PART 15. TEXAS HEALTH AND HUMAN SERVICES COMMISSION

Transcription

1 TITLE 1. ADMINISTRATION PART 15. TEXAS HEALTH AND HUMAN SERVICES COMMISSION CHAPTER 354. MEDICAID HEALTH SERVICES SUBCHAPTER A. PURCHASED HEALTH SERVICES DIVISION 5. PHYSICIAN AND PHYSICIAN ASSISTANT SERVICES 1 TAC The Texas Health and Human Services Commission (HHSC) proposes to amend , concerning Authorized Physician Services. Background and Justification The proposed amendment adds services provided by an anesthesiologist assistant to the rule regarding the conditions under which a physician may bill Texas Medicaid and aligns the rule with other program rules ( and of this title (relating to Anesthesiologist Assistant Conditions of Participation and Anesthesiologist Assistant Benefits and Limitations)). The Texas Medicaid Program reimburses for services provided by an anesthesiologist assistant under the supervision of a licensed anesthesiologist. Section-by-Section Summary Proposed (d) refers to services provided by an anesthesiologist assistant, as well as of this title. The proposed rule also corrects a reference to the title of a rule regarding certified registered nurse anesthetists. Fiscal Note Greta Rymal, Deputy Executive Commissioner for Financial Services, has determined that during the first five years the proposal is in effect there is no expected impact to costs or revenues of state or local governments to implement and enforce the rule as proposed. There are no anticipated economic costs to persons who are required to comply with the amended rule. There is no anticipated negative impact on local employment. Small and Micro-business Impact Analysis HHSC has determined that there is no anticipated adverse effect on small businesses or micro-businesses to comply with the rule as proposed. This rule brings the TAC into alignment with current Medicaid policy and reimbursement methodology and does not change the current reimbursement rates to small businesses and micro-businesses. Public Benefit Chris Traylor, Chief Deputy Commissioner, has determined that for each year of the first five years the section is in effect, the public will benefit from the adoption of the rule. The anticipated public benefit of enforcing the proposed amended rule will be enrollment of new Medicaid providers, which could lead to improved access to care. Regulatory Analysis HHSC has determined that this proposal is not a "major environmental rule" as defined by of the Texas Government Code. A "major environmental rule" is defined to mean a rule the specific intent of which is to protect the environment or reduce risk to human health from environmental exposure and that may adversely affect, in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of a state or a sector of the state. This proposal is not specifically intended to protect the environment or reduce risks to human health from environmental exposure. Takings Impact Assessment HHSC has determined that this proposal does not restrict or limit an owner's right to his or her property that would otherwise exist in the absence of government action and, therefore, does not constitute a taking under of the Government Code. Public Comment Written comments on the proposal may be submitted to Kami Geoffray, Senior Policy Advisor, Office of Medicaid/CHIP Policy, Medicaid/CHIP Division, Health and Human Services Commission, MC-H310, Brown Heatly Building, P.O. Box 85200, Austin, Texas ; by fax to (512) ; or by to Kami.Geoffray@hhsc.state.tx.us within 30 days of publication of this proposal in the Texas Register. Statutory Authority The amendment is proposed under Texas Government Code , which provides the Executive Commissioner of HHSC with broad rulemaking authority, and Texas Human Resources Code and Texas Government Code , which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas. The proposed rule implements Texas Human Resources Code Chapter 32 and Texas Government Code Chapter 531. No other statutes, articles, or codes are affected by this proposal Authorized Physician Services. PROPOSED RULES May 1, TexReg 2345

2 (a) This rule specifies the conditions under which a physician may bill Texas Medicaid for covered services. Such conditions include compliance with this rule as well as compliance with all applicable federal and state laws, rules, regulations and policies relating to covered services. (b) Physician services. A physician may bill for reasonable and medically necessary services that are within the scope of practice of medicine or osteopathy as defined by state law. Except for services provided under subsections (c), (d), and (e) of this section, eligible physician services include those performed by the physician and those medical acts delegated by the physician to qualified and properly trained persons acting under the physician's supervision. Delegation and supervision of medical services must be consistent with this chapter and the rules and laws of the Texas Medical Board, and supervision of the delegated medical act must be appropriately documented in the patient's chart. A physician shall not bill the Texas Medicaid program for services if that billing would result in duplicate payment for the same services. (c) Physician supervising other physicians. A physician supervising other physicians may bill when the supervision and services are performed in the context of an accredited graduate medical education program. Facilities and professional practices do not qualify for reimbursement for services provided by resident physicians in an outpatient setting unless the facility or professional practice is owned by, or affiliated with, an accredited graduate medical education program. (1) For all services billed to the Medicaid program, the supervision must be medically appropriate, as described in this rule, and provided to a resident physician performing a Medicaid-covered service. The supervision must be either personal or direct. To qualify for reimbursement, the medical record must clearly establish: (A) The nature of the supervisory role of the billing physician in the delivery of the services provided by the resident physician; and (B) That the supervision complies with the definition of supervision applicable to the covered service, as defined in of this title (relating to Definitions). (2) Personal supervision is required during the key portions of all major surgeries and the key portions of all other physician services billed to the Medicaid program if the immediate supervision, participation, or intervention of the supervising physician is medically prudent in order to assure the health and safety of the patient. Physician services that require personal supervision may include invasive procedures and evaluation and management services that require complex medical decision making. Situations that require personal supervision include those in which: (A) The clinical condition of the patient is unstable or will likely become unstable during, or as a result of, the planned medical intervention; or (B) The planned medical intervention, even under optimal conditions, will result in medically reasonable risk for significant morbidity or death following the service or procedure; or (C) Deviation from expected technique at the time the procedure or service is performed presents a medically reasonable, causally-related, foreseeable risk to the patient's life or health. (3) For surgical services, the supervising surgeon is responsible for pre-operative, operative, and post-operative care provided to the patient and billed to the Medicaid program. The supervising surgeon, however, may delegate the pre- and post-operative care to a resident if appropriate direct supervision, as defined in of this title, is provided. (4) For all services that do not require personal supervision and are billed to the Medicaid program, the supervising physician must provide direct supervision. The supervising physician may not provide direct supervision for an activity at the same time as providing personal supervision for another activity, with the following exceptions. (A) The supervising physician in the outpatient setting may provide personal and direct supervision concurrently for residents providing evaluation and management services; and (B) A supervising surgeon or supervising anesthesiologist may be involved in two concurrent anesthesia cases with residents. The supervising surgeon or supervising anesthesiologist must be present during all key portions of the procedure if the immediate supervision, participation, or intervention of the supervising physician is medically prudent in order to assure the health and safety of the patient. (5) Supervision in the outpatient setting. A face-to-face encounter between the physician providing direct supervision and the patient is not required in the outpatient setting in the context of a graduate medical education program. All other requirements for personal or direct supervision in this division must be met for the services to qualify for reimbursement. The supervising physician must document that he/she: (A) Reviewed the patient's history and physical examination; (B) Confirmed or revised the patient's diagnosis; (C) Determined the course of treatment to be followed; (D) Assured that any needed supervision of interns or residents was provided; and (E) Confirmed that the documentation in the medical record comports with the level of service billed. (6) Supervision in the inpatient setting. A physician who supervises other physicians in an inpatient setting must comply with documentation requirements of paragraph (5)(A) - (E) of this subsection and must document that he or she has completed a: (A) Personal examination of the patient not later than 36 hours after the patient's admission and before the patient's discharge and, as necessary, based on the patient's condition; and (B) Face-to-face encounter with the patient on the same day as any billed services provided by the resident physician. (d) Services provided by a physician assistant, anesthesiologist assistant, or advanced practice registered nurse. (1) A service performed under a physician's supervision by a physician assistant or an advanced practice registered nurse (excluding a certified registered nurse anesthetist), acting within the scope of the physician assistant's or advanced practice registered nurse's license and consistent with this chapter and the rules and laws of the Texas Medical Board and Texas Board of Nursing, as applicable, are reimbursed according to the reimbursement rule applicable to the supervised practitioner unless the supervising physician made a decision regarding the patient's care or treatment on the same date of service as the billable medical visit and documented that decision in the patient's record. (A) The physician's record of patient care must document the physician's involvement. 40 TexReg 2346 May 1, 2015 Texas Register

3 (B) If the physician did not make a decision about the patient's care on the same date of service as the billable medical visit, the physician must note on the claim that the service was performed by the physician assistant or advanced practice registered nurse in accordance with of this subchapter (relating to Claim Information Requirements). (2) Services provided by a certified registered nurse anesthetist must be billed as described in of this subchapter [title] (relating to Benefits and Limitations [Certified Registered Nurse Anesthetists' Services]). (3) Services provided by an anesthesiologist assistant must be billed as described in of this division (relating to Anesthesiologist Assistant Benefits and Limitations). (e) Substitute physician. A physician may bill for the services of a substitute physician who sees patients in the billing physician's practice under either a reciprocal or locum tenens arrangement. To qualify for reimbursement, the billing physician and substitute physician must comply with the following requirements: (1) The substitute physician's name and address must be documented on the claim. (2) The substitute physician must be licensed to practice in the state of Texas. (3) Consistent with the requirements of and of this title (relating to Provider Responsibility and Mandatory Exclusion, respectively), the substitute physician must be enrolled in Medicaid and not be on the Medicaid or Title XX provider exclusion list. (4) The time period for which a physician may bill for the services of a substitute physician is limited to the following situations: (A) Reciprocal Arrangements. When the substitute physician sees patients in the billing physician's practice under a reciprocal arrangement, the billing physician may bill for services furnished by the substitute physician during a period that does not exceed 14 continuous days. (B) Locum Tenens Arrangements. When the substitute physician sees patients in the billing physician's practice under a locum tenens arrangement, the billing physician may bill for services furnished by the substitute physician during a period that does not exceed 90 continuous days. Except as provided in clause (iii) of this subparagraph, services furnished by the substitute physician after the 90th day must be billed under the substitute physician's own Medicaid provider number. (i) When the billing physician is absent for more than 90 days, the billing physician may bill for services furnished by a different substitute physician for each consecutive continuous 90 day period. (ii) The billing physician may only bill for services furnished by a substitute physician on a temporary basis. Except as provided in clause (iii) of this subparagraph, the billing physician may not bill for services furnished by a substitute physician to address longterm vacancies in a physician practice. (iii) When the billing physician is absent or unavailable due to active duty as a member of a reserve component of the U.S. Armed Forces, the billing physician may bill for the services of a substitute physician for a longer continuous period during all of which the billing physician has been called or ordered to active duty as a member of a reserve component of the Armed Forces. Medicaid may reimburse the billing physician for services provided by the substitute physician until the billing physician is no longer on active duty as a member of a reserve component of the Armed Forces. TRD Karen Ray Chief Counsel Texas Health and Human Services Commission For further information, please call: (512) CHAPTER 363. TEXAS HEALTH STEPS COMPREHENSIVE CARE PROGRAM The Texas Health and Human Services Commission (HHSC) proposes to repeal , , , , , , , , and , concerning Private Duty Nursing Services; and proposes new , , , , , , and , concerning Private Duty Nursing (PDN). Background and Justification The changes to Chapter 363, Subchapter C, address requirements in the Second Partial Settlement Agreement in Alberto N. v. Janek, Section 8.4, under which HHSC must conform its PDN rules to the terms of the settlement agreement. HHSC, the Office of the Texas Attorney General, and the Alberto N. Plaintiffs' counsel negotiated the specific wording of the rules. The proposed rules are the product of that negotiation process and conform HHSC's PDN rules to the terms and conditions of the settlement agreement. Section-by-Section Summary Proposed new establishes the PDN program and stipulates that Medicaid recipients 20 years and younger are entitled to all medically necessary Early and Periodic Screening, Diagnosis, and Treatment services that correct or ameliorate defects and physical and mental illnesses and conditions and that are eligible for federal financial participation. It further clarifies that these rules apply to Medicaid services delivered in either a fee-for-service or managed care delivery model. Proposed new defines the words and terms used in this subchapter. Proposed new establishes the qualifications and program participation requirements for practitioners who provide PDN services in Texas Medicaid. Proposed new defines the medical necessity standard for PDN services. Proposed new describes the benefits available under PDN services as well as limitations on those services. Proposed new describes prior authorization requirements for the provision of PDN services. Proposed new defines the required elements of a PDN plan of care. Fiscal Note PROPOSED RULES May 1, TexReg 2347

4 Greta Rymal, Deputy Commissioner for Financial Services, has determined that during the first five years the proposal is in effect there is no expected impact to costs or revenues of state or local governments to implement and enforce the rule(s) as proposed. There are no anticipated economic costs to persons who are required to comply with the proposed rules. There is no anticipated negative impact on local employment. Small and Micro-Business Impact Analysis HHSC has determined that there is no anticipated adverse effect on small businesses or micro-businesses to comply with the new rules. Public Benefit Chris Traylor, Chief Deputy Commissioner, has determined that for each year of the first five years the proposed rules are in effect, the public will benefit from the adoption of the rules. The anticipated public benefit, as a result of enforcing the proposed rules, will be that HHSC requirements surrounding PDN services will comply with the terms of the Alberto N. settlement agreement. Regulatory Analysis HHSC has determined that this proposal is not a "major environmental rule" as defined by Texas Government Code A "major environmental rule" is defined to mean a rule the specific intent of which is to protect the environment or reduce risks to human health from environmental exposure and that may adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of the state or a sector of the state. This proposal is not specifically intended to protect the environment or reduce risks to human health from environmental exposure. Takings Impact Assessment HHSC has determined that this proposal does not restrict or limit an owner's right to his or her property that would otherwise exist in the absence of government action and, therefore, does not constitute a taking under Texas Government Code Public Comment Written comments on the proposal may be submitted to Brian Dees, Policy Advisor, Medicaid and CHIP Division, Health and Human Services Commission at 4900 N. Lamar Blvd., MC H-310, Austin, TX 78751; by fax to (512) ; or by to brian.dees@hhsc.state.tx.us within 30 days of publication of this proposal in the Texas Register. Public Hearing A public hearing is scheduled from 9:00 to 10:00 a.m. on May 26, 2015, in the Brown-Heatly Public Hearing Room located at 4900 North Lamar Boulevard, Austin, Texas Persons requiring further information, special assistance, or accommodations should contact Kristine Dahlmann at (512) SUBCHAPTER C. PRIVATE DUTY NURSING SERVICES 1 TAC , , , , , , , , (Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Texas Health and Human Services Commission or in the Texas Register office, James Earl Rudder Building, 1019 Brazos Street, Austin, Texas.) Statutory Authority The repeals are proposed under Texas Government Code , which provides the Executive Commissioner of HHSC with broad rulemaking authority; and Texas Human Resources Code and Texas Government Code (a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas. The repeals affect the Texas Human Resources Code Chapter 32 and Texas Government Code Chapters 531. No other statutes, articles, or codes are affected by this proposal Purpose Definitions Provider Participation Requirements Client Eligibility Criteria Medical Necessity Criteria for Private Duty Nursing Private Duty Nursing Benefits and Limitations Plan of Care Termination of Authorization for Private Duty Nursing Services Place of Service. TRD Karen Ray Chief Counsel Texas Health and Human Services Commission For further information, please call: (512) SUBCHAPTER C. PRIVATE DUTY NURSING 1 TAC , , , , , , Statutory Authority The new rules are proposed under Texas Government Code , which provides the Executive Commissioner of HHSC with broad rulemaking authority; and Texas Human Resources Code and Texas Government Code (a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas. The new rules affect the Texas Human Resources Code Chapter 32 and Texas Government Code Chapters 531. No other statutes, articles, or codes are affected by this proposal Purpose. (a) The purpose of this subchapter is to establish rules for private duty nursing services under the federal Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) Program, known in Texas as the Texas Health Steps - Comprehensive Care Program (THSteps-CCP). 40 TexReg 2348 May 1, 2015 Texas Register

5 (b) EPSDT recipients are entitled to all medically necessary EPSDT services that: (1) correct or ameliorate defects and physical and mental illnesses and conditions; and (2) are eligible for federal financial participation. (c) This subchapter applies to Medicaid fee-for-service (FFS) and Medicaid managed care organizations (MCOs) that are contracted with HHSC to provide Medicaid services Definitions. The following words and terms apply only to this subchapter and have the following meanings, unless the context clearly indicates otherwise. (1) Activities of daily living (ADLs)--ADLs include eating, toileting, personal hygiene, grooming, dressing, bathing, transferring, maintaining continence, positioning, and mobility. (2) Contractor--The entity with which HHSC contracts, pursuant to the requirements of the Code of Federal Regulations, Title 42, Part 434. (3) Correct or ameliorate--to improve, maintain, or slow the deterioration of the recipient's health status. (4) Day--A calendar day. (5) Early and Periodic Screening, Diagnosis, and Treatment (EPSDT)--The child and adolescent health component of the Medicaid program for recipients under 21 years of age, defined in the United States Code, Title 42, 1396d(r), and the Code of Federal Regulations, Title 42, (b). EPSDT means screening, vision, dental, hearing, laboratory, health care, treatment, diagnostic services, and other measures necessary to correct or ameliorate defects and physical and mental illnesses and conditions. (6) Federal financial participation (FFP)--The federal government's share of a Medicaid expenditure made by a state agency, as defined in the Code of Federal Regulations, Title 45, (7) HHSC--The Texas Health and Human Services Commission or its designee, including a contractor or MCO. (8) Health Maintenance Activities (HMAs)--Has the meaning assigned by 22 TAC (relating to Definitions) and (relating to Health Maintenance Activities Not Requiring Delegation). (9) Home and Community Support Services Agency (HC- SSA)--A public or private agency or organization licensed by the Texas Department of Aging and Disability Services under 40 TAC Chapter 97 (relating to Licensing Standards for Home and Community Support Services Agencies). (10) Identified contingency plan--a structured process, developed by the recipient or the responsible adult and the Medicaid-enrolled provider, by which a recipient will receive care when a scheduled health care provider is unexpectedly unavailable, as required by 40 TAC (relating to Backup Services and After Hours Care). (11) Instrumental activities of daily living (IADLs)-- IADLs include meal preparation, grocery shopping, light housework, laundry, communication, money management, and assistance with transportation services. (12) Licensed Vocational Nurse (LVN)--An individual who is recognized by the Texas Board of Nursing to practice vocational nursing in Texas at the time and place the service is provided, pursuant to Texas Occupations Code (5) and 22 TAC, Part 11 (relating to Texas Board of Nursing). (13) Medicaid--The Texas Medical Assistance Program, a joint federal and state program provided for in Chapter 32, Texas Human Resources Code, and subject to Title XIX of the Social Security Act, 42 U.S.C et seq. (14) Medicaid managed care organization (MCO)--Any entity with which HHSC contracts to provide Medicaid managed care services and that complies with Chapter 353 of this title (relating to Medicaid Managed Care). (15) Medical Director--HHSC's, its contractor's, or MCO's medical director or associate medical director. (16) Notice--A letter provided by HHSC, its contractor, or MCO to a recipient informing the recipient of any reduction, denial, or termination of a requested service, as described in the Code of Federal Regulations, Title 42, and (17) Physician--A doctor of medicine (MD) or osteopathy (DO) who is recognized by the Texas Medical Board to practice medicine in Texas at the time and place the service is provided, pursuant to Texas Occupations Code (18) Private duty nursing (PDN) Services--Nursing, described by the Texas Occupations Code Chapter 301, and its implementing regulations at 22 TAC, Part 11 (relating to Texas Board of Nursing), when the recipient requires more individual and continuous care than is available from a visiting nurse or than is routinely provided by the nursing staff of a hospital or skilled nursing facility. PDN services include observation, assessment, intervention, evaluation, rehabilitation, care and counsel, or health teachings of a recipient who has a disability or chronic health condition or who is experiencing a change in normal health processes. (19) Private duty nursing services provider--an independently practicing registered nurse, a licensed vocational nurse (LVN) under the supervision of a registered nurse, or a home and community support services agency (HCSSA) enrolled in the Texas Medicaid Program to provide private duty nursing services. (20) Qualified Aide--An aide providing services consistent with the requirements of: (A) 40 TAC Chapter 94 (relating to Nurse Aides); (B) 40 TAC Chapter 95 (relating to Medication Aides- -Program Requirements); or (C) home health aide outlined in 40 TAC Chapter 97 (relating to Licensing Standards for Home and Community Support Services Agencies). (21) Recipient--An individual who is eligible to receive services through the Texas Medicaid Program. (22) Registered Nurse (RN)--An individual who is recognized by the Texas Board of Nursing to practice professional nursing in Texas at the time and place the service is provided, pursuant to the Texas Occupations Code (23) Responsible adult--an individual who is an adult, as defined by the Texas Family Code, who has agreed to accept the responsibility for providing food, shelter, clothing, education, nurturing, and supervision for a recipient who is a minor under the age of 18; or is over 18 years of age and the responsible adult is the managing conservator or legal guardian. Responsible adults include biological parents, adoptive parents, foster parents, guardians, court-appointed managing conservators, and other family members by birth or marriage. (24) Texas Health Steps--Comprehensive Care Program-- Medical, dental, and treatment services available as a federally man- PROPOSED RULES May 1, TexReg 2349

6 dated service for eligible EPSDT Medicaid recipients in Texas under the age of 21 years, pursuant to the EPSDT provision of Title XIX of the Social Security Act, 42 U.S.C. 1396d(r), and the Code of Federal Regulations, Title 42, (b). (25) Treating physician--a physician who provides ongoing medical care of the recipient and ongoing medical supervision of the recipient's plan of care Provider Participation Requirements. (a) PDN services providers must be independently enrolled in the Texas Medicaid Program to be eligible to receive reimbursement for providing private duty nursing services through the Texas Health Steps Comprehensive Care Program. (b) A PDN services provider must: (1) be an RN, an LVN under the supervision of an RN, or a licensed HCSSA; (2) be enrolled in the Texas Medicaid Program; (3) comply with the terms of the Texas Medical Assistance Provider Agreement; (4) agree to provide services in compliance with all applicable federal, state, and local laws and regulations, including the Texas Nursing Practice Act; (5) comply with all applicable state and federal laws and regulations relating to the Texas Medicaid Program; (6) comply with the requirements of the Texas Medicaid Provider Procedures Manual, including all updates and revisions published bimonthly in the Texas Medicaid Bulletin, and all handbooks, standards, and guidelines published by HHSC; and (7) comply with accepted professional standards and principles of nursing practice. (c) In addition to the requirements in subsection (b) of this section, a licensed HCSSA must: (1) comply with Texas Family Code Chapter 261 and Texas Human Resources Code Chapter 48, concerning mandatory reporting of suspected abuse and neglect of children and adults with disabilities; and (2) maintain written policies and procedures for obtaining consent for medical treatment for clients in the absence of the responsible adult that meet the standards of Texas Family Code , relating to Consent by Non-Parent. (d) Provider Notification of Termination of Services. (1) Independently enrolled RNs must provide a recipient at least 30 days written notice of the intent to voluntarily terminate services, except in situations of a potential threat to the nurse's personal safety. (2) An HCSSA must provide a recipient at least five days written notice of its intent to voluntarily terminate services, except as allowed by 40 TAC (relating to Client Transfer or Discharge Notification Requirements) Medical Necessity. (a) PDN services are available to EPSDT-eligible recipients when the services are medically necessary to correct or ameliorate the recipient's disability or physical or mental illness or condition. The services correct or ameliorate when they improve, maintain, or slow the deterioration of the recipient's health status. (b) Medical necessity must be documented in the recipient's prior authorization request Benefits and Limitations. (a) PDN services are a benefit of the Texas Medicaid Program in accordance with the Code of Federal Regulations, Title 42, , relating to PDN services, and (b), relating to EPSDT services. (b) EPSDT recipients are eligible for all PDN services that are medically necessary to correct or ameliorate the recipient's disability and physical and mental illnesses and conditions. (c) The provider requesting PDN services must supply documentation to support the medical need for a private duty nurse. The documentation must also support the number of PDN hours that are medically necessary to correct or ameliorate the recipient's disability and physical and mental illnesses and conditions. (d) EPSDT recipients are eligible for all medically necessary PDN services that are required to meet the recipient's documented PDN needs over the span of time the needs arise, as the needs occur over the course of a 24-hour day. (e) PDN services must be: (1) prescribed by and provided under the direction of a treating physician; (2) included in a plan of care, as described in of this subchapter (relating to Plan of Care); (3) delivered by a Texas Medicaid Program-enrolled PDN services provider; and (4) provided in compliance with all applicable state and federal laws and regulations. (f) services; PDN services are available when an individual: (1) is eligible for EPSDT services; (2) has a treating physician who: (A) issues a prescription or physician's order for PDN (B) reviews and approves an established and maintained plan of care in accordance with of this subchapter; and (C) provides continuing care and medical supervision, including examination or treatment, within 30 days prior to the start of PDN services; and (3) has a responsible adult who resides in the recipient's residence when the recipient is a minor under the age of 18 years or when the recipient is 18 years of age or older with a managing conservator or legal guardian. (g) HHSC may not: (1) require a recipient's responsible adult(s) to provide PDN services to the recipient; (2) require a recipient or a recipient's responsible adult(s) to designate an alternate caregiver to provide PDN services; or (3) deny or reduce the amount of requested PDN services because the recipient's responsible adult(s) is trained and capable of performing such services, but chooses not to do so. (h) HHSC may require providers to instruct and train responsible adults to perform PDN services should an emergency arise, or if the responsible adults voluntarily choose to provide part of the recipient's PDN themselves. 40 TexReg 2350 May 1, 2015 Texas Register

7 (i) The amount of medically necessary PDN services available to recipients will not be capped. (j) PDN services must be provided in a place of service consistent with the requirements in the Code of Federal Regulations, Title 42, , relating to PDN. (k) PDN services may be provided only by an RN or by an LVN who is under the supervision of an RN. (l) PDN services must be prior authorized by HHSC. PDN may be authorized for a period of up to six months. (m) The PDN services provider is notified in writing by HHSC of the approval, reduction, or denial of requested PDN services. (n) PDN services limitations. (1) PDN is considered only when the services are consistent with the definition of "nursing" as described in the Texas Nursing Practice Act or its implementing regulations. PDN services will not be considered for reimbursement if the services are intended solely to provide respite care or child care, or do not directly relate to the recipient's nursing needs. (2) A responsible adult is not eligible for reimbursement for delivering PDN services through the Texas Medicaid Program if he or she is the parent of a recipient who is under the age of 18 or the spouse of the recipient. A responsible adult who is the managing conservator or legal guardian of a recipient over 18 years of age is not eligible for reimbursement. (o) HHSC may deny or reduce PDN hours if the recipient's PDN needs decrease. (p) HHSC may not deny or reduce PDN when the recipient's nursing needs have not decreased Prior Authorization Requirements. (a) PDN services must be prior authorized. Prior authorization is a condition of reimbursement but is not a guarantee of payment. (b) HHSC will publish in the Texas Medicaid Provider Procedures Manual and websites all processes, tools, and scales used to prior authorize PDN services. HHSC may use only these processes, tools, and scales to prior authorize PDN services. (c) The provider must submit a complete request for prior authorization in order to be considered by HHSC for reimbursement. The authorization request must include the authorization form approved by HHSC, signed and dated by the recipient's treating physician. The provider must use the documents, tools, or processes published in the Texas Medicaid Provider Procedures Manual or any updates made available through bulletins, banners, or other means to request prior authorization. (d) Documentation supporting the prior authorization request must clearly and consistently describe the recipient's: (1) current diagnosis; (2) functional status and condition; (3) history and treatment; and (4) frequency and complexity of skilled nursing needs, as those needs arise over the span of a 24-hour day. (e) The supporting documentation: (1) must include: (A) documentation of the treating physician's orders, e.g., a prescription or a written or documented verbal order signed and dated by a treating physician; and (B) a plan of care that satisfies the requirements as described in of this subchapter (relating to Plan of Care); (2) may include any additional materials the provider may choose to submit that supports the medical necessity of the requested PDN services; (3) must explain to HHSC's satisfaction how the requested PDN is necessary to correct or ameliorate the recipient's disability or physical or mental illness or condition; and (4) must show that the recipient's skilled nursing needs cannot be met on a part-time or intermittent basis by a visiting nurse as described in Chapter 354, Subchapter A, Division 3 of this title (relating to Medicaid Home Health Services). (f) Process for authorizations. (1) HHSC authorizes requested PDN services required to meet all of the recipient's PDN needs when the medical necessity for a private duty nurse is documented. (2) HHSC reviews requests for PDN services that comply with subsections (b) through (e) of this section. (3) The information must be complete and consistent throughout the documentation associated with the prior authorization request for PDN services. (4) PDN services are prior authorized with reasonable promptness. Prior authorization determinations are completed by HHSC within three business days of receipt of a complete request. (5) If a request for PDN is incomplete, inconsistent, or unclear, HHSC, its contractor, or MCO will contact the provider to request additional or clarifying documentation to enable HHSC to make a decision on the request. (6) Prior authorizations for PDN services are not denied or reduced based solely on the recipient's diagnosis, type of illness, or health condition. (7) Prior authorizations for PDN services are not denied or reduced solely because the recipient's condition or health status is stable or has not changed. (g) HHSC authorizes requested medically necessary PDN services when: (1) the prior authorization request for PDN is complete, as described in subsections (b) through (e) of this section; (2) the requested services are nursing services as defined by the Texas Nursing Practice Act and its implementing regulations; and (3) no third-party resource, as described in the Texas Medicaid Provider Procedures Manual, is financially responsible for the requested services. (h) HHSC may deny or reduce PDN services when the: (1) request is incomplete; (2) information in the request is inconsistent; (3) documentation does not explain to HHSC's satisfaction the medical need for a private duty nurse or no longer supports the medical need for a private duty nurse; PROPOSED RULES May 1, TexReg 2351

8 (4) documentation does not address how PDN services correct or ameliorate the recipient's disability or physical or mental illness or condition; (5) requested PDN services are not nursing services as defined by the Texas Nursing Practice Act and its implementing regulations; (6) medical director, after conferring with the recipient's treating physician, determines the requested PDN services are not medically necessary to correct or ameliorate the recipient's disability or physical or mental illness or condition; or (7) recipient's nursing needs could be met through a visiting nurse as described in Chapter 354, Subchapter A, Division 3 of this title. (i) Only the medical director may deny PDN services on the basis that the services do not correct or ameliorate the recipient's disability or physical or mental illness or condition. Before denying PDN services, the medical director will contact the recipient's treating physician to determine whether additional information or clarification can be provided that would allow for authorization of PDN services. (j) All notices must afford a recipient an opportunity for a fair hearing in accordance with 42 CFR, Part 431, Subpart E, related to Fair Hearings for Applicants and Recipients. (1) HHSC may determine, based on the information submitted, that PDN services will be denied, terminated, or reduced. A notice regarding the denial, termination, or reduction of PDN services must be sent to the recipient and the requesting provider. The notice must inform the recipient of his or her right to request a fair hearing as described in Chapter 357, Subchapter A of this title (relating to Uniform Fair Hearing Rules). (2) When HHSC determines that the requested services are not PDN services and that the documentation may support authorization of personal care services, as described in Subchapter F of this chapter (relating to Personal Care Services), the denial notice: and (A) describes the basis for this determination; (B) briefly describes the personal care services benefit; (C) explains how to request personal care services. (3) When HHSC determines that documentation for the services requested does not support a request for PDN because the recipient does not need more individual and continuous nursing care than could be provided on a per-visit basis, as described in of this title (relating to General), the denial notice: and (A) describes the basis for this determination; (B) briefly describes the home health nursing benefit; (C) explains how to request prior authorization for home health nursing. (4) When HHSC determines that the request for PDN services is incomplete, as referenced in subsection (h)(1) of this section, the denial notice will inform the recipient that the documentation or information is incomplete and identify the sections of the documentation or information that are incomplete. (5) When HHSC determines that the request for PDN services is inconsistent, as referenced in subsection (h)(2) of this section, the denial notice will inform the recipient that the documentation or information is inconsistent and identify the inconsistencies. (6) When HHSC determines that the request for PDN services does not explain to HHSC's satisfaction the medical need for a private duty nurse or no longer supports the medical need for a private duty nurse as referenced in subsection (h)(3) of this section, the denial notice will inform the recipient and address how the documentation or information does not explain to HHSC's satisfaction the medical need for a private duty nurse or how the documentation no longer supports the medical need for a private duty nurse. (7) When HHSC determines that the information provided does not address how PDN services correct or ameliorate the recipient's disability or physical or mental illness or condition as referenced in subsection (h)(4) of this section, the denial notice will inform the recipient and address how the information provided in the request does not support the medical need for PDN services. (8) When HHSC determines that the requested PDN services are not nursing services as defined by the Texas Nursing Practice Act and its implementing regulations, as referenced in subsection (h)(5) of this section, the denial notice will inform the recipient and address how the requested PDN services are not nursing services as defined by the Texas Nursing Practice Act and its implementing regulations. (9) When an HHSC medical director, after conferring with the recipient's treating physician, determines the requested PDN services are not medically necessary to correct or ameliorate the recipient's disability or physical or mental illness or condition, as referenced in subsection (h)(6) of this section, the denial notice will inform the recipient and address why the requested PDN services are not medically necessary to correct or ameliorate the recipient's disability or physical or mental illness or condition. (10) When HHSC determines that the recipient's nursing needs could be provided by a visiting nurse through Home Health Skilled Nursing services, as referenced in subsection (h)(7) of this section, the denial notice for PDN services will describe the basis for the denial and explain how to request Home Health Skilled Nursing services. (k) A provider's authorization for PDN services is terminated if the recipient is no longer eligible for EPSDT. (l) HHSC may ask a provider to take on an existing authorization for PDN services if it becomes necessary to terminate another provider's authorization for PDN services because the: (1) recipient's health and safety needs are in jeopardy; or (2) PDN services provided are inconsistent with the plan of care submitted for authorization Plan of Care. (a) A plan of care is developed by an RN and represents the treating physician's orders. (b) The plan of care must be established and periodically reviewed by the treating physician in consultation with the provider and the recipient or responsible adult. (c) The plan of care must be: (1) submitted with a request for prior authorization of PDN services; (2) recommended, signed, and dated by the treating physician no more than 30 days from the start of care or 30 days from the end of the prior authorization period; and (3) reviewed and revised by the treating physician with each prior authorization, or more frequently as the treating physician or the PDN services provider deems necessary. 40 TexReg 2352 May 1, 2015 Texas Register

9 (d) A plan of care must include the following elements: (1) a clinical summary that documents active diagnoses and current clinical condition; (2) the recipient's mental or cognitive status; (3) the types of treatments and services, including amount, duration, and frequency; (4) a description of any required equipment and/or supplies; (5) the recipient's prognosis; (6) the recipient's rehabilitation potential; (7) the recipient's current functional limitations; (8) the activities permitted; (9) the recipient's nutritional requirements; (10) the recipient's medications, including dose, route, and frequency; (11) the safety measures to protect against injury; (12) instructions for timely discharge or referral; (13) the date the recipient was last seen by the treating physician; (14) identification of ADLs, IADL, and health-related functions with which the recipient needs assistance. The plan of care must indicate whether the tasks must be performed by a licensed nurse or a qualified aide, or may be performed by a personal care attendant as described in Subchapter F of this chapter (relating to Personal Care Services); (15) a certification statement that an identified contingency plan exists; and (16) all other medical orders. TRD Karen Ray Chief Counsel Texas Health and Human Services Commission For further information, please call: (512) TITLE 7. BANKING AND SECURITIES PART 5. OFFICE OF CONSUMER CREDIT COMMISSIONER CHAPTER 89. PROPERTY TAX LENDERS The Finance Commission of Texas (commission) proposes amendments to , , and , concerning Property Tax Lenders. In general, the purpose of the proposal is to provide guidelines for charging legitimate discount points in connection with property tax loans. The proposed amendments replace a portion of a previously adopted rule that prohibited discount points in (d), which appeared in the March 6, 2015, issue of the Texas Register (40 TexReg 1068). The agency originally received informal pre-comments on property tax loan discount points at a stakeholder meeting held in September Stakeholders also provided official comments regarding property tax loan discount points in response to proposed rule amendments that appeared in the October 31, 2014, issue of the Texas Register (39 TexReg 8484) and the December 26, 2014, issue of the Texas Register (39 TexReg 10122). The commission has considered these official comments and informal pre-comments in developing the current proposal. During the official comment period, stakeholders are welcome to resubmit any comments on issues not incorporated into the proposal. I. Requirements for charging legitimate discount points The proposed amendments to , concerning Files and Records Required, add clause (x) to paragraph (3)(A) concerning the property tax loan transaction file. The proposed amendments specify that a property tax lender must maintain written documentation of discount points offered to the property owner, including a written proposal that includes a contract rate without discount points and a lower contract rate based on discount points. The proposed amendments to , concerning Fees for Closings Costs, are contained in subsection (d). The proposed amendments to (d) address the charging of legitimate discount points in connection with a property tax loan. Subsection (d) states that legitimate discount points are not subject to the general maximum fee limit for property tax loan closing costs. Paragraph (1) explains that in order for discount points to be legitimate, they must truly correspond to a reduced interest rate, they cannot be necessary to originate the loan, and the borrower must be provided with a written proposal that includes a contract rate without discount points and a lower contract rate based on discount points. New (d)(2) states that any discount point or other origination fee that does not meet the definition in paragraph (1) will be subject to the general maximum fee limit. New (d)(3) specifies that legitimate discount points must be included in the calculation of the effective rate and upon prepayment in full, must be spread as per Texas Finance Code, New (d)(4) specifies that discount points must be paid by the borrower at or before closing of the loan, and that discount points may not be included in the funds advanced or principal balance. New (d)(5) specifies that a lender may not finance discount points through a promissory note or contract payable to the property tax lender or an affiliated business. The proposed amendments to , concerning Payoff Statements, add subparagraph (C) to paragraph (9) concerning the itemization of the total payoff amount. The amendments to further clarify that any refunds resulting from unearned legitimate discount points must be itemized on the payoff statement. The primary purpose of the amendments is to describe the requirements for charging legitimate discount points. These provisions are intended to ensure transparency in connection with discount points and to enable the borrower to make an informed decision before closing. Texas courts have generally held discount points to be a form of prepaid interest. See, e.g., Fin. Comm'n of Tex. v. Norwood, 418 S.W.3d 566, 596 (Tex. 2013) (holding that legitimate discount points are interest and are not subject to PROPOSED RULES May 1, TexReg 2353

10 the Texas Constitution's 3% cap on fees necessary to originate a home equity loan); Tarver v. Sebring Capital Credit Corp., 69 S.W.3d 708, 713 (Tex. App.--Waco 2002, no pet.) (holding the same). Like other forms of prepaid interest, discount points must be spread over the term of the loan in order to determine whether the loan is usurious. See Tex. Fin. Code ; Tanner Dev. Co. v. Ferguson, 561 S.W.2d 777, (Tex. 1977). However, in order to be legitimate, discount points must be an option available to the borrower, rather than a fee necessary to originate the loan. See Norwood, 418 S.W.3d at 596 (explaining that "true discount points are not fees 'necessary to originate, evaluate, maintain, record, insure, or service' but are an option available to the borrower"). In addition, paragraphs (4) and (5) help ensure that property tax lenders comply with the limitation on funds advanced in Texas Tax Code, 32.06(e), which provides: "A transferee holding a tax lien transferred as provided by this section may not charge a greater rate of interest than 18 percent a year on the funds advanced. Funds advanced are limited to the taxes, penalties, interest, and collection costs paid as shown on the tax receipt, expenses paid to record the lien, plus reasonable closing costs." This provision distinguishes between interest that the property tax lender may charge and funds that the property tax lender may advance to the borrower. Funds advanced are expressly limited to the six items listed in the second sentence of 32.06(e). The interest that the property tax lender can charge is described in the first sentence of 32.06(e), and is not part of the funds advanced. There is no indication in 32.06(e) that a property tax lender may charge interest on its own interest. See William C. Dear & Assocs., Inc. v. Plastronics, Inc., 913 S.W.2d 251, 254 (Tex. App.--Amarillo 1996, writ denied) (interpreting a usury statute to prohibit compounding of interest where it was not expressly authorized). For this reason, discount points (as a form of prepaid interest) are not part of the funds advanced under Texas Tax Code, 32.06(e), and should not be included in the principal balance of the loan, as specified in paragraph (4). In addition, paragraph (5) specifies that a lender may not circumvent this requirement by entering into a promissory note or contract for the payment of discount points. II. Benefits, costs, and impact on small businesses Leslie L. Pettijohn, Consumer Credit Commissioner, has determined that for the first five-year period the amended rules are in effect there will be no fiscal implications for state or local government as a result of administering the amendments. Commissioner Pettijohn has determined that for each year of the first five years the amended rules are in effect the public benefit anticipated will be that the commission's rules will provide updated guidelines regarding the costs allowed for property tax loans, and will provide more consistency in the transfer of tax liens. Additional benefits of the proposal include enhanced transparency regarding the use of discount points and reduced confusion on the part of property owners. Certain property tax lenders may incur economic costs in order to comply with the prohibition on financing discount points. However, the commission estimates that these costs will be minimal. Many property tax lenders will be unaffected by the proposed amendments, because they do not currently charge discount points. However, the comments on the December 2014 re-proposal of discount point provisions indicated that a segment of small property tax lenders relies exclusively on closing costs and discount points to compensate the lenders for all origination costs, and that these lenders include discount points in the funds advanced. These lenders will have to adjust their pricing practices in order to comply with the proposed amendments and Tax Code, 32.06(e). Ultimately, the commission estimates that the impact on these lenders will be minimal, because they should be able to recoup these costs through other methods, such as charging a higher interest rate and ensuring that they are able to retain a portion of that interest rate. Because many lenders currently operate without charging discount points, the commission believes that the segment of property tax lenders referenced earlier will be able to adjust their practices to comply with the amendments and the Tax Code. The costs on these lenders are imposed primarily by the statutory limitations on interest and funds advanced in Tax Code, 32.06(e), rather than the proposed rule changes. The commission is unaware of any property tax lenders that charge discount points in a manner that complies with Tax Code, 32.06(e), but if these lenders exist, the costs on them will be limited to printing brief disclosures on discount points and providing them to property owners. The proposed amendments may have an impact on some small and micro-businesses. However, the commission estimates that this impact will be minimal. Many small property tax lenders will be unaffected by the proposed amendments, because they do not currently charge discount points. However, the comments on the December 2014 re-proposal of discount point provisions indicated that a segment of small property tax lenders relies exclusively on closing costs and discount points to compensate the lenders for all origination costs, and that these lenders include discount points in the funds advanced. These lenders will have to adjust their pricing practices in order to comply with the amendments and Tax Code, 32.06(e). Ultimately, the commission estimates that the impact on these lenders will be minimal, because they should be able to recoup these costs through other methods, such as charging a higher interest rate and ensuring that they are able to retain a portion of that interest rate. Because many lenders currently operate without charging discount points, the commission believes that the segment of small property tax lenders referenced earlier will be able to adjust their practices to comply with the amendments and the Tax Code. The impact on these lenders is imposed primarily by the statutory limitation on interest and funds advanced in Tax Code, 32.06(e), rather than the proposed rule changes. The commission is unaware of any small property tax lenders that charge discount points in a manner that complies with Tax Code, 32.06(e), but if these small lenders exist, the impact on them will be limited to printing brief disclosures on legitimate discount points and providing them to property owners. After the December re-proposal, five commenters argued that the amendments would disproportionately affect small businesses. One commenter stated: "As a small originator in an extremely competitive market, it is necessary for [the commenter], and many other small originators, to utilize investment capital from larger firms to offer flexible property tax loans to homeowners so they will not lose their homes. Without our own funding capabilities, we rely on the origination fees and discount points to be able to meet our financial obligations in running our businesses." Another commenter stated: "As a small business that depends on origination profits we are unable to originate loans at a loss unlike large players in the marketplace... which in some cases are publicly held companies that are happy to originate loans at a loss and then make up for it in profits from the interest rate spread they enjoy from those assets." Another commenter stated: "Evidence shows that competition has lowered the average closing costs to a level that is below the 40 TexReg 2354 May 1, 2015 Texas Register

11 true cost of origination. It is one thing for a business to choose to take a loss on origination (at least for a time) for a competitive advantage. It is quite another to force all originators to operate at a loss in originations. To do so will drive most originators out of business who do not meet a certain business profile, i.e. large, established originators with access to institutional or extremely cheap financing who originate and own their own loans. Such an originator is able to capitalize their losses in their origination arm and make it up in the interest rate spread over the life of the loan. A small originator without access to cheap investment capital or who sells their loans must make a profit at origination or they will be forced to close their doors." These commenters have stated that they rely on closing costs and discount points to compensate them for the costs of origination. But closing costs and discount points are not intended to cover all costs of origination. Closing costs are intended to cover costs that arise between the loan application and closing, and discount points, in transactions where they are permitted, should be an optional offset that enables a borrower to obtain a lower interest rate than the standard par rate offered by the lender. Therefore, in order to comply with the proposed amendments, these lenders may have to adjust their pricing practices. These lenders may have to recoup their origination costs by charging a higher interest rate and ensuring that they are able to retain a portion of that higher interest rate. It appears that there is room for them to do so; two of the commenters stated that they charge fixed interest rates between 9.90% and 10%, well below the 18% maximum. After making this adjustment, these small lenders will still be able to recover their costs and effectively receive the same stream of payments, but the amounts they charge for closing costs will more accurately reflect costs actually related to closing. The commission disagrees with the contention that the amendments will force lenders to operate at a loss. Some commenters emphasized that the combination of a $900 closing cost cap in (c) (adopted by the commission in February 2015) and a prohibition on financing discount points would put certain small property tax lenders out of business. For example, one commenter stated: "Lowering origination fees to $900 and in effect eliminating discount points would put us out of business." Another commenter stated that "to further reduce origination fees beyond the current well thought out guidelines and to, in effect, eliminate discount points, will create an injustice to the property owners by putting them more at risk in the long run with fewer options to assist them with their property taxes which will increase their cost and risk of losing their property." Again, the commission disagrees with the contention that the amendments will force lenders to operate at a loss, because of the alternative pricing structures available to lenders. The commission believes that small-business-related exceptions to the amendments would be legally infeasible and would not accomplish the objectives of the amendments. First, exempting small businesses from the prohibition on financing discount points would fail to ensure that these small businesses charge legitimate discount points in compliance with the limitations on interest and funds advanced in Tax Code, 32.06(e). Second, along the same lines, simply omitting the discount point provisions in (d) would fail to ensure that property tax lenders charge legitimate discount points in compliance with the limitations on interest and funds advanced. Third, the commission also considered including the requirements in paragraphs (1), (2), and (3), and omitting the prohibition on financing discount points in paragraphs (4) and (5). However, this approach would fail to ensure that property tax lenders comply with the limitation on funds advanced in Tax Code, 32.06(e). The agency estimates that 75 small businesses or micro-businesses will be subject to the proposed rule amendments. This estimate is based on the number of property tax lenders that filed an annual report in 2014 stating that they had total annual income less than $6 million. However, most of these companies do not charge discount points and will therefore be unaffected by the amendments. The agency estimates that five property tax loan companies will be affected by the proposed amendments because they engage in the practice described earlier (i.e., relying on closing costs and discount points to compensate the lender for all origination costs, and assigning the loan to another party). This estimate is based on the number of property tax lenders that filed an annual report in 2014 stating that they made loans but did not have any loan receivables. The agency estimates that all five of these affected companies are small or micro-businesses, based on the total income they provided in the annual reports that they filed in If these lenders are including discount points in the funds advanced, then they will have to amend their pricing practices in order to comply with the proposed amendments and Tax Code, 32.06(e). The precise amount of the amendments' economic cost depends partly on information that the agency does not have. For example, the agency does not know how many secondary-market participants will be willing to purchase loans from small originators on terms that comply with the proposed amendments. Nonetheless, the commission believes that the economic costs and the impact on small businesses will be minimal. As outlined in the previous discussion, the property tax lenders that currently rely exclusively on closing costs and discount points should be able to recover their costs and effectively receive the same stream of payments by charging higher interest rates. So it is unclear why secondary-market participants would refuse to purchase the loans on terms that allow the lenders to recover substantially the same costs that they recover today. The commission invites additional comments on the proposed amendments' economic costs in general and their impact on small businesses in particular. III. Conclusion Comments on the proposal may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas or by to laurie.hobbs@occc.texas.gov. To be considered, a written comment must be received on or before the 31st day after the date the proposal is published in the Texas Register. At the conclusion of the 31st day after the proposal is published in the Texas Register, no further written comments will be considered or accepted by the commission. SUBCHAPTER B. AUTHORIZED ACTIVITIES 7 TAC The amendments are proposed under Texas Finance Code, , which authorizes the commission to adopt rules to ensure compliance with Texas Finance Code, Chapter 351 and Texas Tax Code, Additionally, the amendments are proposed under Texas Finance Code, , which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. PROPOSED RULES May 1, TexReg 2355

12 The amendments are also proposed under 32.06(a-4)(2) of the Tax Code, which authorizes the commission to adopt rules relating to the reasonableness of closing costs, fees, and other charges permitted under The statutory provisions affected by the proposed amendments are contained in Texas Finance Code, Chapter 351, and Texas Tax Code, Files and Records Required. Each licensee must maintain records with respect to each property tax loan made under Texas Finance Code, Chapter 351 and Texas Tax Code, and , and make those records available for examination under Texas Finance Code, The records required by this section may be maintained by using either a paper or manual recordkeeping system, electronic recordkeeping system, optically imaged recordkeeping system, or a combination of the preceding types of systems, unless otherwise specified by statute or regulation. If federal law requirements for record retention are different from the provisions contained in this section, the federal law requirements prevail only to the extent of the conflict with the provisions of this section. (1) - (2) (No change.) (3) Property tax loan transaction file. A licensee must maintain a paper or imaged copy of a property tax loan transaction file for each individual property tax loan or be able to produce the same information within a reasonable amount of time. The property tax loan transaction file must contain documents that show the licensee's compliance with applicable law, including Texas Finance Code, Chapter 351; Texas Tax Code, and , and any applicable state and federal statutes and regulations. If a substantially equivalent electronic record for any of the following documents exists, a paper copy of the record does not have to be included in the property tax loan transaction file if the electronic record can be accessed upon request. The property tax loan transaction file must include copies of the following records or documents, unless otherwise specified: (A) For all property tax loan transactions: (i) - (ix) (No change.) (x) written documentation of any legitimate discount points offered to the property owner, as described by (d) of this title, including the written proposal described by (d)(1)(C); (B) - (M) (No change.) (4) - (9) (No change.) Filed with the Office of the Secretary of State on April 17, TRD Leslie L. Pettijohn Commissioner Office of Consumer Credit Commissioner For further information, please call: (512) SUBCHAPTER F. COSTS AND FEES 7 TAC The amendments are proposed under Texas Finance Code, , which authorizes the commission to adopt rules to ensure compliance with Texas Finance Code, Chapter 351 and Texas Tax Code, Additionally, the amendments are proposed under Texas Finance Code, , which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. The amendments are also proposed under 32.06(a-4)(2) of the Tax Code, which authorizes the commission to adopt rules relating to the reasonableness of closing costs, fees, and other charges permitted under The statutory provisions affected by the proposed amendments are contained in Texas Finance Code, Chapter 351, and Texas Tax Code, Fees for Closing Costs. (a) - (c) (No change.) (d) Discount points. Legitimate discount points are prepaid interest and are not subject to the general maximum fee limit described by subsection (c) of this section. (1) Discount points are legitimate if: (A) the discount points truly correspond to a reduced interest rate; (B) the discount points are not necessary to originate the loan; and (C) before closing, the property tax lender provides the property owner with a written proposal describing the options offered to the property owner, including all of the following: (i) an offer of a property tax loan that includes a contract rate without discount points and a corresponding annual percentage rate; (ii) an offer of a property tax loan that includes a lower contract rate based on discount points and a corresponding annual percentage rate; (iii) the difference between the contract rate without discount points and the lower contract rate, expressed as a percentage or as a number of points; (iv) the cost of the discount points expressed as a dollar amount; (v) the percentage amount equal to the cost of the discount points divided by the principal balance of the loan; and (vi) a statement that discount points are voluntary and not required to be paid in order to obtain the loan. (2) If a property tax lender directly or indirectly charges, contracts for, or receives a discount point or other origination fee at closing that is not a legitimate discount point under paragraph (1) of this subsection, then the point or fee is subject to the maximum fee limit described by subsection (c) of this section. A property tax lender may not use the term "discount point" to describe a fee other than a legitimate discount point. (3) To determine whether a property tax loan exceeds the 18% maximum effective rate of interest described in Texas Tax Code, 32.06(e), legitimate discount points must be included in the calculation of the effective rate. Upon prepayment in full, a property tax lender must spread legitimate discount points in accordance with Texas Finance Code, TexReg 2356 May 1, 2015 Texas Register

13 (4) All legitimate discount points must be paid by the property owner by cash, check, or electronic funds transfer before or at closing of a property tax loan. Discount points may not be included in the funds advanced described by Texas Tax Code, 32.06(e), or in the principal balance upon which interest is calculated. (5) A property tax lender may not finance any discount points through a separate promissory note or contract, if the note or contract is payable to the property tax lender or to an affiliated business of the property tax lender. [(d) Discount points. A property tax lender may not charge any discount points in connection with a property tax loan. A property tax lender may not use the term "discount point" to describe any fee or charge in connection with a property tax loan. This prohibition applies to all property tax loans, notwithstanding subsection (a).] Filed with the Office of the Secretary of State on April 17, TRD Leslie L. Pettijohn Commissioner Office of Consumer Credit Commissioner For further information, please call: (512) SUBCHAPTER H. PAYOFF STATEMENTS 7 TAC The amendments are proposed under Texas Finance Code, , which authorizes the commission to adopt rules to ensure compliance with Texas Finance Code, Chapter 351 and Texas Tax Code, Additionally, the amendments are proposed under Texas Finance Code, , which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. The amendments are also proposed under 32.06(a-4)(2) of the Tax Code, which authorizes the commission to adopt rules relating to the reasonableness of closing costs, fees, and other charges permitted under The statutory provisions affected by the proposed amendments are contained in Texas Finance Code, Chapter 351, and Texas Tax Code, Payoff Statements. (a) - (b) (No change.) (c) Required elements. A payoff statement under this section must include: (1) - (8) (No change.) (9) an itemization of the total payoff amount, which must include: (A) the unpaid principal balance on the property tax loan; (B) the accrued interest as of the balance date; [and] (C) any refundable amount resulting from unearned legitimate discount points described by (d) of this title (relating to Fees for Closing Costs); and (D) [(C)] any other fees that are part of the total amount due under the property tax loan, with a specific description for each fee; (10) - (13) (No change.) (d) - (l) (No change.) Filed with the Office of the Secretary of State on April 17, TRD Leslie L. Pettijohn Commissioner Office of Consumer Credit Commissioner For further information, please call: (512) TITLE 10. COMMUNITY DEVELOPMENT PART 1. TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS CHAPTER 1. ADMINISTRATION The Texas Department of Housing and Community Affairs (the "Department") proposes new 10 TAC Chapter 1, Subchapter C, , and the repeal of Subchapter A, 1.5, concerning Previous Participation. The purpose of this new subchapter is to replace the Department's existing previous participation rule which is currently found in 10 TAC 1.5 and which is proposed for repeal in this rulemaking proposal. Previous Participation reviews are the process used by the Department to evaluate an applicant's compliance history prior to awarding funds or entering into contracts. The new rules are proposed to accomplish the following: Section describes the process that will be used for multifamily awards and ownership transfers. The proposed rule introduces a new concept of categorizing applications. Category 1 and 2 applications are presumed to have an acceptable compliance history. Category 3 and 4 applications are those with past compliance issues that will be reviewed by the Department's Executive Award Review Advisory Committee ("EARAC") prior to making recommendations to the Department's Board. The rule provides a process for applicants to be notified of their status and offer terms and conditions to mitigate past compliance issues. Section describes the process that will be used for the Department's formula funded Community Affairs programs. The rule provides an opportunity for subrecipients to comment on their compliance history and be notified regarding EARAC's recommendations. Section describes the process that will be used for all other Department programs not covered in and The process is very similar to the process outlined in and provides an opportunity for applicants to comment on their compliance history and be notified of EARAC's recommendations. PROPOSED RULES May 1, TexReg 2357

14 Section provides an opportunity and process for applicants and subrecipients to appeal a recommendation made by EARAC. FISCAL NOTE. Timothy K. Irvine, Executive Director, has determined that, for each year of the first five years the proposed new rules and repeal are in effect, enforcing or administering the proposed new rules and repeal does not have any foreseeable implications related to costs or revenues of the state or local governments. PUBLIC BENEFIT/COST NOTE. Mr. Irvine also has determined that, for each year of the first five years the proposed new rules and repeal are in effect, the public benefit anticipated as a result of the proposed new rules and repeal will be an increased ability for potential applicants to know and understand their compliance status with the Department. There will not be any additional new economic cost to individuals required to comply with the proposed new rules or the repeal. ADVERSE IMPACT ON SMALL OR MICRO-BUSINESSES. The Department has determined that there will not be any additional economic effect on small or micro-businesses based on the proposed new rules or proposed repeal. REQUEST FOR PUBLIC COMMENT. The public comment period will be held May 1, 2015, through June 1, 2015 to receive input on the proposed rules and proposed repeal. Written comments may be submitted to the Texas Department of Housing and Community Affairs, Patricia Murphy, Rule Comments, P.O. Box 13941, Austin, Texas or by fax to (512) ALL COMMENTS MUST BE RECEIVED BY 5:00 P.M. JUNE 1, SUBCHAPTER A. GENERAL POLICIES AND PROCEDURES 10 TAC 1.5 (Editor's note: The text of the following section proposed for repeal will not be published. The section may be examined in the offices of the Texas Department of Housing and Community Affairs or in the Texas Register office, James Earl Rudder Building, 1019 Brazos Street, Austin, Texas.) STATUTORY AUTHORITY. The repeal is proposed pursuant to Texas Government Code, , which authorizes the Department to adopt rules. The proposed repeal affects no other code, article, or statute Previous Participation. Filed with the Office of the Secretary of State on April 17, TRD Timothy K. Irvine Executive Director Texas Department of Housing and Community Affairs For further information, please call: (512) SUBCHAPTER C. PREVIOUS PARTICIPATION 10 TAC STATUTORY AUTHORITY. The new rules are proposed pursuant to Texas Government Code, , which authorizes the Department to adopt rules. The proposed rules affect no other code, article, or statute Previous Participation Reviews for Multifamily Awards and Ownership Transfers. (a) General. Prior to awarding funds or other assistance through the Department's Multifamily Housing Programs or approving an entity to acquire an existing multifamily Development monitored by the Department a previous participation review will be performed. When conducting a previous participation review: (1) Events of noncompliance that were corrected over three (3) years ago are not taken into consideration unless required by federal or state law or by court order or voluntary compliance agreement. (2) Events of noncompliance with an "out of compliance date" prior to the applicant's or proposed incoming owner's period of control are not taken into consideration if the event(s) are currently corrected, regardless of whether or not they were corrected during the corrective action period. (3) Events of noncompliance with an "out of compliance date" prior to the Applicant's or proposed incoming owner's period of control are taken into consideration if the event(s) are currently uncorrected. (4) The following events of noncompliance will not be taken into consideration: (A) "Failure to provide Fair Housing Disclosure notice" to households that have vacated if the date of noncompliance was within the first six (6) months of calendar year 2013; (B) "Household income above the income limit upon initial occupancy" for units at properties participating in U.S. Department of Housing and Urban Development programs if the household resided in the unit prior to an allocation of Department funds and Federal Regulations prevent the owner from correcting the issue; and (C) "Casualty loss" if the restoration period has not expired. (5) If the applicant or any affiliate of the applicant is required to have a Single Audit, the Compliance Division will advise the Executive Award Review Advisory Committee ("EARAC") of Single Audit Findings and events of noncompliance identified by the Community Affairs Monitoring and/or Contract Monitoring Sections of the Compliance Division. (6) Applicants or proposed incoming owners must complete the Department's Uniform Previous Participation Review Form and respond to staff inquiries regarding apparent errors or omissions. If an applicant or proposed incoming owner fails to provide this form this failure shall be reported to EARAC. (b) Definitions. The following definitions apply only as used in this section. Other capitalized terms used in this section shall have the meaning ascribed in chapter 10 of this title. (1) Extra Large Portfolios--Applications in which the Applicant and its Affiliates collectively Control more than twenty (20) Developments; (2) Large Portfolios--Applications in which the Applicant and its Affiliates collectively Control thirteen (13) to nineteen (19) Developments; 40 TexReg 2358 May 1, 2015 Texas Register

15 (3) Medium Portfolios--Applications in which the Applicant and its Affiliates collectively Control six (6) to twelve (12) Developments; (4) Monitoring Event--Means an onsite or desk monitoring review, a Uniform Physical Condition Standards inspection, the submission of the Annual Owner's Compliance Report, or any other instance when the Department's Compliance Division provides written notice to an owner requesting a response by a certain date (e.g., responding to a tenant complaint); Example 1.301(1): A Development was monitored in 2011 and During both monitoring visits, Department staff identified units that were occupied by ineligible households. At the time of the previous participation review, all identified events of noncompliance have been corrected. However, some of the units from the 2011 and some of the units from the 2014 onsite file review were not corrected during the corrective action period. Although the same finding was cited, it would be considered two events of noncompliance. (5) Portfolio Sizes--Refers collectively to Small Portfolios, Medium Portfolios, Large Portfolios and Extra Large Portfolios; (6) Small Portfolios--Applications in which the Applicant and its Affiliates collectively Control five (5) or fewer Developments. (c) Determination of Compliance Status. Through a review of the form and the compliance history of the affiliated multifamily Developments, staff will determine the applicable category for the application or ownership transfer request using the criteria in paragraphs (1) - (4) of this subsection and EARAC will recommend appropriate remedies, actions, and/or conditions in accordance with subsection (d) of this section. The application will be classified in the highest applicable category. Example 1.301(2): If an application is category 1 for a particular issue but meets the standard to be classified as category 4 for another issue or issues, then the application shall be considered a category 4 application under this section. (1) Category 1. For all Portfolio Sizes, the Developments affiliated with the application have no issues that are currently uncorrected and no events of noncompliance that were not corrected during the corrective action period. (2) Category 2. (A) Small Portfolios. The number of events of noncompliance that are uncorrected plus the number of events of noncompliance that were not corrected during the corrective action period equals one (1). (B) Medium Portfolios. The number of events of noncompliance that are uncorrected plus the number of events of noncompliance that were not corrected during the corrective action period is more than zero (0) but fewer than three (3). (C) Large Portfolios. The number of events of noncompliance that are uncorrected plus the number of events of noncompliance that were not corrected during the corrective action period is more than zero (0) but five (5) or fewer. (D) Extra Large Portfolios. The number of events of noncompliance that are uncorrected plus the number of events of noncompliance that were not corrected during the corrective action period is more than zero (0) but less than seven (7). (3) Category 3. (A) Small Portfolios. The number of events of noncompliance that are uncorrected plus the number of events of noncompliance that were not corrected during the corrective action period is more than one (1) but fewer than six (6). (B) Medium Portfolios. The number of events of noncompliance that are uncorrected plus the number of events of noncompliance that were not corrected during the corrective action period is more than two (2) but fewer than eight (8). (C) Large Portfolios. The number of events of noncompliance that are uncorrected plus the number of events of noncompliance that were not corrected during the corrective action period is more than five (5) but fewer than eleven (11). (D) Extra Large Portfolios. The number of events of noncompliance that are uncorrected plus the number of events of noncompliance that were not corrected during the corrective action period is more than six (6) but fourteen (14) or fewer. (E) For all Portfolio Sizes: (i) There are three (3) or fewer events of noncompliance that are currently uncorrected at the developments affiliated with the application. If corrective action has been uploaded to the Department's Compliance Monitoring and Tracking System ("CMTS") it will be reviewed before this determination is made; however, evidence of corrective action submitted during the five day period referenced in subsection (d) of this section will not be considered; (ii) No response was received during the corrective action period for three (3) or fewer monitoring events that occurred within the last three (3) years; or (iii) A Development affiliated with the application that is or was controlled by the applicant or proposed incoming owner has been the subject of a final order and the terms have not been violated. (4) Category 4. (A) Small Portfolios: The number of events of noncompliance that are uncorrected plus the number of events of noncompliance that were not corrected during the corrective action period is six (6) or more; (B) Medium Portfolios: The number of events of noncompliance that are uncorrected plus the number of events of noncompliance that were not corrected during the corrective action period is eight (8) or more; (C) Large Portfolios: The number of events of noncompliance that are uncorrected plus the number of events of noncompliance that were not corrected during the corrective action period is eleven (11) or more; (D) Extra Large Portfolios. The number of events of noncompliance that are uncorrected plus the number of events of noncompliance that were not corrected during the corrective action period is fifteen (15) or more. (E) For all Portfolio Sizes: (i) There are more than three events of noncompliance that are uncorrected at the Developments affiliated with the application. If corrective action has been uploaded to CMTS it will be reviewed before this determination is made, however, evidence of corrective action submitted during the five day period referenced in subsection (d) of this section will not be considered; (ii) No response was received during the corrective action period for more than three (3) monitoring events that occurred within the last three (3) years; (iii) A Development affiliated with the application that is or was controlled by the applicant or proposed incoming owner has been the subject of a final order and the terms have been violated; PROPOSED RULES May 1, TexReg 2359

16 (iv) The applicant or proposed incoming owner failed to meet the terms and conditions of a prior approval imposed by the EARAC, the Governing Board, voluntary compliance agreement, or court order; (v) Payment of principal or interest on a loan due to the Department is past due beyond any grace period provided for in the applicable loan documents; (vi) The Department has requested and not been provided evidence that the owner has maintained required insurance on any collateral for any loan held by the Department; (vii) The Department has requested and not been provided evidence that property taxes have been paid or satisfactory evidence of a tax exemption on any collateral for any loan held by the Department; or (viii) Fees or other amounts owed to the Department are thirty days or more past due. (d) EARAC Review. After determining the appropriate category, EARAC will review the previous participation in accordance with the following paragraphs, as applicable. (1) Category 1. The compliance history of category 1 applications will be deemed acceptable by EARAC without further review or discussion. (2) Category 2. The compliance history of category 2 applications will be deemed acceptable by EARAC without further review or discussion and the Governing Board will be advised of category 2 applications that are recommended for award. (3) Categories 3 and 4. (A) Prior to EARAC review, the applicant or proposed incoming owner will be provided a five (5) business day period to review the documentation that will be provided to EARAC and provide written comment or propose conditions or mitigations; (B) The compliance history will be reviewed by EARAC for a recommendation to award or award with conditions. In making this decision, EARAC may request any other information from the Compliance Division that is documented in the compliance history with the exception of events of noncompliance precluded by Texas Government Code (e); (C) Any award recommendations will be conditioned on the correction of any uncorrected events of noncompliance by dates agreed upon by the applicant or proposed incoming owner and EARAC. In addition, recommendation and approval may be subject to other terms and conditions related to the applicant's or incoming owner's compliance history. Failure to correct events of noncompliance by agreed upon dates and/or meet terms and conditions related to a recommendation or award will be reconsidered by EARAC and awards may be recommended for denial or recession. (4) Category 4. Applications will be notified of their status and if they wish to pursue the award should be prepared to propose terms and conditions specific to their compliance history, along with identifying specific dates to correct uncorrected events. EARAC may accept, modify or reject the applicant's proposal. If the proposal is modified or rejected, the applicant may appeal in accordance with of this subchapter Previous Participation Reviews for CSBG, LIHEAP, and WAP. (a) Previous Participation Reviews for annual non-competitive contracts funded through the U.S. Department of Health and Human Services' Community Service Block Grant Program ("CSBG"), the Low Income Housing Energy Assistance Program ("LIHEAP") and the Department of Energy Weatherization Assistance Program ("WAP") will be conducted in connection with the preparation of the applicable State Plan to be submitted to the appropriate federal agency. (b) Capitalized terms used in this section shall have the meaning ascribed in Chapter 5 of this title. (c) Any entity that the Department may enter into a contract with will be required to submit: (1) A listing of its current board of directors, council, or other governing bodies as applicable; (2) A list of the Subrecipient's key personnel (Executive Director, CFO, program director) and the length of time they have been in that position and employed by the Subrecipient; (3) Identification of the client tracking and financial management system or software used by the Subrecipient and the length of time that the entity has been utilizing these systems; (4) Any pending state or federal litigation (including administrative proceedings) against the Subrecipient along with any final decrees within the last three years; (5) A list of any multifamily Developments owned or Controlled by the Subrecipient that are monitored by the Department; and (6) Identification of all Department programs that the Subrecipient has participated in within the last three years. (d) Subrecipients will be provided a reasonable period of time, but not less than five business days, to provide the requested information. (e) The Subrecipient's financial obligations to the Department will be reviewed to determine if any of the following deficiencies exist: (1) Payment of principal or interest on a loan due to the Department is past due beyond any grace period provided for in the applicable loan documents; (2) The Department has requested and not been provided evidence that the Subrecipient has maintained required insurance on any collateral for any loan held by the Department; (3) The Department has requested and not been provided evidence that property taxes have been paid or satisfactory evidence of a tax exemption on any collateral for any loan held by the Department; or (4) Fees or other amounts owed to the Department which are thirty days or more past due. (f) The information provided by the Subrecipient, the results of the most recent Single Audit, any deficiencies identified in subsection (d) of this section and all findings identified during any monitoring visits conducted within the last three years (whether or not the findings were corrected during the corrective action period) will be taken into consideration to: (1) Prepare the monitoring plan, including the identification of the contracts that will be monitored under the funds provided through the state plan; (2) Identify if applicable, any element that will be monitored for all contracts; (3) Identify any recommended special contract terms and conditions; (4) Identify any "Network wide" training that will be offered; and 40 TexReg 2360 May 1, 2015 Texas Register

17 (5) Identify any CSBG eligible entity that will be required to prepare and submit a Quality Improvement Plan ("QIP"). (g) If any deficiencies in subsection (d) of this section are identified, or if the most recent Single Audit contained findings or if there have been any monitoring findings identified during the last three years, the Subrecipient will be notified that EARAC will be informed of such issues (with the exception of events of noncompliance precluded by Texas Government Code (e)). The Subrecipient will be provided a five business day period to provide written comment or propose conditions or mitigations. Although there will be an opportunity to respond and comment within the five day period, a response is not required. (h) The list of Subrecipients along with summary information regarding monitoring, (with the exception of events of noncompliance precluded by Texas Government Code (e)), Single Audit and any deficiencies identified in subsection (d) of this section will be presented to EARAC. EARAC may request any other information from the Compliance Division that is documented in the compliance history with the exception of events of noncompliance precluded by Texas Government Code (e). (i) EARAC can recommend award, denial or award with conditions. (j) Any Subrecipient who will be recommended for denial or award with conditions or any CSBG eligible entity that will be required to submit a Quality Improvement Plan will be informed in writing and will be required submit a written response or propose conditions or mitigations. An additional five business days will be provided to submit the written response or proposed conditions or mitigations. If the Subrecipient's response does not result in EARAC recommending award with no conditions or award with conditions that the Subrecipient agrees to, the Subrecipient will have the opportunity to appeal EARAC's recommendation in accordance with of this subchapter. (k) Although funds may be reserved for the Subrecipient or the Subrecipient's service area, consistent with 1.3 of Subchapter A of this chapter, concerning Delinquent Audits and Related Issues, the Department will not enter into a contract or extend a contract with any Subrecipient who is delinquent in the submission of their Single Audit, unless an extension has been approved in writing by the cognizant federal agency. (l) The Department will not enter into a contract with any Subrecipient who has a board member on the Department's debarment list or the federal debarred and suspended listing. However, other than debarment, individual board member's participation in other Department programs is not required to be disclosed and will not be taken into consideration. (m) The Department will not enter into a contract with any Subrecipient who is on the Department's or the federal debarred and suspended listing. (n) Previous Participation reviews will not be conducted for contract extensions. However, if the entity is delinquent in submission of its Single Audit, the contract will not be extended. (o) Full Previous Participation reviews will not be conducted for contract amendments if the increase in funds is 15% or less. However, EARAC will be notified of any monitoring findings that have been identified since the most recent previous participation review and for which the corrective action period has elapsed. In addition, EARAC will be notified of any Single Audit findings that have been identified since the most recent previous participation review. The contract will not be amended if the entity is delinquent in submission of its Single Audit. Subsections (f) and (i) of this section shall not apply for an amendment that award funds under this subsection. Full Previous Participation reviews will be conducted for contract amendments if the increase in funds is greater than 15%. (p) Previous Participation reviews for discretionary or competitive awards made under any of these programs will be conducted prior to the award of funds. Subrecipients will be required to submit the required information listed in subsection (b) of this section along with the application for funding Previous Participation Reviews for Department Program Awards Not Covered by or of This Subchapter. (a) This section applies to program awards not covered by or of this subchapter. With the exception of a household or project commitment contract, prior to awarding or allowing access to Department funds through a contract or through a Reservation Agreement a previous participation review will be performed. (b) Capitalized terms used in this section shall have the meaning ascribed in the definitions section of the applicable program of this title or as required by federal or state law. (c) When applying for an award or a new Reservation Agreement, entities will be required to submit: (1) A listing of the members of its current board of directors, council, or other governing body as applicable; (2) Any pending state or federal litigation (including administrative proceedings) against the entity along with any final decrees within the last three years; (3) A list of any multifamily Developments owned or Controlled by the applicant that are monitored by the Department; and (4) Identification of all Department programs that the entity has participated in within the last three years. (d) The entity's financial obligations to the Department will be reviewed to determine if any of the following deficiencies exist: (1) Payment of principal or interest on a loan due to the Department is past due beyond any grace period provided for in the applicable loan documents; (2) The Department has requested and not been provided evidence that the owner has maintained required insurance on any collateral for any loan held by the Department; (3) The Department has requested and not been provided evidence that property taxes have been paid or satisfactory evidence of a tax exemption on any collateral for any loan held by the Department; or (4) Fees or other amounts owed to the Department are thirty days or more past due. (e) If any deficiencies in subsection (c) of this section are identified, or if the most recent Single Audit contained findings or if there have been any monitoring findings identified during the last three years, the applicant will be notified that EARAC will be informed of such issues (with the exception of events of noncompliance precluded by Texas Government Code (e)). The entity will be provided a 5 business day period to provide written comment or propose conditions or mitigations. Although there will be an opportunity to respond and comment within the five day period, a response is not required. (f) EARAC will review the information and may recommend approval, denial or approval with conditions. EARAC may request any other information from the Compliance Division that is documented in PROPOSED RULES May 1, TexReg 2361

18 the compliance history with the exception of events of noncompliance precluded by Texas Government Code (e). (g) Any entity which will be recommended for denial or award with conditions will be informed in writing and will be required submit a written response or propose conditions or mitigations. If the entity's response does not result in EARAC recommending award with no conditions or award with conditions that the entity agrees to, the entity will have the opportunity to appeal EARAC's recommendation in accordance with of this subchapter. (h) Consistent with 1.3 of Subchapter A of this chapter, concerning Delinquent Audits and Related Issues, the Department will not enter into a contract or extend a contract with any entity who is delinquent in the submission of their Single Audit unless an extension has been approved in writing by the cognizant federal agency. (i) The Department will not enter into a contract with any entity who has a Board member on the Department's debarment list or the federal debarred and suspended listing. However, individual Board member's participation in other Department programs is not required to be disclosed and will not be taken into consideration. (j) The Department will not enter into a contract with any entity who is on the Department's or the federal debarred and suspended listing. (k) Previous Participation reviews will not be conducted for contract extensions. However, if the entity is delinquent in submission of its Single Audit, the contract will not be extended. (l) For the Emergency Solutions Grant, full Previous Participation reviews will not be conducted for contract amendments unless the amendment is an increase in funds of more than 15%. However, EARAC will be notified of any monitoring findings that have been identified since the most recent previous participation review and for which the corrective action period has elapsed. In addition, EARAC will be notified of any Single Audit findings that have been identified since the most recent previous participation review. Subsections (d) and (f) of this section shall not apply to amendments that award additional funds under this subsection. Full Previous Participation reviews will be conducted for contract amendments if the increase in funds is greater than 15%. (m) Approval of an entity's Previous Participation made for awards or Reservation System Agreements under this section is effective for 12 months unless there has been a significant change in the entity's compliance status or there are significant differences in the compliance requirements of the programs Appeal of an EARAC Recommendation under the Previous Participation Review Rule. (a) An applicant or possible subrecipient of an award may appeal an EARAC recommendation by submitting to the Department (to the attention of the Chair of EARAC), as provided herein, a letter (the "Appeal") setting forth: (1) That the applicant or subrecipient disagrees with the EARAC recommendation; (2) The reason(s) why the applicant disagrees with EARAC's recommendation; and (3) If desired, a request for an in person meeting with EARAC. (b) An appealing party must file a written Appeal not later than the seventh day after notice has been provided and include a hard copy and pdf version of all materials, if any, that the applicant wishes to have provided to the board in connection with its consideration of the matter. (c) An Appeal will be included on the Governing Board agenda if received at least three business days prior to the required posting of that agenda. The agenda item will include the materials provided by the applicant and may include a staff response to the appeal and/or materials. It is within the board chair's discretion whether or not to allow an applicant to supplement its response. An applicant who wishes to provide supplemental materials must comply with the requirements of 1.10 of this chapter regarding Public Comment Procedures. There is no assurance the board chair will permit the submission, inclusion, or consideration of such supplemental materials. (d) The board and staff will make reasonable efforts to accommodate properly and timely filed Appeals, but there may be unanticipated circumstances in which the continuity of assistance or other exigent circumstances dictate proceeding with an award notwithstanding the fact that an EARAC recommendation has been appealed. These situations, should they arise, will be addressed on an ad hoc basis. Filed with the Office of the Secretary of State on April 17, TRD Timothy K. Irvine Executive Director Texas Department of Housing and Community Affairs For further information, please call: (512) CHAPTER 10. UNIFORM MULTIFAMILY RULES SUBCHAPTER F. COMPLIANCE MONITORING 10 TAC , , The Texas Department of Housing and Community Affairs (the "Department") proposes amendments to 10 TAC Chapter 10, Subchapter F, , concerning Reporting Requirements; , concerning Special Rules Regarding Rents and Rent Limit Violations; and , concerning Monitoring Procedures for Housing Tax Credit Properties After the Compliance Period. The purpose for each amendment is described below. 10 TAC (d), concerning Reporting Requirements During the most recent rulemaking process, this subsection was amended. In that rulemaking, in subsection (d)(2), the Department made a change to the proposed amendment based on public comment; however, the rule that was adopted did not accurately incorporate the public comment. Further, when the amendment was originally published for public comment in the September 19, 2014, issue of the Texas Register (39 TexReg 7458), the Texas Register did not publish the amendments as submitted and as approved by the Board at the September 4, 2014 meeting. It appears that instead of publishing the correct language for subsection (d)(1) as submitted, a duplication of (d)(2) was published for public comment. The purpose of this amendment is to correct the paragraph to align with the public comment as intended and provide that certain reports are due on the 15th business day of the month and to correct the error in the language adopted for (d)(1). 40 TexReg 2362 May 1, 2015 Texas Register

19 10 TAC (d) (concerning Special Rules Regarding Rents and Rent Limit Violations) and (concerning Monitoring Procedures for Housing Tax Credit Properties After the Compliance Period) The Department published proposed amendments to and to solicit public comment. During the public comment period, the Internal Revenue Service ("IRS") released a Chief Counsel Advice ("CCA") memorandum that addressed the treatment of low income units occupied with resident managers, maintenance personnel and/or security officers. In general, these units are not considered residential rental units, rather facilities reasonably required for the project. Prior to the release of this CCA, guidance from the IRS provided that a if resident manager, maintenance personnel and/or security officer occupied a low income unit and the household was charged rent, then the unit was not considered a facility reasonably required for the project and the household in the unit must be eligible. This newly released CCA reverses the previous IRS guidance. This change affects and and, as a result, the amendments proposed during the February 19, 2015 meeting have been withdrawn and the proposed amendments now incorporate the CCA. The change to (d) is intended to provide owners of non-housing Tax Credit developments the same specificity regarding how to correct noncompliance related to overcharging rent that is available in subsection (b) for owners of Housing Tax Credits developments. Section currently provides that, once a Development completes the 15-year Federal Compliance Period, low-income occupancy requirements can be met Development wide instead of building by building as required during the Compliance Period. The intent was to allow for flexibility; however, the impact of employee occupied units was not taken into consideration. Under certain scenarios, a Development that was meeting the low-income occupancy requirements during the Compliance Period could be found in noncompliance with the application of the rule as currently written. The CCA referenced above specifically addresses the treatment of employee occupied units and the proposed change to (h) will resolve this concern. FISCAL NOTE. Timothy K. Irvine, Executive Director, has determined that, for each year of the first five years the amendments are in effect, enforcing or administering the amendments do not have any foreseeable implications related to costs or revenues of the state or local governments. PUBLIC BENEFIT/COST NOTE. Mr. Irvine also has determined that, for each year of the first five years the amendments are in effect, the public benefit anticipated as a result of the amendments will be improved compliance and consistency with federal and state requirements with the requirements and other provisions of the rule. There will not be any additional new economic cost to individuals required to comply with the proposed amendments. ADVERSE IMPACT ON SMALL OR MICRO-BUSINESSES. The Department has determined that there will not be any additional economic effect on small or micro-businesses based on these proposed amendments. REQUEST FOR PUBLIC COMMENT. The public comment period will be held May 1, 2015, through June 1, 2015, to receive input on the proposed amendments. Written comments may be submitted to the Texas Department of Housing and Community Affairs, Stephanie Naquin, Rule Comments, P.O. Box 13941, Austin, Texas or by fax to (512) ALL COMMENTS MUST BE RECEIVED BY 5:00 P.M. JUNE 1, STATUTORY AUTHORITY. The amendments are proposed pursuant to Texas Government Code, , which authorizes the Department to adopt rules. The proposed amendments affect no other code, article, or statute Reporting Requirements. (a) - (c) (No change.) (d) The owner is required to report certain financial information to the Department electronically through CMTS. If supplemental information is required it must be uploaded to the Development's CMTS account. (1) "Annual Owner's Financial Certification" (formerly Part D of the AOCR). Developments funded by the Department must annually provide and certify to the data requested in the Annual Owner's Financial Certification (AOFC). [Developments funded with Exchange or TCAP must also submit a "Quarterly Owner's Financial Certification" and these must be submitted in January, April, July, and October on the 10th day of the month.] (2) Developments funded with Exchange or TCAP must also submit a "Quarterly Owner's Financial Certification" and these must be submitted in January, April, July, and October on the 15th business day of the month. (e) - (i) (No change.) Special Rules Regarding Rents and Rent Limit Violations. (a) Rent or Utility Allowance Violations of the maximum allowable limit for the HTC program. Under the HTC program, the amount of rent paid by the household plus an allowance for utilities, plus any mandatory fees, cannot exceed the maximum applicable limit (as determined by the minimum set-aside elected by the Owner) published by the Department. If it is determined that a HTC Development, during the Compliance Period, collected rent in excess of the rent limit established by the minimum set-aside, the owner must correct the violation by reducing the rent charged. The Department will report the violation as corrected on January 1st of the year following the violation. The refunding of overcharged rent does not avoid the disallowance of the credit by the IRS. (b) Rent or Utility Allowance Violations of additional rent restrictions under the HTC program. If Owners agreed to additional rent and occupancy restrictions, the Department will monitor to confirm compliance. If noncompliance is discovered, the Department will require the Owner to restore compliance by refunding (not a credit to amounts owed the Development) any excess rents to a sufficient number of households to meet the set aside. Example 622(1): A 100 unit development is required to lease 10 units to households at the 30 percent income and rent limits. The utility allowance is miscalculated resulting in overcharged rents. Fifteen households have an income under 30 percent. The owner must refund 10 of these households. (c) Rent Violations of the maximum allowable limit due to application fees under the HTC program. Under the HTC program, Owners may not charge tenants any overhead costs as part of the application fee. Owners must only charge the actual cost for application fees as supported by invoices from the screening company the Owner uses. (1) The amount of time Development staff spends checking an applicant's income, credit history, and landlord references may be included in the Development's application fee. Development Owners may add up to $5.50 per Unit for their other out of pocket costs for processing an application without providing documentation. Example 622(2): A Development's out of pocket cost for processing an application is $17.00 per adult. The property may charge $22.50 for the first PROPOSED RULES May 1, TexReg 2363

20 adult and $17.00 for each additional adult. Should an Owner desire to include a higher amount to cover staff time, prior approval is required and wage information and a time study must be supplied to the Department. (2) Documentation of Development costs for application processing or screening fees must be made available during onsite visits or upon request. The Department will review application fee documentation during onsite monitoring visits. If the Development pays a flat monthly fee to a third party for credit or criminal background checks, Owners must calculate the appropriate fee to be charged applicants by using the total number of applications processed, not just approved applications. If the Department determines from a review of the documentation that the Owner has overcharged residents an application fee, the noncompliance will be reported to the IRS on Forms 8823 under the category "gross rent(s) exceeds tax credit limits." The noncompliance will be corrected on January 1st of the next year. (3) Owners are not required to refund the overcharged fee amount. To correct the issue, owners must reduce the application fee for prospective applicants. Once the fee is reduced for prospective applicants, the Department will report the affected units back in compliance on January 1st of the year after they were overcharged the application fee. (d) Rent or Utility Allowance Violations on Non-HTC Developments, HTC development after the Compliance Period, and foreclosed HTC properties for three years after foreclosure. If it is determined that the Development collected rent in excess of the allowable limit, the Department will require the Owner to refund (not a credit to amounts owed the Development) to the affected residents the amount of rent that was overcharged. (e) Trust Account to be established. If the Owner is required to refund rent under subsection (b) or (d) of this section and cannot locate the resident, the excess monies must be deposited into a trust account for the tenant. The account must remain open for the shorter of a four (4) year period, or until all funds are claimed. If funds are not claimed after the four year period, the unclaimed funds must be remitted to the Texas Comptroller of Public Accounts Unclaimed Property Holder Reporting Section to be disbursed as required by Texas unclaimed property statutes. (f) Rent Adjustments for HOME Developments: (1) 100 percent HOME assisted Developments. If a household's income exceeds 80 percent at recertification, the owner must charge rent equal to 30 percent of the household's adjusted income; (2) HOME Developments with any Market Rate units. If a household's income exceeds 80 percent at recertification, the owner must charge rent equal to the lesser of 30 percent of the household's adjusted income or the comparable Market rent; and (3) HOME Developments layered with other Department affordable housing programs. If a household's income exceeds 80 percent at recertification, the owner must charge rent equal to the lesser of 30 percent of the household's adjusted income or the rent allowable under the other program. (g) Special conditions for NSP Developments. To determine if a Unit is rent restricted, the amount of rent paid by the household, plus an allowance for utilities, plus any rental assistance payment must be less than the applicable limit. (h) Employee Occupied Units (HTC and HTF Developments). IRS Revenue Rulings 92-61, and Chief Counsel Advice Memorandum POSTN provide guidance on employee occupied units. In general, employee occupied units are considered facilities reasonably required for the project(s) and not residential rental units. Since the building's applicable fraction is calculated using the residential rental units/space in a building, employee occupied units are taken out of both the numerator and the denominator. To ensure that the building's applicable fraction is met, the Department will monitor in the following manner: [Provided that all the criteria in the Rulings are met, if the Owner of the Development does not charge the employee for rent, the unit will be removed from the numerator and denominator of the applicable fraction to determine compliance. If the owner charges the employee any amount of rent, the Department will evaluate the eligibility of the household. If the household's income exceeds the maximum allowable limit or there is any other noncompliance, the event will be cited and reported to the IRS on IRS Form 8823 as appropriate. Owners must ensure that additional rent and occupancy restrictions are maintained even if units are leased to employees.] (1) For 100% low-income Building(s)--A unit occupied by an employee will not be monitored by the Department provided that the unit is appropriately designated as exempt. (2) For mixed income Building(s)--If a unit in a mixed income building is designated as exempt, the applicable fraction will be calculated as described in this subsection. If the building does not meet the required applicable fraction, the exempt unit will be cited in noncompliance unless the employee qualifies as a low income household Monitoring Procedures for Housing Tax Credit Properties After the Compliance Period. (a) HTC properties allocated credit in 1990 and after are required under 42(h)(6) of the Code to record a LURA restricting the Development for at least thirty (30) years. Various sections of the Code specify monitoring rules State Housing Finance Agencies must implement during the Compliance Period. (b) After the Compliance Period, the Department will continue to monitor HTC Developments using the criteria detailed in paragraphs (1) - (13) of this subsection: (1) The frequency and depth of monitoring household income, rents, social services and other requirements of the LURA will be determined based on risk. Factors will include changes in ownership or management, compliance history, timeliness of reports and timeliness of responses to Department request; (2) At least once every three (3) years the property will be physically inspected including the exterior of the Development, all building systems and 10 percent of Low-Income Units. No less than five but no more than thirty-five of the Development's HTC Low-Income Units will be physically inspected to determine compliance with HUD's Uniform Physical Condition Standards; (3) Each Development shall submit an annual report in the format prescribed by the Department; (4) Reports to the Department must be submitted electronically as required in of this chapter (relating to Reporting Requirements); (5) Compliance monitoring fees will continue to be submitted to the Department annually in the amount stated in the LURA; (6) All HTC households must be income qualified upon initial occupancy of any Low-Income Unit. Proper verifications of income are required, and the Department's Income Certification form must be completed unless the Development participates in the Rural Rental Housing Program or a project based HUD program, in which case the other program's certification form will be accepted; (7) Rents will remain restricted for all HTC Low-Income Units. After the Compliance Period, utilities paid to the Owner are 40 TexReg 2364 May 1, 2015 Texas Register