Public Housing Evaluation and Oversight: Changes to the Public Housing Assessment System (PHAS) and Determining and Remedying Performance Deficiencies, 87518-87532 [2024-25469]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 89, Number 213 (Monday, November 4, 2024)]
[Proposed Rules]
[Pages 87518-87532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25469]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 89, No. 213 / Monday, November 4, 2024 / 
Proposed Rules

[[Page 87518]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5 and 902

[Docket No. FR-6356-P-01]
RIN 2577-AD17


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

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

ACTION: Proposed rule.

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SUMMARY: The Public Housing Assessment System (PHAS) governs the 
assessments, evaluation, and oversight of public housing agencies 
(PHAs) administering public housing. This proposed rule would revise 
the weight of PHAS performance indicators to emphasize the importance 
of occupancy, financial condition, and physical assessments. To the 
greatest extent possible, scoring indicators would be based on 
measurable program outcomes and data that is already available to HUD. 
Additionally, the proposed revisions would allow HUD to respond more 
quickly and effectively to performance deficiencies when they are first 
identified, to intervene based on trending performance data, and to 
delay scoring or assessments when appropriate.

DATES: Comment Due Date: January 3, 2025.

ADDRESSES: There are two methods for submitting public comments. All 
submissions must refer to the above docket number and title.
    1. Electronic Submission of Comments. Comments may be submitted 
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 comments immediately available 
to the public. Comments submitted electronically through 
www.regulations.gov can be viewed by other commenters and interested 
members of the public. Commenters should follow the instructions 
provided on that website to submit comments electronically.
    2. 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.

    Note:  To receive consideration as a public comment, comments 
must be submitted through one of the two methods specified above.

    Public Inspection of Public Comments. HUD will make all properly 
submitted comments and communications available for public inspection 
and copying during regular business hours at the above address. Due to 
security measures at the HUD Headquarters building, you must schedule 
an appointment in advance to review the public comments by calling the 
Regulations Division at 202-708-3055 (this is not a toll-free number). 
HUD welcomes and is prepared to receive calls from individuals who are 
deaf or hard of hearing, as well as individuals with speech or 
communication disabilities. To learn more about how to make an 
accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs. Copies of all comments 
submitted are available for inspection and downloading at 
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Daniel Threet, Policy Advisor, 
Department of Housing and Urban Development, 451 7th Street SW, 
Washington, DC 20410-0500, telephone (202) 402-7513 (this is not a 
toll-free number). HUD welcomes and is prepared to receive calls from 
individuals who are deaf or hard of hearing, as well as individuals 
with speech or communication disabilities. To learn more about how to 
make an accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.
    In accordance with 5 U.S.C. 553(b)(4), a summary of this proposed 
rule may be found at www.regulations.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    Last updated in February 2011, 24 CFR part 902 describes how HUD 
assesses and scores the performance of PHAs in essential public housing 
operations, on a program-wide and individual-project basis. PHAS 
assesses PHA performance based on indicators and subindicators 
described in part 902, which HUD then uses to determine a score or 
designation for each PHA. The four key indicators, described in 24 CFR 
902 subparts B through E, are the physical condition indicator, the 
financial condition indicator, the management operations indicator, and 
the Capital Fund program indicator.
    The current regulations define the purpose and applicability of the 
system, the general types of indicators used in assessment, the 
frequency of assessments, incentives for high performers, and how HUD 
will respond to PHAs with deficiencies or that are identified as 
Troubled performers.
    In current regulations, the physical condition indicator measures 
the extent to which a PHA is ensuring that projects meet acceptable 
basic housing conditions. It draws on independent physical inspections 
of a PHA's projects provided by HUD and aims to ensure that all 
residents live in safe, habitable dwellings. The financial condition 
indicator measures a PHA's ability to maintain sufficient financial 
resources to support the operation of its Public Housing program. It 
draws on financial information reported to HUD by PHAs. The management 
operations indicator measures the PHA's ability to operate its Public 
Housing program in a way that assists as many households as possible 
and meets obligations to participants. It draws on unit-status data as 
well as financial information reported to HUD by PHAs. The Capital Fund 
program indicator measures the PHA's ability to meet requirements to 
obligate Capital Fund program grants in a timely fashion. It also 
measures occupancy rates on the assumption that high occupancy rates 
reflect success in addressing capital needs. It draws on PHA reporting 
of the obligation of Capital Fund program grants and unit-status data. 
Based on these four

[[Page 87519]]

indicators, a PHA receives a composite score and a corresponding 
performance designation (i.e., a PHA may be designated as a High 
performer, a Standard performer, a Substandard performer, or Troubled 
performer based on its PHAS assessment).
    A full PHAS assessment relies on components that are not 
simultaneously assessed, so HUD can receive information about poor 
performance months before a full performance designation status is 
determined. Under the current regulations, HUD is not able to require a 
PHA to take corrective action of any deficiency until the full PHAS 
assessment is complete. For example, problems may be identified during 
a physical inspection in December, but the PHA may not be identified as 
a Troubled performer until after audited financials are submitted nine 
months later. Greater flexibility is needed so that HUD can require, 
and PHAs can complete, corrective action more promptly.
    Beginning in fall 2022, HUD held a series of in-person and virtual 
listening sessions with PHAs across the country, to solicit feedback 
from PHAs on what they felt were viable and informative metrics for the 
evaluation of PHA performance in managing Public Housing. In developing 
the new proposed subindicators, HUD considered this feedback, striking 
a balance between what it was important to measure, what is reasonably 
possible to measure, and what is a fair assessment of PHA performance. 
In considering various alternative indicators or subindicators, HUD 
examined whether alternative metrics would require additional 
information-collection burdens on PHAs, as well as whether alternative 
metrics could be collected reliably and objectively.

II. This Proposed Rule

    This proposed rule would revise and restructure the PHAS indicators 
as well as adjust the weighting of indicators. It would also make 
several changes not directly related to scoring. For example, to 
correct the lag in timing and achieve the desired flexibility, this 
proposed rule would allow HUD to have broad, flexible authority to 
require interventions or corrective actions based on component scores 
as soon as those scores are issued; in advance of a full assessment; 
considering trending data; or in conjunction with a decision to 
withhold, deny, or rescind a score or designation, as HUD determines 
necessary. This proposed rule would also revise the performance 
indicators and subindicators on which scores are based, in order to 
better measure performance and align incentives with the long-term 
viability of the program. Throughout this proposed rule, HUD has made 
several technical changes that do not substantively affect 
requirements.

Subpart A--General Provisions

a. Scope
    The proposed rule would expand the scope of assessment tools HUD 
will use in Sec.  902.1(d), adding other reviews or audits conducted on 
the PHA to the tools HUD will use to assess management operations. It 
would also allow HUD to advise PHAs of their performance designations 
in addition to their scores.
b. Definitions
    The proposed rule would make several changes to definitions in 
Sec.  902.3. First, it would remove the existing definition of 
``Assessed fiscal year'' and add a definition for ``Assessment year,'' 
which is defined as the period of time for a single PHAS assessment 
including a schedule setting forth when component scores will be 
determined. For example, any property required to undergo a physical 
inspection once every three (3) years will retain the same PHAS 
physical condition indicator score it received in the first year of 
inspection for the second and third years for assessing the PHAS 
physical condition. In the fourth year, the physical condition score 
will be based on a new inspection. The financial condition, management 
operations, and Capital Fund program indicators will still be based on 
the PHA's fiscal year for each assessment.
    The proposed rule would revise the definition of ``Capital Fund 
troubled'' to refer to a PHA that does not satisfy the requirements to 
pass the Capital Fund indicator evaluation rather than one that does 
not meet a minimum passing score. This revision would align the 
definition with HUD's proposal to determine Capital Fund troubled 
status based on a pass/fail rather than a numeric score. It would also 
revise the definition of ``Corrective Action Plan'' to note that such 
plan is developed in concert with HUD or by HUD, to introduce the 
concept that such plan may be based on an individual component score 
determined prior to the issuance of the overall PHAS score and 
designation, and that for small rural PHAs the equivalent term is 
``Corrective Action Agreement'' as noted in Sec.  902.105(c). The 
proposed rule would revise the definition of ``Deficiency,'' by 
changing the score for the Capital Fund indicator to a failing 
evaluation rather than below 50 percent. At Sec.  902.73, the proposed 
rule specifies that a deficiency may be a finding or determination that 
requires corrective action in advance of the issuance of an overall 
PHAS score or performance designation. HUD would also remove the 
definition of ``Dictionary of Deficiency Definitions.'' The NSPIRE 
final rule (88 FR 30442) replaced this dictionary with the NSPIRE 
Standards and Scoring notices (see 24 CFR 5.709). The NSPIRE final rule 
revised and retained this definition to instead refer to the NSPIRE 
Standards and Scoring notices, but after further consideration, HUD has 
determined that term is no longer used and can be removed. HUD is 
therefore proposing to remove this definition.
    The proposed rule would add a definition for ``Designation'' to 
mean a label given to a PHA--``High performer,'' ``Standard 
performer,'' ``Substandard performer,'' or ``Troubled performer''--
based on its overall PHAS score. The definition would include the 
notion that a PHA that receives a failing evaluation under the Capital 
Fund program indicator would be designated as a ``Capital Fund troubled 
performer.'' Finally, the proposed rule would add a definition for 
``Score'' to distinguish between an overall PHAS score and a component 
score (an indicator or subindicator score). The definition would 
specify that the overall PHAS score is a number between 0 to 100 and is 
calculated by adding together the physical condition, financial 
condition, and management operations indicator scores. Small rural PHAs 
(as defined by Sec.  902.101) would continue to be scored per Sec.  
902.103.
c. Applicability
    The proposed rule would amend Sec.  902.5(a)(3) to update the 
applicability of this part to Moving-to-Work (MTW) agencies. The 
proposed rule would eliminate language that PHAS scores do not apply to 
MTW agencies and would instead state that MTW agencies operating under 
the Standard MTW Agreement will not be scored in PHAS unless the PHA 
elects to be scored. The proposed rule would also state that MTW 
agencies operating under the MTW Operations Notice will be subject to 
scoring in PHAS.
    At the final rule stage, HUD does not plan to have an immediate 
effective date. Instead, HUD plans to set an effective date one full 
assessment cycle after the publication of the final rule so that PHAs 
have time to learn about revised criteria prior to being assessed under 
them. For example, if the final rule is published in September 2025, 
the regulations in this part will be

[[Page 87520]]

applicable to PHAs beginning with the September 30, 2026 fiscal year 
end date.
d. Scoring and Designations
    In Sec.  902.9, the proposed rule would provide that each PHA will 
receive an overall PHAS score determined by adding the physical 
condition indicator (accounts for 40 points), the financial condition 
indicator (accounts for 30 points), and the management operations 
indicator (accounts for 30 points). The financial condition and 
management operations indicators each contain subindicators. The 
Capital Fund program indicator will no longer be awarded points in the 
overall PHAS score and will only be evaluated on a pass/fail basis. If 
a PHA fails the Capital Fund program indicator, its overall performance 
designation will be Capital Fund troubled. The proposed rule adds a 
clarification that a PHA will not receive an overall PHAS score nor a 
performance designation if all of its projects are mixed-finance 
projects. Part 902 already provides that mixed-finance projects are 
subject to the physical condition inspections (Sec.  902.22) but are 
excluded from the financial condition indicator (Sec.  902.30) and 
management operations indicator (Sec.  902.40).
    The proposed rule would amend Sec.  902.11 to allow HUD to withhold 
a designation altogether if HUD exercises its authority at Sec.  902.66 
to do so (as described further in the changes to Subpart F). To receive 
a High performer or Standard performer designation, a PHA would need to 
receive a passing evaluation under the Capital Fund program indicator 
along with the existing percentage of available points available in its 
overall PHAS score. This change is required to accommodate the move to 
evaluating the Capital Fund program indicator on a pass/fail basis, 
which is discussed in Subpart E below. The current regulation requires 
that High performers and Standard performers receive at least 50 
percent of the points available under the Capital Fund indicator. For 
Standard performers, HUD may elect to craft Corrective Action Plans 
rather than have a PHA submit a Corrective Action Plan. Further 
assistance from HUD in crafting Corrective Action Plans will benefit 
smaller PHAs or those with capacity-related challenges, allowing for 
the collective development of plans quickly. Except for small rural 
PHAs subject to Sec.  902.105, a PHA designated as a Troubled performer 
would be subject to the remedies provided in 42 U.S.C. 1437d(j)(4). The 
proposed rule would remove paragraph (d)(2) of this section and replace 
it with a new paragraph (e) to Sec.  902.11--Capital Fund troubled 
performer--explaining that if a PHA receives a failing evaluation under 
the Capital Fund program indicator, it will be designated as a Capital 
Fund troubled performer and be subject to corrective actions separate 
from or in addition to the requirements of a memorandum of agreement.

e. Frequency

    This proposed rule would amend Sec.  902.13 to allow HUD to suspend 
or skip assessments and allow PHAs to request that HUD extend the time 
between PHAS assessments in accordance with requirements HUD may issue 
by Notice. HUD may grant such extension requests for good cause when it 
deems it appropriate. HUD specifically seeks comment on what should 
constitute good cause for HUD to approve a PHA delay request (see 
``Questions for public comment,'' infra., Section III, #9). For 
example, public input may suggest that PHAs need to request an 
extension when they experience a natural disaster or other emergency 
that affects their properties (e.g., severe localized flooding), or if 
supply chain delays or staffing shortages prevent maintenance work. A 
new paragraph (a)(4) would be added to Sec.  902.13 noting that 
properties of small PHAs would be inspected per Sec.  5.705(c), which 
describes the timing of inspection cycles for various HUD programs and 
how inspection scores affect those cycles.
    This proposed rule would revise paragraph (b)(2) of Sec.  902.13 to 
indicate that if projects are not inspected in accordance with the 
cycle laid out in Sec.  5.705, the assessment year will be extended 
just for the physical condition indicator, to ensure that old 
inspection scores are not rolled forward inappropriately. For example, 
if a new inspection is required within 3 months of an anniversary date 
of March 1 and the inspection is not performed until July 1, HUD will 
not issue the overall PHAS score until those inspections are completed 
and will use the July inspections, along with inspections of other PHA 
properties completed on time, to determine the PASS score and the 
overall PHAS score for that assessment year. HUD further proposes to 
revise 902.13(b)(2) to note that HUD may exercise discretion to skip 
the PHA's assessment year, should a delayed physical condition 
inspection occur 6 months after the end of the assessment year. This 
means that the PHA would not receive an overall PHAS score for that 
assessment year, and the late physical inspection would be used for the 
subsequent PHAS assessment instead. In the example above, should the 
inspection that was due within 3 months of March 1 not be performed 
until the following January, HUD would choose to not issue an overall 
PHAS score for the PHA for that assessment year. The inspection 
performed in January would be used for the overall PHAS score for the 
next assessment year. This would ensure that HUD does not 
inappropriately reuse inspection scores for the purpose of determining 
overall PHAS scores. Other indicator scores will continue to be issued 
as they are determined in either situation.
    This proposed rule would revise paragraph (b)(4) of Sec.  902.13 to 
specify that in years subsequent to the baseline year, the physical 
inspection schedule in Sec.  5.705(c) will determine whether a 
property's physical condition score is based upon a new inspection or 
the previous inspection. The baseline year refers to the year in which 
a physical inspection takes place and in which HUD determines whether a 
property needs to be inspected again in one, two, or three years as 
outlined in Sec.  5.705(c). The baseline year will also be used to 
determine the next PHAS assessment for PHAs subject to small PHA 
deregulation.

Subpart B--Physical Condition Indicator

    This proposed rule would add language to paragraph (b) of Sec.  
902.25 to clarify that indicator scores will be issued in advance of an 
overall PHAS score and that, as with the financial condition and 
management operations indicator scores, a PHA may be subject to 
appropriate oversight and action as soon as project scores or the 
overall physical condition indicator score is issued. The proposed 
language would also note that indicator scores issued in advance of an 
overall PHAS score are subject to revision by HUD.

Subpart C--Financial Condition Indicator

    This proposed rule would add language to paragraph (b) of Sec.  
902.35 describing the subindicators that will be used to determine the 
financial condition indicator score. The language notes that the 
formulas for these subindicators will be provided by Notice and that 
MTW agencies will have variant formulas to account for the 
flexibilities of the MTW Demonstration.
    The proposed rule would amend the description of the Quick Ratio 
(QR) subindicator, which compares quick assets--cash and assets that 
are easily convertible to cash--to current liabilities. Specifically, 
the proposed rule clarifies that neither quick assets nor current 
liabilities include inter-

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program balances due to or due from other PHA projects, programs, and 
activities of a temporary nature. This is because HUD has found that 
inclusion of inter-program balances in the QR may overstate liquidity. 
The proposed rule would change the Months Expendable Net Assets Ratio 
subindicator to the Months Operating Reserve (MOR) subindicator. The 
MOR measures adequacy of reserves as a unit of time. It is the ratio of 
current assets less current liabilities to average monthly operating 
expenses and is the number of months a project can operate using 
currently available, unrestricted resources, before reaching 
insolvency. The proposed rule would change the Debt Service Coverage 
Ratio subindicator to the Expense Management (EM) subindicator, which 
would measure the efficiency of operations. The EM is the ratio of 
operating revenues--tenant rents and Operating Fund grants less 
transfers from the Capital Fund--to operating expenses as defined by 
the HUD Financial Data Schedule. In general, the expense management 
indicator is targeted to provide an assessment of how well a PHA is 
managing its expenses given their revenues. PHAs would be evaluated on 
the basis of how well they effectively ramp up or down expenses as 
revenue streams change. (In the PHAS scoring notice, HUD may indicate 
that this measurement takes place over a rolling 3-5 year period.) The 
benefit of this change will be that PHAs will be incentivized to 
improve budgeting work, and to ensure operations are right sized to 
annual revenues, while also providing tools to HUD to work with PHAs to 
address such deficiencies sooner in the process.
    The proposed rule would add language to paragraph (c) of Sec.  
902.35 noting that, as with the physical condition and management 
operations indicator scores, the financial condition indicator score 
will be issued in advance of an overall PHAS score, will be subject to 
revision by HUD, and may subject a PHA to appropriate oversight and 
action as soon as it is issued.
    Paragraph (d) of Sec.  902.35 specifies how many points make up the 
financial condition indicator score. The proposed rule would change the 
maximum number of points on which this score is based from 25 to 30. 
The proposed rule would provide that a score of at least 18 points is 
needed for a PHA to receive a passing score under the financial 
condition indicator.

Subpart D--Management Operations Indicator

    The proposed rule would replace paragraphs (a)(2) and (3) of Sec.  
902.43, which describe management operations subindicators. The Tenant 
Accounts Receivable subindicator and Accounts Payable subindicator 
would be removed, as a PHA's performance on these issues is already 
indirectly reflected in the financial condition indicator. Paragraph 
(a)(2) would assess a PHA's ``timely reexaminations'' of tenants based 
on the PHA's approved reexamination schedule. This subindicator would 
rely on tenant data already provided to HUD by PHAs. Paragraph (a)(3) 
would measure ``audit compliance'' by using findings in independent 
audits or HUD audits or reviews. The audit compliance subindicator 
would measure the extent to which the PHA is meeting program compliance 
requirements. In paragraph (b) of Sec.  902.43, the proposed rule would 
allow HUD to assess the management operations indicator through other 
information available to HUD, in addition to information electronically 
submitted to HUD through FDS.
    As noted above, HUD considered a wide range of alternative 
subindicators (e.g., work-order fulfillment), but found that many would 
require additional information-collection burdens or would be difficult 
for HUD to collect in a reliable, consistent manner.
    The proposed rule would remove and reserve Sec.  902.44, which 
would mean that the management operations indicator would no longer be 
adjusted for physical condition and neighborhood environment (PCNE). 
Analysis of the pattern of adjustments between 2015 and 2019 indicates 
that nearly all properties received points for physical condition 
(which reflects only the age of the housing stock), so the adjustment 
does not highlight exceptional challenges for select PHAs. Likewise, a 
diminishing minority of PHAs received points for neighborhood 
environment, which is an adjustment made if the project is in a census 
tract in which at least 40% of families have an income below the 
poverty rate, suggesting it is no longer an issue that requires 
adjustment.
    This proposed rule would add language to paragraph (b) of Sec.  
902.45 to clarify that, as with the financial and physical condition 
indicators, the management operations indicator score will be issued in 
advance of an overall PHAS score, will be subject to revision by HUD 
and may subject a PHA to appropriate oversight and action as soon it is 
issued. The proposed rule would change the maximum number of points for 
the management operations indicator from 25 points to 30 points. A PHA 
must achieve at least 18 points to receive a passing score under the 
management operations indicator.

Subpart E--Capital Fund Program Indicator

    The proposed rule would make several changes to the Capital Fund 
program indicator meant to improve the performance indicator system and 
remove duplication. The current Capital Fund program indicator measures 
occupancy according to different standards from the management 
operations indicator. The proposed rule would revise paragraph (a) of 
Sec.  902.50 to remove the occupancy subindicator from the Capital Fund 
program indicator and limit what the indicator examines to the time 
taken by a PHA to obligate funds in relation to statutory deadlines. It 
would also restructure PHA evaluation under the paragraph (c) of Sec.  
902.50 to remove subindicators. Instead, PHAs would be evaluated on a 
pass/fail basis based on whether they satisfied the timeliness of fund 
obligation required by statute. Because assessments would now be pass/
fail rather than scored, the proposed rule would revise references to 
``scores'' throughout this subpart. It would also change the language 
in paragraph (b) of Sec.  902.53 to reflect that in order to achieve a 
passing evaluation under the Capital Fund program indicator, a PHA must 
obligate at least 90 percent of Capital Fund program grants or receive 
HUD approved extensions as documented by the system of record within 
the time required by statute.
    The proposed rule would also remove an unnecessary mention of HOPE 
VI and Choice Neighborhoods program funds in paragraph (a) of Sec.  
902.50.

Subpart F--PHAS Scoring

    The proposed rule would revise paragraph (a) of Sec.  902.60, to 
require a PHA to wait three full fiscal years after the effective date 
of the final rule before it is allowed to change its fiscal year-end, 
unless such change is approved by HUD for good cause. For example, PHAs 
may need to request a change due to a merger with another PHA or 
another significant organizational change. PHAs or the public may 
recommend other circumstances that provide good cause.
    The proposed rule would require that PHAs submit their written 
request for a waiver of their audited financial information submission 
due date to HUD rather than specifying it must be submitted to their 
local field office in paragraph (c)(1) of Sec.  902.60. HUD

[[Page 87522]]

intends to provide a mechanism for the waiver process via notice and 
update such process by notice as required.
    The proposed rule would also remove existing paragraph (e) from 
Sec.  902.60 and make several revisions to Sec.  902.62. These changes 
would be prompted by the revision of the management operations 
indicator to include a subindicator for audit compliance. Because the 
findings in audit compliance will inform the management operations 
score, HUD proposes revisions to allow HUD to reduce the management 
operations score for failure to submit financial statements timely. 
Paragraphs (a)(2), (a)(3), and (b)(1) of Sec.  902.62 would be revised 
so that the responsive actions may apply to the management operations 
indicator, just as they currently apply to the financial condition 
indicator.
    Currently, HUD may only withhold, deny, or rescind a High Performer 
or Standard designation and does not have flexibility to require 
corrective action when withholding a score or designation. This 
proposed rule would give HUD the authority to withhold any score or 
designation if it determines the circumstances necessitate HUD not 
issuing that score or designation. In exceptional circumstances (e.g., 
when gross malfeasance is discovered that would not be identified by 
PHAS), withholding a score or designation would help avoid any 
miscommunication about HUD's assessment of the PHA. Withholding a low 
score or troubled designation may be appropriate in rare circumstances 
when corrective action should be undertaken without first engaging in a 
two-year Memorandum of Agreement. Paragraph (a)(2) of Sec.  902.64 
would be revised to allow HUD to withhold, deny or rescind a PHAS score 
in addition to changing it, as is currently allowed. Section 902.66 
would add paragraph (a)(1), which would allow HUD to withhold, deny, or 
rescind a score as well as a designation of any level from troubled 
performer to high performer. A designation may be withheld even when 
all component scores have been issued. Paragraph (a)(2) of Sec.  902.66 
would allow HUD to withhold, deny or rescind incentives or high 
performer designation or standard performer designation and add that it 
may do so, among other reasons, if a PHA demonstrates egregious 
performance issues not reflected in its PHAS score. Paragraph (a)(3) of 
Sec.  902.66 would allow HUD to withhold, deny or rescind substandard 
performer or troubled performer designations at its discretion. 
Paragraph (a)(4) of Sec.  902.66 would allow HUD to withhold, deny or 
rescind component scores or an overall PHAS score at its discretion. 
When scores are withheld, denied or rescinded, HUD would need to notify 
the PHA, provide the basis for the decision, and allow for an appeal as 
described in Sec.  902.69.
    The proposed rule would also permit HUD to require corrective 
action while a score or designation is being withheld if performance 
deficiencies are identified. Paragraph (b) of Sec.  902.64 would be 
revised to describe the new notification timeline: HUD will issue 
component scores for indicators and subindicators after they are 
determined and in advance of the overall PHAS score. Such scores would 
be provisional and subject to revision by HUD, and PHAs would be 
subject to oversight and action as soon as a component score is issued. 
The overall PHAS score would be issued one month after the indicator 
scores for the assessment year have been finalized unless HUD withholds 
a component score or overall score. Paragraph (a)(3) of Sec.  902.66 
would allow HUD to substitute corrective requirements when deemed 
necessary, and under paragraph (a)(4) of Sec.  902.66 HUD could require 
a PHA to exercise appropriate oversight and take corrective actions as 
specified in Sec.  902.73, requiring a PHA to correct deficiencies 
within a specified time period.
    Paragraph (b) of Sec.  902.66 would give HUD discretion to re-
designate a PHA where that PHA's designation has been denied or 
rescinded. HUD may also decide not to assign the PHA a new designation.
    The proposed rule would revise 902.69 to remove potentially 
confusing language that there are multiple distinct processes--one to 
appeal a designation and another to petition to remove a designation. 
These revisions to 902.66, 902.69, and 902.73 would not limit a PHA's 
ability to appeal HUD decisions or to make second order appeals when 
compared to the current regulatory language.

Subpart G--PHAS Incentives and Remedies

    The proposed rule would revise Sec.  902.73 to expand HUD's 
authority to subject a PHA to appropriate oversight and corrective 
action as soon as a component score is issued or considering trending 
data, in advance of issuance of a PHAS designation category. Paragraph 
(a) would provide HUD the authority to require corrective actions when 
scores or designations are withheld, denied, or rescinded, as HUD 
determines appropriate and would also provide HUD greater authority to 
determine the appropriate time for corrective action and progress 
reports. It would allow required corrective actions to be incorporated 
into a Memorandum of Agreement (MOA) or Corrective Action Plan (CAP) if 
the PHA is later designated as a troubled or substandard performer. 
Paragraphs (b) and (d) would be amended to allow HUD to relay deadlines 
by means other than through a CAP because there may not always be a CAP 
depending on when HUD requires corrective action under paragraph (a).
    The proposed rule would revise paragraph (b) of Sec.  902.75 to 
clarify that an executed MOA for a troubled performer is an enforceable 
contract, the material breach of which by a PHA, is the basis, among 
other remedies available under law, for determination of substantial 
default.
    The proposed rule would amend the example in paragraph (g)(3) of 
Sec.  902.75 to align with the proposed changes to part 902. The 
example provides a scenario in which a troubled performer PHA fails to 
execute a MOA with HUD or fails to show a substantial improvement.
    The proposed rule would add a new Sec.  902.76 to distinguish 
Capital Fund troubled as its own designation rather than as one 
dependent on a designation of ``Troubled.'' The new section would 
describe remedies with respect to the Capital Fund troubled performer 
designation and provide HUD authority to require a PHA to correct 
deficiencies within a time period specified by HUD. The requirements to 
correct deficiencies, and consequences for failure to correct 
deficiencies so identified, will otherwise be the same as for 
substandard performers as described in Sec.  902.73. Separating the 
Capital Fund troubled performer designation from the troubled performer 
designation will allow the PHA to avoid entering into a MOA when the 
only performance deficiency is with respect to the Capital Fund, and 
the underlying deficiency can be resolved upon the next timely 
obligation. The Capital Fund troubled performer designation would also 
allow HUD to combine such designation with the substandard performer 
designation or the troubled performer designation.
    The proposed rule would add a sentence to the end of Sec.  902.81 
making clear that a resident is not restricted from communicating any 
complaint or concern about a PHA to HUD in writing at any time. This 
addition is not a change to the current regulations and is being added 
only for clarification.

[[Page 87523]]

Subpart H--Assessment of Small Rural Public Housing Agencies

    The proposed rule would revise sections of 24 CFR 902 subpart H--
Assessment of small rural Public Housing Authorities to conform with 
the revisions in the rest of part 902. The proposed rule would delete 
references to PCNE from paragraph (a) of 902.103 to parallel the 
removal of that concept in Sec.  902.44. Paragraphs (c), (c)(5) and (d) 
of Sec.  902.105 would be revised to align with Sec.  902.75. Changes 
would be made throughout Sec. Sec.  902.107 and 902.109 to conform with 
Sec. Sec.  902.66 and 902.69, with variations where necessary to 
reflect the differences between the PHAS assessment and the Small and 
Rural assessment. Section 902.111 would be renamed ``Remedies for 
troubled small rural PHAs'' to align with Sec.  902.83.
    Additionally, among the changes this proposed rule would make to 
small PHAs, it would remove paragraph (c)(4) from Sec.  5.705 applying 
a triennial inspection cycle for small PHAs per 24 CFR 902.13(a).

III. Questions for Public Comments

    HUD welcomes comments on all aspects of this proposed rule. In 
addition, HUD specifically requests comments on the following topics:
    Question for Comment #1: PHAS Metrics--The proposed rule would 
revise indicators and subindicators to allow HUD to conduct a more 
accurate PHAS assessment. Do the proposed metrics accurately assess a 
PHA's performance or are there other metrics that would be appropriate 
for inclusion in PHAS? Do the new proposed subindicators for the 
financial condition indicator appropriately measure the PHA's financial 
performance? Do the new proposed subindicators for the management 
operations indicator appropriately measure the PHA's ability to manage 
its Public Housing program? Would scoring PHAs for the proposed 
subindicators create incentives to maintain and improve the quality of 
housing for families in the Public Housing program?
    The proposed rule would also make minor modifications to the 
relative weight of the indicators in the overall PHAS score. Are the 
proposed weights of the Physical Condition, Financial Condition, and 
Management Operations indicators appropriate?
    Question for Comment #2: MTW Agencies--MTW Expansion agencies 
operate under the MTW Operations Notice and will be scored in PHAS. 
Given the flexibilities available to MTW agencies, variant formulas or 
subindicators may be necessary to properly evaluate such agencies. What 
are the appropriate indicators and subindicators for MTW agencies? If 
any of the proposed indicators and subindicators for non-MTW PHAs are 
not appropriate for MTWs, what would serve as a suitable replacement? 
Do other considerations need to be made for incentives and remedies for 
MTW agencies?
    Question for Comment #3: Capital Fund program indicator--This 
proposed rule would change several aspects of the Capital Fund program 
indicator. The Capital Fund program indicator would no longer be scored 
but would be evaluated on a pass/fail basis; however, Capital Fund 
Troubled performers could still be subject to oversight. The Capital 
Fund Troubled performer designation would be revised such that it could 
be combined with the Substandard or Troubled Performer designation, and 
requirements to correct deficiencies due to Capital Fund Troubled 
status would otherwise be the same as for Substandard performers. HUD 
solicits feedback on the extent to which removing points from the 
obligation indicator and making it a pass/fail standard improves its 
usefulness as a metric. HUD also solicits feedback on whether it should 
maintain the Capital Fund-troubled designation.
    Question for Comment #4: Reserves--This proposed rule does not 
provide specific scoring criteria for the subindicators, but it does 
propose a subindicator for Months of Operating Reserve (MOR). When 
specific scoring criteria are defined, should HUD set upper and lower 
limits on reserves held? Would that answer be different if PHAs had 
specific accounts into which they could put reserves that would be 
treated differently (e.g., Capital Replacement Reserve accounts)? 
Should scoring upper or lower reserve limits interact with other 
features of the financial, physical, or management performance? For the 
Months of Operating Reserve subindicator and all other financial 
subindicators, how should HUD take into consideration other sources of 
funds (i.e., those generated through entrepreneurial activities or 
other actions by the PHA) that PHAs secure to pay for expenses? How can 
HUD ensure that PHAs are not penalized for entrepreneurial activity 
that secures additional sources of funding? Additionally, HUD would 
like to solicit comment with respect to MTW and non-MTW agencies alike 
on the topic of a reserve calculation. If HUD establishes such a 
calculation, what should be included?
    Question for Comment #5: Expense management--This proposed rule 
replaces the Debt Service Coverage Ratio with the Expense Management 
subindicator. Should the Expense Management subindicator include other 
sources of Public Housing operating revenue, such as program income? 
Should it exclude any specific operating expenses? Is there value to 
looking only at Public Housing subsidy plus rent rather than looking at 
all sources of revenue?
    Question for Comment #6--Physical Condition and Neighborhood 
Assessment--HUD has proposed eliminating the PCNE adjustment to the 
management operations indicator. Will the removal of those adjustments 
improve HUD's ability to accurately assess a PHA's performance? If 
there are strong reasons not to eliminate the PCNE adjustment, would 
moving the PCNE adjustment to the physical condition indicator be a 
better location for such adjustments?''
    Question for Comment #7--Risk assessment and other models of 
assessment--The indicators and subindicators that are appropriate to 
measuring a PHA's performance in operating its Public Housing program 
may not provide a full picture of the long-term health of that program, 
or some criteria may not be appropriate for inclusion in PHAS although 
they are informative for assessing future risks. Are there any 
indicators that are not appropriate for performance assessment but 
valuable for a separate system of risk assessment? How should HUD act 
upon findings from a separate system of risk assessment? More 
generally, should HUD consider other models for assessing PHA 
management of Public Housing, as an alternative or complement to PHAS?
    Question for Comment #8: Interventions--This proposed rule would 
make it explicit that HUD may require corrective action as soon as 
component scores are issued or in response to multi-year downward 
trends in performance. It would also make explicit that HUD may 
withhold a designation or score and require corrective action. When HUD 
does withhold, deny, or rescind a designation or score, how should HUD 
notify the PHA and what is the appropriate process for a PHA to appeal 
such a decision?
    Question for Comment #9: PHA requests for delay--The proposed rule 
allows PHAs to request a delay in inspection timing. What should 
constitute good cause for HUD to approve a PHA delay request? How

[[Page 87524]]

should HUD evaluate requests to delay inspections or assessments?
    Question for Comment #10: SEMAP--Should HUD seek to better align 
PHAS and SEMAP (Section Eight Management Assessment Program), and if 
so, how? What would be the benefits and potential problems of such an 
alignment? Do PHAs who operate both Public Housing and the Housing 
Choice Voucher program face challenges because of differences between 
PHAS and SEMAP?

IV. Findings and Certifications

Regulatory Review--Executive Orders 12866, 13563, and 14094

    Under Executive Order 12866 (Regulatory Planning and Review), a 
determination must be made whether a regulatory action is significant 
and, therefore, subject to review by the Office of Management and 
Budget (OMB) in accordance with the requirements of the order. 
Executive Order 13563 (Improving Regulations and Regulatory Review) 
directs executive agencies to analyze regulations that are ``outmoded, 
ineffective, insufficient, or excessively burdensome, and to modify, 
streamline, expand, or repeal them in accordance with what has been 
learned.'' Executive Order 13563 also directs that, where relevant, 
feasible, and consistent with regulatory objectives, and to the extent 
permitted by law, agencies are to identify and consider regulatory 
approaches that reduce burdens and maintain flexibility and freedom of 
choice for the public. Executive Order 14094 entitled ``Modernizing 
Regulatory Review'' (hereinafter referred to as the ``Modernizing 
E.O.'') amends section 3(f) of Executive Order 12866 (Regulatory 
Planning and Review), among other things.
    This rule has been determined to be a ``significant regulatory 
action'' as defined in Section 3(f) of Executive Order 12866, but not 
significant under section 3(f)(1) of the Order. HUD has prepared an 
initial regulatory impact analysis and has assessed the potential costs 
and benefits, both quantitative and qualitative, of this proposed 
regulatory action and has determined that the benefits would justify 
the costs. The analysis is available at www.regulations.gov and is part 
of the docket file for this rule.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.), 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
This rule revises the performance indicators in HUD's PHAS regulations. 
The changes allow HUD to base scores more on measurable program data 
rather than process. Revisions would allow HUD to respond more quickly 
and effectively to performance deficiencies when they are first 
identified, to intervene based on trending performance data, and to 
delay scoring or assessments when appropriate. These revisions impose 
no significant economic impact on a substantial number of small 
entities. Therefore, the undersigned certifies that this rule will not 
have a significant impact on a substantial number of small entities.
    Notwithstanding HUD's view that this rule will not have a 
significant effect on a substantial number of small entities, HUD 
specifically invites comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in this preamble.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969 (42 U.S.C. 4332(2)(C)). The FONSI is available through the 
Federal eRulemaking Portal at https://www.regulations.gov.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either: (i) imposes substantial direct compliance costs on State and 
local governments and is not required by statute, or (ii) preempts 
State law, unless the agency meets the consultation and funding 
requirements of section 6 of the Executive Order. This proposed rule 
does not have federalism implications and does not impose substantial 
direct compliance costs on State and local governments or preempt State 
law within the meaning of the Executive Order.

Paperwork Reduction Act

    The information collection requirements contained in this rule are 
currently approved by OMB and have been given OMB Control Numbers 2502-
0369, 2535-0107, 2577-0083, and 2577-0157. 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.

Unfunded Mandates Reform Act

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

List of Subjects

24 CFR Part 5

    Administrative practice and procedure; Aged; Claims; Crime; 
Government contracts; Grant programs--housing and community 
development; Individuals with disabilities; Intergovernmental 
relations; Loan programs--housing and community development; Low and 
moderate income housing; Mortgage insurance; Penalties; Pets; Public 
housing; Rent subsidies; Reporting and recordkeeping requirements; 
Social security; Unemployment compensation; Wages.

24 CFR Part 902

    Administrative practice and procedure; Public housing; Reporting 
and recordkeeping requirements.

    For the reasons stated above, HUD proposes to amend 24 CFR parts 5 
and 902 as follows:

PART 5--GENERAL HUD PROGRAM REQUIREMENTS; WAIVERS

0
1. The authority citation for part 5 continues to read as follows:

    Authority:  12 U.S.C. 1701x; 42 U.S.C. 1437a, 1437c, 1437f, 
1437n, 3535(d); 42 U.S.C. 2000bb et seq.; 34 U.S.C. 12471 et seq.; 
Sec. 327, Pub. L. 109-115, 119 Stat. 2396; E.O. 13279, 67 FR 77141, 
3 CFR, 2002 Comp., p. 258; E.O. 13559, 75 FR 71319, 3 CFR, 2010 
Comp., p. 273; E.O. 14015, 86 FR 10007, 3 CFR, 2021 Comp., p. 517.


Sec.  5.705  [Amended]

0
2. Amend Sec.  5.705 by removing paragraph (c)(4) and redesignating 
paragraphs (c)(5) through (8) as paragraphs (c)(4) through (7), 
respectively.

PART 902--PUBLIC HOUSING ASSESSMENT SYSTEM

0
3. The authority citation for part 902 continues to read as follows:


[[Page 87525]]


    Authority: 42 U.S.C. 1437d(j), 42 U.S.C. 3535(d), 1437z-10.

Subpart A--General Provisions

0
4. Amend Sec.  902.1 by revising paragraphs (b), (d), and (f) to read 
as follows:


Sec.  902.1  Purpose, scope, and general matters.

* * * * *
    (b) Scope. PHAS is a strategic measure of the essential housing 
operations of projects and PHAs. PHAS does not evaluate the compliance 
of a project or PHA with every HUD-wide or program-specific requirement 
or objective. Although not specifically evaluated through PHAS, PHAs 
are responsible for complying with nondiscrimination and equal 
opportunity requirements, including but not limited to those specified 
in 24 CFR 5.105, requirements under the Fair Housing Act (42 U.S.C. 
3601-19), the obligation to affirmatively further fair housing, 
requirements under title VI of the Civil Rights Act of 1964 (42 U.S.C. 
2000d-2000d-4), requirements under section 504 of the Rehabilitation 
Act of 1973 (29 U.S.C. 794), requirements under title II of the 
Americans with Disabilities Act (42 U.S.C. 12101 et seq.), requirements 
under the Age Discrimination Act of 1975 (42 U.S.C. 6101-6107), and 
requirements of other federal programs under which the PHA is receiving 
assistance. A PHA's adherence to these requirements will be monitored 
in accordance with the applicable statutes, program regulations and the 
PHA's Annual Contributions Contract (ACC).
* * * * *
    (d) Assessment tools. HUD will make use of uniform and objective 
criteria for the physical inspection of projects and PHAs and for the 
financial confidence of projects and PHAs and will use data from 
appropriate PHA data systems, as well as from other reviews or audits 
conducted on the PHA to assess management operations. For the Capital 
Fund program indicator, HUD will use information provided in the 
electronic Line of Credit Control System (eLOCCS) or successor systems. 
Based on this data, HUD will assess and score the results, advise PHAs 
of their scores and performance designations, and identify low-scoring 
and poor-performing projects and PHAs so that these projects and PHAs 
will receive the appropriate consideration and assistance.
* * * * *
    (f) Scoring procedures. HUD's scoring procedures will be published 
from time to time in the Federal Register for public comment.
0
5. Amend Sec.  902.3 as follows:
0
a. Remove the definition of ``Assessed fiscal year'';
0
b. Add in alphabetical order the definition of ``Assessment year'';
0
c. Remove the definition of ``Capital-fund troubled'';
0
d. Add in alphabetical order the definition of ``Capital-fund troubled 
performer'';
0
e. Revise the definitions of ``Corrective action plan'' and 
``Deficiency'';
0
f. Remove the definition of ``Dictionary of Deficiency Definitions''; 
and
0
g. Add in alphabetical order the definitions of ``Designation'' and 
``Score''.
    The revisions and additions read as follows:


Sec.  902.3  Definitions.

* * * * *
    Assessment year is the period of time evaluated for a single PHAS 
assessment, in which all component scores and an overall PHAS score are 
generated. Component scores are based on the PHA's fiscal year for the 
financial condition, management operations, and Capital Fund program 
indicators, and are based on physical inspections completed prior to 
score generation, as determined by 24 CFR 5.705(c) for the physical 
condition indicator.
* * * * *
    Capital fund troubled performer refers to a PHA that does not 
satisfy the requirements to pass the Capital Fund indicator evaluation.
    Corrective Action Plan (CAP) means a plan, as provided in Sec.  
902.73(a), that is developed by a PHA in concert with HUD or by HUD 
that specifies the actions to be taken, including timeframes, that 
shall be required to correct deficiencies identified under any of the 
PHAS indicators and subindicators, and identified as a result of a PHAS 
assessment or on the basis of individual component scores determined 
prior to issuance of the overall PHAS score and designation, when a 
memorandum of agreement (MOA) is not required. For small rural PHAs, 
the equivalent term is Corrective Action Agreement (CAA), as noted in 
Sec.  902.105(c).
* * * * *
    Deficiency means any finding or determination that requires 
corrective action, or any score below 60 percent of the available 
points for the physical condition, financial condition, or management 
operations indicators, and any failing evaluation for the Capital Fund 
indicator. In the context of physical condition and physical inspection 
in subpart B of this part, ``deficiency'' means a specific problem, as 
described in the documents published in the Federal Register that 
contain the inspection standards and scoring values pursuant to 24 CFR 
part 5, subpart G, such as a hole in a wall or a damaged refrigerator 
in the kitchen that can be recorded for inspectable items.
    Designation means the performance category or label given to a PHA 
(i.e., ``High performer,'' ``Standard performer,'' ``Substandard 
performer,'' or ``Troubled performer'') based on their overall PHAS 
score. A PHA that receives a failing evaluation under the Capital Fund 
program indicator will be designated as a ``Capital Fund troubled 
performer.''
* * * * *
    Score means the overall PHAS score, which is a number from 0 to 100 
calculated by adding the physical condition indicator score, the 
financial condition indicator score, and the management operations 
indicator score, except as provided in Sec.  902.103 for small rural 
PHAs. By contrast, ``component score'' refers to an indicator score 
itself (e.g., the financial condition indicator score) or to a 
subindicator score (e.g., the number of points awarded for the Quick 
Ratio subindicator).
* * * * *
0
6. Amend Sec.  902.5 by revising paragraphs (a)(2) introductory text 
and (a)(3), and removing and reserving paragraph (b) to read as 
follows:


Sec.  902.5  Applicability.

    (a) * * *
    (2) ACC. The ACC assigns legal responsibility for all public 
housing operations to the PHA, except where DF--RMC assumes management 
operations.
* * * * *
    (3) Moving to Work (MTW) PHAs operating under the MTW Standard 
Agreement shall not be scored in PHAS unless the PHA elects to be 
scored. If the PHA elects to be scored, the agency shall continue to be 
scored for the duration of the demonstration. MTW PHAs operating under 
the MTW Operations Notice shall be subject to this rule.
    (b) [Reserved]
0
7. Revise Sec.  902.9 to read as follows:


Sec.  902.9  PHAS Scoring.

    (a) Indicators and subindicators. Each PHA will receive an overall 
PHAS score, rounded to the nearest whole number, and designation based 
on three

[[Page 87526]]

indicators: Physical condition, financial condition, and management 
operations. The financial condition and management operations 
indicators contain subindicators, and the scores for the subindicators 
are used to determine a single score for each of these PHAS indicators. 
Individual project scores are used to determine a single score for the 
physical condition, financial condition, and management operations 
indicators. A fourth indicator, the Capital Fund program indicator, 
does not contribute to the overall PHAS score but can affect the 
performance designation. The Capital Fund program indicator is entity-
wide and evaluated on a pass/fail basis. If all of a PHA's projects are 
mixed-finance projects, they will not receive an overall PHAS score nor 
a performance designation.
    (b) Overall PHAS score and indicators. The overall PHAS score is 
determined by adding the score values for three of the four indicators, 
as follows:
    (1) The physical condition indicator accounts for 40 percent (40 
points) of the overall PHAS score. The score for this indicator is 
obtained as indicated in subpart B of this part.
    (2) The financial condition indicator accounts for 30 percent (30 
points) of the overall PHAS score. The score for this indicator is 
obtained as indicated in subpart C of this part.
    (3) The management operations indicator accounts for 30 percent (30 
points) of the overall PHAS score. The score for this indicator is 
obtained as indicated in subpart D of this part.
    (4) The Capital Fund program indicator is not awarded points in the 
overall PHAS score, though when a PHA fails the Capital Fund program 
indicator, they will be designated as a Capital Fund troubled 
performer. The evaluation for this indicator is obtained as indicated 
in subpart E of this part.
0
8. Amend Sec.  902.11 by revising the introductory text and paragraphs 
(a)(1), (b), and (d), and adding paragraph (e) to read as follows:


Sec.  902.11  PHAS performance designation.

    All PHAs that receive a PHAS assessment shall receive a performance 
designation, unless HUD exercises authority at Sec.  902.66 to withhold 
a designation. The performance designation is based on the overall PHAS 
score and the four indicators, as set forth below.
    (a) * * *
    (1) A PHA that achieves a score of at least 60 percent of the 
points available under the financial condition, physical condition, and 
management operations indicators, receives a passing evaluation under 
the Capital Fund program indicator, and achieves an overall PHAS score 
of 90 percent or greater of the total available points under PHAS shall 
be designated a high performer. A PHA shall not be designated a high 
performer if it scores below the threshold established for any 
indicator.
* * * * *
    (b) Standard performer. (1) A PHA that is not a high performer 
shall be designated a standard performer if the PHA achieves an overall 
PHAS score of at least 60 percent, and at least 60 percent of the 
available points for the physical condition, financial condition, and 
management operations indicators, and a passing evaluation for the 
Capital Fund program indicator.
    (2) At HUD's discretion, a standard performer may be required to 
submit and operate under a Corrective Action Plan. At HUD's discretion, 
HUD may elect to craft Corrective Action Plans rather than to have the 
PHA submit a Corrective Action Plan.
* * * * *
    (d) Troubled performer. A PHA that achieves an overall PHAS score 
of less than 60 percent shall be designated as a troubled performer, 
except for those PHAs subject to Sec.  902.105. A PHA designated as a 
troubled performer will be subject to the remedies provided in section 
6(j)(4) of the Act (42 U.S.C. 1437d(j)(4)).
    (e) Capital Fund troubled performer. In accordance with section 
6(j)(2)(A)(i) of the Act (42 U.S.C. 1437d(j)(2)(A)(i)), a PHA that 
receives a failing evaluation under the Capital Fund program indicator 
under subpart E of this part will be designated as a Capital Fund 
troubled performer. A PHA designated as a Capital Fund troubled 
performer will be subject to corrective actions separate from or in 
addition to the requirements of a memorandum of agreement.
0
9. Amend Sec.  902.13 by revising the introductory text and paragraph 
(a)(3), adding paragraph (a)(4), and revising paragraphs (b)(2) and (4) 
as follows:


Sec.  902.13  Frequency of PHAS assessments.

    The frequency of a PHA's PHAS assessment is determined by the size 
of the PHA's Low-Rent program and its PHAS designation. HUD may, due to 
unforeseen circumstances or other cause as determined by HUD, extend 
the time between assessments or suspend or skip assessments by direct 
notice to the PHA and relevant resident organization or resident 
management entity, and any other general notice that HUD deems 
appropriate. PHAs may request that HUD extend the time between PHAS 
assessments in accordance with such requirements as HUD may issue by 
Notice, and HUD may grant requests for good cause when HUD deems it 
appropriate.
    (a) * * *
    (3) All other small PHAs may receive a PHAS assessment every year, 
including a PHA that is designated as troubled in accordance with Sec.  
902.75.
    (4) Properties of small PHAs will be inspected as described in 
Sec.  5.705(c).
    (b) * * *
    (2) The physical condition score for each project will determine 
the frequency of inspections of each project in accordance with the 
inspection cycle laid out in Sec.  5.705(c). The PHAS physical 
condition indicator score for an assessment year shall be calculated by 
taking the unit-weighted average of the most recent physical condition 
score for each project, except that, starting July 1, 2023, no new 
physical condition indicator will be issued for a PHA until every 
project under the PHA has been inspected on or after July 1, 2023. If 
projects are not inspected in accordance with the cycle laid out in 
Sec.  5.705(c), the assessment year will be extended only for the 
physical inspection indicator until such time as the relevant 
inspections are performed to ensure that the last physical condition 
score of record will not be reused for future assessments. HUD may 
exercise discretion to skip the assessment should a delayed physical 
condition inspection occur 6 months after the assessment year ends. A 
PHA will not receive an overall PHAS assessment score until all 
inspections are completed.
* * * * *
    (4) In the first, baseline year, each PHA will receive an 
evaluation on all four PHAS indicators (physical condition, financial 
condition, management operations, and Capital Fund program), which will 
be used to generate their overall PHAS score. In subsequent years, if 
the physical inspection schedule requires a new inspection for a PHA 
property, the physical condition score for that property will be based 
upon the new inspection. If a new physical inspection is not required 
that year, the physical condition score for that property will be based 
upon the most recent physical inspection. This baseline year will also 
be used to determine the next PHAS assessment for PHAs subject to small 
PHA deregulation.
* * * * *

[[Page 87527]]

Subpart B--Physical Condition Indicator

0
10. Amend Sec.  902.25 by revising paragraph (b) to read as follows:


Sec.  902.25  Physical condition scoring and thresholds.

* * * * *
    (b) Overall PHA physical condition indicator score. The overall 
physical condition indicator score is a unit-weighted average of 
project scores. The sum of the unit-weighted values is divided by the 
total number of units in the PHA's portfolio to derive the overall 
physical condition indicator score. The overall physical condition 
indicator score will be issued after it is determined, in advance of 
issuance of the overall PHAS score. PHAs may be subject to appropriate 
oversight and action as soon as project scores or the overall physical 
condition indicator score is issued, as noted in Sec.  902.73. 
Indicator scores issued in advance of an overall PHAS score are 
provisional and are subject to revision by HUD.
* * * * *

Subpart C--Financial Condition Indicator

0
11. Amend Sec.  902.35 by revising paragraphs (b) through (d) to read 
as follows:


Sec.  902.35  Financial condition scoring and thresholds.

* * * * *
    (b) Subindicators of the financial condition indicator. The 
following subindicators will be used to determine the financial 
condition indicator score. The formulas for these subindicators will be 
provided by public notification. Please note that MTW agencies will 
have variant formulas, which will also be provided by public 
notification, to account for the flexibilities of the MTW 
Demonstration.
    (1) Quick Ratio (QR). The QR compares quick assets to current 
liabilities. Quick assets are cash and assets that are easily 
convertible to cash and do not include inventory or inter-program 
balances due from other PHA projects, programs, and activities of a 
temporary nature. Current liabilities are those liabilities that are 
due within the next 12 months, not including inter-program balances due 
to other PHA projects, programs, and activities of a temporary nature. 
A QR of less than one indicates that the project's ability to make 
payments on a timely basis may be at risk.
    (2) Months Operating Reserve (MOR). The MOR measures adequacy of 
reserves as a unit of time. The MOR is the ratio of current assets less 
current liabilities to average monthly operating expenses. The result 
of this calculation is the number of months that a project can operate 
using currently available, unrestricted resources, before reaching 
insolvency.
    (3) Expense Management (EM). The EM ratio measures the efficiency 
of operations. EM is the ratio of operating revenues to operating 
expenses. EM operating revenues are tenant rents and Operating Fund 
grants less transfers from Capital Fund. EM expenses are all operating 
expenses as defined by the HUD Financial Data Schedule (FDS).
    (c) Overall PHA financial condition indicator score. The overall 
financial condition indicator score is a unit-weighted average of 
project scores. The sum of the weighted values is then divided by the 
total number of units in the PHA's portfolio to derive the overall 
financial condition indicator score. The overall financial condition 
indicator score will be issued after it is determined, in advance of 
issuance of the overall PHAS score. PHAs may be subject to appropriate 
oversight and action as soon as the overall financial condition 
indicator score is issued, as noted in Sec.  902.73. Indicator scores 
issued in advance of an overall PHAS score are provisional and are 
subject to revision by HUD.
    (d) Thresholds. (1) The PHA's financial condition score is based on 
a maximum of 30 points.
    (2) In order for a PHA to receive a passing score under the 
financial condition indicator, the PHA must achieve a score of at least 
18 points, or 60 percent of the available points under this indicator.
    (3) A PHA that receives fewer than 18 points available under this 
indicator will be categorized as a substandard financial condition 
agency.

Subpart D--Management Operations Indicator

0
12. Amend Sec.  902.43 by revising paragraphs (a)(2) and (3) and 
paragraph (b) to read as follows:


Sec.  902.43  Management operations performance standards.

    (a) * * *
    (2) Timely Reexaminations. This subindicator measures the extent to 
which the PHA is performing regular reexaminations of family income and 
composition on time. Assessment will monitor timely reexamination based 
on the PHA's approved reexamination schedule (e.g., triennially where 
MTW waiver authority allows a PHA to delay reexamination up to three 
years).
    (3) Audit Compliance. This subindicator measures the extent to 
which the PHA is meeting program compliance requirements, as measured 
by findings in independent audits or HUD audits or reviews.
    (b) Assessment under the Management Operations Indicator. Projects 
will be assessed under this indicator through information that is 
electronically submitted to HUD through the FDS and other information 
available to HUD.


Sec.  902.44  [Removed and Reserved]

0
13. Remove and reserve Sec.  902.44.
0
14. Amend Sec.  902.45 by revising paragraphs (b) and (c) to read as 
follows:


Sec.  902.45  Management operations scoring and thresholds.

* * * * *
    (b) Overall PHA management operations indicator score. The overall 
management operations indicator score is a unit-weighted average of 
project scores. The sum of the weighted values is divided by the total 
number of units in the PHA's portfolio to derive the overall management 
operations indicator score. The overall management operations indicator 
score will be issued after it is determined, in advance of issuance of 
the overall PHAS score. PHAs may be subject to appropriate oversight 
and action as soon as the overall management operations indicator score 
is issued, as noted in Sec.  902.73. Indicator scores issued in advance 
of an overall PHAS score are provisional and are subject to revision by 
HUD.
    (c) Thresholds. (1) The PHA's management operations score is based 
on a maximum of 30 points.
    (2) In order to receive a passing score under the management 
operations indicator, a PHA must achieve a score of at least 18 points 
or 60 percent.
    (3) A PHA that receives fewer than 18 points will be categorized as 
a substandard management operations agency.

Subpart E--Capital Fund Program Indicator

0
15. Amend Sec.  902.50 by revising paragraphs (a), (c), and (d) to read 
as follows:


Sec.  902.50  Capital Fund program assessment.

    (a) Objective. The Capital Fund program indicator examines the 
period of time taken by a PHA to obligate funds in relation to 
statutory deadlines for obligation for all Capital Fund program

[[Page 87528]]

grants for which fund balances remain during the assessment year.
* * * * *
    (c) Capital Fund Indicator. Performance under the Capital Fund 
program indicator is evaluated on a pass or fail basis, determined by 
whether the PHA satisfied the timeliness of fund obligation requirement 
in section 9(j) of the Act. This examines the period of time it takes 
for a PHA to obligate funds from the Capital Fund program under section 
9(j)(1) of the Act (42 U.S.C. 1437g(j)(1)).
    (d) Method of assessment. The assessment required under the Capital 
Fund program indicator will be performed through analysis of obligated 
amounts in HUD's eLOCCS (or its successor) for all Capital Fund program 
grants that were open during the assessment year. This indicator 
measures a statutory requirement for the Capital Fund program. Other 
aspects of the Capital Fund program will be monitored by HUD through 
other types of reviews under 24 CFR part 905.
    (1) PHAs are responsible to ensure that their Capital Fund program 
information is submitted to eLOCCS by the submission due date.
    (2) A PHA may not appeal its PHAS score, Capital Fund program 
indicator failure, or both, based on the fact that it did not submit 
its Capital Fund program information to eLOCCS and/or the PIC systems 
by the submission due date.
0
16. Revise Sec.  902.53 to read as follows:


Sec.  902.53  Capital Fund program assessment and thresholds.

    (a) Assessment. The Capital Fund program indicator provides an 
assessment of a PHA's ability to obligate Capital Fund program grants 
in a timely manner on capital, modernization, development and financing 
needs.
    (b) Thresholds. (1) The PHA's Capital Fund program indicator is not 
assigned points but assessed on a pass/fail basis.
    (2) In order to receive a passing evaluation under the Capital Fund 
program indicator, a PHA must obligate at least 90 percent of Capital 
Fund program grants as documented in eLOCCS (or its successor) within 
the time required by statute or have HUD approved extensions under 
section 9(j)(2) of the Act (42 U.S.C. 1437g(j)(2)).

Subpart F--PHAS Scoring

0
17. Amend Sec.  902.60 by:
0
a. Revising paragraph (a);
0
b. In paragraph (c)(1), removing the words ``its local field office'', 
and adding, in their place, the word ``HUD''; and
0
c. Removing paragraph (e) and redesignating paragraph (f) as paragraph 
(e).
    The revision to read as follows:


Sec.  902.60  Data Collection.

    (a) Fiscal year reporting period--limitation on changes after PHAS 
effective date. To allow for a period of consistent assessments to 
refine and make necessary adjustments to PHAS, a PHA is not permitted 
to change its fiscal year end for the first 3 full fiscal years 
following [EFFECTIVE DATE OF FINAL RULE] unless such change is approved 
by HUD for good cause.
* * * * *


Sec.  902.62  [Amended]

0
18. Amend Sec.  902.62 by:
0
a. In paragraph (a)(2), removing the words ``financial condition 
indicator score'' and adding, in their place, the words ``financial 
condition and management operations indicator scores'';
0
b. In paragraph (a)(3), removing the words ``financial condition 
indicator'' and adding, in their place, the words ``financial condition 
and management operations indicators''; and
0
c. In paragraph (b)(1), after the words ``financial condition'' adding 
the words ``or management operations''.
0
19. Amend Sec.  902.64 by:
0
a. In paragraph (a)(2) after the words ``may be changed'', adding the 
words ``or withheld, denied, or rescinded''; and
0
b. Revising paragraph (b).
    The revision to read as follows:


Sec.  902.64  PHAS scoring and audit reviews.

* * * * *
    (b) Issuance of a score by HUD. (1) The component scores for 
individual indicators will be issued after they are determined, in 
advance of issuance of the overall PHAS score. PHAs may be subject to 
appropriate oversight and action as soon as a component score is 
issued, as noted in Sec.  902.73. Indicator scores issued in advance of 
an overall PHAS score are provisional and are subject to revision by 
HUD.
    (2) An overall PHAS score will be issued for each PHA one month 
after all indicator scores for the assessment year have been finalized, 
unless HUD uses the authority in Sec.  902.66 to withhold a component 
score or overall PHAS score. The overall PHAS score becomes the PHA's 
final PHAS score after any adjustments requested by the PHA and 
determined necessary under the processes provided in Sec. Sec.  
902.25(d), 902.35(a), and 902.68; any adjustments resulting from the 
appeal process provided in Sec.  902.69; and any adjustments determined 
necessary as a result of the independent public accountant (IPA) audit.
    (3) Each PHA (or RMC) shall post a notice of its final PHAS score 
and designation in appropriate conspicuous and accessible locations in 
its offices within 2 weeks of receipt of its final PHAS score and 
designation. In addition, HUD will post every PHA's PHAS score and 
designation on HUD's internet site.
* * * * *
0
20. Revise Sec.  902.66 to read as follows:


Sec.  902.66  Withholding, denying, and rescinding score or 
designation.

    (a) Withholding, denying, and rescinding score or designation. (1) 
If determined as appropriate or necessary by HUD, HUD may withhold, 
deny, or rescind a designation of any level, from troubled performer to 
high performer. A designation may be withheld or denied even when all 
component scores have been issued. HUD may conduct any review as it may 
determine necessary.
    (2) HUD may withhold, deny or rescind incentives or high performer 
designation or standard performer designation, including in but not 
limited to circumstances in which a PHA:
    (i) Is operating under a special agreement with HUD (e.g., a civil 
rights Conciliation or Voluntary Compliance Agreement);
    (ii) Is involved in litigation that bears directly upon the 
physical, financial, or management performance of a PHA;
    (iii) Is operating under a court order;
    (iv) Demonstrates substantial evidence of fraud or misconduct, 
including evidence that the PHA's certifications, submitted in 
accordance with this part, are not supported by the facts, as evidenced 
by such sources as a HUD review, routine reports, an Office of 
Inspector General investigation/audit, an independent auditor's audit, 
or an investigation by any appropriate legal authority;
    (v) Demonstrates substantial noncompliance in one or more areas of 
a PHA's required compliance with applicable laws and regulations, 
including areas not assessed under PHAS. Areas of substantial 
noncompliance include, but are not limited to, noncompliance with civil 
rights, nondiscrimination and fair housing laws and regulations, or the 
ACC. Substantial noncompliance casts doubt on the capacity of a PHA to 
preserve and protect its public housing projects and operate them 
consistent with federal laws and regulations; or
    (vi) Demonstrates other egregious performance issues not reflected 
in

[[Page 87529]]

PHAS component scores that require significant corrective action, as 
HUD determines necessary.
    (3) HUD may withhold, deny, or rescind substandard performer or 
troubled performer designation and accompanying requirements at its 
discretion. HUD may substitute other corrective requirements when HUD 
determines it is necessary.
    (4) HUD may withhold, deny, or rescind component scores or an 
overall PHAS score at its discretion. HUD must notify the PHA when 
scores are withheld, denied, or rescinded, provide the basis for the 
decision, and allow for appeal as described in Sec.  902.69. At the 
time of withholding, denying, or rescinding scores, HUD may also 
require the PHA to undertake corrective actions as specified in Sec.  
902.73.
    (b) Effect on designation. If a high performer designation is 
denied or rescinded, the PHA may be designated a standard performer, 
substandard performer, or troubled performer, depending on the nature 
and seriousness of the matter or matters constituting the basis for 
HUD's action. If a standard performer designation is denied or 
rescinded, the PHA may be designated as a substandard performer or 
troubled performer. Alternatively, HUD may choose not to assign the PHA 
a new designation status, as it deems appropriate.
    (c) Effect on score. The denial or rescission of a designation of 
high performer or standard performer shall not affect the PHA's 
numerical PHAS score, except where the denial or rescission is under 
paragraph (a)(2)(iv) of this section.
0
21. Revise Sec.  902.69 to read as follows:


Sec.  902.69  PHA right of appeal.

    (a) Appeal of troubled performer designation and petition for 
removal of troubled performer designation. A PHA may take any of the 
following actions:
    (1) Appeal its troubled performer designation;
    (2) Appeal its final overall PHAS score; and
    (3) Appeal actions under Sec.  902.66.
    (b) Appeal of PHAS score. (1) If a PHA believes that an objectively 
verifiable and material error(s) exists in any of the scores for its 
PHAS indicators, which, if corrected, will result in a significant 
change in the PHA's PHAS score and its designation (i.e., as troubled 
performer, substandard performer, standard performer, or high 
performer), the PHA may appeal its PHAS score in accordance with the 
procedures of paragraphs (c), (d), and (e) of this section. A 
significant change in a PHAS score is a change that would cause the 
PHA's PHAS score to increase, resulting in a higher PHAS designation 
for the PHA (i.e., from troubled performer to substandard performer or 
standard performer, or from standard performer to high performer). 
Inspection appeals must be made in accordance with the requirements of 
Sec.  5.711.
    (2) A PHA may not appeal its PHAS score, Capital Fund program 
score, or both, based on the fact that it did not submit its Capital 
Fund program information to eLOCCS or updated profile information in 
PIC or subsequent PIC replacement system by the submission due date.
    (c) Appeal procedures. (1) To appeal a troubled performer 
designation or a final overall PHAS score, a PHA must submit a request 
in writing to the Deputy Assistant Secretary of the Real Estate 
Assessment Center, which must be received by HUD no later than 30 days 
following the issuance of the overall PHAS score to the PHA.
    (2) An appeal of a troubled performer designation must include the 
PHA's supporting documentation and reasons for the appeal. An appeal of 
a PHAS score must be accompanied by the PHA's evidence that a material 
error occurred. An appeal submitted to HUD without supporting 
documentation will not be considered and will be returned to the PHA.
    (d) Denial, withholding, or rescission. A PHA that disagrees with 
the basis for denial, withholding, or rescission of its designation or 
score under Sec.  902.66 may make a written request for reinstatement 
within 30 days of notification by HUD of the denial or rescission of 
the designation to the Assistant Secretary, and the request shall 
include reasons for the reinstatement.
    (e) Consideration of appeals. Upon receipt of an appeal of a final 
overall PHAS score, of a troubled performer designation, or appeal of 
action taken under Sec.  902.66 from a PHA, HUD will evaluate the 
appeal and its merits for purposes of determining whether a 
reassessment of the PHA is warranted. HUD will review the PHA's file 
and the evidence submitted by the PHA to determine whether an error 
occurred.
    (f) Notice and finality of decisions. (1) If HUD determines that 
one or more objectively verifiable and material errors has occurred, 
HUD will undertake a new inspection of the project, arrange for audit 
services, adjust the PHA's score, or perform other reexamination of the 
financial, management, or Capital Fund program information, as 
appropriate in light of the nature of the error that occurred. A new 
score will be issued and an appropriate performance designation made by 
HUD. HUD's decision on appeal of a PHAS score, or issuance of a 
troubled performer designation will be final agency action.
    (2) HUD will issue a written decision on all appeals made under 
this section.

Subpart G--PHAS Incentives and Remedies

0
22. Amend Sec.  902.71 by revising paragraph (a)(2) and the first 
sentence of paragraph (b) to read as follows:


Sec.  902.71  Incentives for high performers.

    (a) * * *
    (2) Public recognition. High performer PHAs and DF-RMCs or RMCs 
that receive a score of at least 60 percent of the points available for 
the physical condition, financial condition, and management operations 
indicators, and a passing score for the Capital Fund program indicator, 
and achieve an overall PHAS score of 90 percent or greater of the total 
available points under PHAS shall be designated a high performer and 
will receive a Certificate of Commendation from HUD, as well as special 
public recognition, as provided by the HUD field office.
* * * * *
    (b) * * * Relief from any procedural requirement that may be 
provided under this section does not mean that a PHA is relieved from 
compliance with the provisions of federal law and regulatory 
requirements. * * *
* * * * *
0
23. Revise Sec.  902.73 to read as follows:


Sec.  902.73  PHAs with deficiencies.

    (a) Oversight and action. Standard and substandard performers will 
be subject to appropriate oversight and action by HUD. PHAs may also be 
subject to appropriate oversight and action by HUD as soon as a 
component score is issued for the PHA or for a specific project, or in 
light of performance trends (e.g., if overall PHAS scores or component 
scores notably decline for three years, even if the latest score would 
not classify the PHA as substandard), or when scores or designations 
are withheld, denied, or rescinded.
    (1) HUD may require a PHA to correct deficiencies in performance 
within a time period as specified by HUD when HUD determines it is 
necessary to do so on the basis of a component score, overall PHAS 
score or performance designation, or performance trend. HUD may require 
such action as a result of performance at the Asset Management Project 
(AMP) or PHA level (i.e., HUD may require corrective action for one AMP 
or across all a PHA's projects). HUD may require the PHA to undertake

[[Page 87530]]

such corrective actions in advance of issuance of an overall PHAS score 
or PHAS designation. If the PHA is subsequently identified as a 
troubled or substandard performer after being required to undertake 
corrective actions, such corrective actions may be later incorporated 
into a Memorandum of Agreement or Corrective Action Plan, as 
appropriate.
    (2) When HUD exercises authority at Sec.  902.66 to withhold, deny, 
or rescind a score or designation, HUD may also require a PHA to 
correct deficiencies in performance or undertake other corrective 
action, in a time period as specified by HUD. If the PHA is 
subsequently identified as a troubled or substandard performer after 
being required to undertake corrective actions, such corrective actions 
may be later incorporated into a Memorandum of Agreement or Corrective 
Action Plan, as appropriate.
    (b) Correction of deficiencies--(1) Time period for correction. 
After a PHA's (or DF-RMC's or RMC's) receipt of its final overall PHAS 
score and designation as: A standard performer, within the range 
described in Sec.  902.73(a)(1); or substandard performer, within the 
range described in Sec.  902.73(a)(2), a PHA, DF-RMC or RMC shall 
correct any deficiency indicated in its assessment within 90 days, or 
within such period as provided in the HUD-executed Corrective Action 
Plan or as otherwise communicated by HUD, if required.
    (2) Notification and report to regional or field office. A PHA 
shall notify the regional or field office, as identified by HUD, of its 
action to correct a deficiency. A PHA shall also forward an RMC's 
report of its action to the regional or field office to correct a 
deficiency. A DF-RMC shall forward directly to the regional or field 
office its report of its action to correct a deficiency.
    (c) Failure to correct deficiencies. (1) If a PHA (or DF-RMC or 
RMC) fails to correct deficiencies within the time period noted in 
paragraph (b) of this section, or to correct deficiencies within the 
time specified in a Corrective Action Plan or as otherwise specified by 
HUD, or within such extensions as may be granted by HUD, the field 
office will notify the PHA of its noncompliance.
    (2) The PHA (or DF-RMC or RMC) will provide the field office with 
its reasons for lack of progress in negotiating, executing, or carrying 
out the Corrective Action Plan or making the corrective actions 
otherwise required by HUD, within 30 days of the PHA's receipt of the 
noncompliance notification. HUD will advise the PHA as to the 
acceptability of its reasons for lack of progress.
    (3) If HUD determines that the reasons the PHA (or DF-RMC or RMC) 
has provided for lack of progress are unacceptable, HUD will notify the 
PHA (or DF-RMC or RMC) that it will take such actions as it may 
determine appropriate in accordance with the provisions of the Act and 
other statutes, the ACC, this part, and other HUD regulations, 
including, but not limited to, the remedies available for substantial 
default.
0
24. Amend Sec.  902.75 by:
0
a. Revising paragraphs (b) introductory text and (b)(5);
0
b. In the second sentence of paragraph (c), adding the word ``factual'' 
before the word ``discrepancies''; and
0
c. Revising paragraphs (d)(1) and (2), and (g)(2) and (3).
    The revisions read as follows:


Sec.  902.75  Troubled performers.

* * * * *
    (b) Memorandum of agreement (MOA). Within 30 days of notification 
of a PHA's designation as a troubled performer, HUD will initiate 
activities to negotiate and draft an MOA. An MOA is required for a 
troubled performer. The executed MOA is an enforceable contractual 
agreement between HUD and a PHA. Material breach of the MOA by the PHA 
is a basis, among other remedies available under law, for determination 
of substantial default. The scope of the MOA may vary depending upon 
the extent of the problems present in the PHA. It shall include, but 
not be limited to:
* * * * *
    (5) The PHA's commitment to take all prescribed actions to achieve 
the targets;
* * * * *
    (d) * * *
    (1) Expiration of the first assessment year improvement period. 
Upon the expiration of the one assessment year period that started on 
the date on which the PHA receives initial notice of a troubled 
performer designation, the PHA shall, by the next PHAS assessment that 
is at least 12 months after the initial notice of the troubled 
performer designation, improve its performance by at least 50 percent 
of the difference between the initial PHAS assessment score that led to 
the troubled performer status and the score necessary to remove the 
PHA's designation as a troubled performer.
    (2) Expiration of 2 assessment year recovery period. Upon the 
expiration of the 2 assessment year period that started on the date on 
which the PHA received the initial notice of a troubled performer 
designation, the PHA shall, by the next PHAS assessment that is at 
least 24 months after the initial notice of the troubled performer 
designation, improve its performance and achieve an overall PHAS score 
of at least 60 percent of the total points available.
* * * * *
    (g) * * *
    (2) For purposes of paragraph (g) of this section, substantial 
improvement is defined as the improvement required by paragraph (d) of 
this section. The maximum period of time for remaining in troubled 
performer status before being referred to the Assistant Secretary is 2 
years after the initial notification of the troubled performer 
designation. Therefore, the PHA must make substantial improvement in 
each assessment year of this 2-year period.
    (3) The following example illustrates the provisions of paragraph 
(g)(1) of this section:
    Example:
    A PHA receives an overall PHAS score of 50 points; 60 points is a 
passing score. The PHA must achieve at least 55 points overall (50 
percent of the 10 points necessary to achieve a passing score of 60 
points) on the next PHAS assessment that is at least 12 months after 
the initial notice of the troubled performer designation to continue 
recovery efforts. In the second year, the PHA must achieve a minimum 
score of 60 points overall (a passing score) on the PHAS assessment 
that is at least 24 months after the initial notice of the troubled 
performer designation. If the PHA fails to achieve the 5-point increase 
on the year-one assessment, or if the PHA achieves the 5 point increase 
on the year-one assessment, but fails to achieve the minimum passing 
score of 60 points on the year-two assessment, HUD will notify the PHA 
that it will take such actions as it may determine appropriate in 
accordance with the provisions of the ACC and other HUD regulations, 
including, but not limited to, the remedies available for substantial 
default.
* * * * *
0
25. Add Sec.  902.76 to subpart G to read as follows:


Sec.  902.76  Capital Fund troubled performers.

    Upon a PHA's designation as a Capital Fund troubled performer, the 
PHA will be subject to appropriate oversight and actions by HUD. HUD 
may require a PHA to correct deficiencies in performance within a time 
period as specified by HUD. The requirements to correct deficiencies, 
and consequences for failure to correct deficiencies so identified, 
will otherwise be the same as

[[Page 87531]]

for substandard performers as described in Sec.  902.73 unless HUD 
exercises remedies and enforcement actions provided in 24 CFR part 905.


Sec.  902.79  [Amended]

0
26. Amend Sec.  902.79 by removing the final word of the paragraph, 
``period'', and adding, in its place, the word ``year''.


Sec.  902.81  [Amended]

0
27. Amend Sec.  902.81 by adding, to the end of the paragraph, the 
words ``Further, nothing in this section prohibits any resident from 
communicating to HUD in writing regarding their experience or complaint 
with the PHA at issue.''


Sec.  902.83  Remedies for troubled performer PHAs.

0
28. Amend Sec.  902.83 by removing, from the end of paragraph (a)(3), 
the words ``for any other substantial default by a PHA'', and revising 
the section heading to read as shown above.

Subpart H--Assessment of Small Rural Public Housing Agencies

0
29. Amend Sec.  902.103 by revising paragraph (a) to read as follows:


Sec.  902.103  Public housing assessment of small rural PHAs.

    (a) Small rural public housing assessment. The public housing 
program of small rural PHAs as defined in Sec.  902.101 shall be 
assessed and scored based only on the physical condition of their 
public housing properties in accordance with 24 CFR part 5, subpart G. 
Such agencies shall not be subject to PHAS except as noted below.
* * * * *
0
30. Amend Sec.  902.105 by:
0
a. Revising paragraphs (c) introductory text and (c)(5); and
0
b. In the second sentence of paragraph (d), adding the word ``factual'' 
before the word ``discrepancies''.
    The revisions read as follows:


Sec.  902.105  Troubled small rural PHAs.

* * * * *
    (c) Corrective Action Agreement (CAA). Within 30 days of 
notification of a PHA's designation as a troubled performer, HUD will 
initiate activities to negotiate and develop a CAA. A CAA is required 
for a troubled performer. The final executed CAA is an enforceable 
contractual agreement between HUD and a PHA. The scope of the CAA may 
vary depending upon the extent of the problems present in the PHA. The 
term of the CAA will not exceed one year and is subject to renewal at 
the discretion of HUD if HUD determines that the circumstances 
requiring the CAA still exist at the expiration of the term of the CAA 
based on the annual assessment frequency as included in Sec.  902.103. 
It shall include, but not be limited to:
* * * * *
    (5) The PHA's commitment to take all prescribed actions to achieve 
the targets;
* * * * *
0
31. Revise Sec.  902.107 to read as follows:


Sec.  902.107  Withholding, denying, and rescinding score or 
designation.

    (a) Withholding score or designation. (1) If determined as 
appropriate or necessary by HUD, HUD may withhold, deny, or rescind a 
designation of any level, from troubled performer to high performer. 
HUD may conduct any review as it may determine necessary.
    (2) HUD may withhold, deny, or rescind incentives or high performer 
designation or non-troubled performer designation, including in but not 
limited to circumstances in which a PHA:
    (i) Is operating under a special agreement with HUD (e.g., a civil 
rights Conciliation or Voluntary Compliance Agreement);
    (ii) Is involved in litigation that bears directly upon the 
physical performance of a PHA;
    (iii) Is operating under a court order;
    (iv) Demonstrates substantial evidence of fraud or misconduct, 
including evidence that the PHA's certifications, submitted in 
accordance with this part, are not supported by the facts, as evidenced 
by such sources as a HUD review, routine reports, an Office of 
Inspector General investigation/audit, an independent auditor's audit, 
or an investigation by any appropriate legal authority;
    (v) Demonstrates substantial noncompliance in one or more areas of 
a PHA's required compliance with applicable laws and regulations, 
including areas not assessed under the small rural assessment. Areas of 
substantial noncompliance include, but are not limited to, 
noncompliance with civil rights, nondiscrimination and fair housing 
laws and regulations, or the ACC. Substantial noncompliance casts doubt 
on the capacity of a PHA to preserve and protect its public housing 
projects and operate them consistent with federal laws and regulations; 
or
    (vi) Demonstrates other egregious performance issues not reflected 
in PHAS component score that require significant corrective action, as 
HUD determines necessary.
    (3) HUD may withhold, deny, or rescind non-troubled or troubled 
performer designation and accompanying requirements at its discretion. 
HUD may substitute other corrective requirements when HUD determines it 
is necessary.
    (4) HUD may withhold, deny, or rescind an overall PHAS score at its 
discretion. HUD must notify the PHA when scores are withheld, denied, 
or rescinded, provide the basis for the decision, and allow for appeal 
as described in Sec.  902.109.
0
32. Amend Sec.  902.109 by revising the section heading, paragraph (a) 
and paragraphs (c) through (f) to read as follows:


Sec.  902.109  Right to appeal troubled designation.

    (a) Appeal of troubled performer designation. A PHA may take any of 
the following actions:
    (1) Appeal its troubled performer designation; and
    (2) Appeal any actions taken under Sec.  902.107.
* * * * *
    (c) Appeal procedures. (1) To appeal a troubled performer 
designation a PHA must submit a request in writing to the Deputy 
Assistant Secretary of the Real Estate Assessment Center, which must be 
received by HUD no later than 30 days following the issuance of the 
score to the PHA.
    (2) An appeal of a troubled performer designation must include the 
PHA's supporting documentation and reasons for the appeal. An appeal of 
an assessment score must be accompanied by the PHA's evidence that a 
material error occurred.
    (d) Denial, withholding, or rescission.A PHA that disagrees with 
the basis for denial, withholding, or rescission of its designation or 
score under Sec.  902.107 may make a written request for reinstatement 
within 30 days of notification by HUD of the denial or rescission of 
the designation to the Assistant Secretary, and the request shall 
include reasons for the reinstatement.
    (e) Consideration of appeals. Upon receipt of an appeal of a final 
overall assessment score, of a troubled performer designation, or 
appeal of action taken under Sec.  902.107 from a PHA, HUD will 
evaluate the appeal and its merits for purposes of determining whether 
a reassessment of the PHA is warranted. HUD will review the PHA's file 
and the evidence submitted by the PHA to determine whether an error 
occurred.
    (f) Notice and finality of decisions. (1) If HUD determines that 
one or more objectively verifiable and material error has occurred, HUD 
will undertake a

[[Page 87532]]

new inspection of the project, adjust the PHA's score, or perform other 
reexamination of information, as appropriate in light of the nature of 
the error that occurred. A new score will be issued and an appropriate 
performance designation made by HUD. HUD's decision on appeal of an 
assessment score, or issuance of a troubled performer designation will 
be final agency action.
    (2) HUD will issue a written decision on all appeals made under 
this section.
0
33. Revise Sec.  902.111 to read as follows:


Sec.  902.111  Remedies for troubled small rural PHAs.

    The remedies for small rural PHAs with troubled public housing 
programs that remain troubled under Sec.  902.108 will be the same as 
those remedies for PHAs assessed under PHAS as described in Sec.  
902.83.

Dominique Blom,
General Deputy Assistant Secretary for Public and Indian Housing.
[FR Doc. 2024-25469 Filed 11-1-24; 8:45 am]
BILLING CODE 4210-67-P