HUD Section 3 Requirements

  • The purpose of Section 3 is to ensure that when HUD funds are used to assist housing and community development projects, “to the greatest extent feasible” preference for some of the jobs and other economic opportunities created go to low-income people, “particularly those who are recipients of government assistance for housing.” Another Section 3 obligation is to support businesses owned or controlled by low-income people or businesses that hire them. Public Housing Authorities (PHAs) and jurisdictions using Community Development Block Grant (CDBG), HOME Investment Partnerships program, Housing Trust Fund (HTF), and other HUD funds must comply with Section 3 and ensure that contractors and subcontractors comply.

    Resources / Documents

    Applicability

    Section 3 applies to all housing and community development projects with $200,000 or more of federal funding (HOME, HTF, CDBG, other federal sources).

    Changes to Section 3

    Previously HUD judged the success of Section 3 efforts by counting the number of a contractor’s “new hires” who were low-income workers.  This metric has now been replaced by having contractors and subcontractors track all construction labor hours on a project and report how many of those hours were worked by Section 3 or Targeted Section 3 workers (see definitions below) as a percentage of the total.  HUD goals are for 25% of hours to be worked by Section 3 workers; and 5% of hours to be worked by Targeted Section 3 workers. If these goals cannot be achieved, developers and contractors will have to demonstrate that they have taken other measures to further the goals of Section 3.

    Identifying Section 3 Workers

    Contractors should utilize the Section 3 Worker Certification Form to identify workers who can be so classified. This form can be used both for new hires and existing employees. Employees who are identified as Section 3 or Targeted Section 3 Workers can maintain that designation for 5 years, regardless of future income, and their hours can be counted in those categories on Section 3 projects during that time period. Therefore, it is prudent for all contractors and subcontractors who might potentially work on Section 3 projects to determine the status of their employees and integrate this determination into their hiring process so Section 3 Worker hours can be tracked and reported. HUD Low Income limits can be found at the link above.

    Reporting

    On each Section 3 project contractors and subcontractors will be required to report all construction hours worked, and the number of those hours worked by Section 3 and Targeted Section 3 Workers.  The Section 3 Reporting Form should be used for this purpose.  As instructed on the Form, if the HUD goals are not achieved the contractor shall indicate other, qualitative measures that have been taken to further the goals of Section 3.  Contractors and subcontractors on a Section 3 project should each complete the Section 3 Reporting Form and submit it to the developer.  The developer shall consolidate these reports into one Section 3 Report for the project, which includes all hours worked and the number of hours worked by Section 3 and Targeted Section 3 workers, and shall submit this report to VHCB.  Developer shall maintain all contractor and subcontractor reports, as well as documentation of any additional efforts made to further the goals of Section 3, for a period of at least five years.

    Section 3 Businesses

    All employees of Section 3 Business Concerns are considered Targeted Section 3 Workers, therefore the use of such a business on a Section 3 project will contribute substantially towards meeting the goals.  Historically there have been few Vermont businesses that have sought this designation.  However, with the new rules, it is hoped that some businesses that serve as subcontractors on many projects may obtain this certification.

    Definitions

    The simple definition of a Section 3 Worker is one who is low income or a YouthBuild participant.  Targeted Section 3 workers are employees of a Section 3 business or low income residents from the service area or neighborhood of the project (they must live within one mile of the project or, if fewer than 5,000 people live in the area, within a larger circle encompassing 5,000 people).  A business can be a Section 3 business concern if the owner(s) is low income or more than 75% of their employees are low income.  The following are the technical definitions from the regulation:

    Section 3 Worker* means:
    (1) Any worker who currently fits, or when hired within the past five years fit, at least one of the
    following categories, as documented:
    (i) The worker's income for the previous or annualized calendar year is below the income limit
    established by HUD.
    (ii) The worker is employed by a Section 3 business concern.
    (iii) The worker is a YouthBuild participant.
    (2) The status of a Section 3 worker shall not be negatively affected by a prior arrest or conviction.
    (3) Nothing in this part shall be construed to require the employment of someone who meets this definition of a Section 3 worker. Section 3 workers are not exempt from meeting the qualifications of the position to be filled.

    Targeted Section 3 worker** means:

    A Targeted Section 3 worker for housing and community development assistance means a Section 3 worker who is:
    (1) A worker employed by a Section 3 business concern; or
    (2) A worker who currently fits or when hired fit at least one of the following categories, as
    documented within the past five years:
    (i) Living within the service area or the neighborhood of the project, as defined in § 75.5; or
    (ii) A YouthBuild participant

    Section 3 business concern means:
    (1) A business concern meeting at least one of the following criteria, documented within the last six-month period:
    (i) It is at least 51 percent owned and controlled by low- or very low-income persons;
    (ii) Over 75 percent of the labor hours performed for the business over the prior three-month
    period are performed by Section 3 workers; or
    (iii) It is a business at least 51 percent owned and controlled by current public housing residents or residents who currently live in Section 8-assisted housing.
    (2) The status of a Section 3 business concern shall not be negatively affected by a prior arrest or conviction of its owner(s) or employees.
    (3) Nothing in this part shall be construed to require the contracting or subcontracting of a Section 3 business concern. Section 3 business concerns are not exempt from meeting the specifications of the contract.