posted on REAC website.
This includes over 99 percent posting of scores for PHAs with fiscal
years ending September 30, 1998 and December 31, 1998; 90 percent
posting of scores for PHAs with fiscal years ending March 31, 1999; and
86 percent posting for PHAs with fiscal years ending June 30, 1999. The
majority of the delays in posting advisory scores are generally the
result of PHAs' late filing of their financial or management reports
(under requirements to date, financial reports are due 45 days after
fiscal year end).
Comment--Assessment of PHA Deconcentration Efforts. The rule should
provide for the assessment of the deconcentration efforts of PHAs.
Standards of what constitutes good faith efforts should be included in
the rule as a basis of measurement. For HUD not to penalize PHAs who
fail to deconcentrate undercuts those PHAs who deconcentrate or make
good faith efforts to deconcentrate.
Response. HUD agrees with the commenter about the importance of
deconcentration efforts. The first PHAS proposed rule, published on
June 30, 1998, and the PHAS final rule published on September 1, 1998,
each noted in the ``scope'' provision of the rule (Sec. 901.3) that the
PHAS does not evaluate a PHA's compliance with or response to every
departmentwide or program specific requirement or objective. PHAs
remain responsible for complying with such requirements as fair housing
and equal opportunity requirements, requirements under section 504 of
the Rehabilitation Act of 1973, and requirements of programs under
which the PHA is receiving assistance. The rule states that a PHA's
adherence to these requirements will be monitored in accordance with
the applicable program regulations and the PHA's ACC. The same is true
for deconcentration.
Comment--Assessment of a PHA's Section 3 Compliance. HUD should
amend the PHAS rule to include compliance with Section 3 obligations as
a tool for the assessment of the performance of PHAs (section 3 of the
Housing and Urban Development Act of 1968, 12 U.S.C. 1701u). Section 3
requires that economic opportunities generated by certain Federal
financial assistance, including public housing, shall be given, to the
greatest extent feasible, to low and very low income persons.
Response. HUD's response to this comment is similar to its response
to the comment concerning assessment of a PHA's deconcentration
efforts. Assessment of Section 3 compliance is addressed by other HUD
regulations. A PHA's responsibilities with respect to the Section 3
program are specifically
[[Page 1738]]
addressed in HUD's regulations at 24 CFR part 135.
Comment--Availability of Hand-Held Computers with HUD Software
Inspection. REAC should provide a list to PHAs on the HUD website of
all known manufacturers of hand-held computers, including all versions
HUD reviewed for its inspection purposes. HUD should also release its
specification requirements for running inspection protocol software on
the hand-held computers so that PHAs may purchase and use the PHAS
physical inspection software for annual inspection purposes to be
consistent with the condition standards and protocol used by HUD REAC
inspectors.
Response. Hand held computers, like other business machines, have
many producers which enter and leave the market on a regular basis.
With the extensive information available on the internet, there should
be a number of websites by consumer associations that list these
products, prices, and make recommendations, and there is no need for
HUD to duplicate information available through other sources.
Additionally, the Federal government must avoid even the appearance of
endorsing products on the open market. Producing such a list would give
the appearance that the Federal government favored those particular
brands. Accordingly, HUD will not maintain a list of hand held computer
manufacturers. HUD agrees, however, that it would be appropriate to put
the minimum hardware specifications for the hand held computer on its
website, and will do so.
VIII. Findings and Certifications
Paperwork Reduction Act Statement
The information collection requirements for the PHAS regulation at
24 CFR part 902 were approved by the Office of Management and Budget
(OMB) in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3501-3520) and assigned OMB control number 2535-0106. An agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless the collection displays a valid
control number.
Regulatory Planning and Review
The Office of Management and Budget (OMB) reviewed this rule under
Executive Order 12866, Regulatory Planning and Review. OMB determined
that this rule is a ``significant regulatory action'' as defined in
section 3(f) of the Order (although not an economically significant
regulatory action under the Order). Any changes made to this rule as a
result of that review are identified in the docket file, which is
available for public inspection in the office of the Department's Rules
Docket Clerk, Room 10276, 451 Seventh Street, SW, Washington, DC 20410-
0500.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 establishes
requirements for Federal agencies to assess the effects of their
regulatory actions on State, local, and tribal governments and the
private sector. This rule will not impose any Federal mandates on any
State, local, or tribal governments or the private sector within the
meaning of the Unfunded Mandates Reform Act of 1995.
Environmental Review
A Finding of No Significant Impact with respect to the environment
was made at the proposed rule stage in accordance with HUD regulations
in 24 CFR part 50 that implement section 102(2)(C) of the National
Environmental Policy Act of 1969 (42 U.S.C. 4223). The Finding remains
available for public inspection during regular business hours in the
Office of the Rules Docket Clerk, Office of General Counsel, Department
of Housing and Urban Development, Room 10276, 451 Seventh Street, S.W.,
Washington, DC 20410.
Impact on Small Entities
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this rule, and in so doing
certifies that this rule is not anticipated to have a significant
economic impact on a substantial number of small entities. This rule
revises HUD's existing regulations for the assessment of public housing
at 24 CFR part 902, PHAS, to provide additional information on the PHAS
scoring process and to revise certain procedures and establish others
in accordance with recently enacted statutory requirements. The
additional information and the revision of certain procedures impose no
significant economic impact on a substantial number of small entities.
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 final
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
The Catalog of Federal Domestic Assistance numbers for Public
Housing is 14.850.
List of Subjects in 24 CFR Part 902
Administrative practice and procedure, Public housing, Reporting
and recordkeeping requirements.
Accordingly, HUD revises 24 CFR part 902 to read as follows:
PART 902--PUBLIC HOUSING ASSESSMENT SYSTEM
Subpart A--General Provisions
Sec.
902.1 Purpose and general description.
902.3 Scope.
902.5 Applicability.
902.7 Definitions.
Subpart B--PHAS Indicator #1: Physical Condition
902.20 Physical condition assessment.
902.23 Physical condition standards for public housing--decent,
safe, and sanitary housing in good repair (DSS/GR).
902.24 Physical inspection of PHA properties.
902.25 Physical condition scoring and thresholds.
902.26 Physical Inspection Report.
902.27 Physical condition portion of total PHAS points.
Subpart C--PHAS Indicator #2: Financial Condition
902.30 Financial condition assessment.
902.33 Financial reporting requirements.
902.35 Financial condition scoring and thresholds.
902.37 Financial condition portion of total PHAS points.
Subpart D--PHAS Indicator #3: Management Operations
902.40 Management operations assessment.
902.43 Management operations performance standards.
902.45 Management operations scoring and thresholds.
902.47 Management operations portion of total PHAS points.
Subpart E--PHAS Indicator #4: Resident Service and Satisfaction
902.50 Resident service and satisfaction assessment.
902.51 Updating of public housing unit address information.
902.52 Distribution of survey to residents.
902.53 Resident service and satisfaction scoring and thresholds.
902.55 Resident service and satisfaction portion of total PHAS
points.
[[Page 1739]]
Subpart F--PHAS Scoring
902.60 Data collection.
902.63 PHAS scoring.
902.67 Score and designation status.
902.68 Technical review of results of PHAS Indicators #1 or #4.
902.69 PHA right of petition and appeal.
Subpart G--PHAS Incentives and Remedies
902.71 Incentives for high performers.
902.73 Referral to an Area HUB/Program Center.
902.75 Referral to a Troubled Agency Recovery Center (TARC).
902.77 Referral to the Departmental Enforcement Center (DEC).
902.79 Substantial default.
902.83 Interventions.
902.85 Resident petitions for remedial action.
Authority: 42 U.S.C. 1437d(j), 42 U.S.C. 3535(d).
Subpart A--General Provisions
Sec. 902.1 Purpose and general description.
(a) Purpose. The purpose of the Public Housing Assessment System
(PHAS) is to improve the delivery of services in public housing and
enhance trust in the public housing system among public housing
agencies (PHAs), public housing residents, HUD and the general public
by providing a management tool for effectively and fairly measuring the
performance of a public housing agency in essential housing operations,
including rewards for high performers and consequences for poor
performers.
(b) Responsible office for PHAS assessments. The Real Estate
Assessment Center (REAC) is responsible for assessing and scoring the
performance of PHAs.
(c) PHAS indicators of a PHA's performance. REAC will assess and
score a PHA's performance based on the following four indicators:
(1) PHAS Indicator #1--the physical condition of a PHA's properties
(addressed in subpart B of this part);
(2) PHAS Indicator #2--the financial condition of a PHA (addressed
in subpart C of this part);
(3) PHAS Indicator #3--the management operations of a PHA
(addressed in subpart D of this part); and
(4) PHAS Indicator #4--the resident service and satisfaction
feedback on a PHA's operations (addressed in subpart E of this part).
(d) Assessment tools. REAC will make use of uniform and objective
protocols for the physical inspection of properties and the financial
assessment of the PHA, and will gather relevant data from the PHA and
the PHA's public housing residents to assess management operations and
resident services and satisfaction, respectively. On the basis of this
data, REAC will assess and score the results, advise PHAs of their
scores and identify low scoring and failing PHAs so that these PHAs
will receive the appropriate attention and assistance.
(e) Limitation of change of PHA's fiscal year. To allow for a
period of consistent assessment of the PHAS indicators, a PHA is not
permitted to change its fiscal year for the first three full fiscal
years following October 1, 1998, unless such change is approved by HUD.
Sec. 902.3 Scope.
The PHAS is a strategic measure of a PHA's essential housing
operations. The PHAS, however, does not evaluate a PHA's compliance
with or response to every Department-wide or program specific
requirement or objective. Although not specifically referenced in this
part, PHAs remain responsible for complying with such requirements as
fair housing and equal opportunity requirements, requirements under
section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) and
requirements of programs under which the PHA is receiving assistance. A
PHA's adherence to these requirements will be monitored in accordance
with the applicable program regulations and the PHA's Annual
Contributions Contract (ACC).
Sec. 902.5 Applicability.
(a) PHAs, RMCs, AMEs. (1) Scoring of RMCs and AMEs. This part
applies to PHAs, Resident Management Corporations (RMCs) and Alternate
Management Entities (AMEs), as described in this section. As described
in this section, this part is also applicable to RMCs that receive
direct funding from HUD in accordance with section 20 of the 1937 Act
(DF-RMCs).
(i) RMCs and DF-RMCs will be assessed and issued their own numeric
scores under the PHAS based on the public housing developments or
portions of public housing developments that they manage and the
responsibilities they assume which can be scored under PHAS. References
in this part to PHAs include RMCs and this part is applicable to RMCs
unless stated otherwise. References in this part to RMCs include DF-
RMCs and this part is applicable to DF-RMCs unless otherwise stated.
(ii) AMEs are not issued PHAS scores. The performance of the AME
contributes to the PHAS score of the PHA or PHAs for which they assumed
management responsibilities.
(2) PHA ultimate responsible entity under ACC, except where DF-RMC
assumes management operations. (i) Because the PHA and not the RMC/AME
is ultimately responsible to HUD under the ACC, the PHAS score of a PHA
will be based on all of the developments covered by the ACC, including
those with management operations assumed by an RMC or AME (including a
court ordered receivership agreement, if applicable).
(ii) A PHA's PHAS score will not be based on developments managed
by a DF-RMC.
(b) Implementation of PHAS. The regulations in this part are
applicable to PHAs with fiscal years ending on and after September 30,
1999.
(1) PHAs with fiscal years ending September 30, 1999 or December
31, 1999. For PHAs with fiscal years ending September 30, 1999, or
December 31, 1999, HUD will not issue PHAS scores for the fiscal years
ending on these dates. For these PHAs, in lieu of a PHAS score, HUD
will issue the following:
(i) PHAS Advisory Score. A PHA with a fiscal year ending September
30, 1999, or December 31, 1999, will be issued a PHAS advisory score
for PHAS Indicators #1 (Physical), #2 (Financial), and #4 (Resident
Service and Satisfaction). The PHA must comply with the requirements of
this part so that HUD may issue the advisory score. Physical
inspections will be conducted using HUD uniform physical inspection
protocol
(ii) Management Assessment Score. A PHA with a fiscal year ending
September 30, 1999, or December 31, 1999, will receive an assessment
score on the basis of HUD's assessment of the PHA's management
operations in accordance with subpart D of this part.
(2) PHAs with fiscal years ending after December 31, 1999. PHAs
with fiscal years ending after December 31, 1999, will be issued PHAS
scores.
(c) Chart on PHAS Advisory Score and PHAS Score Schedule. The
following chart illustrates when advisory scores will be issued and
when PHAS scores will be issued and for which PHAS indicators.
[[Page 1740]]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Financial condition Management
Quarter ---------------------------------------------------------------------------------- Physical Resident
Public housing Entity-wide Six indicators Five indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
9/30/99......................... Advisory........... Advisory........... Score............. N/A............... Advisory.......... Advisory.
12/31/99........................ Advisory........... Advisory........... Score............. N/A............... Advisory.......... Advisory.
3/31/00......................... Score.............. Advisory........... N/A............... Score............. Score............. Score.
6/30/00......................... Score.............. Advisory........... N/A............... Score............. Score............. Score.
9/30/00 and beyond.............. N/A................ Score.............. N/A............... Score............. Score............. Score.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec. 902.7 Definitions.
As used in this part:
Act means the U.S. Housing Act of 1937 (42 U.S.C. 1437 et seq.)
Adjustment for physical condition (development age) and
neighborhood environment is a total of three additional points added to
PHAS Indicator #1 (Physical Condition). The three additional points,
however, shall not result in a total point value exceeding the total
points available for PHAS Indicator #1 (established in subpart B of
this part).
Alternative management entity (AME) is a receiver, private
contractor, private manager, or any other entity that is under contract
with a PHA, under a Regulatory and Operating Agreement with a PHA, or
that is otherwise duly appointed or contracted (for example, by court
order or agency action), to manage all or part of a PHA's operations.
Assessed fiscal year is the PHA fiscal year that has been assessed
under the PHAS.
Average number of days nonemergency work orders were active is
calculated:
(1) By dividing the total of--
(i) The number of days in the assessed fiscal year it takes to
close active nonemergency work orders carried over from the previous
fiscal year;
(ii) The number of days it takes to complete nonemergency work
orders issued and closed during the assessed fiscal year; and
(iii) The number of days all active nonemergency work orders are
open in the assessed fiscal year, but not completed;
(2) By the total number of nonemergency work orders used in the
calculation of paragraphs (1)(i), (ii) and (iii) of this definition.
Days in this part, unless otherwise specified, refer to calendar
days.
Deficiency means any PHAS score below 60 percent of the available
points in any indicator, sub-indicator or component. (In the context of
physical condition and physical inspection, deficiency refers to a
physical condition and is defined for purposes of subpart B of this
part in Sec. 902.24)
Improvement plan is a document developed by a PHA, specifying the
actions to be taken, including timetables, that shall be required to
correct deficiencies identified under any of the sub-indicators and
components within the indicator(s), identified as a result of the PHAS
assessment when a Memorandum of Agreement (MOA) is not required.
Occupancy loss is the sum of the number one (1) minus the unit
months leased divided by unit months available (or Occupancy loss =
1-(unit months leased/unit months available).
Property is a project/development with a separate identifying
project number.
Reduced actual vacancy rate within the previous three years is a
comparison of the vacancy rate in the PHAS assessed fiscal year (the
immediate past fiscal year) to the vacancy rate of that fiscal year two
years prior to the assessed fiscal year. It is calculated by
subtracting the vacancy rate in the assessed fiscal year from the
vacancy rate in the earlier year. If a PHA elects to certify to the
reduction of the vacancy rate within the previous three years, the PHA
shall retain justifying documentation to support its certification for
HUD post review. Reduced actual vacancy rate within the previous three
years only applies to PHAs with fiscal years ending September 30, 1999,
and December 31, 1999.
Reduced average time nonemergency work orders were active during
the previous three years is a comparison of the average time
nonemergency work orders were active in the PHAS assessment year (the
immediate past fiscal year) to the average time nonemergency work
orders were active in that fiscal year two years prior to the
assessment year. It is calculated by subtracting the average time
nonemergency work orders were active in the PHAS assessment year from
the average time nonemergency work orders were active in the earlier
year. If a PHA elects to certify to the reduction of the average time
nonemergency work orders were active during the previous three years,
the PHA shall retain justifying documentation to support its
certification for HUD post review.
Tenant Receivable Outstanding is defined in Sec. 902.35(b)(3).
Unit months available is the total number of units managed by a PHA
multiplied by 12 (adjusted by new units entering a PHA's public housing
stock during the fiscal year) exclusive of unit months vacant due to:
demolition; conversion; ongoing modernization; and units approved for
non-dwelling purposes.
Unit months leased is the actual number of months each unit was
rented during the fiscal year based on the PHA's tenant rent rolls or
Housing Assistance Payments records.
Work order deferred to the Capital Fund Program is any work order
that is combined with similar work items and completed within the
current PHAS assessment year, or will be completed in the following
year when there are less than three months remaining before the end of
the PHA fiscal year from the time the work order was generated, under
the PHA's Capital Fund Program or other PHA capital improvements
program.
Subpart B--PHAS Indicator #1: Physical Condition
Sec. 902.20 Physical condition assessment.
(a) Objective. The objective of the Physical Condition Indicator is
to determine whether a PHA is meeting the standard of decent, safe,
sanitary, and in good repair (DSS/GR), as this standard is defined in
Sec. 902.23 (a standard that provides acceptable basic housing
conditions) and the level to which the PHA is maintaining its public
housing in accordance with this standard.
(b) Physical inspection under PHAS Indicator #1. (1) To achieve the
objective of paragraph (a) of this section, REAC will provide for an
independent physical inspection of a PHA's property or properties that
includes, at minimum, a statistically valid sample of the units in the
PHA's public housing portfolio to determine the extent of compliance
with the DSS/GR standard.
(2) Only occupied units will be inspected as dwelling units (except
units approved by HUD for non-dwelling purposes, e.g., daycare or
meetings, which are inspected as common areas). Vacant units that are
not under lease at the time of the
[[Page 1741]]
physical inspection will not be inspected, but vacant units are
assessed under the Financial Condition Indicator #2 (Sec. 902.35(b)(4))
and the Management Operations Indicator #3 (Sec. 902.43(a)(1)). The
categories of vacant units not under lease that are exempted from
physical inspection are as follows:
(i) Units undergoing vacant unit turnaround--vacant units that are
in the routine process of turn over; i.e., the period between which one
resident has vacated a unit and a new lease takes effect;
(ii) Units undergoing rehabilitation--vacant units that have
substantial rehabilitation needs already identified, and there is an
approved implementation plan to address the identified rehabilitation
needs and the plan is fully funded;
(iii) Off-line units--vacant units that have repair requirements
such that the units cannot be occupied in a normal period of time
(considered to be between 5 and 7 days) and which are not included
under an approved rehabilitation plan;
(c) PHA physical inspection requirement. The HUD-conducted physical
inspections required by this part do not relieve the PHA of the
responsibility to inspect public housing units as provided in section
6(j)(1) of the Act (42 U.S.C. 1437d(j)(1)), and Sec. 902.43(a)(5).
(d) Compliance with State and local codes. The physical condition
standards in this subpart do not supersede or preempt State and local
building and maintenance codes with which the PHA's public housing must
comply. PHAs must continue to adhere to these codes.
Sec. 902.23 Physical condition standards for public housing--decent,
safe, and sanitary housing in good repair (DSS/GR).
(a) General. Public housing must be maintained in a manner that
meets the physical condition standards set forth in this part in order
to be considered decent, safe, sanitary and in good repair (standards
that constitute acceptable basic housing conditions). These standards
address the major physical areas of public housing: site; building
exterior; building systems; dwelling units; and common areas (see
paragraph (b) of this section). These standards also identify health
and safety considerations (see paragraph (c) of this section). These
standards address acceptable basic housing conditions, not the
adornment, decor or other cosmetic appearance of the housing.
(b) Major inspectable areas. The five major inspectable areas of
public housing are the following:
(1) Site. The site includes components, such as fencing and
retaining walls, grounds, lighting, mailboxes, signs (such as those
identifying the development or areas of the development), parking lots/
driveways, play areas and equipment, refuse disposal, roads, storm
drainage and walkways. The site must be free of health and safety
hazards and be in good repair. The site must not be subject to material
adverse conditions, such as abandoned vehicles, dangerous walks or
steps, poor drainage, septic tank back-ups, sewer hazards, excess
accumulations of trash, vermin or rodent infestation or fire hazards.
(2) Building exterior. Each building on the site must be
structurally sound, secure, habitable, and in good repair. The
building's exterior components such as doors, fire escapes,
foundations, lighting, roofs, walls, and windows, where applicable,
must be free of health and safety hazards, operable, and in good
repair.
(3) Building systems. The building's systems include components
such as domestic water, electrical system, elevators, emergency power,
fire protection, HVAC, and sanitary system. Each building's systems
must be free of health and safety hazards, functionally adequate,
operable, and in good repair.
(4) Dwelling units. (i) Each dwelling unit within a building must
be structurally sound, habitable, and in good repair. All areas and
aspects of the dwelling unit (for example, the unit's bathroom, call-
for-aid, ceiling, doors, electrical systems, floors, hot water heater,
HVAC (where individual units are provided), kitchen, lighting, outlets/
switches, patio/porch/balcony, smoke detectors, stairs, walls, and
windows) must be free of health and safety hazards, functionally
adequate, operable, and in good repair.
(ii) Where applicable, the dwelling unit must have hot and cold
running water, including an adequate source of potable water.
(iii) If the dwelling unit includes its own sanitary facility, it
must be in proper operating condition, usable in privacy, and adequate
for personal hygiene and the disposal of human waste.
(iv) The dwelling unit must include at least one battery-operated
or hard-wired smoke detector, in proper working condition, on each
level of the unit.
(5) Common areas. The common areas must be structurally sound,
secure, and functionally adequate for the purposes intended. The common
areas include components such as basement/garage/carport, restrooms,
closets, utility, mechanical, community rooms, day care, halls/
corridors, stairs, kitchens, laundry rooms, office, porch, patio,
balcony, and trash collection areas, if applicable. The common areas
must be free of health and safety hazards, operable, and in good
repair. All common area ceilings, doors, floors, HVAC, lighting,
outlets/switches, smoke detectors, stairs, walls, and windows, to the
extent applicable, must be free of health and safety hazards, operable,
and in good repair.
(c) Health and safety concerns. All areas and components of the
housing must be free of health and safety hazards. These areas include,
but are not limited to, air quality, electrical hazards, elevators,
emergency/fire exits, flammable materials, garbage and debris, handrail
hazards, infestation, and lead-based paint. For example, the buildings
must have fire exits that are not blocked and have hand rails that are
undamaged and have no other observable deficiencies. The housing must
have no evidence of infestation by rats, mice, or other vermin, or of
garbage and debris. The housing must have no evidence of electrical
hazards, natural hazards, or fire hazards. The dwelling units and
common areas must have proper ventilation and be free of mold, odor
(e.g., propane, natural gas, methane gas), or other observable
deficiencies. The housing must comply with all regulations and
requirements related to the ownership of pets, and the evaluation and
reduction of lead-based paint hazards and have available proper
certifications of such (see 24 CFR part 35).
Sec. 902.24 Physical inspection of PHA properties.
(a) The inspection, generally. The score for PHAS Indicator #1 is
based upon an independent physical inspection of a PHA's properties
provided by REAC and using HUD's uniform physical inspection protocols.
(1) During the physical inspection of a property, an inspector
looks for deficiencies for each inspectable item within the inspectable
areas, such as holes (deficiencies) in the walls (item) of a dwelling
unit (area). The dwelling units inspected in a property are a randomly
selected, statistically valid sample of the units in the property,
excluding vacant units not under lease at the time of the physical
inspection, as provided in Sec. 902.20(b)(2).
(2) To ensure prompt correction of health and safety deficiencies
before leaving the site, the inspector gives the property
representative the list of every observed exigent/fire safety health
and safety deficiency that calls for immediate attention or remedy. The
[[Page 1742]]
property representative acknowledges receipt of the deficiency report
by signature.
(3) After the inspection is completed, the inspector transmits the
results to REAC where the results are verified for accuracy and then
scored in accordance with the procedures in this subpart.
(b) Definitions. The following definitions apply to the physical
condition scoring process in this subpart:
Criticality means one of five levels that reflect the relative
importance of the deficiencies for an inspectable item.
(1) Based on the importance of the deficiency, reflected in its
criticality value, points are deducted from the score for an
inspectable area.
------------------------------------------------------------------------
Criticality Level
------------------------------------------------------------------------
Critical...................................................... 5
Very important................................................ 4
Important..................................................... 3
Contributes................................................... 2
Slight contribution........................................... 1
------------------------------------------------------------------------
(2) The Item Weights and Criticality Levels document lists all
deficiencies with their designated levels, which vary from 1 to 5, with
5 as the most critical, and the point values assigned to them.
Deficiencies means the specific problems, comparable to problems
noted under Housing Quality Standards (HQS), such as a hole in a wall
or a damaged refrigerator in the kitchen, that can be recorded for
inspectable items.
Dictionary of Deficiency Definitions refers to the Dictionary of
Deficiency Definitions document which is included as an appendix to the
PHAS Notice on the Physical Condition Scoring Process and contains
specific definitions of each severity level for deficiencies under this
subpart. HUD will publish for comment any significant proposed
amendments to this document. After comments have been considered HUD
will publish a notice adopting the final Dictionary of Deficiency
Definitions document or the amendments to the document. The Dictionary
of Deficiency Definitions that is currently in effect can be found at
the REAC Internet site at http://www.hud.gov/reac or obtained from
REAC's Technical Assistance Center at 888-245-4860 (this is a toll free
number).
Inspectable areas (or area) means any of the five major components
of the property that are inspected, which are: site; building
exteriors; building systems; dwelling units; and common areas.
Inspectable item means the individual parts, such as walls,
kitchens, bathrooms, and other things, to be inspected in an
inspectable area. The number of inspectable items varies for each area.
Weights are assigned to each item as shown in the Item Weights and
Criticality Levels document.
Item Weights and Criticality Levels Document refers to the Item
Weights and Criticality Levels document which is included as an
appendix to the PHAS Notice on the Physical Condition Scoring Process
and contains a listing of the inspectable items, item weights,
observable deficiencies, criticality levels and values, and severity
levels and values that apply to this subpart. HUD will publish for
comment any significant proposed amendments to this document. After
comments have been considered HUD will publish a notice adopting the
final Item Weights and Criticality Levels document or the amendments to
the document. The Item Weights and Criticality Levels document that is
currently in effect can be found at the REAC Internet site at http://
www.hud.gov/reac or obtained from REAC's Technical Assistance Center at
888-245-4860 (this is a toll free number).
Normalized weights mean weights adjusted to reflect the inspectable
items or areas that are present to be inspected.
Score means a number on a scale of 0 to 100 that reflects the
physical condition of a property, inspectable area, or sub-area. To
record a health or safety deficiency, a specific designation (such as a
letter--a, b, or c) is added to the property score that highlights that
a health or safety deficiency (or deficiencies) exists. If smoke
detectors are noted as inoperable or missing, another designation (such
as an asterisk (*)) is added to the property score. Although inoperable
or missing smoke detectors do not reduce the score, they are included
in the health and safety deficiencies list that the inspector gives the
PHA's property representative. The PHA is expected to promptly address
all health and safety deficiencies.
Severity means one of three levels, level 1 (minor), level 2
(major), and level 3 (severe), that reflect the extent of the damage or
problem associated with each deficiency. The Item Weights and
Criticality Levels document shows the severity levels for each
deficiency. Based on the severity of each deficiency, the score is
reduced. Points deducted are calculated as the product of the item
weight and the values for criticality and severity. For specific
definitions of each severity level, see REAC's ``Dictionary of
Deficiency Definitions''.
Sub-area means an inspectable area for one building. For example,
if a property has more than one building, each inspectable area for
each building in the property is treated as a sub-area.
(c) Compliance with civil rights/nondiscrimination requirements.
HUD will review certain elements during the physical inspection to
determine possible indications of noncompliance with the Fair Housing
Act (42 U.S.C. 3601-19) and section 504 of the Rehabilitation Act of
1973 (29 U.S.C. 794). A PHA will not be scored on those elements. Any
indication of possible noncompliance will be referred to HUD's Office
of Fair Housing and Equal Opportunity.
(d) HUD access to PHA properties. PHAs are required by the ACC to
provide the Government with full and free access to all facilities
contained in the development. PHAs are required to provide HUD or its
representative with access to the development, all units and
appurtenances thereto in order to permit physical inspections under
this part. Access to the units must be provided whether or not the
resident is home or has installed additional locks for which the PHA
did not obtain keys. In the event that the PHA fails to provide access
as required by HUD or its representative, the PHA will be given ``0''
points for the development or developments involved which will be
reflected in the physical condition and overall PHAS score.
Sec. 902.25 Physical condition scoring and thresholds.
(a) Scoring. Under PHAS Indicator #1, REAC will calculate a score
for the overall condition of a PHA's public housing portfolio following
the procedures described in the PHAS Notice on the Physical Condition
Scoring Process (PHAS PASS Notice 3), which will be published in the
Federal Register. HUD may revise this notice in the future, but HUD
will publish for comment any significant proposed amendments to this
notice. After comments have been considered, HUD will publish a notice
adopting a final notice or amendment. The PHAS Notice on the Physical
Condition Scoring Process that is currently in effect can be found at
the REAC Internet site at http://www.hud.gov/reac or obtained from
REAC's Technical Assistance Center at 888-245-4860 (this is a toll free
number).
(b) Adjustment for physical condition (property age) and
neighborhood environment. In accordance with section 6(j)(1)(I)(2) of
the Act (42 U.S.C. 1437d(j)(1)(I)(2)), the overall physical score for a
property will be adjusted upward to the extent that negative conditions
are caused by situations outside the control of the PHA. These
[[Page 1743]]
situations are related to the poor physical condition of the property
or the overall depressed condition of the immediately surrounding
neighborhood. The intent of this adjustment is to avoid penalizing the
PHA through appropriate application of the adjustment. (See paragraph
(c) of this section which provides for further adjustments of physical
condition score under certain circumstances.)
(1) Adjustments in three areas. Adjustments to the PHA physical
condition score will be made in three factually observed and assessed
areas (inspectable areas):
(i) Physical condition of the site;
(ii) Physical condition of the common areas on the property; and
(iii) Physical condition of the building exteriors.
(2) Definitions. Definitions and application of physical condition
and neighborhood environment factors are:
(i) Physical condition applies to properties over 10 years old and
that have not received substantial rehabilitation in the last 10 years.
(ii) Neighborhood environment applies to properties located where
the immediate surrounding neighborhood (that is a majority of the
population that resides in the census tracts or census block groups on
all sides of the development) has at least 51 percent of families with
incomes below the poverty rate as documented by the latest census data.
(3) Adjustment for physical condition (property age) and
neighborhood environment. HUD will adjust the physical score of a PHA's
property subject to both the physical condition (property age) and
neighborhood environment conditions. The adjustments will be made to
the scores assigned to the applicable inspectable areas so as to
reflect the difficulty in managing. In each instance where the actual
physical condition of the inspectable area (site, common areas,
building exterior) is rated below the maximum score for that area, 1
point will be added, but not to exceed the maximum number of points
available to that inspectable area.
(i) These extra points will be added to the score of the specific
inspectable area, by property, to which these conditions may apply. A
PHA is required to certify in the manner prescribed by HUD, the extent
to which the conditions apply, and to which inspectable area the extra
scoring point should be added.
(ii) A PHA that receives the maximum potential weighted points on
the inspectable areas may not claim any additional adjustments for
physical condition and/or neighborhood environments for the respective
inspectable area(s). In no circumstance shall a property's score for
the inspectable area, after any adjustment(s) for physical condition
and/or neighborhood environments, exceed the maximum potential weighted
points assigned to the respective property's inspectable area(s).
(4) Scattered site properties. The Date of Full Availability (DOFA)
shall apply to scattered site properties, where the age of units and
buildings vary, to determine whether the properties have received
substantial rehabilitation within the past 10 years and are eligible
for an adjusted score for the Physical Condition Indicator.
(5) Maintenance of supporting documentation. PHAs shall maintain
supporting documentation to show how they arrived at the determination
that the property's score is subject to adjustment under this section.
(i) If the basis was neighborhood environments, the PHA shall have
on file the appropriate maps showing the census block groups
surrounding the development(s) in question with supporting census data
showing the level of poverty. Properties that fall into this category
but which have already been removed from consideration for other
reasons (permitted exemptions and modifications and/or exclusions)
shall not be counted in this calculation.
(ii) For the Physical Condition Indicator, a PHA would have to
maintain documentation showing the age and condition of the properties
and the record of capital improvements, evidencing that these
particular properties have not received capital funds.
(iii) PHAs shall also document that in all cases, properties that
were exempted for other reasons were not included in the calculation.
(c) Database adjustment. (1) Adjustments for factors not reflected
or inappropriately reflected in physical condition score. Under certain
circumstances, HUD may determine it is appropriate to review the
results of a PHA's physical inspection which are unusual or incorrect
due to facts and circumstances affecting the PHA's property which are
not reflected in the inspection or which are reflected inappropriately
in the inspection.
(i) These circumstances are not those that may addressed by the
technical review process described in Sec. 902.68. The circumstances
addressed by this paragraph (c)(1) may include inconsistencies between
local code requirements and the HUD physical inspection protocol;
conditions which are permitted by local variance or license or which
are preexisting physical features that do not conform to, or are
inconsistent with, HUD's physical condition protocol; or the PHA has
been scored for elements (e.g., roads, sidewalks, mail boxes, resident-
owned appliances, etc.) that it does not own and is not responsible for
maintaining, and the PHA has notified the proper authorities regarding
the deficient structure.
(ii) An adjustment due to these circumstances may be initiated by a
PHA's notification to the applicable HUD HUB/Program Center and such
notification shall include appropriate proof of the reasons for the
unusual or incorrect result. A PHA may submit the request for this
adjustment either prior to or after the physical inspection has been
concluded. If the request is made after the conclusion of the physical
inspection, the request must be made within 15 days of issuance of the
physical condition score. Based on the recommendation of the applicable
HUD HUB/Program Center following its review of the PHA's evidence or
documentation, HUD may determine that a reinspection and/or re-scoring
of the PHA's property is necessary. HUD shall define, by notice, the
procedures to be followed to address circumstances described in
paragraph (c) of this section. The notice will be applicable to both
public housing and multifamily housing properties covered by 24 CFR
part 5, subpart G.
(2) Adjustments for adverse conditions beyond the PHA's control.
Under certain circumstances, HUD may determine that certain
deficiencies that adversely and significantly affect the physical
condition score of the PHA were caused by circumstances beyond the
control of the PHA. The correction of these conditions, however,
remains the responsibility of the PHA.
(i) The circumstances addressed by this paragraph (c)(2) may
include, but are not limited to, damage caused by third parties (such
as a private entity or public entity undertaking work near a public
housing development that results in damage to the development) or
natural disasters. (The circumstances addressed in paragraph (c)(2) of
this section are not those addressed by the technical review process in
Sec. 902.68.)
(ii) To adjust a physical condition score based on circumstances
addressed in paragraph (c)(2) of this section, the PHA must submit a
request to the applicable HUD HUB/Program Center requesting a
reinspection of the PHA's properties. The request must be submitted
within 15 days of the issuance of the physical condition score
[[Page 1744]]
to the PHA and must be accompanied by a certification that all
deficiencies identified in the original report have been corrected.
Based on the recommendation of the applicable HUD HUB/Program Center
following its review of the PHA's evidence or documentation, HUD may
determine that a reinspection and/or re-scoring of the PHA's property
is necessary.
(3) Adjustments for modernization work in progress. HUD may
determine that occupied dwelling units undergoing modernization work in
progress require an adjustment to the physical condition score.
(i) An occupied dwelling unit undergoing modernization is subject
to physical inspection, and all elements of the unit that are not
undergoing modernization at the time of the inspection (even if
modernization is planned) will be subject to HUD's physical inspection
protocol without adjustment. For those elements of the unit that are
undergoing modernization, deficiencies will be noted in accordance with
HUD's physical inspection protocol, but the PHA may request adjustment
of the physical condition score as a result of modernization work in
progress.
(ii) An adjustment due to modernization work in progress may be
initiated by a PHA's notification to the applicable HUD HUB/Program
Center and the notification shall include supporting documentation of
the modernization work underway at the time of the physical inspection.
A PHA may submit the request for this adjustment either prior to or
after the physical inspection has been concluded. If the request is
made after the conclusion of the physical inspection, the request must
be made within 15 days of issuance of the physical condition score.
Based on the recommendation of the applicable HUD HUB/Program Center,
HUD may determine that a reinspection and/or re-scoring of the PHA's
property is necessary.
(d) Overall PHA Physical Condition Indicator score. The overall
Physical Condition Indicator score for a PHA is the weighted average of
the PHA's individual property physical inspection scores, where the
weights are the number of units in each property divided by the total
number of units in all properties of the PHA.
(e) Thresholds. (1) The physical condition score is reduced to a 30
point basis for the PHAS Physical Condition Indicator.
(2) In order to receive a passing score under the Physical
Condition Indicator, the PHA must achieve a score of at least 18
points, or 60 percent of the available points under this indicator. If
the PHA fails to receive a passing score on the Physical Condition
Indicator, the PHA shall be categorized as a substandard physical
agency.
Sec. 902.26 Physical Inspection Report.
(a) Following the physical inspection and computation of the score
under this subpart, each PHA receives a Physical Inspection Report. The
Physical Inspection Report allows the PHA to see the magnitude of the
points lost by inspectable area, and the impact on the score of the
health and safety (H&S) deficiencies.
(1) If exigent health and safety items are identified in the
report, the PHA will have the opportunity to correct all exigent health
and safety deficiencies noted on the report and request a reinspection.
(2) The correction of exigent health and safety deficiencies and
the request for reinspection must be made within 15 days of the PHA's
receipt of the Physical Inspection Report. The request for reinspection
must be accompanied by the PHA's identification of the exigent health
and safety deficiencies that have been corrected, and the PHA's
certification that all such deficiencies identified in the report have
been corrected.
(3) If HUD determines that a reinspection is appropriate, REAC will
arrange for a complete reinspection of the development(s) in question,
not just the deficiencies previously identified. The reinspection will
constitute the final physical inspection for the development, and REAC
will issue a new inspection report (the final inspection report).
(4) If any of the previously identified exigent health and safety
deficiencies that the PHA certified were corrected are found during the
reinspection to be not corrected, the score in the final inspection
report will reflect a point deduction of triple the value of the
original deduction, up to the maximum possible points for the unit or
area, and the PHA must reimburse HUD for the cost of the reinspection.
(5) If a request for reinspection is not made within 15 days, the
physical inspection report issued to the PHA will be the final physical
inspection report.
(b) The Physical Inspection Report includes the following items:
(1) Normalized weights as the ``possible points'' by area;
(2) The area scores, taking into account the points deducted for
observed deficiencies;
(3) The H&S deductions for each of the five inspectable areas; a
listing of all observed smoke detector deficiencies; and a projection
of the total number of H&S problems that the inspector potentially
would see in an inspection of all buildings and all units; and
(4) The overall property score.
Sec. 902.27 Physical condition portion of total PHAS points.
Of the total 100 points available for a PHAS score, a PHA may
receive up to 30 points based on the Physical Condition Indicator.
Subpart C--PHAS Indicator #2: Financial Condition
Sec. 902.30 Financial condition assessment.
(a) Objective. The objective of the Financial Condition Indicator
is to measure the financial condition of a PHA for the purpose of
evaluating whether it has sufficient financial resources and is capable
of managing those financial resources effectively to support the
provision of housing that is decent, safe, sanitary and in good repair.
(b) Financial reporting standards. A PHA's financial condition will
be assessed under this indicator by measuring the PHA's entity-wide
performance in each of the components listed in Sec. 902.35, on the
basis of the annual financial report provided in accordance with
Sec. 902.33.
Sec. 902.33 Financial reporting requirements.
(a) Annual financial reports. PHAs must submit their unaudited and
audited financial data to HUD on an annual basis. The financial
information must be:
(1) Prepared in accordance with Generally Accepted Accounting
Principles (GAAP) as further defined by HUD in supplementary guidance;
and
(2) Submitted electronically in the format prescribed by HUD using
the Financial Data Schedule (FDS).
(b) Annual financial report filing dates. The unaudited financial
information to be submitted to HUD in accordance with paragraph (a) of
this section, must be submitted to HUD annually, no later than two
months after the end of the PHA's fiscal year end, with no penalty
applying until the 16th day of the third month after the PHA's fiscal
year end in accordance with Uniform Financial Reporting Standards (see
24 CFR part 5, subpart H). An automatic one month extension will be
granted for PHAs with fiscal years ending September 30, 1999 through
June 30, 2000.
(c) Reporting compliance dates. The requirement for compliance with
the financial reporting requirements of this section begins with PHAs
with fiscal years ending on and after September 30,
[[Page 1745]]
1999. Unaudited financial statements will be required two months after
the PHA's fiscal year end, and audited financial statements will be
required no later than 9 months after the PHA's fiscal year end, in
accordance with the Single Audit Act and OMB Circular A-133 (see 24 CFR
84.26).
Sec. 902.35 Financial condition scoring and thresholds.
(a) Scoring. Under PHAS Indicator #2, REAC will calculate a score
based on the values of financial condition components, as well as audit
and internal control flags. Each financial condition component has
several levels of performance, with different point values for each
level. A PHA's score for a financial condition component depends upon
both the level of the PHA's performance under a component, and the
PHA's size, based on the number of public housing and section 8 units
and other units the PHA operates.
(1) Under PHAS Indicator #2, REAC will calculate a score following
the procedures described in the PHAS Notice on the Financial Condition
Scoring Process (PHAS FASS Notice 3), which will be published in the
Federal Register. HUD may revise this notice in the future, but HUD
will publish for comment any significant proposed amendments to this
notice. After comments have been considered, HUD will publish a notice
adopting a final notice or amendment. The PHAS Notice on the Financial
Condition Scoring Process that is currently in effect can be found at
the REAC Internet site at
http://www.hud.gov/reac or obtained from REAC's Technical Assistance
Center at 888-245-4860 (this is a toll free number).
(2) PHAs with fiscal years ending on or before June 30, 2000, will
receive an advisory score based on the PHA's entity-wide operations.
PHAs with fiscal years ending March 31, 2000, and June 30, 2000, will
also receive a score under this subpart C. These PHAs will receive a
PHAS financial condition score on the basis of their public housing
operating subsidies program. PHAs with fiscal years ending after June
30, 2000, will receive PHAS financial condition scores on the basis of
their entity-wide operations.
(3) High liquidity or reserves. (i) Under the scoring process for
the Financial Condition Indicator, no points will be deducted under the
Current Ratio or Monthly Expenditure Fund Balance components for a PHA
that has too high liquidity or reserves if the PHA has achieved at
least 90 percent of the points available under the Physical Condition
Indicator, and is not required to prepare a follow-up survey plan under
the Resident Service and Satisfaction Indicator.
(ii) A PHA that has too high liquidity or reserves but does not
meet the qualifications described in paragraph (a)(3)(i) of this
section may appeal point deductions under the Current Ratio or Monthly
Expenditure Fund Balance components based on mitigating circumstances
if the PHA's physical condition score is at least 60 percent of the
total available points under the Physical Condition Indicator.
(A) The appeal may be made without regard to change in designation.
(B) To adjust a financial condition score based on mitigating
circumstances, the PHA must submit a request to the applicable HUD HUB/
Program Center within 15 days of the issuance of the financial
condition score to the PHA and must be accompanied by a description of
the mitigating circumstances. Based on the recommendation of the
applicable HUD HUB/Program Center following its review of the PHA's
evidence or documentation, HUD may determine that a point adjustment
for the financial condition score is acceptable.
(b) Components of PHAS Indicator #2. The components of PHAS
Indicator #2 are:
(1) Current Ratio is current assets divided by current liabilities.
(2) Number of Months Expendable Fund Balance is expendable fund
balance (Expendable Fund Balance) divided by monthly operating
expenses. The Expendable Fund Balance is the portion of the fund
balance representing expendable available financial resources, that is,
the unreserved and undesignated fund balance.
(3) Tenant Receivable Outstanding is the average number of days
tenant receivables are outstanding calculated by the gross amount of
tenant receivables divided by 365.
(4) Occupancy Loss is one minus unit months leased divided by unit
months available.
(5) Expense Management/Utility Consumption is the expense per unit
for key expenses, including utility consumption, and other expenses
such as maintenance and security.
(6) Net Income or Loss divided by the Expendable Fund Balance
measures how the year's operations have affected the PHA's viability.
(c) Thresholds. In order to receive a passing score under the
Financial Condition Indicator, the PHA must achieve a score of at least
18 points, or 60 percent of the available points under this indicator.
If the PHA fails to receive a passing score on the Financial Condition
Indicator, the PHA shall be categorized as a substandard financial
agency.
Sec. 902.37 Financial condition portion of total PHAS points.
Of the total 100 points available for a PHAS score, a PHA may
receive up to 30 points based on the Financial Condition Indicator.
Subpart D--PHAS Indicator #3: Management Operations
Sec. 902.40 Management operations assessment.
(a) Objective. The objective of the Management Operations Indicator
is to measure certain key management operations and responsibilities of
a PHA for the purpose of assessing the PHA's management operations
capabilities.
(b) Management assessment. PHAS Indicator #3 pertaining to
Management Operations incorporates the majority of the statutory
indicators of section 6(j) of the Act, as provided in Sec. 902.43. (The
remaining statutory indicators are addressed under the other PHAS
Indicators.)
Sec. 902.43 Management operations performance standards.
(a) Management operations sub-indicators. The following sub-
indicators listed in this section will be used to assess a PHA's
management operations. The components and grades for each sub-indicator
are the same as those provided in Appendix 1 to the PHAS Notice on the
Management Operations Scoring Process, except as may be otherwise noted
in this subpart.
(1) Management sub-indicator #1--Capital Fund. This management sub-
indicator examines the amount and percentage of funds provided to the
PHA from the Capital Fund under section 9(d) of the Act, which remain
unobligated by the PHA after three years, the timeliness of fund
obligation, the adequacy of contract administration, the quality of the
physical work, and the adequacy of budget controls. For funding under
the HOPE VI Program, only components #3, #4, and #5 of this sub-
indicator are applicable. This management sub-indicator is
automatically excluded if the PHA does not have section 9(d) capital
funding.
(2) Management sub-indicator #2--work orders. This management sub-
indicator examines the time it takes to complete or abate emergency
work orders, the average number of days nonemergency work orders were
active, and any progress a PHA has made during the preceding three
years to reduce the period of time nonemergency maintenance work orders
were active.
[[Page 1746]]
Implicit in this management sub-indicator is the adequacy of the PHA's
work order system in terms of how a PHA accounts for and controls its
work orders, and its timeliness in preparing/issuing work orders.
(3) Management sub-indicator #3--PHA annual inspection of units and
systems. This management sub-indicator examines the percentage of units
and systems that a PHA inspects on an annual basis in order to
determine short-term maintenance needs and long-term Capital Fund
needs. This management sub-indicator requires a PHA's inspection to
utilize the HUD uniform physical condition standards set forth in
subpart B of this part. All occupied units are required to be
inspected.
(4) Management sub-indicator #4--Security. (i) This management sub-
indicator evaluates the PHA's performance in tracking crime related
problems in their developments; reporting incidence of crime to local
law enforcement agencies; the adoption and implementation, consistent
with section 6(j)(1)(I) (42 U.S.C. 1437d(j)(1)(I)), of applicant
screening and resident eviction policies and procedures, and other
anticrime strategies; coordination with local government officials and
residents in the development on implementation of such strategies; and
as applicable, PHA performance under any HUD drug prevention/crime
reduction grants.
(ii) Paragraph (a) of this section provides that the components and
grades for each sub-indicator are the same as those for the
corresponding indicator provided in Appendix 1 to the PHAS Notice on
the Management Operations Scoring Process, except as may be otherwise
noted. For Component #1, Tracking and Reporting Crime Related Problems,
the following will be used to describe a Grade of A: The PHA Board, by
resolution, has adopted policies and the PHA has implemented procedures
and can document that it:
(A) Tracks crime and crime-related problems in at least 90 percent
of its developments;
(B) Has a cooperative system for tracking and reporting incidents
of crime to local police authorities to improve law enforcement and
crime prevention; and
(C) Coordinates with local government officials and its residents
on the implementation of anticrime strategies.
(5) Management sub-indicator #5--Economic Self-Sufficiency. The
economic self-sufficiency sub-indicator measures the PHA's efforts to
coordinate, promote or provide effective programs and activities to
promote the economic self-sufficiency of residents. For this sub-
indicator, PHAs will be assessed for all the programs that the PHA has
HUD funding to implement. Also, PHAs will receive credit for
implementation of programs through partnerships with non-PHA providers,
even if the programs are not funded by HUD or the PHA.
(b) Reporting on performance under the Management Operations
Indicator. (1) A PHA is required to submit electronically a
certification of its performance under each of the management
operations sub-indicators in accordance with Sec. 902.69(d).
(2) If circumstances preclude a PHA from reporting electronically,
HUD will consider granting short-term approval to allow a PHA to submit
its management operations certification manually. A PHA that seeks
approval to submit its certification manually must ensure that REAC
receives a request for manual submission in writing two months prior to
the submission due date of its Management Operations certification. The
written request must include the reasons why the PHA cannot submit its
certification electronically. REAC will respond to such a request and
will manually forward its determination in writing to the PHA.
Sec. 902.45 Management operations scoring and thresholds.
(a) Scoring. The Management Operations Indicator score provides an
assessment of each PHA's management effectiveness. Under PHAS Indicator
#3, REAC will calculate a score of the overall management operations of
a PHA that reflects weights based on the relative importance of the
individual management sub-indicators. Under PHAS Indicator #3, REAC
will calculate a score following the procedures described in the PHAS
Notice on the Management Operations Scoring Process (PHAS MASS Notice
3), which will be published in the Federal Register. HUD may revise
this notice in the future, but HUD will publish for comment any
significant proposed amendments to this notice. After comments have
been considered, HUD will publish a notice adopting a final notice or
amendment. The PHAS Notice on the Management Operations Scoring Process
that is currently in effect can be found at the REAC Internet site at
http://www.hud.gov/reac or obtained from REAC's Technical Assistance
Center at 888-245-4860 (this is a toll free number).
(b) Thresholds. In order to receive a passing score under the
Management Operations Indicator, the PHA must achieve a score of at
least 18 points or 60 percent of the available points under this PHAS
Indicator #3. If the PHA fails to receive a passing score on the
Management Operations Indicator, the PHA shall be categorized as a
substandard management agency.
Sec. 902.47 Management operations portion of total PHAS points.
Of the total 100 points available for a PHAS score, a PHA may
receive up to 30 points based on the Management Operations Indicator.
Subpart E--PHAS Indicator #4: Resident Service and Satisfaction
Sec. 902.50 Resident service and satisfaction assessment.
(a) Objective. The objective of the Resident Service and
Satisfaction Indicator is to measure the level of resident satisfaction
with living conditions at the PHA.
(b) Method of assessment, generally. The assessment required under
PHAS Indicator #4 will be performed through the use of a resident
service and satisfaction survey. The survey process will be managed by
the PHA in accordance with a methodology prescribed by HUD. The PHA
will be responsible for completing implementation plan activities and
developing a follow-up plan, if applicable, to address issues resulting
from the survey, subject to independent audit.
(c) PHA certification of completion of resident survey process. (1)
At the completion of the resident survey process as described in this
subpart, a PHA will be audited as part of the Independent Audit to
ensure that the resident survey process has been managed as directed by
HUD. PHAs are required to submit and certify their implementation plans
electronically via the internet prior to the fiscal year end in
accordance with Sec. 902.60(d). Follow-up plans, if applicable, must be
made available for review and inspection at the principal office of the
PHA during normal business hours as a supporting document to the PHA's
Annual Plan in accordance with Sec. 903.23(d) of this title. The PHA
must certify electronically that it will develop a follow-up plan, if
applicable.
(2) If circumstances preclude the PHA from reporting
electronically, HUD will consider granting short-term approval to allow
a PHA to submit its resident service and satisfaction certification
manually. A PHA that seeks approval to submit the certification
manually must ensure that REAC receives the PHA's written request for
manual submission
[[Page 1747]]
two months before the submission due date of its resident service and
satisfaction certification. The written request must include the
reasons why the PHA cannot submit the certification electronically.
REAC will respond to the PHA's request and will manually forward its
determination in writing to the PHA.
Sec. 902.51 Updating of public housing unit address information.
(a) Electronic updating. The survey process for the Resident
Service and Satisfaction Indicator is dependent upon electronic
updating, submission and certification of resident address and unit
information by PHAs.
(b) Unit address update and verification. The survey process for
PHAS Indicator #4 begins with ensuring accurate information about the
public housing unit addresses.
(1) PHAs will be required to electronically update unit address
information initially obtained by REAC from the recently revised form
HUD-50058, Family Report. REAC will supply a list of current units
(listed by development) to PHAs via the internet. PHAs will be asked to
make additions, deletions and corrections to their unit address list.
(2) After updating the list, PHAs must verify that the list of unit
addresses under their jurisdiction is complete. Any incorrect or
obsolete address information will have a detrimental impact on the
survey results. A statistically valid number of residents cannot be
selected to participate in the survey if the unit addresses are
incorrect or obsolete. If a PHA does not verify the address information
within two months of submission of the list of current units to the PHA
by REAC, and the address information is not valid, REAC will not be
able to conduct the survey at that PHA. Under those conditions, the PHA
will not receive any points for the PHAS Resident Service and
Satisfaction Indicator.
(c) Electronic updating of the address list. (1) The preferred
method for updating a unit address list is electronic updating via the
internet.
(2) If circumstances preclude a PHA from updating and submitting
its unit address list electronically, HUD will consider granting short-
term approval to allow a PHA to submit the updated unit address list
information manually. A PHA that seeks approval to update its unit
address list manually must ensure that REAC receives the PHA's written
request for manual submission one month before the submission due date.
The written request must include the reasons why the PHA cannot update
the list electronically. REAC will respond to the PHA's request upon
receipt of the request.
Sec. 902.52 Distribution of survey to residents.
(a) Sampling. A statistically valid number of units will be chosen
to receive the Resident Service and Satisfaction Survey. These units
will be randomly selected based on the total number of occupied and
vacant units of the PHA. The Resident Service and Satisfaction
assessment takes into account the different properties managed by a PHA
by organizing the unit sampling based on the unit representation of
each development in relation to the size of the entire PHA.
(b) Survey distribution by third party organization. The Resident
Service and Satisfaction survey will be distributed to the randomly
selected sample of units of each PHA by a third party organization
designated by HUD. The third party organization will also be
responsible for:
(1) Collecting, scanning and aggregating results of the survey;
(2) Transmitting the survey results to HUD for analysis and
scoring; and
(3) Keeping individual responses to the survey confidential.
Sec. 902.53 Resident service and satisfaction scoring and thresholds.
(a) Scoring. (1) Under the PHAS Indicator #4, REAC will calculate a
score based upon two components that receive points and a third
component that is a threshold requirement.
(i) One component will be the point score of the survey results.
The survey content will focus on resident evaluation of the overall
living conditions, to include basic constructs such as:
(A) Maintenance and repair (i.e., work order response);
(B) Communications (i.e., perceived effectiveness);
(C) Safety (i.e., perception of personal security);
(D) Services; and
(E) Neighborhood appearance.
(ii) The second component will be a point score based on the level
of implementation and follow-up or corrective actions based on the
results of the survey.
(iii) The final component, which is not scored for points, but
which is a threshold requirement, is verification that the survey
process was managed in a manner consistent with guidance provided by
HUD.
(2) Under PHAS Indicator #4, REAC will calculate a score following
the procedures described in the PHAS Notice on the Resident Service and
Satisfaction Survey Scoring Process (PHAS RASS Notice 3), which will be
published in the Federal Register. HUD may revise this notice in the
future, but HUD will publish for comment any significant proposed
amendments to this notice. After comments have been considered, HUD
will publish a notice adopting a final notice or amendment. The PHAS
Notice on the Resident Service and Satisfaction Survey Process that is
currently in effect can be found at the REAC Internet site at
http://www.hud.gov/reac or obtained from REAC's Technical Assistance
Center at 888-245-4860 (this is a toll free number).
(b) Thresholds. A PHA will not receive any points under PHAS
Indicator #4 if the survey process is not managed as directed by HUD,
the survey results are determined to be altered, or the public housing
unit addresses are not updated as referenced in Sec. 902.51 of this
document. A PHA will receive a passing score on the Resident Service
and Satisfaction Indicator if the PHA receives at least 6 points, or 60
percent of the available points under this PHAS Indicator #4.
Sec. 902.55 Resident service and satisfaction portion of total PHAS
points.
Of the total 100 points available for a PHAS score, a PHA may
receive up to 10 points based on the Resident Service and Satisfaction
Indicator.
Subpart F--PHAS Scoring
Sec. 902.60 Data collection.
(a) Fiscal Year reporting period--limitation on changes after PHAS
effectiveness. An assessed fiscal year for purposes of the PHAS
corresponds to a PHA's fiscal year. To allow for a period of consistent
assessments to refine and make necessary adjustments to the PHAS, a PHA
is not permitted to change its fiscal year for the first three full
fiscal years following October 1, 1998, unless such change is approved
by HUD (see Sec. 902.1(e)).
(b) Physical condition information. Information necessary to
conduct the physical condition assessment under subpart B of this part
will be obtained from HUD inspectors during the fiscal year being
scored through electronic transmission of the data.
(c) Financial condition information. Year-end financial information
to conduct the assessment under subpart C, Financial Condition, of this
part will be submitted by a PHA through electronic transmission of the
data to HUD not later than two months after the end of the PHA's fiscal
year. An audited report of the year-end financial
[[Page 1748]]
information is due not later than 9 months after the end of the PHA's
fiscal year.
(d) Management operations and resident service and satisfaction
information. A PHA shall provide certification to HUD as to data
required under subpart D, Management Operations, of this part and
subpart E, Resident Service and Satisfaction, of this part not later
than two months after the end of the PHA's fiscal year, with no penalty
applying, however, until the 16th day of the third month after the
PHA's fiscal year end. An automatic one month extension will be granted
for PHAs with fiscal years ending September 30, 1999 through June 30,
2000.
(1) The Management Operations certification shall be approved by
PHA Board resolution, and signed and attested to by the Executive
Director.
(2) PHAs shall maintain documentation for three years verifying all
certified indicators for HUD on-site review.
(e) Failure to submit data by due date. (1) If a PHA without a
finding of good cause by HUD does not submit its certifications or
year-end financial information, required by this part, or submits its
certifications or year-end financial information more than 15 days past
the due date, appropriate sanctions may be imposed, including a
reduction of 1 point in the total PHAS score for each 15-day period
past the due date.
(2) If all certifications or year-end financial information are not
received within three months past the due date, the PHA will receive a
presumptive rating of failure in all of the PHAS indicators, sub-
indicators and components required to be certified to, which shall
result in a troubled designation or identification as troubled with
respect to the program for assistance from the Capital Fund under
section 9(d) of the Act.
(f) Verification of information submitted. (1) A PHA's
certifications, year-end financial information and any supporting
documentation are subject to verification by HUD at any time, including
review by an independent auditor as authorized by section 6(j)(6) of
the Act (42 U.S.C. 1437(d)(j)(6)). Appropriate sanctions for
intentional false certification will be imposed, including civil
penalties, suspension or debarment of the signatories, the loss of high
performer designation, a lower score under individual PHAS indicators
and a lower overall PHAS score.
(2) A PHA that cannot provide justifying documentation to REAC, or
to the PHA's independent auditor for the assessment under any
indicator(s), sub-indicator(s) and/or component(s) shall receive a
score of 0 for the relevant indicator(s), sub-indicator(s) and/or
component(s), and its overall PHAS score shall be lowered.
(g) Management operations assumed by an RMC (including DF-RMC). For
those developments of a PHA where management operations have been
assumed by an RMC, the PHA's certification shall identify the
development and the management functions assumed by the RMC.
(1) For an RMC, that is not a DF-RMC, the PHA shall obtain a
certified questionnaire from the RMC as to the management functions
undertaken by the RMC. Following verification of the RMC's
certification, the PHA shall submit the RMC's certified questionnaire
along with its own. The RMC's certification shall be approved by its
Executive Director or Chief Executive Officer or responsible party.
(2) For a DF-RMC, the DF-RMC must submit directly to HUD its
certified statement concerning the management functions that it has
undertaken. The DF-RMC's certification shall be approved by its
Executive Director or Chief Executive Officer or responsible party.
Sec. 902.63 PHAS scoring.
(a) Computing the PHAS score. Each of the four PHAS indicators in
this part will be scored individually, and then will be used to
determine an overall score for the PHA. Components within each of the
four PHAS indicators will be scored individually, and the scores for
the components will be used to determine a single score for each of the
PHAS indicators.
(b) Adjustments to the PHAS score. (1) Adjustments to the score may
be made after a PHA's audit report for the year being assessed is
transmitted to HUD. If significant differences (as defined in GAAP
guidance materials provided to PHAs) are noted between unaudited and
audited results, a PHA's PHAS score will be adjusted (e.g., reduction
in points) in accordance with the audited results.
(2) A PHA's PHAS score under individual indicators, sub-indicators
or components, or its overall PHAS score, may be changed by HUD in
accordance with data included in the independent audit report, or
obtained through such sources as HUD on-site review, investigations by
HUD's Office of Fair Housing and Equal Opportunity, or reinspection by
REAC, as applicable.
(c) Issuance of score by HUD. An overall PHAS score will be issued
by REAC for each PHA after the later of one month after the submission
due date for financial data and certifications, or one month after
submission by the PHA of its financial data and certifications. The
overall PHAS score becomes the PHA's final PHAS score after any
adjustments requested by the PHA and determined necessary under the
processes provided in Secs. 902.25(c), 902.35(a)(3) and/or 902.68; any
adjustments requested by the PHA and determined necessary under the
appeal process provided in Sec. 902.69; and/or any adjustments
determined necessary as a result of the independent public accountant
(IPA) audit, as provided in paragraph (b) of this section.
(d) Review of audit. For a PHA whose audit has been found deficient
as a result of a quality control review of the IPA workpapers, a
quality control review that is conducted by REAC as part of REAC's on-
going quality assurance process, REAC may, at its discretion, select
the audit firm that will perform the audit of the PHA and may serve as
the audit committee for the audit in question. This review is important
to determine the accuracy of the scoring under the Financial Condition
Indicator.
(e) Posting and publication of PHAS scores. Each PHA (or RMC as the
case may be) shall post a notice of its final PHAS score and status in
appropriate conspicuous and accessible locations in its offices within
two weeks of receipt of its final score and status. In addition, HUD
will publish every PHA's score and status in the Federal Register and
on HUD's internet site.
Sec. 902.67 Score and designation status.
A PHA will receive a status designation corresponding to its final
PHAS score as follows:
(a) High performer. (1) A PHA that achieves a score of at least 60
percent of the points available under each of the four PHAS Indicators
(addressed in subparts B through E of this part) and achieves an
overall PHAS score of 90 percent or greater of the total available
points under PHAS shall be designated a high performer.
(2) A PHA shall not be designated a high performer if it scores
below the threshold established for any indicator.
(3) High performers will be afforded incentives that include relief
from reporting and other requirements, as described in Sec. 902.71.
(b) Standard performer. (1) A PHA that is not a high performer
shall be designated a standard performer if:
(i) The PHA achieves a total PHAS score of not less than 60 percent
of the total available points under PHAS; and
(ii) The PHA does not achieve less than 60 percent of the total
points available
[[Page 1749]]
under one of the following indicators, PHAS Indicators #1, #2, or #3
(2) All standard performers must correct reported deficiencies.
(3) A PHA that achieves a total PHAS score of less than 70 percent,
but not less that 60 percent, is required by the HUB/Program Center to
submit an Improvement Plan to correct identified deficiencies.
(4) A PHA that achieves a total PHAS score of less than 70 percent
but not less than 60 percent is at risk of being designated troubled.
(c) Troubled performer. A PHA that is designated as troubled may
be:
(1) Overall troubled. A PHA that achieves an overall PHAS score of
less than 60 percent or achieves less than 60 percent of the total
points available under more than one of the following indicators, PHAS
Indicators #1, #2, or #3, shall be designated as troubled (overall),
and referred to the TARC as described in Sec. 902.75.
(2) Troubled in one area. (i) A PHA that achieves less than 60
percent of the total points available under only one of the following
indicators, PHAS Indicators #1, #2, or #3, shall be considered a
substandard physical, substandard financial, or substandard management
performer, and referred to the TARC as described in Sec. 902.75.
(ii) In accordance with section 6(j)(2) of the Act, a PHA that
receives less than 60 percent of the maximum calculation for the
Capital Fund subindicator under PHAS Indicator #3 (Management
Operations, subpart D of this part; see Sec. 902.43(a)(2)) will be
subject to the sanctions, provided in section 6(j)(4), as appropriate.
(d) Withholding designation. (1) In exceptional circumstances, even
though a PHA has satisfied all of the PHAS Indicators for high
performer or standard performer designation, HUD may conduct any review
as it may determine necessary, and may deny or rescind incentives or
high performer designation or standard performer designation, in the
case of a PHA that:
(i) Is operating under a special agreement with HUD;
(ii) Is involved in litigation that bears directly upon the
physical, financial or management performance of a PHA;
(iii) Is operating under a court order;
(iv) Demonstrates substantial evidence of fraud or misconduct,
including evidence that the PHA's certifications, submitted in
accordance with this part, are not supported by the facts, as evidenced
by such sources as a HUD review, routine reports, an Office of
Inspector General investigation/audit, an independent auditor's audit
or an investigation by any appropriate legal authority; or
(v) Demonstrates substantial noncompliance in one or more areas of
a PHA's required compliance with applicable laws and regulations,
including areas not assessed under the PHAS. Areas of substantial
noncompliance include, but are not limited to, noncompliance with civil
rights, nondiscrimination and fair housing laws and regulations, or the
Annual Contributions Contract. Substantial noncompliance casts doubt on
the capacity of a PHA to preserve and protect its public housing
developments and operate them consistent with Federal laws and
regulations.
(2) If high performer designation is denied or rescinded, the PHA
shall be designated either a standard performer or troubled performer
depending on the nature and seriousness of the matter or matters
constituting the basis for HUD's action. If standard performer
designation is denied or rescinded, the PHA shall be designated
troubled.
(3) The denial or rescission of a designation of high performer or
standard performer does not affect the PHA's numerical PHAS score.
(4) A PHA that disagrees with the basis for denial or rescission of
the designation may make a written request for reinstatement of the
designation to the Assistant Secretary for Public and Indian Housing
which request shall include reasons for the reinstatement.
Sec. 902.68 Technical review of results of PHAS Indicators #1 or #4.
(a) Request for technical reviews. This section describes the
process for requesting and granting technical reviews of physical
inspection results and resident survey results.
(1) For both reviews, the burden of proof is on the PHA to show
that an error occurred.
(2) For both reviews, a request for technical review must be
submitted in writing to the Director of the Real Estate Assessment
Center and must be received by REAC no later than 15 days following the
issuance of the applicable results to the PHA (either the physical
inspection results or the resident survey results). The request must be
accompanied by the PHA's reasonable evidence that an error occurred.
(b) Technical review of physical inspection results. (1) For each
property inspected, REAC will provide the results of the physical
inspection and a score for that property to the PHA. If the PHA
believes that an objectively verifiable and material error (or errors)
occurred in the inspection of an individual property, the PHA may
request a technical review of the inspection results for that property.
(2) For a technical review of physical inspection results, the
PHA's request must be accompanied by the PHA's evidence that an
objectively verifiable and material error has occurred. The
documentation submitted by the PHA may be photographic evidence,
written material from an objective source, such as a local fire marshal
or building code official, or other similar evidence. The evidence must
be more than a disagreement with the inspector's observations, or the
inspector's finding regarding the severity of the deficiency.
(3) A technical review of a property's physical inspection will not
be conducted based on conditions that were corrected subsequent to the
inspection, nor will REAC consider a request for a technical review
that is based on a challenge to the inspector's findings as to the
severity of the deficiency (i.e., minor, major or severe).
(4) Upon receipt of a PHA's request for technical review of a
property's inspection results, REAC will review the PHA's file and any
objectively verifiable evidence produced by the PHA. If REAC's review
determines that an objectively verifiable and material error (or
errors) has been documented, then REAC may take one or a combination of
the following actions:
(i) Undertake a new inspection;
(ii) Correct the physical inspection report;
(iii) Issue a corrected physical condition score;
(iv) Issue a corrected PHAS score.
(5) In determining whether a new inspection of the property is
warranted and a new PHAS score must be issued, REAC will review the
PHA's file and evidence submitted to determine whether the evidence
supports that there may have been a significant contractor error in the
inspection which results in a significant change from the property's
original physical condition score and the PHAS designation assigned to
the PHA (i.e., high performer, standard performer, or troubled
performer). If REAC determines that a new inspection is warranted, and
the new inspection results in a significant change from the original
physical condition score, and the PHA's PHAS score and PHAS
designation, REAC shall issue a new PHAS score to the PHA.
(6) Material errors are the only grounds for technical review of
physical inspection results. Material errors are those that exhibit
specific characteristics and meet specific
[[Page 1750]]
thresholds. The three types of material errors are:
(i) Building data error. A building data error occurs if the
inspection includes the wrong building or a building that was not owned
by the PHA, including common or site areas that were not a part of the
property. Incorrect building data that does not affect the score, such
as the address, building name, year built, etc., would not be
considered material, but is of great interest to HUD and will be
corrected upon notice to REAC.
(ii) Unit count error. A unit count error occurs if the total
number of public housing units considered in scoring is incorrect.
Since scoring uses total public housing units, REAC will examine
instances where the participant can provide evidence that the total
units used is incorrect.
(iii) Non-existent deficiency error. A non-existent deficiency
error occurs if the inspection cites a deficiency that does not exist.
(7) A PHA's subsequent correction of deficiencies identified as a
result of a property's physical inspection cannot serve as the basis
for an appeal of the PHA's physical condition score.
(c) Technical review of resident survey results. REAC will consider
conducting a technical review of a PHA's resident survey results in
cases where the contracted third party organization can be shown by the
PHA to be in error.
(1) The burden of proof rests with the PHA to provide objectively
verifiable evidence that a technical error occurred. Examples include,
but are not limited to, incorrect material being mailed to residents;
or the PHA's units addresses were incorrect due to the third party
organization's error, such as unit numbers being omitted from the
addresses. A PHA that does not update its unit address list as
described, above, will not be eligible for a technical review based on
incorrect addresses.
(2) Upon receipt of a PHA's request for technical review of
resident survey results, REAC will review the PHA's file and evidence
submitted by the PHA. If REAC's review determines that an error has
been documented, REAC may take one or a combination of the following
actions:
(i) Undertake a new survey;
(ii) Correct the resident survey results report;
(iii) Issue a corrected resident services and satisfaction score;
(iv) Issue a corrected PHAS score.
Sec. 902.69 PHA right of petition and appeal.
(a) Appeal of troubled designation and petition for removal
troubled designation. A PHA may:
(1) Appeal its troubled designation (including designation as
troubled with respect to its performance under the Capital Fund
subindicator as provided in Sec. 902.67(c)(2)); and
(2) Petition for removal of troubled designation.
(b) Appeal of PHAS score. If a PHA believes that an objectively
verifiable and material error (or errors) exists in any of the scores
for its PHAS Indicators, which, if corrected, will result in a
significant change in the PHA's PHAS score and its designation (i.e.,
as troubled, standard, or high performer), the PHA may appeal its PHAS
score. A significant change in a PHAS score is a change that would
cause the PHA's PHAS score to increase, resulting in a higher PHAS
designation for the PHA (i.e., from troubled performer to standard
performer, or from standard performer to high performer).
(c) Appeal and petition procedures. (1) To appeal troubled
designation or a PHAS score, a PHA must submit a request in writing to
the Director of the Real Estate Assessment Center that must be received
by REAC no later than 30 days following the issuance of the final PHAS
score to the PHA. To petition removal of troubled designation, a PHA
must submit its request in writing to the Director of the Real Estate
Assessment Center. The written request must be received by REAC no
later than 30 days after HUD's decision to refuse to remove the PHA's
troubled designation.
(2) An appeal of troubled designation or petition for removal of
troubled designation must include the PHA's supporting documentation
and reasons for the appeal. An appeal of a PHAS score must be
accompanied by the PHA's reasonable evidence that an objectively
verifiable and material error occurred. An appeal submitted to REAC
without appropriate documentation will not be considered and will be
returned to the PHA.
(d) Consideration of appeal. (1) Consideration of appeal of PHAS
score. Upon receipt of an appeal of a PHAS score from a PHA, REAC will
review the PHA's file and the evidence submitted by the PHA to support
that an error occurred. If REAC determines that an objectively
verifiable and material error has been documented by the PHA, REAC may
undertake a new inspection of the property, and/or a reexamination of
the financial information, management information, or resident
information (the components of the PHAS score), depending upon which
PHAS Indicator the PHA believes was scored erroneously and the type of
evidence submitted by the PHA to support its position that an error
occurred.
(2) Consideration of appeal of troubled designation or refusal to
remove troubled designation. Upon receipt of an appeal of a troubled
designation from a PHA, REAC will convene a Board of Review (the Board)
to evaluate the appeal and its merits for the purpose of determining
whether a reassessment of the PHA is warranted. Board membership will
be comprised of a representative from REAC, from the Office of Public
and Indian Housing, and from such other office or representative as the
Secretary may designate (excluding, however, representation from the
Troubled Agency Recovery Center). For purposes of reassessment, REAC
will schedule a reinspection and/or acquire audit services, as
determined by the Board, and a new score will be issued, if
appropriate. Decisions by the Board will be reported to the PHA by the
Assistant Secretary for Public and Indian Housing.
(e) Final appeal decisions. HUD will make final decisions of
appeals within 30 days of receipt of an appeal, and may extend this
period for an additional 30 days if further inquiry is necessary.
Failure by a PHA to submit supporting documentation with its request
for appeal, or within any additional period granted by HUD is grounds
for denial of an appeal. Final appeal decisions will be reported to the
PHA by the Assistant Secretary for Public and Indian Housing.
Subpart G--PHAS Incentives and Remedies
Sec. 902.71 Incentives for high performers.
(a) Incentives for high performer PHAs. A PHA that is designated a
high performer will be eligible for the following incentives, and such
other incentives that HUD may determine appropriate and permissible
under program statutes or regulations:
(1) Relief from specific HUD requirements. (i) A PHA that is
designated high performer will be relieved of specific HUD requirements
(for example, fewer reviews and less monitoring), effective upon
notification of high performer designation.
(ii) The development or developments of a PHA that receives a
physical condition score of 90 percent or greater under PHAS Indicator
#1 shall be subject to a physical inspection every other year rather
than annually. (All developments of the high performer PHA are subject
to inspection every other year, not only those inspected for
[[Page 1751]]
which the physical condition score of 90 percent or greater was
achieved.)
(2) Public recognition. High performer PHAs and RMCs that receive a
score of at least 60 percent of the points available under each of the
four PHAS Indicators and achieve an overall PHAS score of 90, will
receive a Certificate of Commendation from HUD as well as special
public recognition, as provided by the HUB/Program Center.
(3) Bonus points in funding competitions. A high performer PHA will
be eligible for bonus points in HUD's funding competitions, where such
bonus points are not restricted by statute or regulation governing the
funding program. Where permissible by statute or regulation,
eligibility for high performers to receive bonus points in HUD's
funding competitions, will be stated in HUD's notices of funding
availability or other funding documents.
(b) Compliance with applicable Federal laws and regulations. Relief
from any standard procedural requirement that may be provided under
this section does not mean that a PHA is relieved from compliance with
the provisions of Federal law and regulations or other handbook
requirements. For example, although a high performer or standard
performer may be relieved of requirements for prior HUD approval for
certain types of contracts for services, the PHA must still comply with
all other Federal and State requirements that remain in effect, such as
those for competitive bidding or competitive negotiation (see 24 CFR
85.36).
(c) Audits and reviews not relieved by designation. A PHA
designated as a high performer or standard performer remains subject
to:
(1) Regular independent auditor (IA) audits.
(2) Office of Inspector General (OIG) audits or investigations will
continue to be conducted as circumstances may warrant.
Sec. 902.73 Referral to an Area HUB/Program Center.
(a) Standard performers will be referred to the HUB/Program Center
for appropriate action.
(1) A standard performer that receives a total score of less than
70 percent but not less than 60 percent shall be required to submit an
Improvement Plan to eliminate deficiencies in the PHA's performance.
(2) A standard performer that receives a score of not less than 70
percent may be required, at the discretion of the appropriate area HUB/
Program Center, to submit an Improvement Plan to address specific
deficiencies.
(b) Submission of an Improvement Plan. (1) Within 30 days after the
final PHAS score is issued, a standard performer with a score of less
than 70 percent is required to submit an Improvement Plan to the HUB/
Program Center in accordance with paragraphs (d) and (e) of this
section.
(2) An RMC, unless a DF-RMC, that is required to submit an
Improvement Plan must develop the plan in consultation with its PHA and
submit the plan to the HUB/Program Center through its PHA. A DF-RMC
that is required to submit an Improvement Plan, also must develop its
plan in consultation with its PHA, but must submit its plan directly to
the HUB/Program Center.
(3) On a risk management basis, the HUB/Program Center may require
a standard performer with a score of not less than 70 percent to submit
within 30 days after receipt of its final PHAS score an Improvement
Plan, which includes the information stated in paragraph (d) of this
section.
(c) Correction of deficiencies. (1) Time period for correction.
After a PHA's (or DF-RMC's) receipt of its PHAS score and designation
as a standard performer or, in the case of an RMC, notification of its
score from a PHA, a PHA or RMC shall correct any deficiency indicated
in its assessment within 90 days, or within such period as provided in
the HUD approved Improvement Plan if an Improvement Plan is required.
(2) Notification and report to HUB/Program Center. A PHA shall
notify the HUB/Program Center of its action to correct a deficiency. A
PHA shall also forward to the HUB/Program Center an RMC's report of its
action to correct a deficiency. A DF-RMC shall forward directly to the
HUB/Program Center its report of its action to correct a deficiency.
(d) Improvement Plan. An Improvement Plan shall:
(1) Identify baseline data, which should be raw data but may be the
PHA's score for each individual PHAS indicator, sub-indicator and/or
component that was identified as a deficiency;
(2) Identify any other performance and/or compliance deficiencies
that were identified as a result of an on-site review of the PHA's
operations;
(3) Describe the procedures that will be followed to correct each
deficiency;
(4) Provide a timetable for the correction of each deficiency; and
(5) Provide for or facilitate technical assistance to the PHA.
(e) Determination of acceptability of Improvement Plan (1) The HUB/
Program Center will approve or deny a PHA's Improvement Plan (or RMC's
Improvement Plan submitted to the HUB/Program Center through the RMC's
PHA, or the DF-RMC's Improvement Plan submitted directly to the HUB/
Program Center), and notify the PHA of its decision. A PHA that submits
an RMC's Improvement Plan must notify the RMC in writing, immediately
upon receipt of the HUB/Program Center notification, of the HUB/Program
Center approval or denial of the RMC's Improvement Plan.
(2) An Improvement Plan that is not approved will be returned to
the PHA with recommendations from the HUB/Program Center for revising
the Improvement Plan to obtain approval.
(f) Submission of revised Improvement Plan. A revised Improvement
Plan shall be resubmitted by the PHA within 30 calendar days of its
receipt of the HUB/Program Center recommendations.
(g) Failure to submit acceptable Improvement Plan or correct
deficiencies. (1) If a PHA fails to submit an acceptable Improvement
Plan, or to correct deficiencies within the time specified in an
Improvement Plan or such extensions as may be granted by HUD, the HUB/
Program Center will notify the PHA of its noncompliance.
(2) The PHA (or DF-RMC or the RMC through the PHA) will provide the
HUB/Program Center its reasons for lack of progress in submitting or
carrying out the Improvement Plan within 30 calendar days of its
receipt of the noncompliance notification. HUD will advise the PHA as
to the acceptability of its reasons for lack of progress.
(3) If HUD finds the PHA's reasons for lack of progress
unacceptable, HUD will notify the PHA that it will be referred to the
area Troubled Agency Recovery Center (TARC) for remedial actions or
such actions as the TARC may determine appropriate in accordance with
the provisions of the ACC, this part and other HUD regulations,
including the remedies available for substantial default.
(4) In the case of a PHA's failure to correct deficiencies within
the time specified in an Improvement Plan or such extensions as may be
granted by HUD, if the TARC determines that it is appropriate to refer
the PHA to the Departmental Enforcement Center (DEC), it will only do
so after the PHA has had one year since the issuance of the PHAS score
(or, in the case of an RMC, that is not a DF-RMC, notification of its
score from a PHA) to correct its deficiencies.
[[Page 1752]]
Sec. 902.75 Referral to a Troubled Agency Recovery Center (TARC).
(a) General. Upon a PHA's designation of troubled (including
troubled in one area), in accordance with the requirements of section
6(j)(2)(B) of the Act and in accordance with this part (or part 901, of
this chapter if applicable), REAC shall refer each troubled PHA to the
PHA's area TARC for remedial action. Remedial action by the TARC may
include referral to the HUB/Program Center for oversight and
monitoring. The actions to be taken by HUD and the PHA will include
actions statutorily required, and such other actions as may be
determined appropriate by HUD.
(b) Memorandum of Agreement (MOA). Within 30 days of notification
of a PHA's designation as a troubled performer (including substandard
categorization), HUD will initiate activities to develop a MOA. The
final MOA is a binding contractual agreement between HUD and a PHA. The
scope of the MOA may vary depending upon the extent of the problems
present in the PHA, but shall include:
(1) Baseline data, which should be raw data but may be the PHA's
score in each of the PHAS indicators, sub-indicators or components
identified as a deficiency;
(2) Performance targets for such periods specified by HUD (e.g.,
annual, semi-annual, quarterly, monthly), which may be the attainment
of a higher score within an indicator, sub-indicator or component that
is a problem, or the description of a goal to be achieved;
(3) Strategies to be used by the PHA in achieving the performance
targets within the time period of the MOA;
(4) Technical assistance to the PHA provided or facilitated by HUD,
for example, the training of PHA employees in specific management areas
or assistance in the resolution of outstanding HUD monitoring findings;
(5) The PHA's commitment to take all actions within its control to
achieve the targets;
(6) Incentives for meeting such targets, such as the removal of
troubled designation or troubled with respect to the program for
assistance from the Capital Fund under section 9(d) and Departmental
recognition for the most improved PHAs;
(7) The consequences of failing to meet the targets include but are
not limited to, such sanctions as the imposition of budget and
management controls by HUD, declaration of substantial default and
subsequent actions, including referral to the DEC for judicial
appointment of a receiver, limited denial of participation, suspension,
debarment, or other actions deemed appropriate by the DEC; and
(8) A description of the involvement of local public and private
entities, including PHA resident leaders, in carrying out the agreement
and rectifying the PHA's problems. A PHA shall have primary
responsibility for obtaining active local public and private entity
participation, including the involvement of public housing resident
leaders, in assisting PHA improvement efforts. Local public and private
entity participation should be premised upon the participant's
knowledge of the PHA, ability to contribute technical expertise with
regard to the PHA's specific problem areas and authority to make
preliminary/tentative commitments of support, financial or otherwise.
(c) PHA review of MOA. The PHA will have 10 days to review the MOA.
During this 10-day period, the PHA shall resolve any claimed
discrepancies in the MOA with HUD, and discuss any recommended changes
and target dates for improvement to be incorporated in the final MOA.
Unless the time period is extended by HUD, the MOA is to be executed 15
days following issuance of the preliminary MOA.
(d) Maximum recovery period. (1) Expiration of one-year recovery
period. Upon the expiration of the one-year period beginning on the
date on which the PHA receives initial notice of troubled designation
(including notice of substandard status) or October 21, 1998, whichever
is later, the PHA shall improve its performance, as measured by the
PHAS Indicators, by at least 50 percent of the difference between the
most recent performance measurement and the measurement necessary to
remove the PHA's designation as troubled or substandard status.
(2) Expiration of two-year recovery period. Upon the expiration of
the two-year period beginning on the later of the date on which the PHA
receives initial notice of troubled designation (including notice of
substandard status) or October 21, 1998, the PHA shall improve its
performance and achieve an overall PHAS score of at least 60 percent,
and achieve a score of at least 60 percent of the total points
available under each of PHAS Indicators #1, #2 and #3.
(e) Parties to the MOA. An MOA shall be executed by:
(1) The PHA Board Chairperson (supported by a Board resolution), or
a receiver (pursuant to a court ordered receivership agreement, if
applicable) or other AME acting in lieu of the PHA Board;
(2) The PHA Executive Director, or a designated receiver (pursuant
to a court ordered receivership agreement, if applicable) or other AME-
designated Chief Executive Officer;
(3) The Director of the area TARC; and
(4) The appointing authorities of the Board of Commissioners,
unless exempted by the TARC.
(f) Involvement of resident leadership in the MOA. HUD encourages
the inclusion of the resident leadership in the execution of the MOA.
(g) Failure to execute MOA or make substantial improvement under
MOA. (1) If a troubled PHA fails or refuses to execute a MOA within the
period provided in paragraph (b) of this section, or a troubled PHA
operating under an executed MOA does not show a substantial
improvement, as provided in paragraph (d) of this section, toward a
passing PHAS score following the issuance of the failing PHAS score by
REAC, the TARC shall refer the PHA to the DEC in accordance with
Sec. 902.77, and the DEC shall take the actions required by
Sec. 902.77(a)(2).
(2) For purposes of this paragraph (g), substantial improvement is
defined as the improvement required by paragraphs (d)(1) and (d)(2) of
this section. The maximum period of time for remaining in troubled
status before being referred to the DEC is two years. Therefore, the
PHA must make substantial improvement in each year of this two year
period.
(3) The following example illustrates the provisions of paragraph
(g)(1) of this section:
Example: A PHA receives a score of 50 percent; 60 percent is a
passing score. The PHA is referred to the TARC. Within one year
after the score is issued to the PHA, the PHA must achieve a 55 (50%
of the points necessary to achieve a passing score of 60 points) to
continue recovery efforts in the TARC. In the second year, the PHA
must achieve a minimum score of 60 points (a passing score). If in
the first year, the PHA fails to achieve the five-point increase,the
PHA will be referred to the DEC. If in the first year, the PHA
achieves the five-point increase but fails to achieve a passing
score in the second year, the PHA will be referred to the DEC. The
maximum period of time for remaining in troubled status before being
referred to the DEC is two years.
(h) Audit review. For a PHA designated as troubled, REAC will
perform an audit review and may, at its discretion, select the audit
firm that will perform the audit of the PHA and REAC may, at its
discretion, serve as the audit committee for the audit in question.
(i) Continuation of services to residents. To the extent feasible,
while a PHA is under a referral to a TARC, all services to residents
will continue uninterrupted.
[[Page 1753]]
Sec. 902.77 Referral to the Departmental Enforcement Center (DEC).
(a) Referral of Troubled PHA to the DEC for failing to execute or
meet MOA requirements. (1) Failure of a troubled PHA to execute or meet
the requirements of a MOA in accordance with Sec. 902.75 constitutes a
substantial default under Sec. 902.79 and may result in referral of the
PHA to the DEC. The TARC will recommend to the Assistant Secretary for
Public and Indian Housing that a troubled performer PHA be declared in
substantial default. In accordance with Sec. 902.69, the Assistant
Secretary shall notify the PHA of the default and allow the PHA an
opportunity to cure the default. A PHA shall be referred to the DEC if
the PHA fails to cure the default within the a period not to exceed 30
days unless the Assistant Secretary for Public and Indian Housing
determines that a longer period is appropriate.
(2) Actions of the DEC. The DEC shall initiate:
(i) The judicial appointment of a receiver, or
(ii) An administrative receivership at HUD's option but only:
(A) With respect to PHAs with fewer than 1250 units, or
(B) While HUD's petition for judicial receivership is pending; and
(iii) Upon the recommendation of the Assistant Secretary for Public
and Indian Housing, the interventions provided in Sec. 902.83, and may
initiate such other sanctions available to HUD, including, limited
denial of participation, suspension, debarment, and referral to the
appropriate Federal government agencies or offices for the imposition
of civil or criminal sanctions.
(b) Referral of PHAs in Substantial Default to the DEC. A PHA that
is not designated as troubled but that has been found to be in
substantial default under the provisions of Sec. 902.79 shall also be
referred to the DEC. The Assistant Secretary for Public and Indian
Housing makes the determination that a PHA is in substantial default.
In accordance with Sec. 902.79, the Assistant Secretary shall notify
the PHA of the default and allow the PHA an opportunity to cure the
default. If the PHA fails to cure the default within the specified
period time, the PHA shall be referred to the DEC. The DEC shall
initiate the judicial appointment of a receiver or the interventions
provided in Sec. 902.83 as recommended by the Assistant Secretary for
Public and Indian Housing and may initiate such other sanctions
available to HUD, including, limited denial of participation,
suspension, debarment, and referral to the appropriate Federal
government agencies or offices for the imposition of civil or criminal
sanctions.
(c) Receivership/Possession of PHA by HUD. (1) If a judicial
receiver is appointed, the receiver, in addition to the powers provided
by the court, shall have available the powers provided by section
6(j)(3)(C) of the Act (42 U.S.C. 1437d(j)(3)(C)).
(2) If HUD assumes responsibility for all or part of the PHA, the
Secretary of HUD shall have available the powers provided by section
6(j)(3)(D) of the Act (42 U.S.C. 1437d(j)(3)(D)).
(3) If an administrative receiver is appointed, the Secretary may
delegate to the administrative receiver any of the powers provided to
the Secretary as described in paragraph (e)(2) of this section, in
accordance with section 6(j)(3)(D).
(4) The appointments of receivers, the actions of receivers, and
HUD's responsibilities toward the receivers are governed by the
provisions of section 6(j)(3).
(d) To the extent feasible, while a PHA is under a referral to the
DEC, all services to residents will continue uninterrupted.
Sec. 902.79 Substantial default.
(a) Events or conditions that constitute substantial default. The
following events or conditions shall constitute substantial default.
(1) HUD may determine that events have occurred or that conditions
exist that constitute a substantial default if a PHA is determined to
be in violation of Federal statutes, including but not limited to, the
Act, or in violation of regulations implementing such statutory
requirements, whether or not such violations would constitute a
substantial breach or default under provisions of the relevant ACC.
(2) HUD may determine that a PHA's failure to satisfy the terms of
a memorandum of agreement entered into in accordance with Sec. 902.75,
or to make reasonable progress to execute or meet requirements included
in a memorandum of agreement, are events or conditions that constitute
a substantial default.
(3) HUD shall determine that a PHA that has been designated as
troubled and does not show substantial improvement, as defined in
Sec. 902.75(g)(2), is in substantial default.
(4) HUD may declare a substantial breach or default under the ACC,
in accordance with its terms and conditions.
(5) HUD may determine that the events or conditions constituting a
substantial default are limited to a portion of a PHA's public housing
operations, designated either by program, by operational area, or by
development(s).
(b) Notification of substantial default and response. If
information from an annual assessment or audit, or any other credible
source (including but not limited to the Office of Fair Housing
Enforcement, the Office of the Inspector General, a judicial referral
or a referral from a mayor or other official) indicates that there may
exist events or conditions constituting a substantial breach or
default, HUD shall advise a PHA of such information. HUD is authorized
to protect the confidentiality of the source(s) of such information in
appropriate cases. Before taking further action, except in cases of
apparent fraud or criminality, and/or in cases where emergency
conditions exist posing an imminent threat to the life, health, or
safety of residents, HUD shall afford the PHA a timely opportunity to
initiate corrective action, including the remedies and procedures
available to PHAs designated as troubled PHAs, or to demonstrate that
the information is incorrect.
(1) Form of notification. Upon a determination or finding that
events have occurred or that conditions exist that constitute a
substantial default, the Assistant Secretary shall provide written
notification of such determination or finding to the affected PHA.
Written notification shall be transmitted to the Executive Director,
the Chairperson of the Board, and the appointing authority(ies) of the
Board, and shall include, but is not limited to:
(i) Identification of the specific covenants, conditions, and/or
agreements under which the PHA is determined to be in noncompliance;
(ii) Identification of the specific events, occurrences, or
conditions that constitute the determined noncompliance;
(iii) Citation of the communications and opportunities to effect
remedies afforded pursuant to paragraph (a) of this section;
(iv) Notification to the PHA of a specific time period, to be not
less than 10 calendar days, except in cases of apparent fraud or other
criminal behavior, and/or under emergency conditions as described in
paragraph (a) of this section, nor more than 30 calendar days, during
which the PHA shall be required to demonstrate that the determination
or finding is not substantively accurate; and
(v) Notification to the PHA that, absent a satisfactory response in
accordance with paragraph (b) of this section, HUD will refer the PHA
to the
[[Page 1754]]
Enforcement Center, using any or all of the interventions specified in
Sec. 902.83, and determined to be appropriate to remedy the
noncompliance, citing Sec. 902.83, and any additional authority for
such action.
(2) Receipt of notification. Upon receipt of the notification
described in paragraph (b)(1) of this section, the PHA must
demonstrate, within the time period permitted in the notification,
factual error in HUD's description of events, occurrences, or
conditions, or show that the events, occurrences, or conditions do not
constitute noncompliance with the statute, regulation, or covenants or
conditions to which the PHA is cited in the notification.
(3) Waiver of notification. A PHA may waive, in writing, receipt of
explicit notice from HUD as to a finding of substantial default, and
voluntarily consent to a determination of substantial default. The PHA
must concur on the existence of substantial default conditions which
can be remedied by technical assistance, and the PHA shall provide HUD
with written assurances that all deficiencies will be addressed by the
PHA. HUD will then immediately proceed with interventions as provided
in Sec. 902.83.
(4) Emergency situations. In any situation determined to be an
emergency, or in any case where the events or conditions precipitating
the intervention are determined to be the result of criminal or
fraudulent activity, the Secretary or the Secretary's designee is
authorized to intercede to protect the residents' and HUD's interests
by causing the proposed interventions to be implemented without further
appeals or delays.
Sec. 902.83 Interventions.
(a) Interventions under this part (including an assumption of
operating responsibilities) may be limited to one or more of a PHA's
specific operational areas (e.g., maintenance, modernization,
occupancy, or financial management) or to a single development or a
group of developments. Under this limited intervention procedure, HUD
could select, or participate in the selection of, an AME to assume
management responsibility for a specific development, a group of
developments in a geographical area, or a specific operational area,
while permitting the PHA to retain responsibility for all programs,
operational areas, and developments not so designated.
(b) Upon determining that a substantial default exists under this
part, HUD may initiate any interventions deemed necessary to maintain
decent, safe, and sanitary dwellings for residents. Such intervention
may include:
(1) Providing technical assistance for existing PHA management
staff;
(2) Selecting or participating in the selection of an AME to
provide technical assistance or other services up to and including
contract management of all or any part of the public housing
developments administered by a PHA;
(3) Assuming possession and operational responsibility for all or
any part of the public housing administered by a PHA;
(4) Entering into agreements, arrangements, and/or contracts for or
on behalf of a PHA, or acting as the PHA, and expending or authorizing
the expenditure of PHA funds, irrespective of the source of such funds,
to remedy the events or conditions constituting the substantial
default;
(5) The provision of intervention and assistance necessary to
remedy emergency conditions;
(6) After the solicitation of competitive proposals, select an
administrative receiver to manage and operate all or part of the PHA's
housing; and
(7) Petition for the appointment of a receiver to any District
Court of the United States or any court of the State in which real
property of the PHA is located.
(c) The receiver is to conduct the affairs of the PHA in a manner
consistent with statutory, regulatory, and contractual obligations of
the PHA and in accordance with such additional terms and conditions
that the court may provide and with section 6(j)(3)(C) of the Act.
(d) The appointment of a receiver pursuant to this section may be
terminated upon the petition of any party, when the court determines
that all defaults have been cured or the public housing agency is
capable again of discharging its duties.
(e) HUD may take the actions described in this part sequentially or
simultaneously in any combination.
Sec. 902.85 Resident petitions for remedial action.
The total number of residents that petition HUD to take remedial
action pursuant to sections 6(j)(3)(A) (i) through (iv) of the Act must
equal at least 20 percent of the residents, or the petition must be
from an organization or organizations of residents whose membership
must equal at least 20 percent of the PHA's residents.
Dated: January 5, 2000.
Deborah Vincent,
General Deputy Secretary for Public and Indian Housing.
Donald J. LaVoy,
Acting Director, Real Estate Assessment Center.
[FR Doc. 00-591 Filed 1-10-00; 8:45 am]
BILLING CODE 4210-33-P
