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Federal Register / Vol. 86, No. 8 / Wednesday, January 13, 2021 / Proposed Rules g. Section 5.713 Secondand ThirdParty Rights The proposed rule would add new 5.713, which would incorporate and modify existing language at 982.407 on enforcement of inspection requirements.
The new regulation would mirror existing regulations in place for the HCV
and PBV programswhich in no way create any right to assert any claim against HUD or the PHA for damages, injunction, or other relief for alleged failure to enforce inspection standards, and would expand it to other programs under NSPIRE.
B: Addition of Part 902, Subpart H and Part 985, Subpart D Regarding Small Rural PHAs Small rural PHAs generally operate in a very different financial environment and rental housing market than larger PHAs in major metropolitan areas.
These PHAs often have less access to private capital and their small size typically means that they operate with fewer staff and outside consulting services. Accordingly, regulatory burden often falls more heavily on small rural PHAs, reducing their ability to serve low-income families.
On May 24, 2018, President Trump signed the Economic Growth and Recovery, Regulatory Relief and Consumer Protection Act Economic Growth Act into law. Section 209 of the Act added section 38 to the United States Housing Act of 1937 42 U.S.C.
1437 et seq. and made several amendments pertaining to small rural PHAs. Certain statutory amendments made by section 209 became effective 60
days after enactment, and HUD
published a notice in the Federal Register on February 14, 2019,12 which, read together with the statutory language, was intended to aid HUD
program participants and the public in understanding the reasons for deferred action with respect to specific statutory provisions. HUD published a notice in the Federal Register on February 27, 2020,13 explaining how HUD designates small rural PHAs and described which 209 provisions were being implemented. The notice also stated that HUD would undertake future rulemaking for full implementation of other provisions, including defining small rural PHAs in the regulations.
This proposed rule would implement this definition of small rural PHA as well as a new assessment system for their public housing and HCV programs.
HUD believes that the Economic Growth Acts focus on inspections and the 12 84
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FR 4097, February 14, 2019.
FR 11381, February 27, 2020.

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directive to follow the same standards for small, rural public housing as that for projects assisted under Section 8
make the inclusion of the acts provisions in this rule a logical fit.
The proposed rule would create new Subpart H under the current 902
regulations for the Public Housing Assessment System PHAS. Section 209a2 of the Economic Growth Act defined small public housing agency and directed HUD to use the existing definition of rural area contained in the regulations governing the Consumer Financial Protection Bureau CFPB at 12 CFR 1026.35b2ivA. In the February 27, 2020 notice, HUD further refined this definition by defining PHAs that predominantly operate in a rural area and clarifying that these PHAs would be referred to as small rural PHAs to avoid confusion with other small PHA designations employed by HUD. The proposed rule would fully implement these definitions through 902.101. A small rural PHA would be defined as a PHA that administers 550
or fewer combined public housing and Section 8 voucher units and either has a primary administrative building with a physical address in a rural area or more than 50 percent of its combined public housing units and voucher units in rural areas. The methodology for identifying a small rural PHA was identified in the February 27, 2020
notice and 902.101b would require that HUD make this determination once every three years. PHAs would have the ability to appeal this determination in accordance with 902.101c.
The proposed rule would amend the current regulations for the Public Housing Assessment System PHAS to exempt small rural PHAs and would instead implement an alternate performance indicator and rating system. Under proposed 902.103, small rural PHAs would be assessed based on the physical condition of their public housing properties. Proposed 902.103b would establish an assessment frequency of no more than once every three years, as required under Section 209c1A of the Economic Growth Act, except that a troubled small rural PHA would be subject to an annual assessment.
A small rural PHAs public housing program would be designated as troubled under 902.105 if:
The weighted average score of all property inspections is below 70
percent of the total available points; or If a the PHA has a weighted average score of between 70 and 80 percent of the total available points and has at least one property that receives fewer than 70
percent of the total available points.

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Troubled small rural PHAs would be referred to their local field office or other designated HUD offices for remedial action, oversight, and monitoring. HUD would negotiate and develop a Corrective Action Agreement CAA as described in 902.105c within 30 days of the PHAs notification of their designation as troubled. Section 902.105c through i would outline the requirements and process for the CAA.
Proposed 902.107 would describe the situation under which HUD may withhold, deny, or rescind a troubled designation. Conditions for appealing troubled designations are outlined in proposed 902.109. Sanctions for small rural PHAs that remain troubled as well as incentives for small rural PHAs that are high performers would remain the same as those currently described in the PHAS regulations.
The Economic Growth Act provides that HUD may designate a small rural PHA as a troubled PHA with respect to its HCV program if HUD determines the agency has failed to comply with HCV
inspection requirements, HUD is proposing to add a new subpart D to 24
CFR part 985, Section 8 Management Assessment Program SEMAP.
Under proposed 985.201, PHAs that meet the definition of small rural under 902.101 would no longer be subject to SEMAP requirements but would instead be assessed on the basis of the performance indicators and rating system under subpart D. In assessing whether a small rural PHAs HCV
program is a high performer, standard performer, or troubled, HUD would take four indicators into consideration, all of which are related to the small rural PHAs compliance with the inspection requirements. Each indicator would be scored on a pass/fail basis. The inspection indicators described in the proposed 985.203 include:
Inspection standards which would confirm the PHA is applying the applicable NSPIRE standards to HCV or PBV-assisted units or a HUD-approved variation under 5.703. The PHA would pass the indicator if all HCV and PBV
units were inspected using the correct standards;
Initial unit inspections which would validate the PHA is conducting initial inspections within the appropriate timeframes. The PHA
would pass the indicator if at least 98
percent of newly leased units passed inspection prior to the beginning of assistance;
Frequency of HQS inspections which would verify the PHA inspects tenant-based units under HAP contract and the required sample of PBV units at least once during the three-year period
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