National Housing Law Project Housing Law Bulletin

HUD recently published a final regulation to substantially modify the process it uses to evaluate public housing authority (PHA) management and financial operations.¹ The Public Housing Management Assessment Program (PHMAP), the system established by regulation in 1992 to measure PHA management operations against seven performance indicators, will be renamed the Public Housing Assessment System (PHAS).² Under the regulations, every PHA will be evaluated at the end of each fiscal year. The assessment will measure four indicators: physical condition, financial condition, management operations and resident service and satisfaction. On a 100-point scale, the first three indicators will be measured at a maximum of 30 points each, with resident service and satisfaction scored at 10 points. The final rule follows a June 30, 1998, proposed rule.³ Selected changes made in the proposed rule — particularly those related to residents' interests — are noted, where appropriate, in the text below. Although some changes were made favorable to residents, a major disappointment is HUD's decision not to include Section 3 requirements as a performance indicator.⁴ HUD contends that, since Section 3 requirements are already the subject of extensive departmental regulation and since overall quality rather than specific programmatic requirements is the PHAS focus, Section 3 should not be included as an indicator in the final rule.

In the discussion of public comments in the final rule, HUD acknowledges that a number of commenters felt the proposed rule was not specific enough and sought additional information on the relative weights and points in the four PHAS indicators.⁵ Lack of detail is among the criticisms of the proposed rule advanced by all of the public housing trade associations.⁶ HUD responded that, while the final rule sets out broad policy, additional instruction would be forthcoming in future HUD guidance.

In the final rule, the Department offered the approximate relative weight/points for the four PHAS indicators mentioned above and their component parts.⁷ HUD's Real Estate Assessment Center (REAC), established under its 2020 Management Plan, is charged with assessing all public housing properties as to physical and financial condition. REAC will employ uniform and standardized protocols and will serve as the repository of information gathered from each PHA on both the management operations and resident service and satisfaction indicators.⁸

Physical Condition Indicator

The physical condition indicator will be based upon an inspection done by HUD or HUD contractors. It will evaluate the sites, the building exteriors, the building systems, the dwelling units and the common areas to see whether they are in good repair, free of hazards, and generally operable, functionally adequate and structurally sound.

The proposed rule provided that calculation of the physical conditions indicator would be based upon measuring the overall condition of the PHA's stock, using "weights based on the relative importance of the individual inspectable areas and the deficiencies observed." The final rule is modified to consider not simply observed deficiencies, but their "relative severity."⁹ A second change from the proposed rule clarifies that the poverty rate among the population of census tracts or census block groups contiguous to the development being assessed will be factored into whether an adjustment will be made in the scoring for the neighborhood environment. The rule provides that additional points may be added to a PHA's physical condition score for both physical condition of the site, the common areas, and the building exteriors, as well as neighborhood environment conditions, to avoid penalizing PHAs that face management challenges as a result of physical condition and location.¹⁰

Financial Condition Indicator

The financial indicator is to be based upon a report submitted to HUD by the PHA each year that indicates the ratio between the current assets and current liabilities, the number of months the PHA can operate on its fund balance without new revenue, the length of time that delinquent rents are outstanding, the PHA's vacancy loss, the PHA's expenses per unit, especially its utility expenses, and any special indications of fraud, waste or abuse.

A number of public comments on this indicator related to the requirement that PHAs convert to Generally Accepted Accounting Principles (GAAP) in submitting annual financial reports. Commenters complained that the switch to this accounting method would be burdensome and ultimately may not be to the PHA's advantage. HUD responded to a number of the specific criticisms of GAAP offered by commenters, pointed to the availability of a "GAAP Conversion Guidebook" available on the Internet, and promised additional guidance.¹¹

Management Operations Indicator

The management operations indicator is based upon information certified to by the PHA regarding vacancy rates and turnaround time on renting vacated units, expenditure of modernization funds, rent collections, time taken to fill emergency and non-emergency work orders, PHA unit inspection practices and security practices.

Although HUD declined to make changes from the proposed rule on the management operations indicator, in a few instances the Department agreed to reconsider specific public comments in the future. For example, a commenter suggested that a management indicator be included for lease enforcement. The Department agreed to consider the suggestion for future changes to PHAS. Some commenters felt that PHAS should have a minimum one year period from the date of eviction to re-rental of a unit without penalty on the management indicator. HUD countered that a year "is an unreasonable amount of time" and that the indicator's provision of an average of 30 calendar days for lease up should be sufficient.¹² Some commenters objected to inclusion of both the modernization and rents uncollected components of the management operations indicator, believing these components more appropriate for the financial condition indicator.

While not agreeing to these changes, HUD did agree to reconsider changes to the sub-indicator for response time for non-emergency work orders in answering commenters who proposed that the sub-indicator either be dropped or modified as too generous.¹³ HUD also agreed to consider changes in the future to the security component of the indicator in response to commenters, including some who believed that the PHA's relationship with the police should not be subject to evaluation.

Finally, some commenters suggested that resident services and satisfaction be treated not as a separate indicator but as a component of the management indicator. HUD rejected an approach that subordinated resident services and satisfaction because of "the role of residents as stakeholders in the PHAS process."¹⁴

Resident Services and Satisfaction Indicator

The resident services and satisfaction indicator will be based upon a resident survey done by the PHA following HUD-prescribed methodologies and the PHA's follow-up actions taken in response to the survey.

The final rule makes three changes in this indicator from the proposed rule. The proposed rule required that the resident survey process be administered by the PHA. The final rule provides that the PHA "manage" rather than administer the survey.¹⁵ This change was made at least partly in response to commenters who raised the issue of the absence of trust between PHAs and their residents, including a legitimate fear of reprisals by residents who may respond to the survey truthfully but in a manner critical of the housing authority. Some commenters suggested that a resident organization assume responsibility for administering the survey.¹⁶

The proposed rule provided that REAC would score this indicator based on three components of the survey process: (1) the survey results; (2) the level of implementation and follow-up or corrective action; and (3) verification that data collection, tabulation and submission complied with HUD guidance. The final rule assessed the point score for the survey results, that is, resident evaluation of overall living conditions, including such items as maintenance and repairs, communications, safety, services and neighborhood appearance. The second scoring component will measure PHA follow-up. Verification, a scored component in the proposed rule, becomes a threshold requirement in the final rule.¹⁷

In response to commenters' concerns about the objectivity of the survey instrument, HUD responded that it is now testing various survey data collection methods and will not finalize the methodology until this process is complete.¹⁸ Other concerns raised by commenters about the resident services and satisfaction indicator included administrative cost and burden, whether PHA management should be evaluated based on the residents' reaction to community service providers such as the police department. In response to one commenter's criticism that good management practices — such as eviction — might result in unfavorable ratings, HUD promised to consider the issue as the survey instrument is being finalized.

Scoring

On each indicator the PHA will have to receive 60 percent of the possible points for the indicator to pass. If the PHA fails any of the first three indicators — physical condition, financial condition and management operations — it automatically fails the assessment. If the PHA fails one of those indicators or receives an overall score of less than 60 percent, the PHA will be designated as "troubled." A PHA scoring between 60 and 70 percent of the total possible points will be classified as a "standard performer," but will be subject to additional HUD oversight. With a score between 70 and 90 percent, the PHA will be designated a standard performer and will have only to correct any reported deficiencies. If the score is 90 percent or higher, the PHA will be designated a "high performer." With high performer status, a PHA will be relieved of some HUD oversight, but not any statutory and regulatory obligations, and will be eligible for bonus points in funding competitions.¹⁹

The rule provides for PHA appeal to REAC of a "troubled" designation within 30 days of receiving its score. A Board of Review consisting of a representative of REAC, of the Office of Public and Indian Housing, and others as determined by REAC, will be convened by REAC to hear and decide on the appeal. HUD will have 30 days from the date of the appeal to make a final determination.²⁰

Remedial and Enforcement Processes

The regulations will also change the remedies available to HUD in the case of low scores. To promote public awareness of PHAs' performance, each PHA will be obliged to post its scores locally and HUD will publish all PHAs' scores in the Federal Register.²¹ If the PHA's assessment indicates any deficiencies in its performance, the PHA is obliged to correct the deficiency and report the correction to HUD. In addition, the local HUD field office could require the PHA to develop an improvement plan for specific deficiencies.²² If the PHA's score is beneath 70 percent but still passing, the PHA will be required to have to work with the local HUD field office to develop an improvement plan describing actions to be taken to correct the deficiencies and imposing timelines for those actions.²³ If the PHA fails to submit the improvement plan or correct the deficiencies within the timelines, the HUD office will refer the PHA to a HUD Troubled Agency Recovery Center (TARC), unless the PHA has acceptable reasons for the lack of progress. PHAs that fail the assessment (below 60 points) are designated as "troubled" and are also referred to a Recovery Center.²⁴

The Troubled Agency Recovery Centers are part of HUD's new 2020 Management Plan. The two centers, one located in Cleveland and the other in Memphis, will develop and implement strategies to improve the performance of troubled PHAs. The Recovery Center will send a recovery team to each PHA that is referred to it and will develop a recovery plan for the PHA. The recovery plan will include recommendations for curing the deficiencies and a Memorandum of Agreement (MOA) binding the PHA to strategies to achieve specific performance targets by specific dates. The MOA will also oblige the PHA to obtain active involvement of tenant leaders in implementation of the recovery plan.²⁵ Once the PHA executes the MOA, it will have one full fiscal year to recover, unless the Recovery Center grants an extension of time.²⁶ If the PHA does not execute the MOA or make substantial improvement toward a passing PHAS score, the PHA will be referred to the HUD Enforcement Center.²⁷

The Enforcement Center is another part of HUD's efforts to improve its administration and rid itself of the mismanagement label. It is located in the HUD Central Office. The Enforcement Center will be responsible for taking aggressive action against troubled public and assisted housing developments that fail the financial and physical inspections standards.²⁸ The Enforcement Center can recommend to the Assistant Secretary for Public and Indian Housing that any PHA referred to it be declared in substantial default under the Annual Contributions Contract and then pursue judicial receivership or other remedies. The regulations will require HUD to declare a substantial default if the PHA has not shown significant improvement within one year of executing a MOA.²⁹ HUD's options upon declaring a substantial default would be to seek a judicial receivership, to arrange for an Alternative Management Entity to manage all or part of the PHA, to take possession and management of the PHA's properties, or to select an administrative receiver for the PHA.³⁰

Conclusion

Implementation of the PHAS is one year away. Until that time, PHMAP regulations at 24 C.F.R. Part 901 continue to apply. Whether the new regulations will build public confidence in HUD's ability to fairly and effectively evaluate housing authority performance remains to be seen. Among the most important tests for the new system is whether customer satisfaction and services can be adequately evaluated in a way that will lead to quality of life improvements for public housing residents. n

¹  Public Housing Assessment System, Final Rule creating 24 C.F.R. Part 901, Department of Housing and Urban Development, 63 Fed. Reg. 46,595 (Sept. 1, 1998).
²  24 C.F.R. Part 901. (It should be noted that Part 901 continues in effect since the PHAS rule will not be implemented until October 1, 1999.)
³  63 Fed. Reg. 35,672 (June 30, 1998).
⁴  Section 3 of the Housing and Urban Development Act of 1968 requires that economic opportunities created by federal financial assistance, including housing, be given, to the greatest extent feasible, to low- and very low-income persons. 12 U.S.C.A. § 1701u (West Supp. 1998); 24 C.F.R. Part 135 (1998). A group of resident advocates, including the National Housing Law Project, provided specific comments on inclusion of Section 3 as a performance indicator. (Letter on file at NHLP.)
⁵  63 Fed. Reg. at 46,598.
⁶  For general comments, see Public Housing Authority Directors Association, "PHADA's Comments on the PHAS Proposed Rule," PHADA Advocate, Vol. 13, No. 14 (Aug. 10, 1998) at 4; Council of Large Public Housing Authorities, "HUD Issues Notices on New Assessment System," CLPHA News, Vol. 17, No. 9 (June/July 1998), at 5; Letter of July 30, 1998, from National Association of Housing and Redevelopment Officials (NAHRO) to HUD Regulations Division, Office of General Counsel.
⁷  63 Fed. Reg. at 46,598.
⁸  Supra note 1, 24 C.F.R. § 902.1(d).
⁹  Supra note 3, proposed 24 C.F.R. § 901.25(a); supra note 1, final rule, 24 C.F.R. § 902.25(a).
¹⁰  Supra note 1, final rule, 63 Fed. Reg. at 46,620; 24 C.F.R. § 902.25(b)(3).
¹¹  63 Fed. Reg. at 46,604.
¹²  63 Fed. Reg. at 46,610.
¹³  63 Fed. Reg. at 46,611.
¹⁴  63 Fed. Reg. at 46,612.
¹⁵  Supra note 3, proposed 24 C.F.R. § 901.50(b); supra note 1, final rule, 24 C.F.R. § 902.50(b).
¹⁶  The Public Housing Residents National Organizing Campaign, in its July 29, 1998, comments to the HUD General Counsel on the proposed rule, among other things, interposed strong objections to PHA administration of the survey (letter on file at NHLP).
¹⁷  Supra note 3, proposed 24 C.F.R. § 901.53(a); supra note 1, 63 Fed. Reg. 46,597 and 46,622, 24 C.F.R. § 902.53(a).
¹⁸  63 Fed. Reg. at 46,613.
¹⁹  Supra note 1, 63 Fed. 46,622-23, PHAS Scoring, 24 C.F.R. §§ 902.60-69, Subpart F.
²⁰  Supra note 1, 63 Fed. Reg. at 46,623; 24 C.F.R. § 902.69.
²¹  Supra note 1, 63 Fed. Reg. at 46,623; 24 C.F.R. § 902.63(d).
²²  Supra note 1, 63 Fed. Reg. at 46,624; 24 C.F.R. § 902.73(b).
²³  Id.
²⁴  Supra note 1, 63 Fed. Reg. at 46,623; 24 C.F.R. § 902.67(c).
²⁵  Supra note 1, 63 Fed. Reg. at 46,624; 24 C.F.R. § 902.75(c)(8).
²⁶  Supra note 1, 63 Fed. Reg. at 46,625; 24 C.F.R. § 902.75(d).
²⁷  Supra note 1, 63 Fed. Reg. at 46,625; 24 C.F.R. § 902.77.
²⁸  Id.
²⁹  Supra note 1, 63 Fed. Reg. at 46,625; 24 C.F.R. § 902.79(a)(3).
³⁰  Supra note 1, 63 Fed. Reg. at 46,626; 24 C.F.R. § 902.83.