1


…provides statutory duty of HUD-funded recipients to promote Economic
Opportunities for Low and Very Low
Income Persons
 i.e, same population expected to benefit from
ARRA funding/expenditures
2


“Legal obligation” established by law to foster local:
 Economic development
 Neighborhood economic improvement

 Individual self-sufficiency
Requirement of “HUD-recipients” to include:
 Public and Indian Housing Authorities
 Certain CDBG projects
3


Sec. 3 is one of HUD’s tools for ensuring federal expenditures in economically distressed communities has a multiplier effect by targeting local (area):
 Low to very low income persons for jobs, training and contracting opportunities
 Qualified businesses
4


The ’68 Act requires certain funded projects to meet, “to the greatest extent feasible” specific goals for:
 Contracting
 Hiring; and
 Training of low income people to work on these projects
5

Section 3
 Section 3 recognizes the inherent potential for affordable housing development (and modernization) to go beyond providing basic shelter

Section 3 is “leverage” to address unemployment and underemployment, thereby reducing poverty
6

Section 3
 The law is narrowly tailored to provide preferences for low income people in the associated hiring, training and contracting on projects designed to benefit low-income people
 This policy recognizes the problems of housing affordability, employment status and earnings are all intertwined.
7

8

 ALL public housing residents qualify;
 All low-income persons w/ income ≤ 80%
AMI living in metro area or non-metro county that contains a “covered project”
 Section 8 assisted families not automatically conferred “Sec 3 status” because of assistance but can qualify on basis of their (confirmed) income
9

Projects Carry Section 3
Duties?




ALL HUD-funded public & residential construction projects valued at $200K+
Some CDBG, HOME, HOPWA programs
For LIPH Only, the $200k threshold does not apply, &
Section 3 duties apply not only to construction but also:




Development
Maintenance
Modernization
Operations
Even when HUD funds are only for a portion of the project costs, Section 3 applies to the entire project .
 Requirements also apply to contractors & grantees
10



Specific goal is to ensure at least 30% of new, full-time hires are Section 3 residents
 Obligation is n/a if a project results in no new employees being hired
Hiring goals apply to:



Private companies (e.g, contractors)
Public agencies performing Section 3 work (e.g, PHAs and
“force account” crews)
 Some projects give highest preference to LIPH residents for LIPH work
Training & apprenticeship for residents in conjunction w/employment are also expected
11

Sec. 3 Requirements for


Contracting goals for “Sec 3 business concerns ” must be met
Sec. 3 business concerns ” means;
 Companies owned by Section 3 residents; OR
 Companies w/high % of Section 3 residents as employees

E.g., a “resident management corporation”
 Unlike W/MBE businesses, participation in Sec. 3 contracting program is dependent on income of owners or employees
12


Yes, to “the greatest extent feasible”.
 Is flexibility to achieve goals
 Courts have interpreted “…greatest extent feasible”…to mean:
 Other procurement considerations are subordinate to fulfilling Sec. 3 goals
 Cost considerations insufficient grounds for awarding contracts to firms that are NOT Sec. 3compliant.
13

American Reinvestment and
Recovery Act of 2009 (ARRA)






ARRA Purpose
Preserve and create jobs and promote economic recovery;

Assist those most impacted by the recession; e.g., “low and very low income persons”
 Small businesses
Provide investments needed to increase economic efficiency by spurring technological advances in science and health;
Invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits; and
Stabilize State and local government budgets in order to minimize and avoid reductions in essential services and counterproductive state and local tax increases.
14

 HUD received $13.6 billion in ARRA funding
 approximately $7.8 billion or 57 percent of which is subject to the statutory and regulatory requirements of Section 3 of the
Housing and Urban Development Act of
1968.
15

 The majority of Section 3 covered ARRA funding was provided under the following program areas:

PIH Public Housing Capital Funds $4 Billion
 Neighborhood Stabilization Program (NSP) $2 Billion
 Community Development Block Grants (CDBG) $1 Billion
 Native American Housing Block Grants $510 Million
 Assisted Housing Energy & Green Retrofits $ 250 Million
 Lead Hazard Control $ 78 Million (LHC Grants Only)
16

 ARRA funding is specifically intended to create jobs and other economic oppty for those most impacted by current recession
 Sec. 3 compliance is therefore critical
 ARRA does not increase nor reduce a recipient’s Section 3 duties
 Direct recipients of Sec 3 covered ARRA funding must comply w/statutory & regulatory requirements of Sec. 3
 Refer to 24 CFR 135 subparts B
17

ARRA-Recipient Duties for Sec 3
Compliance
 Each recipient of Section 3 covered financial assistance (and their contractors or subcontractors) are required to comply with the requirements of Section 3 for new employment, training, or contracting opportunities that are created during the expenditure of covered funding.
18

ARRA-Recipient Duties for Sec 3
Compliance



Implement procedures to notify:
Section 3 residents and business concerns about training and employment opportunities generated by Section 3 covered assistance;
 Section 3 business concerns about the availability of contracting opportunities generated by Section 3 covered assistance;
Notify potential contractors completing work on Section 3 covered projects of their responsibilities
19

ARRA-Recipient Duties for Sec 3
Compliance






Facilitate the training and employment of Section 3 residents and the awarding of contracts to Section 3 business concerns;
Assist and actively cooperating with the Department in obtaining the compliance of contractors and subcontractors;
Refrain from entering into contracts with contractors that are in violation with the Section 3 regulations;
Document actions taken to comply with Section 3; and
Submit Section 3 Annual Summary Reports (form HUD-60002) in accordance with 24 CFR Part 135.90
Incorporate the Section 3 Clause into all covered solicitations and contracts [see 24 CFR 135.38]
20

 The Department makes determinations regarding Section 3 compliance based upon the following:

Meeting the minimum numerical goals set forth at 24 CFR
Part 135.30
 30 percent of the aggregate number of new hires shall be
Section 3 residents ;
 10 percent of all covered construction contracts shall be awarded to Section 3 business concerns ; and
 3 percent of all covered non-construction contracts shall be awarded to Section 3 business concerns
21

Recipients that fail to meet the numerical goals above bear the burden of demonstrating why it was not possible .
Such justifications should describe the:
•
•
• efforts that were taken, barriers encountered, and other relevant information that will allow the Department to make a determination regarding compliance.
22

 Each recipient of HUD ARRA funding will be required to submit Section 3 summary data to the Office of Fair Housing and
Equal Opportunity using form HUD -
60002.
 This form can be submitted online at: www.
hud .gov/section3 .
23

 PIH assistance for expenditures covering:
 Development
 Modernization

 Operating
CDBG projects that complete…
 Housing rehab
 Housing construction
 Other public construction
24

Sec 3 Economic Opportunities…
 Defined to include:
 Jobs training
 Employment
 Contracting opportunities w/ “Section 3 area businesses”
25

Sec 3 Economic Opportunities…
 Any employment resulting from these expenditures must comply, and including:
 Administration
 Management
 Clerical support
 Construction
26

Section 3 Opportunities might include..
Accounting
Architecture
Demolition
Drywall
Appliance repair Electrical
Bookkeeping
Bricklaying
Elevator construction
Engineering
Carpentry Fencing
Carpet installers Florists
Cement/masonry Heating
Computer info Iron works
Janitorial
Landscaping
Plumbing
Printing manufacturing Purchasing
Machine operation Research
Marketing
Painting
Payroll
Photography
Surveying
Tile setting
Transportation
Word processing plastering
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Section 3 priorities established for
…

… training and employment to benefit :
 Persons in public and assisted housing
 Persons in area where HUD $$$ is spent
 Participants in HUD’s Youthbuild programs
 Homeless persons

… contracting with :
 Businesses that meet definition of a “Section 3 business concern”
28

Section 3 priorities established for
…

Residents and businesses w/in gen’l proximity and that qualify under following guidelines :
 Eligible resident
 Eligible business concern
29

 Recipients (i.e., PHAs) and contractors encouraged to have Sec. 3 residents as
30%+ of their permanent, full-time staff
 Sec. 3 resident employed 3+ yrs may not continue to be counted towards the 30% requirement.
30


“resident”?
 Public housing residents; or
 Persons who live in the area where a HUD-assisted project is located and who have a household income that falls below HUD’s income limits.
 Low income means families (incl. single persons) w/incomes at or below 80% AMI
 HUD Sec. can adjust based on area variations
 Person(s) must have proof of residency w/in the gen’l project proximity
31


“business concern”?
 A business that:
 Is formed per state law & state, county or city licensed to engage in type of activity for which it was formed;


Is 51+ percent or more owned by Section 3 residents; OR
Employs Section 3 residents for at least 30 percent of its fulltime, permanent staff; (or w/in 3 yrs if date if 1 st employment w/the business concern were Sec. 3 residents); OR
 Provides evidence of a commitment to subcontract to Section
3 business concerns ≥26 percent or more of the dollar amount of the awarded contract to persons defined above
32

Required Section 3 Contract
Language-Clause(s)


A.
The work to be performed under this contract is subject to the requirements of Section 3 of the Housing and Urban Development Act of 1968, as amended, 12
U.S.C. 170lu (Section 3).
The purpose of the Section 3 is to ensure that employment and other economic opportunities generated by HUD assistance or HUD assisted projects covered by Section 3, shall, to the greatest extent feasible, be directed to low and very low income persons, particularly persons who are recipients of HUD assistance for housing.
33

Required Section 3 Contract
Language-Clause(s)
 B.
The parties to this contract agree to comply with HUD's regulations in 24 CFR
Part 135, which implement Section 3. As evidenced by their execution of this contract, the parties to this contract certify that they are under no contractual or other impediment that would prevent them from complying with the Part 135 regulations.
34

Required Section 3 Contract
Language-Clause(s)
 C.
The contractor agrees to send to each labor organization or representative of workers with which the contractor has a collective bargaining agreement or other understanding, if any a notice advising the labor organization or workers' representative of the contractor's commitments under this Section 3 clause, and will post copies of the notice in conspicuous places at the work site where both employees and applicants for training and employment positions can see the notice.
35

Required Section 3 Contract
Language-Clause(s)
 The notice shall :
 describe the Section 3 preference,
 shall set for minimum number and job titles subject to hire,
 availability of apprenticeship and training positions,
 the qualifications for each; and
 the anticipated date the work shall begin
36

Required Section 3 Contract
Language-Clause(s)


D.
The contractor agrees to include this Section 3 clause in every subcontract subject to compliance with regulations in 24 CFR Part 135, and agrees to take appropriate action, as that the subcontractor is in violation of the regulations in 24 CFR Part 135.
The contractor will not subcontract with any subcontractor where the contractor has notice or knowledge that the subcontractor has been found in violation of the regulations in 24CFR Part 135.
37

Required Section 3 Contract
Language-Clause(s)
 E.
The contractor will certify that any vacant employment positions, including training positions, that are filled (1)after the contractor is selected but before the contract is executed, and
(2) with persons other than those to whom the regulations of 24 CFR Part 135 require employment opportunities to be directed, were not filled to circumvent the contractor's obligations under 24 CFR Part 135.
38

Required Section 3 Contract
Language-Clause(s)
 F.
Noncompliance with HUD's regulations in 24 CFR Part 135 may result in:
 sanctions,
 termination of this contract for default, and/or
 debarment or suspension from future HUD assisted contracts.
39

Required Section 3 Contract
Language-Clause(s)
 G. With respect to work performed in connection with
Section 3 covered Indian housing assistance, Section 7(b) of the Indian Self-Determination and Education
Assistance Act (25 U.S.C. 450e) also applies to the work to be performed under this contract.


Section 7 (b) requires that to the greatest extent feasible (1) preference and opportunities for training and employment shall be given to Indians, and (2) preference in the award of contracts and subcontracts shall be given to Indian organizations and Indianowned economic enterprises.
Parties to this contract that are subject to the provisions of Section
3 and Section 7(b) agree to comply with Section 3 to the maximum extent feasible, but not in derogation of compliance with section 7(b).
40



Section 3 Shortcomings
 Generally believed to “fail” its legislative mandate
 Overall implementation deemed “ spotty at best ”
 Many PHAs/jurisdictions unaware or misunderstand duties under statute

Assume Sec. 3 “subordinate” to other procurement policies
 HUD lacked basic controls for ensuring compliance
Section 3 Successes


PHAs doing (a l’il) better job than local jurisdictions
HUD’s FHEO has put better controls in place


Increased number of compliance reviews
Residents are pushing for PHA compliance
41

 Bipartisan support for stronger Section 3 dates back to President George H. Bush
 Rep. Nydia Velazquez (D-NY) has circulated draft of legislation
 “Earnings and Living Opportunities Act” (ELOA) to:

 strengthen compliance w/Sec. 3
Increase economic opptys for federally asst’d h/h
 Build grantee capacity to comply
42





New and stronger admin changes at HUD w/better guidance to grantees
Establish incentives for successful Sec. 3 implementation
 E.g., incorporate compliance into competitive grant app processes
Required submission of data to facilitate monitoring by
HUD
 E.g, add as reporting component of PHAS/MASS
Revise regs to use “hours worked” as compliance test
 Measure by % of projects’ total work-hours that Sec. 3 persons perform
43

 Establish Sec. 3 coordinator position
 Use the local workforce investment system to provide jobs/skills-based training and apprenticeships
 Increase opportunities for hiring
 Establish & maintain a LIPH resident data bank for referrals
44





24 CFR § 135
HUD Guidance on ARRA
& Section 3
HUD FAQ About Section 3
An Advocate’s Guide to
Section 3 program (Nat’l
Hsg Law Project)



Center on Budget and
Policy Priorities: Reforming
HUD’s “Section 3”
Requirements…
Section 3 Compliance
Form (Civil Rights Section)
UC-Public Law Research
Institute
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