Public Housing Evaluation and Oversight: Changes to the Public Housing Assessment System (PHAS) and Determining and Remedying Substantial Default, 49544-49587 [E8-18753]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 73, Number 163 (Thursday, August 21, 2008)]
[Proposed Rules]
[Pages 49544-49587]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-18753]



[[Page 49543]]

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Part II





Department of Housing and Urban Development





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24 CFR Parts 901, 902, and 907



Public Housing Evaluation and Oversight: Changes to the Public Housing 
Assessment System (PHAS) and Determining and Remedying Substantial 
Default; Asset Management Transition Year Information and Uniform 
Financial Reporting Standards (UFRS) Information; Proposed Rule and 
Notice

Federal Register / Vol. 73, No. 163 / Thursday, August 21, 2008 / 
Proposed Rules

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 901, 902 and 907

[Docket No. FR-5094-P-01]
RIN 2577-AC68


Public Housing Evaluation and Oversight: Changes to the Public 
Housing Assessment System (PHAS) and Determining and Remedying 
Substantial Default

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would make two sets of amendments to 
improve evaluation and oversight of public housing agencies (PHAs). 
First, this proposed rule would amend HUD's Public Housing Assessment 
System (PHAS) regulations for the purposes of: Consolidating the 
regulations governing assessment of a PHA's program in one part of the 
Code of Federal Regulations (CFR); revising certain PHAS regulations 
based on the Department's experience with PHAS since it was established 
as the new system for evaluating a PHA in 1998; and updating certain 
PHAS procedures to reflect recent changes in public housing operations 
from conversion by PHAs to asset management, including updating and 
revising the PHAS scoring. PHAS is designed to improve the delivery of 
services in public housing and to enhance trust in the public housing 
system among PHAs, public housing residents, and the general public, by 
providing a management tool for effectively and fairly measuring the 
performance of a PHA in essential housing operations of its projects, 
based on standards that are uniform and verifiable. The changes 
proposed by this rule are intended to enhance the efficiency and 
utility of PHAS.
    Second, the proposed rule would establish, in a separate part of 
the CFR, the regulations that would specify the actions or inactions by 
which a PHA would be determined to be in substantial default, the 
procedures for a PHA to respond to such a determination or finding, and 
the sanctions available to HUD to address and remedy substantial 
default by a PHA. To date, such regulations have been included in the 
PHAS regulations, but the actions or inactions that constitute 
substantial default are not limited to failure to comply with PHAS 
regulations. Accordingly, the proposed regulations applicable to 
substantial default are more appropriately codified in a separate CFR 
part.
    This proposed rule is also publishing the scoring processes for 
each of the PHAS scoring categories as appendices to part 902. Although 
these scoring processes are proposed as appendices, it is also possible 
that, at the final rule stage, they will be published as separate 
notices as has been HUD's practice to this point.

DATES: Comment Due Date: October 20, 2008.

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

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

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

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

SUPPLEMENTARY INFORMATION:

I. Changes to the PHAS

A. Background on PHAS

    PHAS was established by a final rule published on September 1, 1998 
(63 FR 46596). Prior to 1998, a PHA was evaluated by HUD with respect 
only to its management operations. PHAS expanded assessment of a PHA to 
four key areas of a PHA's operations: (1) The physical condition of the 
PHA's properties; (2) the PHA's financial condition; (3) the PHA's 
management operations; and (4) the residents' service and satisfaction 
assessment (through a resident survey). On the basis of these four 
indicators, a PHA receives a composite score that represents a single 
score for a PHA's entire operation and a corresponding performance 
designation. PHAs that are designated high performers receive public 
recognition and relief from some HUD requirements. PHAs that are 
designated standard performers may be required to take corrective 
action to remedy identified deficiencies. PHAs that are designated 
substandard performers are required to take corrective action to remedy 
identified deficiencies. PHAs that are designated troubled performers 
are subject to remedial action.
    By final rule published on January 11, 2000 (65 FR 1712), HUD 
amended the PHAS regulations to, among other things, elaborate on some 
PHAS procedures; revise the mechanism for obtaining technical review of 
physical inspections results and resident survey

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results, and for appealing PHAS scores; and implement statutory changes 
resulting from enactment of the Quality Housing and Work Responsibility 
Act of 1998 (Pub. L. 105-276, October 21, 1998).

B. Public Housing Operating Fund Program

    The regulations governing the Public Housing Operating Fund program 
are of key relevance to the proper operation of PHAs and, consequently, 
to PHAS. Operating funds are made available to a PHA for the operation 
and management of public housing; therefore, the regulations applicable 
to a PHA's operation and management of public housing must be 
considered in any changes proposed to PHAS. The regulations for the 
Public Housing Operating Fund program are found at 24 CFR part 990; 
were published on September 19, 2005 (70 FR 54983), which was followed 
by a correction published on October 24, 2005 (70 FR 61366); and became 
effective on November 18, 2005.
    Subpart H of the part 990 regulations (Sec. Sec.  990.255 to 
990.290), as revised by the September 2005 rule, establishes the 
requirements regarding asset management. Under Sec.  990.260(a), PHAs 
that own and operate 250 or more dwelling rental units must operate 
using an asset management model consistent with the subpart H 
regulations. PHAs with fewer than 250 dwelling rental units may elect 
to transition to asset management, but are not required to do so. HUD's 
Fiscal Year (FY) 2008 appropriations, provided in Title IV of Division 
K of the Consolidated Appropriations Act, 2008 (Pub. L. 110-161, 
approved December 26, 2007), state, in administrative provision section 
225, that PHAs that own or operate 400 or fewer public housing units 
may elect to be exempt from any asset management requirement imposed by 
HUD in connection with HUD's operating fund rule, with one exception: A 
PHA seeking discontinuance of a reduction of subsidy under the 
operating fund formula shall not be exempt from asset management 
requirements. Since requirements in appropriations acts, unless 
otherwise indicated, apply only to the fiscal year to which the 
appropriations act is directed, HUD's proposed rule to revise PHAS does 
not reflect this one-year provision. PHAs are required to implement 
project-based management, project-based budgeting, and project-based 
accounting, which are all defined in the regulations of 24 CFR part 
990, subpart H, and are essential components of asset management.

C. Proposed Amendments to PHAS

    The proposed amendments to PHAS retain the basic structure of the 
existing regulations. PHAs will continue to be scored based on 
evaluation in four indicators: Physical condition, financial condition, 
management operations, and the PHA's management of its Capital Fund 
program. PHAS would continue to rely on information that is verifiable 
by a third party, wherever possible.
Overview of Proposed Changes to PHAS
    This proposed rule modifies PHAS primarily to conform to the new 
regulations on the Public Housing Operating Fund program and the 
conversion by PHAs to asset management, including project-based 
budgeting, project-based accounting, and project-based performance 
evaluation. Highlights of some of the major changes proposed to each of 
the four current PHAS indicators are as follows:
    Physical. The physical inspection indicator would remain largely 
unchanged. Independent physical inspections would continue to be 
conducted on each public housing project, although the frequency of 
inspections would depend on the scores of individual projects, not the 
score for the entire PHA. For example, if a specific project scored 
below 80 points, it would be inspected the following year, regardless 
of whether the overall physical score for the PHA, based on all 
projects, was 80 points or higher (as is the case in the currently 
codified PHAS regulations). If a PHA's overall physical score is less 
than 80 points, and one or more projects score 80 points or above, 
those projects that score 80 points or above would be inspected every 
other year.
    Financial. The financial assessment system would be modified to 
include an assessment of the financial condition of each project. A PHA 
would continue to submit an annual Financial Data Schedule (FDS) to HUD 
that contains financial information on all major programs and business 
activities. However, for purposes of PHAS, the PHA would be scored on 
the financial condition of each project, and these scores would be the 
basis for a program-wide score.
    Subindicators that are currently available through financial 
reports but are more appropriately measures of management performance 
(e.g., bad debt, tenant accounts receivables, and occupancy loss) would 
be removed from this indicator and moved to the management operations 
indicator. HUD considered the option of allowing these items to remain 
as part of the financial condition indicator. HUD now has 10 years of 
experience with PHAS, and, based on that experience, believes that bad 
debt, accounts receivables, and occupancy loss are more properly 
measures of management operations, as is currently the prevailing view 
in the multifamily industry. Even after these items were moved from 
their original location as part of the management operations 
assessment, they were tracked in both the financial condition and 
management operations indicators. The fact that these items continued 
to be tracked as management operations-related even after they were 
moved to the financial condition indicator demonstrates that they are, 
in fact, closely related to management operations. The U.S. Housing Act 
of 1937 (1937 Act) itself, in section 6(j), 42 U.S.C. 1437d(6)(j), 
associates items in these categories with management operations (see 42 
U.S.C. 1437d(j)(1)(A)) (vacancy rate, that is, occupancy loss) and 
(j)(1)(C) (percentage of rents collected, related to tenant accounts 
receivable and bad debt), both of which are referred to by the statute 
as examples of ``indicators to assess the management performance.'' For 
these reasons, HUD has decided to move these factors to management 
operations, where HUD, based on multifamily industry practice and its 
own experience, believes they belong.
    Management. The current management operations assessment system 
relies on PHA submission of a range of information that is self-
certified. Under the proposed rule, this current system would be 
replaced with management reviews conducted of each project by HUD staff 
(or, where applicable, HUD's agents). Preferably, such reviews would be 
conducted annually, consistent with the standards for HUD's subsidized 
housing programs. As part of this project management review process, 
HUD would examine a PHA's performance in the area of resident programs 
and participation, thereby eliminating a separate resident satisfaction 
survey.
    Resident Satisfaction Surveys. A PHA's performance in the area of 
resident programs and participation would be evaluated as part of the 
project management review, thus eliminating the need for a separate 
indicator on resident satisfaction and, therefore, a separate 
satisfaction survey. The project management review would include a 
subindicator that would measure efforts to coordinate, promote, or 
provide effective programs and activities to promote economic self-
sufficiency of residents, and measure the extent to

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which residents are provided with opportunities for involvement in the 
administration of the public housing. This subindicator would include 
all of the elements regarding economic self-sufficiency and resident 
participation that are included in section 6(j) of the 1937 Act (42 
U.S.C. 1437d(j)). Separately, HUD may perform resident surveys at 
different frequencies that would be used as diagnostic tools that would 
assess residents' satisfaction with their living conditions and not be 
made part of a PHA's score.
    The current survey instrument has been in place since 1999. In 
evaluating the results of the survey, HUD has found strong indications 
that the survey is not useful. Even some of the more troubled projects 
have received high resident satisfaction scores. As the table below 
shows, the average satisfaction rate is 82.57 percent. For the period 
from FY 2002 through FY 2006, the satisfaction rate has varied by no 
greater than 1.88 percent for the entire 5-year period. The services 
survey area has consistently been in the 90th percentile, while the 
lowest-scoring survey area, communication, has an average satisfaction 
rate of 75.68 percent. Given the actual condition of some of the 
projects surveyed, it is highly unlikely that these results are 
accurately reflecting resident satisfaction.

                                                                  Resident Satisfaction
--------------------------------------------------------------------------------------------------------------------------------------------------------
                       Survey area                           FY 2002 %       FY 2003 %       FY 2004 %       FY 2005 %       FY 2006 %       Average %
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Maintenance & Repair....................................           89.25           89.11           85.16           86.62           88.50           87.73
Communication...........................................           76.35           76.31           74.80           75.61           75.35           75.68
Safety..................................................           74.40           82.31           80.69           81.24           80.13           79.75
Services................................................           92.32           92.24           91.90           91.78           91.99           92.05
Appearance..............................................           77.12           78.63           76.66           78.29           77.39           77.62
                                                         -----------------------------------------------------------------------------------------------
    Average.............................................           81.89           83.72           81.84           82.71           82.67           82.57
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The response rate for the survey has also remained relatively 
static, as the following table shows.

                                         Resident Survey Response Rates
----------------------------------------------------------------------------------------------------------------
      FY 2002 %              FY 2003 %              FY 2004 %              FY 2005 %              FY 2006 %
----------------------------------------------------------------------------------------------------------------
            40.33                  37.12                  39.15                  42.40                  39.06
----------------------------------------------------------------------------------------------------------------
                                          Average Response Rate: 39.61
----------------------------------------------------------------------------------------------------------------

    At some of the smaller PHAs, residents have complained that they 
are answering the same questions year after year. Industry groups have 
also indicated that they believe the survey instrument needs to be 
revised.
    As an alternative to the resident survey, the new management review 
format for public housing projects includes two areas that take into 
consideration resident participation: Economic self-sufficiency and 
resident involvement in project administration. These two areas assess 
the percentage of adults with some form of employment income, the 
percentage of adults participating in self-sufficiency, the number of 
self-sufficiency opportunities offered at the project, and the number 
of resident involvement opportunities offered by a project. In 
addition, as much as possible, the management operations subindicators 
focus on residents. For example, the work order subindicator measures 
tenant-generated work orders rather than emergency and nonemergency 
work orders. The advantage of these management subindicators is that 
they measure objective results rather than subjective satisfaction, and 
also that they are not dependent on voluntary participation but rather 
are determined by actual reviews and site visits.
    HUD invites comments on whether the survey should be retained in 
some form, how it might be improved, and whether HUD's proposed 
solution is sufficient to gather resident feedback on resident 
satisfaction.
    Capital Fund. HUD proposes to establish a new indicator, which 
previously was part of the management operations indicator, that 
measures a PHA's performance with respect to the obligation and 
expenditure of Capital Fund program grants. This Capital Fund program 
indicator is statutory, required by section 6(j) of the 1937 Act (42 
U.S.C. 1437d(j)(1)(B)), and can be measured only at the agency level.
    In addition to the changes in the four indicators, discussed above, 
the rule would modify the score adjustment for physical condition and 
neighborhood environment. This adjustment would be applied to the 
management operations indicator on a project-by-project basis rather 
than to the physical condition indicator. The statutory language states 
that HUD should reflect in the weights assigned to the various 
indicators the differences in the difficulty in managing individual 
projects that result from their physical condition and neighborhood 
environment. The application of the adjustment to the management 
operations indicator would specifically address the difficulty in 
managing individual projects, and would also result in a true physical 
condition score without any adjustments outside of the physical 
condition inspection results.
    HUD believes the changes proposed to the PHAS regulations by this 
rule offer the following advantages:
     HUD and PHAs would be better able to identify and measure 
the performance of individual projects, which is necessary for asset 
management.
     The new system conforms to HUD's performance monitoring 
protocols and regulations in the area of multifamily housing.
     The new system would be much simpler for PHAs and HUD to

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administer. PHAs would only be required to submit their FDS schedule 
and would no longer need to submit a management certification. 
Moreover, PHAs would have greater flexibility in developing internal 
monitoring systems.
     The new system would focus more on performance than 
process. Additional changes to PHAS proposed by this rule include:
     Corrective Action Plans are proposed to replace current 
Improvement Plans.
     References to the Troubled Agency Recovery Center (TARC), 
an area center to which troubled PHAs were referred for oversight, 
monitoring, or other remedial action, have been removed since the TARCs 
no longer exist. The duties and responsibilities of the TARCs were 
transferred to and assumed by HUD's field offices.

D. Section-by-Section Overview of PHAS Amendments

    The following section-by-section overview does not describe each 
and every change made to the PHAS regulation, but provides an overview 
of some of the key changes proposed by this rule.
1. Part 901, Public Housing Management Assessment Program (PHMAP)
    This proposed rule would remove part 901, which contains the PHMAP 
regulations. When HUD issued the final PHAS rule in September 1998, the 
preamble to the final rule noted that the PHMAP regulations in part 901 
would be retained because PHAS would not be implemented until October 
1999, one year after the September 1998 rule became effective. The 
preamble advised PHAs that they would continue to comply with the PHMAP 
regulations until the implementation of PHAS in October 1999. This 
proposed rule will consolidate all public housing assessment 
regulations in the PHAS regulations in part 902, and part 901 will be 
removed.
2. Part 902, PHAS
Subpart A--General Provisions
    Section 902.1 (Purpose, scope, and general matters). Proposed Sec.  
902.1 would consolidate the purpose, scope, and applicability sections 
into a single introductory section to better capture the overall 
objectives of PHAS in one regulatory location.
    Proposed Sec.  902.1(a) is unchanged from the purpose paragraph of 
the currently codified regulations.
    Proposed Sec.  902.1(b) remains similar to currently codified Sec.  
902.3.
    Proposed Sec.  902.1(c) briefly describes PHAS indicators.
    Proposed Sec.  902.1(d) would be revised to include the project 
assessment approach, which is now the relevant assessment as PHAs 
convert to asset management. With the proposed removal of the resident 
survey, to be discussed more fully later in this preamble, a reference 
to gathering data from residents would be removed. Material concerning 
HUD data systems would be added.
    Currently codified Sec.  902.1(e) pertaining to changes in a PHA's 
fiscal year end would be moved to a revised Sec.  902.60(a). New 
proposed Sec.  902.1(e) would provide for a PHA with fewer than 250 
units that does not convert to asset management to be considered a 
single project.
    Proposed Sec.  902.1(f) would revise currently codified Sec.  
902.1(b) to reflect that REAC is now part of HUD's Office of Public and 
Indian Housing (PIH).
    Section 902.3 (Definitions). Currently codified Sec.  902.3 would 
be revised to include the definitions of additional important terms 
used in the regulations. In the currently codified regulations, the 
definitions are found in both 24 CFR 902.7 and 24 CFR 902.24, where 
definitions used in the physical condition indicator are presented. HUD 
proposes to place all definitions in one section for greater 
convenience.
    Currently codified Sec.  902.3 would be revised to remove the 
following definitions that are no longer applicable or are not 
referenced in the regulations: average number of days non-emergency 
work orders were active; improvement plan; occupancy loss; property; 
reduced actual vacancy rate within the previous 3 years; reduced 
average time nonemergency work orders were active; tenant receivables 
outstanding; unit months available; unit months leased; and work orders 
deferred to the Capital Fund program.
    The following definitions would be added to this section: Assistant 
Secretary; Corrective Action Plan; decent, safe, sanitary and in good 
repair (DSS/GR); memorandum of agreement (MOA); Alternative Management 
Entity (AME); Resident Management Corporation (RMC); Direct Funding 
RMC; and unit-weighted average. In addition, the following definitions 
from currently codified Sec.  902.24 are proposed to be added to this 
section: criticality; deficiencies; dictionary of deficiency 
definitions; inspectable areas; inspectable item; item weights and 
criticality levels document; normalized weight; score; severity; and 
subarea.
    Section 902.5 (Applicability). To allow sufficient time for PHAs to 
adjust to PHAS, as proposed to be revised by this rule, proposed Sec.  
902.5(b)(1) would change applicability to commence with PHAs with 
fiscal years ending on and after June 30, 2009. The information in 
currently codified Sec.  902.5(b), pertaining to the issuance of PHAS 
advisory scores, would be removed because it is no longer applicable.
    Proposed Sec.  902.5(b)(2) would address transition scores and the 
fiscal-year-end dates for transition scores.
    Section 902.9 (PHAS scoring). This proposed section would address 
the PHAS scoring system. (Those parts of currently codified Sec.  902.9 
that address the frequency of PHAS scoring would be incorporated into 
proposed Sec.  902.13.)
    Proposed Sec.  902.9(a) would briefly describe the PHAS indicators, 
which would include the new Capital Fund program indicator that 
replaces the current resident service and satisfaction indicator.
    Proposed Sec.  902.9(b) would provide information about the weights 
of the four indicators.
    Proposed Sec.  902.9(c) would provide for PHAS scores to be 
calculated in accordance with appendices A-D. Accordingly, repetitive 
information about scoring is removed from the regulations governing 
individual indicators. No further changes to any of the scoring 
processes will be implemented until after they are published for public 
comment in the Federal Register. The currently codified PHAS 
regulations provide for this notice and comment process, and HUD does 
not propose to change that process by this rule.
    The proposed scoring documents that correspond to this proposed 
rule are published as appendices to this proposed rule.
    Section 902.11 (PHAS performance designation). Proposed Sec.  
902.11 would address PHAS performance designation information. The 
performance designations would be high performer, standard performer, 
substandard performer, and troubled performer (except for the new 
``substandard'' designation, these are the designations provided in 
currently codified Sec.  902.67).
    Proposed Sec. Sec.  902.11(a) and (b) would amend the performance 
requirements for PHAS designations that are currently codified in 
Sec. Sec.  902.67(a) and (b). Proposed Sec.  902.11(a) would state that 
a high performer must achieve an overall PHAS score of 90 percent, in 
contrast to currently codified Sec.  902.67(a), which requires at least 
a 60 percent score in each PHAS indicator.
    Proposed Sec.  902.11(a)(2) would provide that a PHA would not be 
designated a high performer if more than 10 percent of the PHA's total 
units are in projects that fail the physical

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condition, financial, or management operations indicators. Proposed 
Sec.  902.11(c) would explain the new substandard designation. 
Generally, a PHA's overall PHAS score determines its designation.
    The ``substandard'' designation, however, would be calculated 
differently. A substandard designation would be based on a PHA 
achieving a PHAS score of at least 60 percent and a score of less than 
60 percent under one or more of the physical condition, financial, or 
management operations indicators. In the proposed rule, to avoid 
confusion, ``substandard'' would not be used to mean a subcategory of 
troubled performer.
    Section 902.13 (Frequency of PHAS assessments). Proposed Sec.  
902.13 would be added to address the revised frequency of PHAS 
assessments, and would incorporate, in Sec.  902.13(a), the information 
in currently codified Sec.  902.9, with the exception that a small PHA 
with fewer than 250 units would not be able to elect an annual 
assessment. As the PHAS regulations are proposed to be revised by this 
rule, the frequency of physical condition assessments would be based on 
the size of the PHA and the performance of the PHA under the physical 
condition indicator.
    Proposed Sec.  902.13(b) would provide that a project that scores 
80 points or higher for the physical condition indicator would be 
inspected every other year.
    Proposed Sec.  902.13(c) would require a PHA to submit the 
unaudited and audited financial information to HUD every year, whether 
or not the PHA receives a PHAS assessment.
Subpart B--Physical Condition Indicator
    Section 902.20 (Physical condition assessment). Proposed Sec.  
902.20 would address the basic components of the physical condition 
assessment. Proposed Sec.  902.20(b) would provide for independent 
physical inspections in accordance with HUD's physical condition 
standards for decent, safe, and sanitary housing as codified at 24 CFR 
5.703-5.705.
    Section 902.21 (Physical condition standards for public housing). 
Proposed Sec.  902.21 would be similar to currently codified Sec.  
902.23, and summarizes the standards that the five major inspectable 
areas are required to meet. The five major inspectable areas are site, 
building exterior, building systems, dwelling units, and common areas. 
The main difference between this proposed rule and the currently 
codified regulations is that where the currently codified section 
incorporates provisions directly from HUD's physical conditions 
standards at 24 CFR 5.703, the proposed section would cross-reference 
to Sec.  5.703 where necessary, resulting in a more concise and 
streamlined regulatory provision.
    Section 902.22 (Physical inspection of PHA projects). The 
information in proposed Sec.  902.22(a) would be similar to currently 
codified Sec.  902.24(a), but it would add a specific reference to 
HUD's standards for decent, safe, and sanitary housing. Proposed new 
Sec.  902.22(b)(1) would address how HUD would achieve the objectives 
of paragraph (a) and provides for an inspection of a ``statistically 
valid'' sample of units.
    Proposed Sec.  902.22(d) would clarify the differences between 
health and safety deficiencies and exigent health and safety 
deficiencies. Proposed Sec.  902.22(d)(1) would contain the information 
in currently codified Sec.  902.24(a)(2), but would add that the 
project or PHA should correct exigent health and safety deficiencies 
within 24 hours, and that the PHA must certify the correction to HUD 
within 3 business days.
    Section 902.23 (Adjustment for physical condition and neighborhood 
environment). HUD proposes to remove this section because physical 
condition and neighborhood environment would be assessed under the 
management operations indicator in the proposed rule. See new proposed 
Sec.  902.44.
    Section 902.24 (Database adjustment). Proposed Sec.  902.24 would 
contain the information currently codified in Sec.  902.25(c) and would 
be designated as a separate section for the purpose of greater clarity. 
The section would be revised to be consistent with project-based 
assessment.
    Section 902.25 (Physical condition scoring and thresholds). 
Proposed Sec.  902.25(a) revises currently codified Sec.  902.25(a) to 
reflect the project-based approach to administration of public housing, 
and to remove material regarding scoring, which would be consolidated 
in proposed Sec.  902.9(c) rather than being restated as to each 
indicator.
    Proposed new Sec.  902.25(b) provides similar information as found 
in currently codified Sec.  902.25(d), but with further explanation of 
how the weighted scores are calculated.
    Proposed new Sec.  902.25(c) would include new information 
regarding the conversion of a project score from a 100-point scale to a 
30-point scale for the overall PHAS physical condition indicator, and 
provide the number of points required for a passing score and the score 
at which a PHA would be considered a substandard performer.
    Section 902.26 (Physical inspection report). Currently codified 
Sec. Sec.  902.26(a) and (a)(3) would be slightly revised by this 
proposed rule to be consistent with project-based assessment. Sections 
902.26(a)(2) and (a)(5) would be revised to make the deadline for a 
request for reinspection 30 days after a PHA's receipt of the physical 
inspection report.
    Current Sec.  902.27 (Physical condition portion of total PHAS 
points). HUD proposes to remove this section and instead provide for 
the number of points assigned to each indicator in Sec.  902.9(b).
Subpart C--Financial Condition Indicator
    Section 902.30 (Financial condition assessment). Proposed Sec.  
902.30 is similar to currently codified Sec.  902.30. The section would 
be revised to reflect individual project assessment.
    Section 902.33 (Financial reporting requirements). Proposed Sec.  
902.33(b) pertains to unaudited financial information and contains the 
same information in currently codified Sec.  902.33(b). As proposed to 
be revised, this section removes a reference to the Uniform Financial 
Reporting Standards in 24 CFR part 5, subpart H, and removes reference 
to the information regarding an automatic 1-month extension, which no 
longer applies.
    Proposed Sec.  902.33(b) also includes the same unaudited reporting 
deadlines included in currently codified Sec.  902.33(c).
    Proposed Sec.  902.33(c) contains information related to audited 
financial statements that is contained in currently codified Sec.  
902.33(c).
    Section 902.35 (Financial condition scoring and thresholds). 
Proposed Sec.  902.35(a)(1) would be similar to currently codified 
Sec.  902.35(a), but would remove the repetitive information about 
scoring that, in the codified regulations, is provided in each section 
addressing a PHAS indicator. This section also would provide a 
reference to individual projects.
    Proposed Sec.  902.35(a)(2) contains information regarding the 
basis for the financial condition score. Currently codified Sec.  
902.35(a)(2) would be removed because the information regarding 
advisory scores and high liquidity would no longer be applicable.
    Proposed Sec.  902.35(b) lists the new financial condition 
subindicators under asset management and replaces the financial 
management components listed in the current Sec.  902.35(b).
    Proposed Sec.  902.35(c) would explain how the overall financial 
condition score is calculated. This score would be

[[Page 49549]]

a unit-weighted average of the individual project scores on this 
indicator.
    Proposed Sec.  902.35(d) would address the maximum points and 
scoring thresholds, similar in function to currently codified Sec.  
902.35(c).
    Current Sec.  902.37 (Financial condition portion of total PHAS 
points). HUD proposes to remove this section and instead provide for 
the number of points assigned to each indicator in Sec.  902.9(b).
Subpart D--Management Operations Indicator
    Section 902.40 (Management operations assessment). Proposed Sec.  
902.40(a) would be revised to more comprehensively address the 
management operations assessment of projects, given the removal of 24 
CFR part 901.
    Section 902.43 (Management operations performance standards). 
Proposed Sec.  902.43(a) would list the statutory subindicators that 
must be utilized in this assessment. This section, as proposed, would 
also reference the asset management review form that would be used to 
assess a PHA's management operations and a PHA's individual project 
management operations, and the subindicators are included in appendix 
C. Specifically, new proposed Sec. Sec.  902.43(a)(1) through (a)(6) 
would list the statutory subindicators that are not addressed elsewhere 
in PHAS, and would replace the currently codified Sec. Sec.  
902.43(a)(1) through (a)(6). Paragraphs (a)(7) through (a)(9) of Sec.  
902.43 would address the following subindicators, respectively: 
security, economic self-sufficiency, and resident involvement in 
project management.
    Proposed Sec.  902.43(b) would provide that a project management 
review be used to assess this indicator, supported by other data 
available to HUD. Currently codified Sec. Sec.  902.43(b)(1) and (b)(2) 
would be removed because PHAs would no longer certify to the management 
operations information and because manual submissions are no longer 
necessary.
    Section 902.44 (Adjustment for physical condition and neighborhood 
environment). A proposed Sec.  902.44 would be added and the adjustment 
for physical condition and neighborhood environment would apply to the 
management operations indicator. Proposed Sec.  902.44(a) would include 
the new definitions for physical condition and neighborhood 
environment, and Sec.  902.44(b) would describe the application of the 
adjustment.
    Section 902.45 (Management operations scoring and thresholds). 
Proposed Sec.  902.45(a) would be similar to currently codified Sec.  
902.45(a), except that projects, as well as PHAs, would receive a 
management operations score.
    Proposed Sec.  902.45(b) would provide information regarding the 
overall indicator score.
    Proposed Sec.  902.45(c) would be similar to currently codified 
Sec.  902.45(b), and would provide information regarding the maximum 
points for this indicator and scoring thresholds. The section removes a 
reference to sanctions under section 6(j)(4) of the 1937 Act (42 U.S.C. 
1437d(j)(4)).
    Current Sec.  902.47 (Management operations portion of total PHAS 
points). HUD proposes to remove this section and instead provide for 
the number of points assigned to each indicator in Sec.  902.9(b).
Subpart E--Capital Fund Program Indicator
    Proposed new subpart E addresses the Capital Fund program 
indicator, and would replace the current subpart E, resident services 
and satisfaction indicator. HUD is removing the resident services and 
satisfaction indicator because, after almost 10 years of experience, 
this indicator has not yielded the degree of feedback that HUD hoped to 
obtain from this indicator. HUD has determined that PHAs expend 
considerable effort to obtain resident input on the PHA's performance, 
but with little change in the response rate over the past 5 years. HUD 
will examine alternatives to obtain resident feedback, possibly through 
funding for Resident Opportunities and Supportive Services (ROSS) 
provided annually through its notice of funding availability (NOFA). 
HUD specifically welcomes comment on proposals to improve resident 
feedback on a PHA's performance and to measure resident satisfaction.
    Section 902.50 (Capital Fund program assessment). Proposed Sec.  
902.50(a) would provide for assessment of a PHA's Capital Funds that 
remain unexpended after 4 years and unobligated after 2 years.
    Proposed Sec.  902.50(b) would provide that this indicator would 
not apply to PHAs that choose not to participate in the Capital Fund 
program, and would only be applicable on a PHA-wide basis, rather than 
a project basis. Section 9(j) of the 1937 Act (42 U.S.C. 1437g(9)(j)(1) 
and (5)) makes the obligation to expend funds in a timely manner 
applicable to PHAs.
    Proposed Sec.  902.50(c) would provide that information for this 
indicator would be derived through an analysis of HUD's electronic Line 
of Credit Control System (e-LOCCS) (or its successor system). Proposed 
Sec. Sec.  902.50(c)(1) and (c)(2) would address a PHA's responsibility 
to submit Capital Fund program information in a timely manner and 
appeal restrictions, respectively.
    Section 902.53 (Capital Fund program scoring and thresholds). This 
proposed section would explain the scoring and thresholds for this 
indicator, overall points, and passing score.
Subpart F--PHAS Scoring
    Section 902.60 (Data collection). This proposed section would 
completely revise currently codified Sec.  902.60. Currently codified 
Sec.  902.60(a), pertaining to fiscal year reporting periods, would be 
revised to provide that a PHA would not be permitted to change its 
fiscal year for the first 3 full fiscal years following June 30, 2009, 
unless such change is approved by HUD for good cause. The moratorium on 
changing fiscal years is consistent with the currently codified PHAS 
regulations, which provide for a halt to fiscal year changes commencing 
with the year new HUD regulations are to be implemented. Proposed Sec.  
902.60(b) would address extensions for submitting unaudited financial 
information. The information in currently codified Sec.  902.60(c), 
pertaining to the submissions of financial information, would be 
revised to include information about weighting and applicability of the 
Single Audit Act (codified at 31 U.S.C. 7501 et seq.) and be moved to 
proposed Sec. Sec.  902.9(b) and 902.33.
    Proposed Sec.  902.60(c) would address waivers of the due date for 
submitting audited financial information to HUD.
    Proposed Sec.  902.60(d) would address rejection and resubmission 
of a PHA's unaudited year-end financial information submission. The 
requirement in currently codified Sec.  902.60(d)(2) pertaining to the 
retention of documentation would be incorporated in proposed Sec.  
902.3(b).
    Information in currently codified Sec.  902.60(e)(2) and (f) would 
be moved to proposed Sec.  902.62, with some revisions. Certifications 
referenced in currently codified Sec. Sec.  902.60(e)(2) and (f), and 
material regarding the performance designation of a PHA as ``troubled'' 
in currently codified Sec.  902.60(e)(2) would no longer be included.
    Section 902.62 (Failure to submit data). Proposed Sec.  902.62 
addresses penalties for failing to submit required information. Much of 
this material is similar to that in currently codified Sec.  902.60(e).
    Section 902.64 (PHAS scoring and audit reviews). Proposed Sec.  
902.64(a) would be similar to currently codified Sec.  902.63(b).

[[Page 49550]]

    Proposed Sec.  902.64(b) would be similar to currently codified 
Sec.  902.63(c), except that references to certifications would be 
removed.
    Proposed Sec.  902.64(c) would include the material on the review 
of audits in currently codified Sec.  902.63(d), along with certain 
revisions. The revised material includes standards and procedures for 
determining if an audit is deficient.
    Section 902.66 (Withholding, denying, and rescinding designation). 
Proposed Sec.  902.66 would provide that, in limited circumstances, HUD 
may deny or rescind a high or standard performer designation. Denial or 
rescission may occur in cases of fraud or misconduct, litigation cases 
that bear directly on the performance of the PHA, where the PHA is 
operating under a court order, or where the PHA demonstrates 
substantial evidence of noncompliance with applicable laws or 
regulations. HUD action taken in accordance with this section may be 
appealed under Sec.  902.69(d).
    Section 902.68 (Technical review of results of PHAS physical 
condition indicator). Proposed Sec.  902.68 largely retains the 
information regarding physical inspection technical reviews as provided 
in currently codified Sec.  902.68, and removes reference to technical 
reviews for the resident survey and satisfaction indicator, which will 
no longer be an indicator. Proposed Sec.  902.68(b)(7) would be 
included to provide that HUD's decision on a technical review is final 
agency action.
    Section 902.69 (PHA right of petition and appeal). Proposed Sec.  
902.69 has been revised to elaborate on the rights of appeal, petition, 
and the appeal of any refusal of a petition to remove a troubled 
performer designation. Proposed Sec.  902.69(a) would revise the 
current section to provide for four categories of appeals and one type 
of petition.
    Currently codified Sec.  902.69(b) would be designated Sec.  
902.69(b)(1) in this proposed rule, and revised to take into account 
the new designation of ``substandard performer.'' Proposed Sec.  
902.69(b)(2) would provide that a PHA may not appeal its physical 
condition score based on the subsequent correction of deficiencies 
identified as the result of a physical inspection or technical review 
items for which a decision has been previously rendered through the 
technical review process. Proposed Sec.  902.69(b)(3) would specify 
procedures for appealing the score for the Capital Fund program 
indicator.
    Proposed Sec.  902.69(c)(1) would be revised to address only the 
appeal and petition procedures in currently codified Sec.  
902.69(c)(1). As proposed to be revised, Sec.  902.69(c)(2) would 
specify the procedures for the appeal of the refusal of a petition to 
remove troubled performer designation, which is addressed in currently 
codified Sec.  902.69(c)(1). Proposed Sec.  902.69(c)(3) would provide 
that an appeal or petition must be submitted in writing to the Real 
Estate Assessment Center, Attention: Technical Review. The address is: 
Real Estate Assessment Center, 550 12th Street, SW., Suite 100, 
Washington, DC 20024-2135. Proposed Sec.  902.69(c)(4) would include 
information in currently codified Sec. Sec.  902.69(c)(1) and (c)(2) 
that requires the inclusion of appropriate supporting information.
    Proposed Sec.  902.69(d) would establish an appeal process for 
cases of denial, withholding, or rescission of a PHAS performance 
designation. Upon receipt of a request for reinstatement, the evidence 
submitted by the PHA will be reviewed to determine whether a 
reinstatement of the designation is warranted.
    Proposed Sec.  902.69(e) would establish a process for 
consideration of an appeal of an overall PHAS score, a troubled 
performer designation, or a petition to remove a troubled performer 
designation. HUD would evaluate the appeal and determine whether a 
reassessment of the PHA is warranted. There would no longer be a Board 
of Review as in the currently codified regulation.
    Proposed Sec.  902.69(e)(2) addresses the appeal of refusal to 
remove a troubled performer designation and provides that the decision-
making officials would be different individuals than those that 
evaluated the petition to remove a troubled performer designation.
    Proposed Sec.  902.69(f) would provide for final appeal decisions 
similar to the provisions in currently codified Sec.  902.69(e), but 
with some differences. Proposed Sec.  902.69(f) would specify the 
remedies available to HUD if HUD grants an appeal, including 
undertaking a new inspection, arranging for audit services, or other 
reexamination of the results of assessment of a PHA's financial, 
management, or Capital Fund program performance, as appropriate. 
Following such reassessment, HUD will issue a new score and performance 
designation. The proposed rule would remove the option available to HUD 
to extend the deadline for HUD's decision to an additional 30 days. 
Finally, the rule would provide that HUD's decision is final agency 
action.
Subpart G--PHAS Incentives and Remedies
    Section 902.71 (Incentives for high performers). Proposed Sec.  
902.71 would be largely the same as currently codified Sec.  902.71. 
The proposed rule would remove the material in Sec.  902.71(a)(1)(ii) 
concerning the frequency of physical inspection, because the remainder 
of the rule provides sufficient flexibility to relieve high-performing 
PHAs of monitoring requirements.
    Section 902.73 (PHAs with deficiencies). The heading of this 
section would be changed from the section heading for currently 
codified Sec.  902.73 to more accurately reflect the content in this 
section. This proposed section would remove the concept of the 
Improvement Plan and replace it with the concept of the Corrective 
Action Plan. This concept is consistent with the Corrective Action Plan 
terminology that is used in other program areas. If the PHA, under a 
Corrective Action Plan, fails to correct its deficiencies within the 
time period specified, HUD may take additional action, including, but 
not limited to, the remedies for substantial default.
    Section 902.75 (Troubled performers). The heading of this section 
would be changed from the section heading for currently codified Sec.  
902.75 (Referral to a Troubled Agency Recovery Center (TARC)). Proposed 
Sec.  902.75(a) removes the references to 24 CFR part 901 and the 
TARCs, because this proposed rule and accompanying proposed scoring 
documents will replace part 901, and because the TARCs, as noted 
previously, no longer exist. Their duties and responsibilities were 
transferred and assumed by HUD field offices in 2003.
    Proposed Sec. Sec.  902.75(b) and (c) cover the same subjects as 
currently codified Sec. Sec.  902.75(b) and (c); that is, remedial 
measures for troubled performers--albeit with revisions. Proposed Sec.  
902.75(b) would specify that a memorandum of agreement (MOA) is 
required for a troubled performer. Proposed Sec.  902.75(b)(3) would 
require identification of the party responsible for meeting each 
target. Proposed Sec.  902.75(b)(7) would: (1) Eliminate a reference to 
the Departmental Enforcement Center, which is now part of HUD's Office 
of General Counsel; and (2) add cross-references to HUD's statutory and 
regulatory remedial authority in place of the current summary.
    Proposed Sec. Sec.  902.75(d)(1) and (d)(2) would clarify the time 
frames in currently codified Sec. Sec.  902.75(d)(1) and (d)(2) by 
providing that the first- and second-year recovery periods are at least

[[Page 49551]]

12 months after issuance of the initial notice of troubled performer 
designation, and at least 24 months after issuance of the initial 
notice of troubled performer designation, respectively.
    Proposed Sec. Sec.  902.75(e) and (f) would largely be the same as 
the currently codified Sec. Sec.  902.75(e) and (f). However, proposed 
Sec.  902.75(e) would remove the reference in Sec.  902.75(e)(3) to the 
Director of the area TARC, which would be replaced by reference to the 
regional or field office Public Housing Director.
    Proposed Sec. Sec.  902.75(g) and (h) would be largely the same as 
the current Sec. Sec.  902.75(g) and (h), with the exception of 
proposed revisions to the example in Sec.  902.75(g)(3), to be 
consistent with the proposed definitions of the one- and two-year 
recovery periods in proposed Sec.  902.75(d). Proposed paragraph (i) 
would remove the reference to the TARCs.
    Section 902.79 (Verification and records). Proposed Sec.  902.79 
would provide for the document retention and verification requirements 
applicable to PHAs. The section would provide for penalties for failure 
to maintain the required documentation for the required time period.
    Section 902.81 (Resident petitions for remedial actions). Proposed 
Sec.  902.81 is based on currently codified Sec.  902.85 and would 
specify that residents of a PHA designated as troubled may petition HUD 
in writing for remedial action. The section would retain the 
requirement that 20 percent of the residents must support the petition, 
as is required in currently codified Sec.  902.85. The section would 
retain the reference to HUD's discretion over the determination as to 
whether a substantial default has occurred, and provide for HUD to 
respond in writing to a petition. The response would include the 
planned course of action and, where the action differs from that 
proposed by the residents, the reasons for the difference.
    Section 902.83 (Sanctions for troubled performer PHAs). Proposed 
Sec.  902.83 would provide for differing sanctions for small and large 
PHAs. If a PHA that is designated as troubled and has less than 1,250 
units fails to make substantial improvement within the recovery periods 
specified in proposed Sec.  902.75(d), HUD has the option of 
petitioning for the appointment of a receiver or taking possession of 
all or a portion of the PHA or a PHA project. In the case of a PHA with 
1,250 or more units that similarly fails, HUD shall petition for the 
appointment of a receiver. If a troubled performer PHA fails to execute 
the required MOA under Sec.  902.75, or fails to meet the requirements 
of the MOA, the PHA may be declared to be in substantial default. In 
this case, all the remedies under this rule and the 1937 Act are 
available. Failure to execute the MOA, however, is not the only basis 
for a finding of substantial default. A violation of the law, 
regulations, or the annual contributions contract (ACC) can also be a 
predicate for such a finding, in which case all available remedies 
would equally be available. The procedures applicable to a finding of 
substantial default are now provided in new part 907.
    Current Sec.  902.85 (Resident petitions for remedial action). This 
section is redesignated as Sec.  902.81, with only minor wording 
changes made.

II. New Part 907--Substantial Default by a Public Housing Agency

    This proposed rule would establish, in new part 907, the 
regulations governing the determination of, and remedies for, 
substantial default. The regulations applicable to substantial default 
are currently codified in HUD's PHAS regulations. However, a 
determination of substantial default is not limited to troubled 
performance or violation of PHAS requirements. Therefore, it is more 
appropriate for substantial default regulations to be codified in a 
separate CFR part. The following provides a section-by-section overview 
of new part 907.
    Section 907.1 (Purposed and scope). Proposed Sec.  907.1 would 
provide that the purpose of this part is to establish the regulations 
for determination of, and remedies for, substantial default. This 
section would clarify that nothing in this part limits the discretion 
of HUD to take any action available under section 6(j)(3)(A) of the 
1937 Act (42 U.S.C. 1437d(j)(3)(A)) to remedy a substantial default. 
HUD has flexible discretion both to determine substantial default and 
to apply the available remedies in any combination or order.
    Section 907.3 (Bases for substantial default). Proposed Sec.  907.3 
would describe the violations of laws and agreements, and the failures 
to act on the part of the PHA that may result in a declaration of 
substantial default.
    Section 907.5 (Procedures for declaring substantial default). 
Proposed Sec.  907.5(a) would describe the process for notification of 
substantial default.
    Section 907.5(b) would describe the opportunity of a PHA to respond 
or cure the default, except in cases of fraud, criminality, or an 
emergency posing an imminent threat to life and health.
    Proposed Sec.  907.5(c) would provide for a PHA to waive written 
notification of substantial default by HUD.
    Proposed Sec.  907.5(d) (Emergency situations) would describe the 
situations in which HUD may proceed to issue a default determination 
without giving the PHA an opportunity to respond.
    Section 907.7 (Remedies for substantial default). Proposed Sec.  
907.7 would list the actions that may be taken by HUD against a PHA 
upon a determination of substantial default.

III. Cost and Benefits of This Proposed Rule

    This proposed rule would significantly streamline PHAS by 
eliminating several PHA submissions, data collection requirements, and 
related processes. Through such streamlining, this proposed rule would 
reduce costs incurred by PHAs in compiling and submitting this 
information to HUD. In addition, the systems put in place to substitute 
for the data compilation and submissions would improve the assessment 
process, which would benefit PHAs, public housing residents, and 
taxpayers overall. The proposed rule would eliminate the requirement 
for PHAs to submit a management operation certification and to 
undertake resident satisfaction surveys, including pre- and post-survey 
administrative requirements. HUD is replacing these submission 
requirements with a system of on-site management reviews. Rather than 
requiring a PHA to prepare a detailed submission of various management 
indicators (inspections, work orders, security, etc.), HUD will assess 
conditions through an on-site review, consistent with the process 
utilized by HUD for its multifamily housing programs. Similarly, 
information obtained from the on-site reviews will better gauge the 
effectiveness of PHA efforts in the area of resident self-sufficiency 
and participation. Moreover, the current system of PHA self-
certification requires HUD to conduct certification reviews. The 
proposed rule would eliminate the need for these certification reviews. 
Additionally, the new system of on-site management reviews are intended 
to consolidate into one assessment tool what today are multiple 
reviews. Through these measures, the proposed rule reduces 
administrative costs associated with PHAS, while improving the accuracy 
of PHAS assessments.
    In seeking comment on this proposed rule, the Department would like 
to highlight the following:
    Vacancy rates. The Department believes that one of the primary 
responsibilities of a PHA is to provide housing opportunities by 
maintaining high occupancy levels. As a result, a

[[Page 49552]]

high weight is assigned in the management review to a project's non-
approved vacancy rate (the lower the rate, the higher the score). The 
Department seeks comment on the adequacy of the weight assigned to a 
project's vacancy rate. The Department also seeks comment on whether 
the measure should be improved or another measure added to encompass 
all vacancies, both approved and non-approved. Presently, the non-
approved vacancies are less than 4 percent, but all vacancies are 
around 9 percent. A measure of all vacancies could provide a broader 
focus for efforts to maximize the number of decent, safe, and sanitary 
units available for tenants. The ``approved'' vacancies are defined 
under 24 CFR 990.145.
    Resident satisfaction surveys. As indicated, the Department 
believes that the on-site management review is a better vehicle than 
the current resident survey to measure both project performance and 
resident satisfaction, consistent with the norms in HUD's own 
multifamily housing programs. However, the Department is particularly 
interested in views on practical methods for providing feedback to the 
PHA and assessing resident satisfaction, through surveys or other 
means.
    Unrestricted program balances and reserves. Presently, PHAs have on 
the order of $2.7 billion in public housing program reserves (also 
known as ``unrestricted current net assets''). The Department is 
concerned with high program balances in light of industry concerns over 
the backlog of capital and maintenance needs. On the other hand, the 
Department wants adequate cash balances at PHAs to cope with potential 
unexpected events, such as a downturn in tenant rental payments. The 
Department has decided to make this trade-off in favor of high cash 
balances. For example, the Department proposes a very conservative 
quick ratio standard of $1 of cash/cash equivalents for $1 of current 
liabilities. The Department seeks comment as to whether the PHAS 
scoring system should encourage the use of these reserves and suggested 
ways to do that.
    Capital Fund Indicator. As previously indicated, the proposed rule 
only includes scoring on Capital Fund obligations and expenditures. It 
does not include scoring related to other areas of Capital Fund program 
management, e.g., quality of contract administration or effective 
capital planning. The Department believes that such issues are best 
addressed through on-site program assessments. The Department, however, 
seeks comment as to whether other items should be added to the Capital 
Fund indicator.
    Verification of Tenant Income. The Department is strongly committed 
to the proper reporting of tenant income for eligibility and rent 
determinations and has developed various tools to assist PHAs in this 
process. The Department has chosen not to include any scoring related 
to the income verification process. Although important, income 
verification would be one of many ``compliance'' areas to which PHAs 
are subject. As with other similar areas, the Department has chosen not 
to score, for PHAS purposes, areas of compliance. Instead, performance 
is measured on more traditional real estate management indicators. 
Compliance items are considered separately and could be a source of 
corrective action; however, they are not scored. The Department seeks 
comment on this approach, specifically, to income verifications and, 
more broadly, on matters of compliance.

IV. Findings and Certifications

Information Collection Requirements

    The information collection requirements contained in this proposed 
rule have been submitted to the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). In 
accordance with the Paperwork Reduction Act, an agency may not conduct 
or sponsor, and a person is not required to respond to, a collection of 
information, unless the collection displays a currently valid OMB 
control number.
    The burden of the information collections in this proposed rule is 
estimated as follows:

                                       Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                                                     Estimated
                                                                     Number of     average time      Estimated
                Section reference                    Number of     responses per        for        annual burden
                                                    respondents     respondent      requirement     (in hours)
                                                                                    (in hours)
----------------------------------------------------------------------------------------------------------------
24 CFR 902.24 Database