1. 1 Revisions to the Public Housing Assessment System (PHAS) Overview August 21, 2008

2. 2 Introduction This week, the Department will publish in the Federal Register a proposed rule that would make revisions to Title 24 of the Code of Federal Regulations (CFR) Part 902—Public Housing Assessment System. This presentation provides an overview of the changes included in that proposed rulemaking, along with key implementation dates.

3. 3 Purpose There are two main purposes of this proposed rulemaking. 1. The first is to align the PHAS with public housing’s conversion to asset management under 24 CFR Part 990 and, in particular, to focus on project-level performance. 2. The second is to establish, in a separate part of the CFR, the criteria by which a Public Housing Agency (PHA) would be determined to be in substantial default, the procedures for a PHA to respond to such a determination or finding, and the sanctions available to HUD to address and remedy substantial default by a PHA.

4. 4 Goal/Statutory Foundation  The goal of PHAS is to Improve the delivery of services in public housing Enhance trust in the public housing system Provide a management tool for measuring performance  PHAS addresses Section 6(j) of the United States Housing Act of 1937, requiring HUD to establish by rulemaking specific indicators to assess the management performance of PHAs

5. 5 Timelines  Current PHAS was published January 11, 2000  Proposed rule published August 21, 2008  Public comment period ends October 2008  HUD published for public comments draft form HUD-5834  5834 comment period ends September 30, 2008

6. 6 Changes to PHAS

7. 7 Transition Year Scoring  Under 24 CFR 990, Part G, Asset Management, PHAs must implement project-based budgeting and accounting beginning with fiscal years ending June 30, 2008, what is also known as the “transition year.”  In accordance with Federal Register Notice, as well as PIH Notice 2008-18, PHAs will not be assessed in the transition year. Consequently, PHAs will not be assessed under the new PHAS until fiscal years ending June 30, 2009.

8. 8 Implementation of New PHAS PHA FYE Pre Transition Year PHAS Scoring – Last PHAS score Implement Project Based Accounting and Budgeting (Transition Year) Implementation of New Scoring 6/307/1/06 - 6/30/077/1/07 - 6/30/087/1/08 - 6/30/09 9/3010/1/06 – 9/30/0710/1/07 – 9/30/0810/1/08 – 9/30/09 12/311/1/07 – 12/31/071/1/08 – 12/31/081/1/09 – 12/31/09 3/314/1/07 – 3/30/084/1/08 – 3/30/094/1/09 – 3/30/10

9. 9 Current vs. Proposed Indicators Current PHASProposed PHAS 1. Physical 2. Financial 3. Management Operations 4. Resident Service and Satisfaction 4. Capital Fund

10. 10 Scoring Current PHASProposed PHAS IndicatorPointsIndicatorPoints Physical30Physical30 Financial30Financial20 Management Operations 30 Management Operations 40 Resident Service and Satisfaction 10Capital Fund10 Total100Total100

11. 11 Scoring  Scoring appendices were published along with the proposed rule  Physical, financial and management operations scores are based on unit-weighted average of project scores  Capital Fund score is based on PHA-wide performance  Scores for management reviews, like physical inspections, are carried over when no review is conducted during subject year

12. 12 Weighted Average Calculation (Financial, Physical, Management Operations) Project 1 Total UnitsX Project Score= Unit Weighted Score Project 2 Total UnitsX Project Score= Unit Weighted Score Project 3 Total UnitsX Project Score= Unit Weighted Score Project 4 Total UnitsX Project Score= Unit Weighted Score Total PHA Units Total Unit Weighted Score/ Total PHA Units = Indicator Score

13. 13 Scoring Example 500 Unit PHA PhysicalFinancial Management Operations Cap Fund PHAS Score ProjectUnitsScore Unit Weighted Score Unit Weighted Score Unit Weighted Score 10 83 1100282800191900353500 2200204000204000306000 3150253750152250334950 45025125010500321600 Total Units500 11800 8650 16050 Indicator/ PHAS Score 23.6 17.3 32.1

14. 14 Scoring Example 1025 unit PHA PhysicalFinancial Management Operations Cap Fund PHAS Score ProjectUnitsScore Unit Weighted Score Unit Weighted Score Unit Weighted Score 1253075020500401000 24030120020800401600 340022880025100002911600 460251500181080301800 5100282800191900353500 6200204000204000306000 7150253750152250334950 85025125010500321600 Total Units1025 24050 21030 32050 Indicator/PHAS score 23.5 20 31.21085

15. 15 Classifications 24 CFR 902.11  High Performing: PHA overall score of 90% or greater  Standard: PHA overall score of at least 60% and at least 60% for each of the four PHAS indicators  Substandard: PHA overall score of at least 60% and a score of less than 60% under one or more of the physical, financial or management operations indicators  Troubled: PHA overall score of less than 60% or fail the Capital Fund indicator

16. 16 Classifications (con’t)  Substandard is no longer troubled  No “overall” PHAS score for each project, only separate indicator scores for physical, financial, and management operations  No “troubled” projects

17. 17 Physical Indicator  No change in the protocol for independent inspections  No change in the frequency of inspections; projects (not PHAs) that score 80 would be inspected every other year  Inspections performed based on AMPs (projects)

18. 18 Financial Indicator  Measures financial condition of projects Quick Ratio (QR) Months Expendable Net Assets Ratio (MENAR) Debt Service Coverage Ratio (DSCR)  No entity-wide scoring (LR and Cap Fund only)  No peer ratios  Accounts receivable, rent collection, and expense management moved to management operations indicator

19. 19 Financial Indicator Quick Ratio (QR)  Compares quick (unrestricted current) assets to current liabilities Quick assets are cash and assets that are easily convertible to cash and do not include inventory Current liabilities are those liabilities that are due within the next 12 months A quick ratio of less than 1 indicates that the project’s ability to make payments on a timely manner may be at risk

20. 20 Financial Indicator Months Expendable Net Assets Ratio (MENAR)  Measures a project’s ability to operate using its net available, unrestricted resources without relying on additional funding  Ratio compares the net available unrestricted resources to the average monthly operating expenses  Shows how many months of operating expenses can be covered with currently available unrestricted resources

21. 21 Financial Indicator Debt Service Coverage Ratio (DSCR) Net operating income available to make debt payments Amount of the debt payments  Used if a PHA has taken on long-term obligations  A debt service coverage ratio of less than 1 would indicate that the project does not have revenues to cover both its expenses and its debt obligations  The operating reserve level is not measured  If no long term debt, project receives full scoring credit

22. 22 Management Operations Indicator  Based on information obtained from the on-site management review, form HUD-5834  Eliminates PHA self certification  Scores performance, not compliance  Review could generate findings  Adjustment for Physical Condition and Neighborhood Environment (PCNE) applied at project level using existing HUD data

23. 23 Management Operations Indicator (con’t)  Includes all section 6(j) items, other than the Capital Fund  The proposed management review for Public Housing projects, form HUD-5834, conforms to multifamily form HUD-9834  Uses monthly or yearly activity for measures  Uses A, F; A, C, F or A, B, C, D, F for measures, which are then scored  Considers primary vs. secondary measures, per ARI recommendations High PASS score/ “A” for unit inspections, work orders Low Vacancy Rate/ “A” for unit turnaround

24. 24 Management Operations Scoring Sub IndicatorPoints General Appearance and Security6 Appearance and Market Appeal 5 Security 1 Maintenance and Modernization6 Unit Inspections 1 Work Orders 3 Preventive Maintenance 1 Energy Conservation/Utility Consumption 1 Financial Management8 Accounts Payable 4 Rents Collected 4 Leasing and Occupancy18 Vacancy Rate 16 Turnaround Time 2 Tenant/Management Relations2 Economic Self Sufficiency 1 Resident Involvement in Project Administration 1 Total Points40

25. 25

26. 26 Management Operations Indicator  Appearance and Market Appeal (scored) Appearance and Market Appeal Security

27. 27 Management Operations Indicator General Appearance and Security Appearance and Market Appeal (scored) Evaluates the appearance of exterior and common areas in 12 categories  Categories Project Entrance Landscaping Building Exterior Graffiti Paved Surfaces Public Spaces and Amenities Fencing, Rails, Porches, Overhangs, and Ramps Windows Overall Project Appearance Project Debris Trash Units

28. 28 Management Operations Indicator General Appearance and Security Security (scored) Performance in tracking crime-related problems on project property Adoption and implementation of applicant screening and resident eviction policies and procedures Coordination with local officials and residents to implement anti-crime strategies

29. 29 Management Operations Indicator Follow-Up and Monitoring of Project Inspections  Exigent Health and Safety (EHS) Deficiencies (not scored) Performance in correcting/abating EHS deficiencies identified during UPCS inspections  Lead-Based Paint (LBP)Inspection Deficiencies (not scored) Maintenance of LBP certifications for pre 1978 buildings Completion of risk assessments and hazard reduction for reported EIBLLs

30. 30 Management Operations Indicator  Maintenance and Modernization Unit Inspections Work Orders Preventive Maintenance Energy Conservation/Utility Consumption Modernization  First four components are scored

31. 31 Management Operations Indicator Maintenance and Modernization Unit Inspections (scored) PASS scores of 90 or better receive an “A” Evaluates the percentage of units a project inspected for a 12 month period prior to the review (not the PHA’s FYE) Inspections are to determine short- and long- term maintenance needs Inspection program must be adequate Occupied units are to be inspected Some units are exempted

32. 32 Management Operations Indicator Maintenance and Modernization Work Orders (scored)  PASS scores of 90 or better receive an “A”  Measures the average number of days that tenant generated work orders are outstanding  Choose either a one month or twelve month assessment period at the project’s option  Does not assess open work orders, only those that are closed  For a grade C, the assessment can compare performance at the end of the month three years prior to the review to the current performance to measure improved performance

33. 33 Management Operations Indicator Maintenance and Modernization Preventive Maintenance (scored)  Evaluates implementation of a written preventive maintenance plan  Examples include critical systems, building elements, grounds care and equipment  Plan items must include a schedule for conducting preventive maintenance

34. 34 Management Operations Indicator Maintenance and Modernization Energy Conservation/Utility Consumption (scored)  Looks at energy conservation measures Has an energy audit been completed? Has an implementation plan been developed? Is plan on schedule?

35. 35 Management Operations Indicator Maintenance and Modernization Modernization (not scored)  Examines project’s management of modernization and non-routine maintenance through the physical needs assessment, project plans and budgets for modernization activities

36. 36 Management Operations Indicator  Financial Management Accounts Payable Percentage of rents collected Budget Management Procurement The first two components are scored

37. 37 Management Operations Indicator Financial Management Accounts Payable (scored)  Project timeliness in paying invoices not in dispute  One-month assessment period  Invoices should be paid in 30 days  Adequate system for tracking accounts payable

38. 38 Management Operations Indicator Financial Management Rents Collected (scored)  Percentage of rents collected  One- or twelve-month assessment period  Rents include rental charges only  Project must have an adequate tracking system

39. 39 Management Operations Indicator Financial Management Budget Management (not scored)  Examines actual year-to-date performance on income and expenses compared to the budget Procurement (not scored)  Project ability to plan for and implement procurement actions in accordance with laws and regulations

40. 40 Management Operations Indicator  Leasing and Occupancy Vacancy Rate Turnaround Time Occupancy Review The first two components are scored

41. 41 Management Operations Indicator Leasing and Occupancy Vacancy Rate (scored)  Measures average adjusted vacancy rate  Allows for unit exemptions  Assessment period of 12 calendar months

42. 42 Management Operations Indicator Leasing and Occupancy Turnaround Time (scored)  If the adjusted vacancy rate is 2% or less, turnaround time will be graded “A”  Examines the amount of time required to turn around units  Uses 12-month assessment period  Project must have an adequate tracking system

43. 43 Management Operations Indicator Leasing and Occupancy Occupancy Review (not scored) Addresses compliance activities and procedures necessary to house and retain eligible low-income families Application process Tenant Selection Leasing process Lease enforcement Income and rent computation

44. 44 Management Operations Indicator  Tenant/Management Relations Economic Self-Sufficiency Resident Involvement in Project Administration

45. 45 Management Operations Indicator Tenant/Management Relations Economic Self-Sufficiency (scored)  Evaluates employment, self-sufficiency participation, self-sufficiency opportunities provided for adult residents  12-month assessment period  Measures whether the project offers or coordinates at least 1 economic self- sufficiency activity

46. 46 Management Operations Indicator Tenant/Management Relations Resident Involvement in Project Administration (scored)  Project must offer at least one opportunity for tenants to be involved in the administration of the project.  Examples: Newsletters, Contracts with Resident-Owned Businesses, Neighborhood Watch Programs, Substance Abuse Counseling, Regular Tenant Meetings, Service Coordinator, Resident Participation on Committees, Neighborhood Networks Center. Tenant Management

47. 47 Management Operations Indicator General Management Practices  Management Review Findings (not scored)  Other Prior Review Findings (not scored)  Insurance (not scored)

48. 48 Capital Fund Indicator  Separate, PHA-wide indicator  Measures Timeliness of Obligation Timeliness of Expenditure

49. 49 Benefits  Ease of administration/minimize PHA submissions  Isolate performance of individual projects  Score only the public housing and Capital Fund programs (not entity-wide activity)  Separate performance from compliance (management review)  Consistency with multifamily housing  MOAs only for troubled agencies (not applicable to Substandard)  Corrective Action Plans address noted deficiencies

50. 50 Substantial Default

51. 51 Substantial Default 24 CFR 907  New Part 907 – Substantial Default by a Public Housing Agency  Provides criteria and procedures for determining and declaring substantial default by a PHA  Does not limit the discretion of HUD to address and remedy substantial default by a PHA

52. 52 Public Housing Assessment System Send written comments to: Regulations Division, Office of the General Counsel, Department of Housing and Urban Development, 451 Seventh Street, SW, Room 10276, Washington, DC 20410-0001. Submit comments electronically through the Federal eRulemaking Portal at www.regulations.gov. (recommended) www.regulations.gov