Public Housing Assessment System (PHAS): Proposed Physical Condition Interim Scoring Notice, 63640-63654 [2011-26516]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 76, Number 198 (Thursday, October 13, 2011)]
[Notices]
[Pages 63640-63654]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-26516]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5526-N-01]


Public Housing Assessment System (PHAS): Proposed Physical 
Condition Interim Scoring Notice

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

ACTION: Notice.

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SUMMARY: This notice provides additional information to public housing 
agencies (PHAs) and members of the public about HUD's process for 
issuing scores under the Physical Condition Indicator of the PHAS under 
the PHAS Physical Condition Scoring Process notice published on 
February 23, 2011. This notice provides information to the public about 
the implementation of a point loss cap in the scoring process. This 
notice also proposes changes to definitions in the Dictionary of 
Deficiency Definitions that is an appendix to the PHAS notice on the 
physical condition scoring process. These proposed changes would affect 
the physical condition inspections process for both multifamily and 
public housing properties. This notice also provides information about 
the updated inspection software that will be used by inspector when 
conducting inspection. The changes made in this notice are discussed in 
the Supplementary Information section below.

DATES: Comment Due Date: November 14, 2011.

ADDRESSES: Interested persons are invited to submit comments on this 
notice and the revised Definitions to be included in the Dictionary of 
Deficiency Definitions, attached to this notice as an appendix, to the 
Regulations Division, Office of General Counsel, Department of Housing 
and Urban Development, 451 7th Street, SW., Room 10276, Washington, DC 
20410-0500. Communications must refer to the above docket number and 
title. There are two methods for submitting public comments. All 
submissions must refer to the above docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street, SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
https://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 
https://www.regulations.gov Web site can be viewed by other commenters 
and interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

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

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

FOR FURTHER INFORMATION CONTACT: Claudia J. Yarus, 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 at 202-475-8830 (this is not a toll-free number). 
Persons with hearing or speech impairments may access this number 
through TTY by calling the toll-free Federal Relay Service at 800-877-
8339.

SUPPLEMENTARY INFORMATION:

I. Purpose of This Notice

    The purpose of this notice is to describe the physical condition 
scoring process for the PHAS physical condition indicator. This notice 
is different from,

[[Page 63641]]

and supersedes, the February 23, 2011 notice in that it: (1) Describes 
the change to the scoring process through the implementation of a point 
loss cap; (2) proposes changes to certain definitions in the Dictionary 
of Deficiency Definitions; and (3) describes the updated inspection 
software that will be used by inspectors when conducting REAC 
inspections of HUD insured and assisted properties.

II. Background

1. Initial Changes to the Dictionary of Deficiency Definitions

    Since 2001, when the conference report on that fiscal year's 
appropriations bill (H.R. Conf. Rep. 106-988) directed HUD to ``assess 
the accuracy and effectiveness of the PHAS system and to take whatever 
remedial steps may be needed,'' and to perform a statistically valid 
test of PHAS, HUD has engaged in an extensive effort to ensure that the 
dictionary of deficiency definitions were responsive to industry 
concerns. HUD engaged a contractor, the Louis Berger group (the 
contractor) to perform the requested study; the contractor produced a 
final report in June, 2001, identifying 47 definitions in the 
Dictionary of Deficiency Definitions, published as Appendix 2 to the 
Public Housing Assessment System Physical Condition Scoring Process 
notice published on November 26, 2001 (66 FR 59084) and recommended 
modifications and minor changes to each.
    From 2001 to 2002, HUD and the contractor met with representatives 
from the multifamily industry, the public housing industry, and HUD's 
own multifamily and public housing staff to conduct informal 
discussions on proposed changes to various definitions in the 
Dictionary of Deficiency Definitions. It was emphasized to the 
participants that HUD was not seeking their opinions as a group or any 
official recommendations. Informed by these discussions, HUD then 
drafted the revisions to the definitions it proposed in a 2004 Federal 
Register Notice for public comment (see 69 FR 12474, March 16, 2004).
    The definitions for which changes were proposed were those that had 
been identified as causing the greatest inconsistency among contract 
inspectors. These proposed changes would affect the physical condition 
inspection process for both multifamily and public housing properties.

2. System Development and Changes to PASS and the Dictionary of 
Deficiency Definitions

    From 2004 to the present, HUD conducted an ongoing deliberative 
process to develop an updated physical inspection system, including an 
updated electronic system, that would incorporate the proposed changes 
to the Dictionary of Deficiency Definitions as well as an additional 
equity principle. To that end, HUD utilized the information obtained 
from the earlier consultations with industry groups. Accordingly, the 
system development process began with the incorporation of the revised 
Dictionary of Definitions, which the industry and other HUD 
stakeholders supported. The process was furthered by repeated informal 
industry contacts from 2004 to the present, which demonstrated to HUD 
that these changes, while proposed in 2004, are still desired by the 
industry and still address key areas of interest for the major actors. 
This repeated confirmation has led HUD to conclude that the newly 
developed system should incorporate the revised Dictionary of 
Definitions, as well as an additional principle into the scoring 
methodology and an updated inspection software tool.

3. Point Loss Cap

    One of the major changes made in this notice is the addition of a 
point loss cap. With the point loss cap, the scoring methodology would 
take into account the disproportionate effect on scoring that a single 
deficiency can have when there are relatively few buildings or units 
that are inspected in a project. Until this point, the scoring 
methodology has not accounted for this disproportionate effect in the 
physical inspections scores. This is an issue that has been the subject 
of repeated comments. These comments have been made consistently in the 
appeals of PASS scores under the original PHAS Rule, in informal 
communications with industry, and during industry conferences and 
meetings in which HUD staff are represented and they continue to be 
made by the industry members. In order to lessen this impact, HUD 
developed a mechanism to cap the number of points that would be 
deducted from the project score for any one deficiency.
    This mechanism, a point loss cap set at the inspectable area level, 
was developed in an effort to more precisely account for the impact of 
a single deficiency on a property score. These long standing comments 
on this component of the current scoring methodology, along with HUD's 
internal analysis of the impact of the proposed change in scoring, has 
led to the decision by HUD to add a point loss cap to the physical 
inspection system.

4. DCD 4.0 Inspection Software

    The DCD 4.0 is an updated inspection software that will replace the 
aging DCD 2.3.3 software originally developed in 1997. In addition to 
taking advantage of advances in technology, the core functionality of 
the inspection software has been modified to improve data collection. 
It employs a decision tree model that replaces the selection-based 
model of recording observed deficiencies. The inspection protocol 
remains unchanged, but the overall system includes the changes made to 
the Dictionary of Deficiency Definitions and the inclusion of a point 
loss cap determined at the inspectable area level.
    Incorporation of the revised definitions and point loss cap along 
with the DCD 4.0 Inspection Software has led to an overall physical 
inspection system broader in scope than what was proposed in the 2004 
Federal Register Notice. As a result, HUD is once again publishing 
proposed revisions to the Dictionary of Definitions for comment along 
with the new proposed change of a point loss cap. The proposed 
revisions to the Dictionary of Deficiency Definitions are included as 
Appendix 1 to this notice.

III. The Revised Physical Inspection Scoring Process

    Substantive revisions to the physical scoring process proposed in 
this notice include:
     A definition is added for ``point loss cap'' following the 
definition for ``normalized sub-area weight.''
     Under section 3, ``equity principles,'' a paragraph is 
added on the point loss cap.
     Under section 5, ``health and safety deficiencies,'' 
language is added reflecting both remediation and action to abate the 
deficiency; language relating to a deadline for transmittal of the 
deficiency report is removed.
     Under the same section, it is specified that if there are 
smoke detector deficiencies, the physical inspection score will include 
an asterisk.
     Under section 7, ``scoring using weighted averages,'' 
language is added related to the point loss cap.
     Under section 8, ``essential weights and levels,'' the 
point loss cap is added to the bulleted list.
     Under section 9, the title is revised to ``normalized area 
weights'' and the description of the calculation is revised.

[[Page 63642]]

     Under section 12, the examples of physical condition score 
calculations are substantially revised.
     Section 13, ``computing PHAS physical inspection scores,'' 
is revised.
     The examples of sampling weights for buildings in section 
14 are revised.
    The PHAS physical inspection generates comprehensive results, 
including physical inspection scores reported at the project level; 
area level scores for each of the five physical inspection areas, as 
applicable; and observations of deficiencies recorded electronically by 
the inspector at the time of the inspection.

1. Definitions

    The following are the definitions of the terms used in the physical 
condition scoring process:
    Criticality means one of five levels that reflect the relative 
importance of the deficiencies for an inspectable item. Appendix 1 
lists all deficiencies with their designated criticality levels, which 
vary from 1 to 5, with 5 being the most critical. Based on the 
criticality level, each deficiency has an assigned value that is used 
in scoring. Those values are as follows:

------------------------------------------------------------------------
                      Criticality                        Level    Value
------------------------------------------------------------------------
Critical..............................................        5     5.00
Very Important........................................        4     3.00
Important.............................................        3     2.25
Contributes...........................................        2     1.25
Slight Contribution...................................        1     0.50
------------------------------------------------------------------------

    Based on the importance of the deficiency as reflected by its 
criticality value, points are deducted from the project score. For 
example, a clogged drain in the kitchen is more critical than a damaged 
surface on a countertop. Therefore, more points will be deducted for a 
clogged drain than for a damaged surface.
    Deficiencies refer to specific problems that are recorded for 
inspectable items, such as a hole in a wall or a damaged refrigerator 
in the kitchen.
    Inspectable area means any of the five major components of the 
project: site, building exteriors, building systems, common areas, and 
dwelling units.
    Inspectable items refer to walls, kitchens, bathrooms, and other 
features that are inspected in an inspectable area. The number of 
inspectable items varies for each inspectable area, from 8 to 17. 
Weights are assigned to each item to reflect their relative importance 
and are shown in the Item Weights and Criticality Levels tables. The 
tables refer to the weight of each item as the nominal item weight, 
which is also known as the amenity weight.
    Normalized area weight represents weights used with area scores to 
calculate project-level scores. The weights are adjusted to reflect the 
inspectable items actually present at the time of the inspection. These 
weights are proportional, as follows:
     For dwelling units, the area score is the weighted average 
of sub-area scores for each unit, weighted by the total of item weights 
present for inspection in each unit, which is referred to as the 
amenity weight.
     For common areas, the area score is the weighted average 
of sub-area common area scores weighted by the total weights for items 
available for inspection (or amenity weight) in each residential 
building common area or common building. Common buildings refer to any 
inspectable building that contains no dwelling units. All common 
buildings are inspected.
     For building exteriors or building systems, the area 
scores are weighted averages of sub-area scores.
     For sites, the area score is calculated as follows: (1) 
The amenity weights found on a site, (2) minus deductions for 
deficiencies, and (3) normalized to a 100-point scale.
    Normalized sub-area weight means the weight used with sub-area 
scores to compute an inspectable area score. These weights are 
proportional:
     For dwelling units, the item weight of amenities available 
in the unit at the time of inspection is the amenity weight.
     For common areas, the common area amenity weight is 
divided by a building's probability of being selected for inspection. 
All residential buildings with common areas may not be selected for 
inspection; however, all buildings with common areas are used to 
determine the amenity weight.
     For building exterior and building systems, the building 
exterior or building system amenity weight is multiplied by the 
building's size (number of units) and then divided by its probability 
of being selected for inspection.
     For the site, there is no sub-area score. For each 
project, there is a single site.
    Note that dividing by a building's probability of being selected 
for inspection is the same as multiplying by the probability weight 
since the probability weight is 1 divided by the probability of being 
selected for inspection.
    Point loss cap is the maximum number of points that a single 
deficiency can count against the overall property score. The point loss 
cap for each inspectable area is:

------------------------------------------------------------------------
                                                          Maximum point
                                                         deduction for a
                   Inspectable area                          single
                                                           deficiency
------------------------------------------------------------------------
Site..................................................               7.5
Building Exterior.....................................              10.0
Building System.......................................              10.0
Common Areas..........................................              10.0
Dwelling Units........................................               5.0
------------------------------------------------------------------------

    Project is used synonymously with the term ``property.''
    Severity means one of three levels that reflect the extent of 
damage associated with each deficiency, with values assigned as 
follows:

------------------------------------------------------------------------
                    Severity level                            Value
------------------------------------------------------------------------
3.....................................................              1.00
2.....................................................              0.50
1.....................................................              0.25
------------------------------------------------------------------------

    The Item Weights and Criticality Levels tables show the severity 
levels that are possible for each deficiency. Based on the severity of 
each deficiency, the score is reduced. Points deducted are calculated 
by multiplying the item weight by the values for criticality and 
severity, as described below. For specific definitions of each severity 
level, see the Dictionary of Deficiency Definitions.
    Score means a number between 0 and 100 that reflects the physical 
condition of a project, inspectable area, or sub-area. A property score 
includes both an alphabetical and a numerical component. The number 
represents an overall score for the basic physical condition of a 
property, including points deducted for health and safety deficiencies 
other than those associated with smoke detectors. The letter code 
specifically indicates whether health and safety deficiencies were 
detected, as shown in the chart below:

[[Page 63643]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Health and safety deficiencies
                                                                             ---------------------------------------------------------------------------
                                                             No health and                        Life threatening               Fire safety
       Physical inspection score alphanumeric codes              safety            Non-life         (LT)/exigent   -------------------------------------
                                                              deficiencies    threatening (NLT)  health and safety  No smoke detector    Smoke detector
                                                                                                       (EHS)             problems           problems
--------------------------------------------------------------------------------------------------------------------------------------------------------
a........................................................                 X   .................  .................                 X   .................
a*.......................................................                 X   .................  .................  .................                 X
b........................................................  .................                 X   .................                 X   .................
b*.......................................................  .................                 X   .................  .................                 X
c........................................................  .................  .................                 X                  X   .................
c*.......................................................  .................  .................                 X   .................                 X
--------------------------------------------------------------------------------------------------------------------------------------------------------

    To record a health or safety problem, a letter is added to the 
project score (a, b, or c) and to note that one or more smoke detectors 
are inoperable or missing an asterisk (*) is added to the project 
score. The project score for properties with LT deficiencies will have 
a ``c'' whether or not there also are NLT deficiencies.
    Sub-area means an area that will be inspected for all inspectable 
areas except the site. For example, the building exterior for building 
``2'' is a sub-area of the building exterior area. Likewise, unit ``5'' 
would be a sub-area of the dwelling units area. Each inspectable area 
for each building in a property is treated as a sub-area.

2. Scoring Protocol

    To generate accurate scores, the inspection protocol includes a 
determination of the appropriate relative weights of the various 
components of the inspection; that is, which components are the most 
important, the next most important, and so on. For example, in the 
building exterior area, a blocked or damaged fire escape is more 
important than a cracked window, which is more important than a broken 
light fixture. The Item Weights and Criticality Levels tables provide 
the nominal weight of observable deficiencies by inspectable item for 
each area/sub-area. The Dictionary of Deficiency Definitions provides a 
definition for the severity of each deficiency in each area/sub-area.

3. Equity Principles

    In addition to determining the appropriate relative weights, 
consideration is also given to several issues concerning equity between 
properties so that scores fairly assess all types of properties:
    Proportionality. The scoring methodology includes an important 
control that does not allow any sub-area scores to be negative. If a 
sub-area, such as the building exterior for a given building, has so 
many deficiencies that the sub-area score would be negative, the score 
is set to zero. This control mechanism ensures that no single building 
or dwelling unit can affect the overall score more than its 
proportionate share of the whole.
    Configuration of project. The scoring methodology takes into 
account different numbers of units in buildings. To fairly score 
projects with different numbers of units in buildings, the area scores 
are calculated for building exteriors and systems by using weighted 
averages of the sub-area scores, where the weights are based on the 
number of units in each building and on the building's probability of 
being selected for inspection. In addition, the calculation for common 
areas includes the amenities existing in the residential common areas 
and common buildings at the time of inspection.
    Differences between projects. The scoring methodology also takes 
into account that projects have different features and amenities. To 
ensure that the overall score reflects only items that are present to 
be inspected, weights to calculate area and project scores are adjusted 
depending on how many items are actually there to be inspected.
    Point loss cap. The scoring methodology further takes into account 
that a single deficiency can have disproportionate effects on scoring 
when there are relatively few buildings or units that are inspected in 
a project. To mitigate any disproportionate impact, the number of 
points deducted from the project score for any one deficiency is 
capped. Point loss caps are set at the inspectable area level.

4. Deficiency Definitions

    During a physical inspection of a project, the inspector looks for 
deficiencies for each inspectable item within the inspectable areas, 
such as the walls (the inspectable item) of a dwelling unit (the 
inspectable area). Based on the observed condition, the Dictionary of 
Deficiency Definitions defines up to the three levels of severity for 
each deficiency: Level 1 (minor), Level 2 (major), and Level 3 
(severe). The associated values are shown in the definition of 
``severity'' in Section V.1. A specific criticality level, with 
associated values as shown in that chart, is also assigned to each 
deficiency. The criticality level reflects the importance of the 
deficiency relative to all other possible observable deficiencies for 
the inspectable area.

5. Health and Safety Deficiencies

    The UPCS physical inspection emphasizes health and safety (H&S) 
deficiencies because of their crucial impact on the well-being of 
residents. A subset of H&S deficiencies is exigent health and safety 
(EHS) deficiencies. These are life threatening (LT) and require 
immediate action or remedy. EHS deficiencies can substantially reduce 
the overall project score. As noted in the definition for the word 
``score'' in the Definitions section, all H&S deficiencies are 
highlighted by the addition of a letter to the numeric score. The Item 
Weights and Criticality Levels tables list all H&S deficiencies with an 
LT designation for those that are EHS deficiencies and an NLT 
designation for those that are non-life threatening. The LT and NLT 
designations apply only to severity level 3 deficiencies.
    To ensure prompt correction, remedy or action to abate of H&S 
deficiencies, the inspector gives the project representative a 
deficiency report identifying every observed EHS deficiency before the 
inspector leaves the site. The project representative acknowledges 
receipt of the deficiency report by signature. HUD makes available to 
all PHAs an inspection report that includes information about all of 
the H&S deficiencies recorded by the inspector. The report shows:
     The number of H&S deficiencies (EHS and NLT) that the 
inspector observed;
     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.
    If there are smoke detector deficiencies, the physical conditions 
score will include an asterisk. However,

[[Page 63644]]

problems with smoke detectors do not currently affect the overall 
score. When there is an asterisk indicating that the project has at 
least one smoke detector deficiency, that part of the score may be 
identified as ``risk;'' for example, ``93a, risk'' for 93a*, and ``71c, 
risk'' for 71c*. There are six distinct letter grade combinations based 
on the H&S deficiencies and smoke detector deficiencies observed: a, 
a*, b, b*, c, and c*. For example:
     A score of 90c* means that the project contains at least 
one EHS deficiency to be corrected, including at least one smoke 
detector deficiency, but is otherwise in excellent condition.
     A score of 40b* means the project is in poor condition, 
has at least one non-life threatening deficiency, and has at least one 
missing or inoperable smoke detector.
     A score of 55a means that the project is in poor 
condition, even though there are no H&S deficiencies.
     A project in excellent physical condition with no H&S 
deficiencies would have a score of 90a to 100a.

6. Scoring Process Elements

    The physical condition scoring process is based on three elements 
within each project: (1) Five inspectable areas (site, exterior, 
systems, common areas, and dwelling units); (2) inspectable items in 
each inspectable area; and (3) observed deficiencies.

7. Scoring Using Weighted Averages

    The score for a property is the weighted average of the five 
inspectable area scores, where area weights are adjusted to account for 
all of the inspectable items that are actually present to be inspected. 
In turn, area scores are calculated by using weighted averages of sub-
area scores (e.g., building area scores for a single building or unit 
scores for a single unit) for all sub-areas within an area.
    For all areas except the site, normalized sub-area weights are 
determined using the size of sub-areas, the items available for 
inspection, and the sub-area's probability of selection for inspection. 
Sub-area scores are determined by deducting points for deficiencies, 
including H&S deficiencies, based on the importance (weight) of the 
item, the criticality of the deficiency, and the severity of the 
deficiency. The maximum deduction for a single deficiency cannot exceed 
the point cap for the inspectable area where the deficiency is observed 
and a sub-area score cannot be less than zero. Also, points will be 
deducted only for one deficiency of the same kind within a sub-area. 
For example, if multiple deficiencies for broken windows are recorded, 
only the most severe deficiency observed (or one of the most severe, if 
there are multiple deficiencies with the same level of severity) will 
result in a point deduction.

8. Essential Weights and Levels

    The process of scoring a project's physical condition depends on 
the weights, levels, and associated values of the following quantities:
     Weights for the 5 inspectable areas (site, building 
exteriors, building systems, common areas, and dwelling units).
     Weights for inspectable items within inspectable areas (8 
to 17 per area).
     Criticality levels (critical, very important, important, 
contributes, and slight contribution) plus their associated values for 
deficiencies within areas inspected.
     Severity levels (3, 2, and 1) and their associated values 
for deficiencies.
     Health and safety deductions (exigent/fire safety and non-
life threatening for all inspectable areas).
     Point loss cap, defined at the inspectable area level.

9. Normalized Area Weights

    Area weights are used to obtain a weighted average of area scores. 
A project's overall physical condition score is a weighted average of 
all inspectable area scores. The nominal weights are:

------------------------------------------------------------------------
                                                                Weight
                      Inspectable area                        (percent)
------------------------------------------------------------------------
Site.......................................................           15
Building Exterior..........................................           15
Building Systems...........................................           20
Common Areas...............................................           15
Dwelling Units.............................................           35
------------------------------------------------------------------------

     These weights are assigned for all inspections when all 
inspectable items are present for each area and for each building and 
unit. All of the inspectable items may not be present in every 
inspectable area. When items are missing in an area, the area weights 
are modified to reflect the missing items so that within that area they 
will add up to 100 percent. Area weights are recalculated when some 
inspectable items are missing in one or more area(s).
    Although rare, it is possible that an inspectable area could have 
no inspectable items available; for example, there could be no common 
areas in the inspected residential buildings and no common buildings. 
In this case, the weight of the ``common areas'' would be zero percent 
and its original 15 percent weight would be equitably redistributed to 
the other inspectable areas. The 15 percent is redistributed by 
totaling the weights of other inspectable areas (15 + 15 + 20 + 35 = 
85) and dividing the weights of each by that amount (0.85, which is 85% 
expressed as a decimal). The modified weights are 17.6 percent, 17.6 
percent and 23.5 percent, zero percent, and 41.2 percent for site, 
building exterior, building systems, common areas, and units, 
respectively, and they add up to 100 percent.

10. Area and Sub-Area Scores

    For inspectable areas with sub-areas (all areas except sites), the 
inspectable area score is a weighted average of the sub-area scores 
within that area. The scoring protocol determines the amenity weight 
for the site and each sub-area as noted in Section VI.1 under the 
definition for normalized sub-area weight. For example, a property with 
no fencing or gates in the inspectable area of the site would have an 
amenity weight of 90 percent or 0.9 (100 percent minus 10 percent for 
lack of fencing and gates), and a single dwelling unit with all items 
available for inspection, except a call-for-aid would have an amenity 
weight of 0.98 or 98 percent (100 percent minus 2 percent for lack of 
call-for-aid). A call-for-aid is a system designed to provide elderly 
residents the opportunity to call for help in the event of an 
emergency.
    The amenity weight excludes all health and safety items. Each 
deficiency as weighted and normalized are subtracted from the sub-area 
or site-weighted amenity score. Sub-area and site area scores are 
further reduced for any observed health and safety deficiencies. These 
deductions are taken at the site, building, or unit level. At this 
point, a control is applied to prevent a negative site, building, or 
unit score. The control ensures that no single building or unit can 
affect an area score more than its weighted share.

11. Overall Project Score

    The overall project score is the weighted average of the five 
inspectable area scores, with the five areas weighted by their 
normalized weights. Normalized area weights reflect both the initial 
weights and the relative weights between areas of inspectable items 
actually present. For reporting purposes, the number of possible points 
is the normalized area weight adjusted by multiplying by 100 so that 
the possible points for the five areas add up to 100. In the Physical 
Inspection Report for each project that is sent to the PHA, the 
following items are listed:
     Normalized weights as the ``possible points'' by area;

[[Page 63645]]

     The area scores, taking into account the points deducted 
for observed deficiencies;
     The deductions for H&S for each inspectable area; and
     The overall project score.
    The Physical Inspection Report allows the PHA and the project 
manager to see the magnitude of the points lost by inspectable area and 
the impact on the score of the H&S deficiencies.

12. Examples of Physical Condition Score Calculations

    The physical inspection scoring is deficiency based. All projects 
start with 100 points. Each deficiency observed reduces the score by an 
amount dependent on the importance and severity of the deficiency, the 
number of buildings and units inspected, the inspectable items actually 
present to be inspected, and the relative weights between inspectable 
items and inspectable areas.
    The calculation of a physical condition score is illustrated in the 
examples provided below. The examples go through a number of interim 
stages in calculating the score, illustrating how sub-area scores are 
calculated for a single project, how the sub-area scores are rolled up 
into area scores, how the point cap is applied, and how area scores are 
combined to calculate the overall project score. One particular 
deficiency, missing/damaged/expired fire extinguishers, is carried 
through the example.
    As will be seen, the deduction starts as a percent of the sub-area. 
Then the area score is decreased considerably in the final overall 
project score since it is averaged across other sub-areas (building 
systems in the example) and then averaged across the five inspectable 
areas. Last, as applicable, the points deducted due to the observance 
of a particular deficiency are reduced by the application of the point 
loss cap. Although interim results in the examples are rounded to one 
decimal, only the final results are rounded for actual calculations.
    Following this section, another example is given specifically for 
public housing projects to show how project scores are rolled up into 
the PHAS physical indicator score for the PHA as a whole.

    Example #1. This example illustrates how the score for a sub-
area of building systems is calculated based on the following 
features.
    Consider a project for which the five inspectable areas are 
present and during the inspection of a residential building with 28 
units missing/damaged/expired fire extinguishers are observed. This 
deficiency has a severity level of 3, which has a severity weight of 
1.00 (see Item 1 of this section); a criticality level of 5, which 
has a criticality weight of 5 (see Item 1 of this section); and an 
item weight of 15.5. The amount of the points deducted is the item 
weight (15.5), multiplied by the criticality weight (5), multiplied 
by the severity weight (1), which equals 77.5.
    If this sub-area has all inspectable items, the amenity weight 
for the sub-area adds to 100%. If missing/damaged/expired fire 
extinguishers is the only deficiency observed, the initial 
proportionate score for this sub-area (building systems in building 
one) is the amenity score minus the deficiency points, normalized to 
a 100-point basis. In this instance the initial proportionate sub-
area score is 100 - 77.5 = 22.5 x (100 / 100) = 22.5. Because the 
point deduction for the missing/damaged/expired fire extinguishers 
is 77.5, this deficiency accounts for 77.5% of the sub-area score. 
Additional deficiencies or H&S deficiencies would be calculated in 
the same manner and further decrease the sub-area score, and if the 
result is less than zero (a negative number) the score is set to 
zero.

------------------------------------------------------------------------
              Element                          Associated value
------------------------------------------------------------------------
Amenity Score......................  100.0
Deficiency points..................  77.5
Calculation for the initial          100.00 - 77.5 = 22.5
 proportionate score.
Normalizing factor.................  100 / 100 = 1
Normalized Initial sub-area score..  22.5 x 1 = 22.5
------------------------------------------------------------------------

    Example #2. This example illustrates how the building systems 
inspectable area score is calculated from the sub-area score. 
Consider a property with two buildings with the following 
characteristics:
     Building One (from example 1 above):

--28 units
--100 percent amenity weight for items that are present to be 
inspected in building systems
--Building systems sub-area score is 22.5 points

     Building Two:

--2 units
--62 percent amenity weight for items that are present to be 
inspected in the building's systems
--Building systems sub-area score is 100.0 points

    The score for the building systems area is the weighted average 
of the individual scores for each building's systems. Each building 
systems score is weighted by the number of units and the percent of 
the weight for items present to be inspected in the building systems 
inspectable area.
    The building systems area score is determined as follows. First, 
the unit weighted average for each building is computed by 
multiplying the number of units in the building by the amenity 
weight for that building. The unit weighted average for each 
building then is divided by the total of the building weights for 
all buildings in the property to determine the proportion of 
building weight for each building. Multiplying the proportion of 
building weight by the initial sub-area score for the building 
produces the building systems area score. The building systems area 
score for the property is the sum of the building systems area score 
for each building.
    In this example, the buildings systems area score for the 
property is 25.7.

------------------------------------------------------------------------
                                                                 Unit
           Building             Number of   x   Amenity    =   weighted
                                  units          weight         average
------------------------------------------------------------------------
One...........................         28           1.00            28.0
Two...........................          2            .62            1.24
                               -----------------------------------------
    Total.....................         30      .........  ..       29.24
------------------------------------------------------------------------


------------------------------------------------------------------------
                                          Sum of           Proportion of
      Unit weighted average        /     building     =      building
                                          weights             weight
------------------------------------------------------------------------
28.0............................              29.24                 .958
1.24............................              29.24                 .042
---------------------------------
29.24
------------------------------------------------------------------------


[[Page 63646]]


------------------------------------------------------------------------
                                                             Building
Proportion of building weight   x     Initial sub-    =    systems area
                                       area score              score
------------------------------------------------------------------------
.958.........................                  22.5                 21.5
.042.........................                 100.0                  4.2
                                   -------------------------------------
                                    ...............                 25.7
------------------------------------------------------------------------

    As shown in the calculations above, the proportion of building 
weight allocated to building one is 95.8% (28.0 / 29.24 = .958). A 
building systems area score of 25.7 indicates that the point 
deduction for the missing/damaged/expired fire extinguishers in 
building one is 74.2 points: The number of points deducted at the 
sub-area (from example 1) multiplied by the proportion of 
building weight allocated to building one, or 77.5 x .958 = 74.2.
    Example #3. This example illustrates how the overall weighted 
average for the building systems area amenity weight is calculated. 
The unit weighted average of amenity weight for each building is 
computed by dividing the unit weighted average for the building (as 
calculated in example 2) by the total number of units in 
the property. Normalizing the unit weighted average of amenity 
weights for each building by multiplying by 100 results in the 
overall building systems weighted average amenity weight. In this 
example, the overall building systems weighted average amenity 
weight for the property is 97.4.

----------------------------------------------------------------------------------------------------------------
                                                                                                      Overall
                                                                  Unit                               building
                                 Unit            Total          weighted         Normalized           systems
          Building             weighted    /    units in   =   average of   x     to a 100    =      weighted
                                average         property         amenity        point basis           average
                                                                 weights                          amenity weight
----------------------------------------------------------------------------------------------------------------
One.........................        28.0              30             .933               100                 93.3
Two.........................        1.24              30             .041               100                  4.1
                             -----------------------------------------------------------------------------------
    Total...................       29.24       .........       ..........       ...........                 97.4
----------------------------------------------------------------------------------------------------------------

    Example #4. This example illustrates how the score for a 
property is calculated. Consider a property with the following 
characteristics. All of the values are presumed except for the 
values buildings systems which were calculated in the preceding 
examples.
     Site

--Score: 90 points
--67.5 percent weighted average amenity weight
--Nominal area weight: 15 percent

     Building Exteriors

--Score: 85 points
--100 percent weighted average amenity weight
--Nominal area weight: 15 percent

     Building Systems (from Examples 2 and 3)

--Score: 25.7 points
--97.4 percent weighted average amenity weight
--Nominal area weight: 20 percent

     Common Areas

--Score: 77 points
--20 percent weighted average amenity weight
--Nominal area weight: 15 percent

     Dwelling Units

--Score: 85 points
--94 weighted average amenity weight
--Nominal area weight: 35 percent

    To calculate the property score, the adjusted area weights for 
all five inspectable areas are determined. The amenity weights for 
each of the five inspectable areas shown in the table below are all 
presumed, except for the amenity weight for building systems that 
was calculated in the three examples above.
    The property score is determined as follows. The amenity 
weighted average is computed by multiplying the nominal area weight 
for the inspectable area (see Item 1 of this Section) by the amenity 
weight (presumed for the example). Next, the amenity weighted 
averages for the five inspectable areas are added to determine the 
total adjusted weight (80.5 in this example). to determine the 
maximum possible points for the inspectable area, each amenity 
weighted average is divided by the total adjusted weight and then 
multiplied by 100 to normalize the result. The sum of the five 
maximum inspectable area points is the total number of possible 
points for the property. In this example, the maximum possible 
points, 99.9, was rounded to 100.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Normalized
                                                            Nominal         Amenity          Amenity          Total           to 100           Maximum
                    Inspectable area                         area      x     weight    =    weighted    /    adjusted   x      point     =     possible
                                                            weight                           average          weight           scale         area points
--------------------------------------------------------------------------------------------------------------------------------------------------------
Site....................................................          15           0.675             10.1            80.5              100              12.5
Building Exterior.......................................          15            1.00             15.0            80.5              100              18.6
Building Systems........................................          20           0.974             19.5            80.5              100              24.2
Common Areas............................................          15            0.20              3.0            80.5              100               3.7
Dwelling Units..........................................          35            0.94             32.9            80.5              100              40.9
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................  ..........       .........             80.5       .........       ..........             100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Before the final property score is calculated, the points 
deducted for each deficiency are checked against the point loss cap 
in the applicable inspectable area to assure that no single 
deficiency results in the deduction of too many points. For the 
missing/damaged/expired fire extinguishers in building one, the 
points deducted under building systems will be the result of 
multiplying the number of building systems points deducted for the 
deficiency (74.2 as determined in example 2) by the 
proportion of total points allocated to the building systems 
inspectable area (.242 from the table above). In this example, the 
points deducted for this deficiency would be 74.2 x .242 = 18.0. 
Because the point loss cap for building systems is 10 points, this 
18.0 point deduction exceeds the cap. Therefore, the total points 
deducted due to the missing/damaged/expired fire extinguishers 
deficiency in building one is reduced to 10.
    There are four steps to implement the point deduction in the 
final score. First, the points

[[Page 63647]]

lost at the area level are set. For this property, the building 
systems points deducted due to missing/damaged/expired fire 
extinguishers is set by dividing the point cap (10) by the 
proportion of total points allocated to building systems (.242), or 
10 /.242 = 41.3.
    Second, the building systems sub-area weight for building one is 
set. This is determined by dividing the points lost at the area 
level (41.3) by the proportion of building weight for building one 
(.958), or 41.3 / .958 = 43.1
    Third, the building one building systems sub-area score is 
recalculated by summing the building systems deficiencies in 
building one. In example 1, the missing/damaged/expired 
fire extinguishers is the only deficiency in this sub-area. 
Therefore, the recalculated sub-area score for building one building 
systems is the amenity score (100) minus the building systems sub-
area deficiency points (43.1), or 100 - 43.1 = 56.9.
    The last step in the application of the point loss cap is the 
determination of the building systems area score for the property.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Sum of
                                                        Number of        Amenity           Unit             the             Initial            Building
                       Building                           units     x     weight    =    weighted    /    building   x   proportionate   =     systems
                                                                                          average         weights            score            area score
--------------------------------------------------------------------------------------------------------------------------------------------------------
One...................................................         28            1.00             28.0           29.24               56.9               54.5
Two...................................................          2            0.62             1.24           29.24              100.0                4.2
                                                       -------------------------------------------------------------------------------------------------
    Total.............................................         30       .........            29.24       .........       .............              58.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The recalculated building systems area score is 58.7 points, and 
will be rounded to 59. This area score is used to calculate the 
overall property score.
    The nominal possible points for each inspectable area is 
multiplied by the amenity weight, divided by the total adjusted 
amenity weight, and normalized to a 100-point basis, in order to 
produce the possible points for the inspectable area. The property 
score is the sum of all weighted inspectable area scores for that 
property. The example below reflects how the missing/damaged/expired 
fire extinguishers deficiency from example 1 in building 
systems impacts the overall property score. In this example, the 
property score of 78.9 is rounded to 79.

----------------------------------------------------------------------------------------------------------------
                                                                                    Normalized         Project
                   Inspectable area                      Area    x     Area    /     to a 100    =     weighted
                                                        points        score        point scale       area scores
----------------------------------------------------------------------------------------------------------------
Site.................................................     12.5            90               100              11.2
Building Exterior....................................     18.6            85               100              15.8
Building Systems.....................................     24.2            59               100              14.3
Common Areas.........................................      3.7            77               100               2.8
Dwelling Units.......................................     40.9            85               100              34.8
                                                      ----------------------------------------------------------
    Total............................................    100.0       .......       ...........              78.9
----------------------------------------------------------------------------------------------------------------

13. Computing the PHAS Physical Inspection Score

    The physical inspection score for the PHAS for a PHA is the 
weighted average of the PHA's individual project physical inspection 
scores, where the weights are the number of units in each project 
divided by the total number of units in all projects for the PHA.

    Example: Project 1 has a score of 79 and has 30 units (from the 
example above)
    Project 2 has a score of 88 and has 600 units.
    The overall PHAS score is computed as follows:
Score = [79 x 30/(30+600)] + [88 x 600/(30+600)]
    = 3.76 + 83.81
    = 87.57 that rounds to an overall physical inspection score of 
88.

14. Examples of Sampling Weights for Buildings

    The determination of which buildings will be inspected is a two-
phase process. In Phase 1 of the process, all common buildings and 
buildings that contain sampled dwelling units that will be inspected 
are included in the sampled buildings that will be inspected. (Dwelling 
units are sampled with equal probabilities at random from all 
buildings.) When all buildings in a project are not selected in the 
building sample through Phase 1, Phase 2 is used to increase the size 
of the building sample. In Phase 2, the additional buildings that are 
to be included in the sample are selected with equal probabilities so 
that the total residential building sample size is the lesser of either 
(1) the dwelling unit sample size, or (2) the number of residential 
buildings.
    To illustrate the process for sampling buildings, two examples are 
provided below:

    Example #1. This example illustrates a project with two 
buildings for which both buildings are sampled with certainty.
    Building 1 has 10 dwelling units and building 2 has 20 dwelling 
units, for a total of 30 dwelling units. The target dwelling unit 
sample size for a project with 30 dwelling units is 15. Thus, the 
sampling ratio for this project is the total number of dwelling 
units divided by the unit sample size, or 30 / 15 = 2. This means 
that every second dwelling unit will be selected. The number of 
residential buildings to be inspected is the minimum of 15 (the 
dwelling unit sample) and 2 (the number of residential buildings). 
Thus, 2 residential buildings will be inspected. Since both 
buildings have at least 2 dwelling units, both buildings are certain 
to be selected for inspection in Phase 1. Since all buildings were 
selected in Phase 1 of sampling, Phase 2 is not invoked. Both 
buildings will then have a selection probability of 1.00 and a 
sampling weight of 1.00.
    Example #2. This example illustrates a project with some 
buildings selected in Phase 1, other buildings selected in Phase 2, 
and some buildings that are not selected at all.
    The project is comprised of 22 residential buildings. Two of the 
buildings each have 10 dwelling units and the other 20 buildings are 
single-family dwelling units, for a total of 40 dwelling units (2 x 
10) + 20 = 40. The target dwelling unit sample size for a project 
with 40 dwelling units is 16. The sampling ratio for this project is 
the total number of units divided by the unit sample size, or 40 /16 
= 2.5. In accordance with the inspection protocol of inspecting the 
minimum of the dwelling unit sample (16) and the number of 
residential buildings (22), 16 of the residential buildings will be 
inspected for this project.
    In Phase 1 of sampling, the two buildings with 10 dwelling units 
are selected with certainty since each building has more than 2.5 
dwelling units. Each of the single-family buildings has a 1 / 2.5 or 
0.40 probability of selection in Phase 1.
    Assume that both multi-unit buildings and eight of the single-
family buildings (10 buildings in all) are selected in Phase 1. This 
leaves 12 single-family buildings available

[[Page 63648]]

for selection in Phase 2. Since 16 residential buildings will be 
inspected, the sample of 10 buildings selected in Phase 1 falls six 
buildings short of a full sample. Therefore, six buildings will be 
selected in Phase 2. Since Phase 2 sampling will select 6 of the 12 
previously unselected buildings, each building not selected in Phase 
1 will have a six in 12 (0.50) probability of selection in Phase 2.
    The two multi-unit buildings each have a sampling probability 
calculated as follows:
    Sampling probability = 1.00 + ((1.00-1.00) x 0.50) = 1.00. The 
sampling weight for these buildings is 1.
    The single-family buildings each have a sampling probability 
calculated as follows:
    Sampling probability = 0.40 + ((1.00-0.40) x 0.50) = 0.70. The 
sampling weight of selected single-family buildings is 1 / 0.70 = 
1.43.

15. Accessibility Questions

    HUD reviews particular elements during the physical inspection to 
determine possible indications of noncompliance with the Fair Housing 
Act (42 U.S.C. 3601-3619) and section 504 of the Rehabilitation Act of 
1973 (29 U.S.C. 794). More specifically, during the physical 
inspection, the inspector will record if: (1) There is a wheelchair-
accessible route to and from the main ground floor entrance of the 
buildings inspected; (2) the main entrance for every building inspected 
is at least 32 inches wide, measured between the door and the opposite 
door jamb; (3) there is an accessible route to all exterior common 
areas; and (4) for multi-story buildings that are inspected, the 
interior hallways to all inspected units and common areas are at least 
36 inches wide. These items are recorded, but do not affect the score.

IV. Environmental Review

    This notice provides operating instructions and procedures in 
connection with activity under the Public Housing Assessment System 
regulations at 24 DFR part 902 that have previously been subject to the 
required environmental review. Accordingly, under 24 CFR 50.19(c)(4), 
this notice is categorically excluded from environmental review under 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

    Dated: September 26, 2011.
Sandra B. Henriquez,
Assistant Secretary for Public and Indian Housing.

Appendix I--Proposed Changes to Dictionary of Deficiency Definitions

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Current 2.3
      Inspectable area            Inspectable item               Deficiency                definition        Proposed definition      Change rationale
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Building Exterior.......  Walls.....................  Damaged Chimneys..........  The chimney,           The chimney,           This is a technical
                                                                                      including the part     including the part     modification to
                                                                                      that extends above     that extends above     include deficiencies
                                                                                      the roofline, has      the roofline, has      for chimney caps as
                                                                                      separated from the     separated from the     a Level 1
                                                                                      wall or has cracks,    wall or has cracks,    deficiency.
                                                                                      spalling, missing      spalling, missing
                                                                                      pieces, or broken      pieces, or broken
                                                                                      sections.              sections (including
                                                                                                             chimney caps).
2. Building Exterior.......  Windows...................                              Window systems         Window systems         This provision
                                                                                      provide light,         provide light,         eliminates the
                                                                                      security, and          security, and          confusion of