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HUD ECONOMIC STIMULUS FUNDING…

…and the creation of jobs, training and contracting opportunities

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Section 3 of the ’68 HCDA…

…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

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“What” is Section 3?

“Legal obligation” established by law to foster local:Economic developmentNeighborhood economic improvement Individual self-sufficiency

Requirement of “HUD-recipients” to include:Public and Indian Housing AuthoritiesCertain CDBG projects

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Section 3 Purpose & Intent

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 opportunitiesQualified businesses

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Section 3 Purpose & Intent

The ’68 Act requires certain funded projects to meet, “to the greatest extent feasible” specific goals for:ContractingHiring; andTraining of low income people to work on

these projects

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Section 3 Mission & Potential Benefits 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

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Section 3 Mission & Potential Benefits 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.

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Section 3 Basics…

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“Who” Qualifies?

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

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“What” 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

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Sec. 3 Requirements for Hiring?

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

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Sec. 3 Requirements for Contracting? 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

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Is Compliance Required?

Yes, to “the greatest extent feasible”. Is flexibility to achieve goalsCourts 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. 3-compliant.

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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.

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ARRA Funding for DHUD

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. 

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ARRA Funding for PHAs

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)

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ARRA Purpose & Intent ARRA funding is specifically intended to

create jobs and other economic oppty for those most impacted by current recessionSec. 3 compliance is therefore critical

ARRA does not increase nor reduce a recipient’s Section 3 dutiesDirect recipients of Sec 3 covered ARRA

funding must comply w/statutory & regulatory requirements of Sec. 3

Refer to 24 CFR 135 subparts B

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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. 

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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

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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]

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Section 3 Compliance & ARRA

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

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Section 3 Compliance & ARRA

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.

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Section 3 Compliance & ARRA

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. 

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Section 3 “covered programs”

PIH assistance for expenditures covering:DevelopmentModernizationOperating

CDBG projects that complete…Housing rehabHousing constructionOther public construction

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Sec 3 Economic Opportunities…

Defined to include:Jobs trainingEmploymentContracting opportunities w/ “Section 3 area

businesses”

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Sec 3 Economic Opportunities…

Any employment resulting from these expenditures must comply, and including:AdministrationManagementClerical supportConstruction

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Section 3 Opportunities might include..

Accounting Demolition Janitorial Plumbing

Architecture Drywall Landscaping Printing

Appliance repair Electrical manufacturing Purchasing

Bookkeeping Elevator construction

Machine operation Research

Bricklaying Engineering Marketing Surveying

Carpentry Fencing Painting Tile setting

Carpet installers Florists Payroll Transportation

Cement/masonry Heating Photography Word processing

Computer info Iron works plastering

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Section 3 priorities established for … …training and employment to benefit:

Persons in public and assisted housingPersons in area where HUD $$$ is spentParticipants in HUD’s Youthbuild programsHomeless persons

…contracting with:Businesses that meet definition of a “Section 3

business concern”

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Section 3 priorities established for … Residents and businesses w/in gen’l

proximity and that qualify under following guidelines:Eligible residentEligible business concern

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Key Definitions-Section 3…

Recipients (i.e., PHAs) and contractors encouraged to have Sec. 3 residents as 30%+ of their permanent, full-time staffSec. 3 resident employed 3+ yrs may not

continue to be counted towards the 30% requirement.

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Key Definitions-Section 3…

“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

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Key Definitions-Section 3…

“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 full-

time, permanent staff; (or w/in 3 yrs if date if 1st 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

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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.

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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.

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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.

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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

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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.

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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.

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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/ordebarment or suspension from future HUD

assisted contracts.

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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 Indian-owned 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).

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Section 3 Summary

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

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Proposed Reforms

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

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Other Proposed Reforms

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

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“Best Practices”

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

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Information Sources

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