PHADA's comments on the PHAS proposed rule

August, 1998

PHADA strongly supports efforts to improve the assessment of the performance of the nations 3,400 housing authorities. The industry recognizes and accepts its responsibility to provide the highest service to its customers -- the taxpayers and residents of public and assisted housing.

There is a great deal at stake in HUD's reorganization of which PHAS is an important part. Many believe that this is the Department's last chance to "get it right." PHADA is absolutely committed to assist HUD in this regard. It is in everyone's interest to do so.

For all these reasons, PHADA remains committed to getting the most complete, credible, and objective measure of performance and physical conditions. To reach these standards, we are convinced the instrument should be reflective of the consultation process, be completely open to public scrutiny, provide for meaningful dispute resolution, and allow sufficient time for public comment. In our view, this proposed rule falls very short on each of these principles. It should, therefore, be withdrawn, reworked, and reissued with a minimum of sixty days to comment.

The proposed rule places a great deal of importance on that consultation process. It uses this important process, in our view, to legitimize its final product which is woefully inadequate in addressing issues that came up during the consultation. Until the day the comments were due, HUD also inappropriately used the consultation process as a way to cut short the period of public review. It is unclear how helpful a two-week extension will be when announced literally at the last minute.

The length of time the public has to review the new rule is one important indicator of HUD's real openness to partner with its customers. The main issue, however, is that HUD has failed to publish the real substance of this rule, i.e., how the Department will score agencies. From this perspective, it makes little difference how long the public has to comment. It can only offer meaningful comments to the degree the proposed rule is meaningfully complete. HUD falls far short of meaningful disclosure.

Because the Department places such emphasis on the pre-issuance consultation process, it seems relevant that PHADA share some of its experience with the Department in that process.

Because of its commitment to the consultation process, the Association actively participated in every meeting of the performance standards working group beginning last October. While we were, at times, concerned with various assumptions the Department and its consultant, KPMG Peat Marwick, made, we felt it essential to take HUD up on its offer of "partnership" to examine the performance system and propose improvements.

We commend the HUD staff leadership of the working group meetings for their attempts to listen to, and incorporate, the views of the industry. Many of those meetings were difficult and trying for all the participants, particularly the physical inspections working group. Still, there was a sense of progress, however small, in that the parties remained committed to working through their differences.

However, throughout the process, significant players -- the HUD "policy makers" -- were absent to the working groups. These were people in HUD's leadership in the General Counsel's office and in the Secretary's office that ultimately made important determinations on topics discussed in the working groups, but who were rarely, if ever, participants in those discussions. In a way there frequently was a "disconnect" between the fourth and the ninth and tenth floors of the Department.

This had, and continues to have (as evidenced by the proposed rule), a serious negative impact on the consultation process. The HUD staff leading the working group frequently heard recommendations and concerns from the industry, apparently took them to HUD's leadership, and returned with what were assumed to be official responses and assurances. There are three players: the industry (including residents), Public and Indian Housing staff leading the consultation, and those primarily concerned with public relations issues. The last of the three, unfortunately for both HUD and the industry, appears to be unduly elevated in importance and is too often the final arbiter making policy decisions.

This proposed rule, to our dismay and disappointment, is neither responsive to the recommendations nor consistent with the Department's assurances. It is so vague regarding core issues related to the assessment, as to defy detailed critique.

While PHADA will comment on what specifics the proposed rule identifies, what is most important is not what is in the rule but what is missing. The rule is so severely vague about important details that it is difficult to offer specific comment. Most obvious, the rule is void of any detail about how the Department intends to weight and score each of the four major indicators. Time and again, the proposed rule simply indicates that the REAC will determine the score for a particular indicator.

It is unfair and disingenuous of the Department to ask for comments without revealing the most important details. Also, in our view, withholding the details of scoring calls into question the credibility and objectivity of the PHAS instrument.

At best, the consultation process HUD engaged in with the industry was incomplete. Not all tasks were completed before the rule was published and the rule ignores several important assurances the industry received in those meetings.

Among those are the following:

1. The industry was repeatedly assured that the physical inspections working group would meet to recommend a scoring matrix for this component. HUD never convened the group for this purpose. There is no reference to how the indicator will be scored in the proposed rule. In addition, there is no evidence in the proposed rule that the Department is responsive to the recommendations made by the industry regarding what weights to assign to the individual items.

2. There is no mechanism provided in the proposed rule for an agency to dispute the scoring system which the proposed rule fails to describe. The HUD spokesperson assigned as the contact for this rule indicated that this, like most of the other details, was omitted purposely by the Department. In fact, he stated, the Department was considering letting agencies know only their overall score in each of the four indicators. The only disputable items, he said, would likely be technical errors like the wrong property names or numbers.

   PHADA notes that § 901.63 references adjustments based on GAAP only. If there is no vehicle to dispute individual scores beyond these, it seems in direct contradiction of both the recommendations made by the working groups and HUD's assurances.

3. The only appeal of a performance rating is reserved for those agencies determined to be troubled under the PHAS. There is no mechanism for agencies to appeal their scores if they are considered to be either standard or high performing HAs. Again, this contradicts both recommendations and assurances given and received during the working group.

4. Those housing authority representatives and industry groups that participated in the discussion with HUD on PHAS were repeatedly assured that they would be consulted regarding the resident satisfaction survey. In fact, consultation on the specifics of the survey never occurred.

   The industry was consulted on the general notion of a survey last fall but then heard nothing about it until its existence was announced on July 15, two weeks after the rule was published. Interested parties were required to take the initiative and contact HUD for a copy. Some members indicate copies have been slow to arrive.

   It appears that the Department is not particularly interested in comment, much less collaboration. Even though the survey was ready by June 17, it was not included in the proposed rule for comment.

5. HUD officials and the working group accepted a recommendation from this association to convene a separate group to examine the advisability of giving a greater role to program compliance reviews conducted by the Independent Public Audit. Despite repeated inquiries by PHADA, this group was never convened.

6. The Department repeatedly indicated that an additional meeting of the working group examining the conversion to GAAP accounting would meet to review the specific requirements and the conversion process. That meeting was never convened.

7. Finally, the Department repeatedly stated that the public would have the full 60 days to comment on the rule. Despite CFR part 10 which governs its rulemaking process, the Department extended the comment period to 45 days at the last minute in response to a July 17 colloquy by Senators D'Amato, Bond, and Mack and requests by numerous parties in the industry. PHADA agrees with the Senators that the Department has not met the minimum thresholds to reduce the comment period at all. While the rule would have to be reissued because of the lack of specificity regardless the comment period, this seriously questions the genuineness of the Department's invitation for comment from its partners.

In addition, the vagueness of the rule leads to further questions regarding how seriously the Department seeks public input. It has a flavor not unlike a news-bite, e.g., "We have breaking news tonight about a new system to assess public housing. Details at eleven." This proposed rule announces with much fanfare a new system, "details to follow." This raises the specter of "regulation by notice," a process with no room for public review and comment. This is unacceptable to us. This fear does not seem unfounded, as the preamble states, in part, "The Assessment Center will keep the public and HUD program participants advised of the findings obtained through this ongoing analysis of any recommended changes to the protocols and indicators through issuance of a Federal Register notice or other appropriate notice (emphasis added)."

PHADA wonders about what is driving the expedited timing of the process. According to some, it is the Secretary's directive that the first scores be issued before the year 2000. Thus, the rule indicates that the first scores will be issued by December 31, 1999. Withdrawing this rule, reissuing one with the detail the Department already knows, and allowing for a sixty day comment period would move the first scores back three to six months, at the most. The importance of this process warrants such a move.

Of particular concern is the Departmental spokesperson's confirmation that the rule was left intentionally vague out of fear that housing agencies will "game" the results. While a few agencies have tried to cheat the system, there is no evidence that the vast majority of agencies have even attempted to manipulate their PHMAP scores and, thus, this rationale does not hold up as a reason for the vagueness of the rule.

PHADA is concerned that, without revealing specifics of how it will score agencies, there is no check on, or accountability for, the veracity of HUD's information. The more specific and open the process, the less the chance that any party can "game" the system.

Because of the above, we agree with some of our members that the proposed rule is in violation of at least the spirit, if not the letter, of the Administrative Procedures Act because of its great lack of substance (cf. USC 5 Section 553(b)(3): "The notice [of rulemaking] shall include either the terms or substance of the proposed rule..."). We believe that the weighting and scoring on which the rule is predicated is itself integral to the rule and, therefore, the Department is obligated to submit the details to the public for comment.

Nor does this rule comply with HUD's own rule on rulemaking. That rule, 24 CFR 10, describes two methods for rulemaking: the Advanced Notice of Proposed Rulemaking and the publication of a proposed rule in the Federal Register. The process for this proposed rule complies with neither method.

The Department did not follow its own regulation by providing advanced notice of rulemaking but, nevertheless, did engage in a consultation process similar to what would have been part of the advanced notice. When engaged in the "advance notice" method, the Department's regulations require "an analysis of the principal issues and recommendations raised by the comments, and the manner in which they have been addressed in the proposed rulemaking (24CFR10.8[e])." Nothing in the rule substantively follows this requirement.

The other process, simply publishing the rule, requires the Department to include "the substance or terms of the proposed rule or a description of the subject matter and issues involved (24CFR10.8[a])." How the instrument will score the 3,400 agencies assessed seems to us to be one of the most substantial and central issues of the rule. By avoiding any description of this issue, the Department violates the regulation that governs its rulemaking.

The following are comments specific to the major sections of the proposed rule.

The Preamble
One primary purpose of the preamble to proposed rules is for the Department to explain its rationale for the specifics of the proposal. If the Department took the consultation process and the requirements of rulemaking seriously, it would have described and responded to the many recommendations made by the working groups.

Rather, the lengthy preamble devotes fully half of its contents to the announcement, in press release style complete with hyperbolic statements. An example is, "The rule provides for the first-ever assessment of the physical condition, financial health, and resident services in public housing (FR pg 35672)." In fact, while seeking to add significant mew requirements, the PHAS is not the "first ever" assessment of some of these factors. PHMAP has required the physical inspection of every unit, the reporting of key financial information, and involvement in resident services.

The preamble also indicates that the consultation process will continue after the publication of this proposed rule. This evidences to us the obvious: the issuance of this rule at this time is premature; it was published before consultations were complete.

Even though the consultation process has not been completed, the Department specifically "reserves the right to add new indicators or components of indicators, or remove indicators or modify indicators of the new PHAS if HUD believes that such action will contribute to a comprehensive and more accurate assessment...." (FR pg. 35680). While PHADA does not challenge the right and responsibility of the Department to modify a rule, this statement raises our concern regarding HUD's rulemaking without public comment. On this point, the preamble should state that such changes would occur in compliance with HUD's regulations on rulemaking. Again we state our concern regarding "regulation by notice."

Subpart A: General Description

§ 901.1 Purpose and Scope
"The purpose of the Public Housing Assessment System (PHAS) is to enhance trust in the public housing system among public housing agencies, public housing residents, HUD, and the general public by providing a comprehensive management tool for effectively and fairly measuring the performance of a public housing agency in essential housing operations" (901.1[a]).

PHADA supports this purpose but believes that the rule, as published, fails in this regard. By holding the specifics close to its chest, the Department creates suspicion among the parties instead of trust. By the same token, the rule does not show how it is comprehensive in any credible detail, nor does it evidence anything specifically about its effectiveness or fairness.

This section also reveals that the PHAS will have four indicators: physical condition, financial condition, management operations, and resident service and satisfaction. As will be detailed at the appropriate place in these comments, PHADA recommends that the final indicator be made part of the management operations indicator.

§ 901.7 Definitions
This rule adds "in good repair" to the traditional definition of a unit that meets basic standards (decent, safe, and sanitary). Nowhere in the rule is "in good repair" clearly defined. This fails to meet the Department's goal of providing an objective physical inspection instrument that hundreds of different inspectors across the country will use. Since this is a standard that housing authorities will be held to, it is incumbent upon the Department to clearly define it.

Regarding "the average number of days non-emergency work orders were active calculation:" the rule should make clear that it is focusing on work-days, not calendar-days, since the work items are not of an emergency nature.

Subpart B -- PHAS Indicator #1: Physical Condition
The vagueness of the rule is readily apparent in this section. While we appreciate Appendix A which gives the general areas which will be inspected, we are aware that there are categories under each of these areas. What are they? What relative weights will be applied to each of the areas and categories? How, specifically, will agencies be scored? What are the algorithms the Department will apply to the score? What do they take into account and what is their basis? In what detail, if any, will agencies be able to review the specifics that make up this score? Why does the Department fail to provide a means to dispute the score and seek resolution?

How will the chronic lack of modernization funding be taken into account, if at all? Will allowances be made for smaller CIAP agencies which often are only successful in getting emergency items funded? If one development meets the criteria for the three-point adjustment, are the scores for all properties also adjusted? Also regarding the adjustment, specifically what data will have to be retained for what length of time?

We are concerned, as well, about using census data. Affected agencies will have to access data that is approximately ten years old and can not, therefore, accurately reflect a trend that would impact on the accurate determination of the current number of households in poverty. The adjustment is important but difficult to determine. More work needs to go into this concern and much more specificity needs to be provided.

The management indicator indicates that HAs will continue to be required to conduct HQS inspections of 100 percent of their units. How will differences between the HQS inspection and the new HUD protocol inspection of the same item be resolved, if at all?

The Secretary and various HUD officials have indicated that HAs will be able to substitute HQS for the new protocol. Does the new protocol meet the statutory requirements of HQS? The rule is silent on this matter. It should specifically address it, however, if the Department is serious about its substitution. For further confusion, one need only to recall that regardless of the protocol to be used in public housing, housing authorities will be required to used HQS for the units for which it administers Section 8 assistance.

Please also refer above to our concerns regarding no definition of "in good repair."

Finally, without sufficient detail, it is impossible for PHADA to say whether it supports assigning a minimum threshold to this indicator or weighting it at 30 out of 100 points.

Subpart C -- PHAS Indicator #2: Financial Condition
PHADA is commenting separately on the proposed rule, also issued on June 30, "Uniform Financial Reporting Standards for HUD Housing Programs," and the reader should consider those comments in this section as well.

As the reader will note from those comments, PHADA is supportive of the Department's intentions to move toward government GAAP in accounting. Such a move will generally be positive as the industry is forced to become more conversant with the private financial world. PHADA was happy to hear of the flexibility of the Department which will permit those agencies which wish to use some portions of private, or enterprise, GAAP if it suits their purposes. We are also supportive of the training program which HUD indicates will be inaugurated "soon."

This indicator, however, is another example of the premature nature of the proposed rule. One meeting of the working group was conducted in January. A second meeting was promised. After continual delay, HUD officials indicated the second meeting would occur after HUD and the working group reviewed the consultant's written report. To the writer's knowledge, that report was never forwarded to industry representatives and the second meeting never occurred.

There are six major components to this indicator. What weights will be assigned to each and how will each be scored? A HUD-REAC official indicated that a "tiered" approach would be taken, i.e., only "a couple" of the six components would be first reviewed and used as flags to indicate if the other components should be examined. Any statement of such should be made in the rule. Which components will be used as flags? When will the flags be raised?

This component uses financial ratios to determine a HA's financial condition. Unfortunately, HUD does not indicate the weight it attaches to various ratios. Is a ratio of 1 to 1 good? Will a ratio of 1.5 to 1 or 2 to 1 be scored higher? One of our members asks, "Is 5 to 1 excessive and a sign of bad management?"

Components related to vacancy loss and accounts receivable are present in both this indicator and in Indicator #3, "management operations." In addition to unnecessary redundancy, some housing authorities may be held in double jeopardy in each indicator. We recommend that the Department consolidate its concerns on these two items and place them in one category or the other, not both.

Unspecified "additional components" may be used when the possibility of waste, fraud, or abuse may exist. We encourage the Department to vigorously pursue bona fide examples of such abuse. However, we wonder what the "additional components" would be and how they would be used.

The HUD-REAC spokesperson indicated that conversion to GAAP would be a relatively simple matter. Like the rest of the rule, it is placed on a timetable to give its first scores by December, 1999. However, various agencies already using GAAP differ in their perception of the ease of conversion. Some say it is simple. Others say it is very difficult and time-consuming. Many of those which have been in touch with PHADA have said that their only concern is that the time period for the conversion is too short. We add our voice to theirs: it is better to "get it right" than to "get it fast but wrong."

Finally, the rule should specifically state, as agreed in the working group meetings, that HUD will assess the overall financial health of the housing authority, i.e., that it will also take into account the financial resources and obligations that an agency has that affects its solvency but are not directly related to federal income sources.

Without more detail, it is not possible for PHADA to comment on the minimum threshold assigned to this component or its weight of 30 out of 100 points.

Subpart D -- PHAS Indicator #3: Management Operations
Nowhere is the lack of detail more apparent than in this indicator. HUD had described this indicator as the one for the "left overs" after removing financial and resident services data to their own indicator. The current version of the PHMAP rule itself occupied some thirteen pages of the Federal Register while the remaining six components of the management operations indicator occupies less than one. In our view, detail equivalent to the PHMAP rule is called for throughout the rule, including this indicator.

Again we ask, "How will these indicators be weighted and scored?" The rule states that under this indicator, "REAC will calculate a score of the overall management operations of a PHA which reflects weights based on the relative importance of the individual management indicators (§ 901.45[a])." Precisely, what are those weights and how were they determined? This issue was never addressed in the working groups. How will the scores be reported to the HA? What vehicles for dispute are available?

Both vacancy and financial data collected in this component (indicators 1 and 3) are related to indicators in the financial condition indicator. We recommend that HUD consolidate all the necessary information in these areas and place them in one of the indicators, not spread them over both.

The current vacancy/unit turnaround indicator is tiered. Will it be tiered, as well, in this component or will all HAs have to calculate both figures regardless of their vacancy rates?

We refer the reader to our comments above on the use of both the new inspection protocol and the current HQS inspections. How will differences be resolved? How can a HA substitute one for the other? This is the place to address these issues.

We are concerned that the security indicator inappropriately rates HAs on an item in which they have little control: the relationship with their local law enforcement agencies. There is no question that a positive relationship is essential. However, as discussed in the working group meetings, HAs should be evaluated on their efforts to develop a positive relationship, not their success.

We are also concerned that the Department would review and rate grants management in the security indicator. Also as discussed in the working group, grants and grants management are evaluated in detail under the terms of each grant agreement. This has a direct impact on the success of the agencies' future grant applications. This constitutes a sort of double jeopardy. In addition, it is inappropriate to rate grants with the security indicator -- the majority of grants are not directly related to security,

Without the detail described in the posed questions, it is not possible for PHADA to comment on either the assigned weight of 30 out of 100 points or the minimum threshold.

Subpart E -- Resident Service and Satisfaction
To PHADA's recollection, the industry commented in general terms regarding a resident satisfaction survey and resident initiatives early in the working group process. At that meeting HUD indicated that it was disposed to conducting a telephone survey of residents, using a uniform survey form, and comparing the scores of one housing authority to another.

By consensus, the industry representatives, including a resident representative, stated that some sort of quality assurance plan, the parameters of which could be determined by HUD with input from the industry, would be appropriate to require but that a HUD-conducted survey with a national comparison would be of limited value and would have serious problems taking into account the vast differences among HAs and in selecting a valid scientific sample.

The industry also stated that it believed the resident initiatives and satisfaction indicator should remain as part of the management component as it now is in PHMAP. It was stated that resident involvement and satisfaction was appropriate to what management does and should not be divorced from it.

The industry received assurances from the then Assistant Secretary that the survey would not compare one agency to another and that its chief use would be to improve the management function of housing authorities. It is important to note that there was no further substantive discussion with the industry prior to the publishing of this proposed rule.

The proposed rule calls for HAs to conduct a HUD-designed and prescribed survey of an unspecified sample of residents according to an undetermined methodology. Thus, with what the rule itself provides, there is little on which PHADA may comment.

The rule does specify that the rule will be scored by taking the survey results, the HA's followup to concerns raised, and the verification of the HA's data into account. How exactly will these items be weighted and scored? What methodology will the Department use in reviewing the results?

PHADA was extremely disappointed that the draft of the resident survey itself was not included in either the body of the rule or in an appendix. In addition, the Department took no steps beyond the minimum required by law to let the public know that the draft existed. The draft was ready for OMB submission on or before June 17, according to HUD documents, almost two weeks before HUD published the proposed rule.

PHADA wonders why the Department did not consult with the industry on the specifics or actively seek the comment of the industry and the public on this important matter by publishing it with the rule.

There are numerous problems with the draft itself -- the subject of separate comment due by September 14. These problems, along with the lack of public input on the survey itself, is an additional reason for HUD to withdraw and reissue the proposed rule, consistent with our request.

As with the other indicators, insufficient information is provided in order for PHADA to comment on the weights and scores of this component.

Subpart F -- PHAS Scoring
This section references data collection and describes the overall scoring system but provides no additional detail on how scores for individual components will be determined. The designation with an overall score of 100 points is virtually the same as the current PHMAP system. However, as stated above, it is very difficult to comment on the score ranges and thresholds assigned without knowing more of the weights used and how the score was determined.

PHADA sees value in the submission of an "improvement plan" for those agencies on the bottom of the "standard performer" designation. However, neither the degree of available technical assistance or its quality is very clear. This is a concern particularly due to the massive downsizing of the agency.

It also seems somewhat reasonable to require some other standard performers, i.e., those showing significant slippage in scores, to submit an improvement plan. Before HUD implements this, however, we believe it is essential for the Department to define uniform criteria which the Department would use to determine which other agencies will be required to submit an improvement plan. Without such criteria the Department leaves itself open to legitimate concerns regarding objectivity and partiality among various housing authorities.

We again urge the Department to expand the appeal rights as illustrated in § 901.69 beyond troubled agencies to all agencies. This is critical to the credibility of PHAS.

Subpart G -- PHAS Incentives and Remedies
Many of the remedies for poor performance seem reasonable to us, including referral to the TARC and the Enforcement Center. PHADA has long supported this type of intervention for chronically troubled agencies. We again question, however, the availability and quality of technical assistance and urge the Department to focus on increasing its capacity as it implements the final rule.

What is particularly disappointing is § 901.71 on incentives for high performers. This is something the Department has been wrestling with for several years but it continues to lack the specificity that would make incentives real.

It indicates that high performers would be relieved of specific HUD requirements (fewer reviews, etc.) but does not specify any of those requirements. It also says that high performers would receive bonus points in various NOFAs whenever possible but identifies neither the degree of the bonus or the applicable competitive programs. The rule would continue to provide high performers a certificate of recognition.

At the same time, this section of the rule is quite specific on the requirements from which HAs will not feel relief. PHADA encourages the Department to hold all HAs appropriately accountable and supports investigations by the Inspector General or any other appropriate HUD entity as necessary. It is unfortunate, however, that the Department can not be more specific on incentives.

Finally, the rule gives broad discretion to HUD field offices to impose any other requirement on high performing agencies. It is appropriate in the context of improving the credibility of PHAS, to add uniform criteria by which the HUD field office will determine to impose additional requirements. Neither the Department nor the industry can afford an arbitrary application of any significant part of this rule.

In conclusion, PHADA appreciates the tremendous amount of work converting from one assessment system to another entails. Because of the importance of the subject matter to both the everyday operations of housing authorities and to the success of HUD's Management 2020 plan, it is essential that the Department take the time it needs to get it right.

It is also essential for the credibility of PHAS that its specifics be known and submitted to public scrutiny. There is no place for "gaming" by any party. There is no justifiable reason PHADA knows of for the Department to keep the details hidden. Rather, letting essential parts of any rule or system, e.g., scoring and weighting, see the light of day is required by the principle of accountability to the public embodied in various laws and regulations, some of them cited in these comments.

We therefore renew our request that the Department withdraw this proposed rule, reissue it complete with relevant details, and allow the public the full sixty days to submit its comments.

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