HUD Section 3 new rule

Section 3 explained

Section 3 is a provision of the Housing and Urban Development Act of 1968. The purpose of Section 3 is to ensure that employment and other economic opportunities generated by certain Department of Housing and Urban Development (HUD) financial assistance shall, to the greatest extent feasible, and consistent with existing Federal, State, and local laws and regulations, be directed to low- and very low-income persons and business concerns that provide opportunities to low- or very low-income persons, particularly those who are recipients of government assistance for housing or residents of the community in which the Federal assistance is spent.

A New Section 3 Final Rule became effective July 1, 2021 . The new Section 3 regulations can be found in the Federal Regulations at 24 CFR PART 75 and replaces 24 CFR PART 135. The most significant changes under the new rules are that Section 3 compliance will be tracked by labor hours rather than new hires and contracts, and there are no longer Section 3 business contracting goals or requirements. However, HUD and the City of Minneapolis encourage the solicitation and utilization of certified Section 3 business concerns to provide contracting opportunities to these firms in furtherance of meeting Section 3 benchmarks.

This new rule applies to housing rehabilitation, housing construction, and other public construction projects assisted under HUD programs when the total amount of federal assistance to the project from such programs exceeds a threshold of $200,000.

Developers of Section 3 projects receiving $200,000 or more from one or a combination of two or more applicable HUD programs (e.g. CDBG, HOME, etc.), will be expected to ensure that to the greatest extent feasible, either directly or through their contractors, employment opportunities at the project are directed to low- and very low-income persons, including seasonal and temporary employment opportunities.

To comply with the new rules, new compliance and reporting requirements will be imposed on all Section 3 projects receiving funding from the City of Minneapolis.

Section 3 covered projects involve the construction or rehabilitation of housing (including reduction of lead-based paint hazards), or other public construction such as: street repair, sewage line repair or installation, updates to building facades, etc.

Section 3 is both race and gender neutral. The preferences provided under this regulation are based on personal income level and location.

Please review the Section 3 New Rule Matrix document for a quick overview of what the rules used to be and what is required now under the new rules. 

Section 3 New Rule Matrix

For more information about these changes, please review the FAQs for Section 3 (March 25, 2021). 

Access the HUD FAQs for Section 3. 

 

Eligibility

An individual is eligible if they meet the HUD definition of "Section 3 Worker" or "Targeted Section 3 Worker" currently or, when hired within the past five years.

Definition of Section 3 Worker

A "Section 3 Worker" must meet at least one of the following criteria:

1. The worker's gross income for the previous or annualized calendar year is below the income limit established by HUD. 2021 HUD Income Standards for the area of Mpls/St. Paul/Bloomington are: Very Low Income (50% area median income or 'AMI') is $36,750 or less; and Low Income (80% area median income or 'AMI') is $55,950 or less. 
2. The worker is employed by a Section 3 business concern. 
3. The worker is a YouthBuild participant. 

Definition of Targeted Section 3 Worker

A "Targeted Section 3 Worker" must meet at least one of the following criteria: 

1. The worker is employed by a Section 3 business concern. 
2. The worker is a YouthBuild participant. 
3. The worker is a resident in public housing, Section 8-assisted housing, and/or a resident of other public housing projects or Section 8-assisted housing managed by the Public Housing Agency that is providing the assistance (applies only to Public Housing Assistance Projects).
4. The worker lives within the service area or the neighborhood of the project. Per 24 CFR § 75.5; "service area or the neighborhood of the project" means an area within one mile of the Section 3 project, or, if fewer than 5,000 people live within one mile of a Section 3 project, within a circle centered on the Section 3 project that is sufficient to encompass a population of 5,000 people according to the most recent U.S. Census (applies only to Housing and Community Development Assistance). 

Section 3 Worker or Targeted Section 3 Worker application

To apply as a Section 3 Worker or Targeted Section 3 Worker, complete and submit the following Section 3 Worker Self-Certification or Employer Certification of Worker. 

Section 3 Worker Self-Certification OR Employer Certification of Worker

Definition of Section 3 Business Concern

A business is eligible as a "Section 3 Business Concern" if it meets at least one the following criteria: 

1. It is at least 51% owned and controlled by low- or very low-income persons. 
2. Over 75% of the labor hours performed for the business over the prior three-month period are performed by Section 3 workers. 
3. It is a business at least 51% owned and controlled by current public housing residents or residents who currently live in Section 8-assisted housing. 

Section 3 Business Concern application

To apply as a Section 3 Business Concern, complete and submit the following Section 3 business self-certification. 

Section 3 business self-certification

New benchmarks

The City will use HUD established benchmarks to determine if contractors and subcontractors “to the greatest extent feasible” made their “best efforts” to “direct job opportunities that are generated with HUD financial assistance (e.g. CDBG, HOME, etc.) to Section 3 workers and targeted Section 3 workers. 

These new benchmarks include the following goals: 

• Labor Hours: 
• 25% of all labor hours performed by Section 3 workers; and 
• 5% of all labor hours performed by targeted Section 3 workers. 

The 5% goal will count towards the overall 25% Section 3 Worker goal. HUD will use a benchmark “based on ratios of Section 3 workers and targeted Section 3 workers in comparison to all workers.”

The City will be able to determine the utilization of Section 3 workers and targeted Section 3 workers based on certified payroll reports submitted into LCPtracker and the monthly and annual reports submitted by general contractors. 

If benchmarks are not met by contractors and subcontractors working on a Section 3 project, HUD will require that documentation of efforts be provided. Per 24 CFR § 75.25, the efforts reported to HUD may, for example, include but are not limited to the following: 

1. Engaged in outreach efforts to generate job applicants who are targeted Section 3 workers.
2. Provided training or apprenticeship opportunities.
3. Provided technical assistance to help Section 3 workers compete for jobs (e.g., resume assistance, coaching).
4. Provided or connected Section 3 workers with assistance in seeking employment including: drafting resumes, preparing for interviews, and finding job opportunities connecting residents to job placement services.
5. Held one or more job fairs.
6. Provided or referred Section 3 workers to services supporting work readiness and retention (e.g., work readiness activities, interview clothing, test fees, transportation, childcare).
7. Provided assistance to apply for/or attend community college, a four-year educational institution, or vocational/technical training.

More examples

Additional examples of efforts that contractors and subcontractors may be required to document and report to HUD are in the Federal Register. To review these additional examples, please review the Federal Register notice published 9/29/2020, titled "Section 3 Benchmarks for Creating Economic Opportunities for Low- and Very Low-Income Persons and Eligible Businesses."

View the 9/29/2020 Federal Register notice

Twin Cities Section 3 collaborative

The Twin Cities Section 3 Collaborative empowers Twin Cities metro area Low Income and Public Housing Residents and Businesses to connect to jobs, training opportunities, contracting opportunities, and apply for Section 3 certification. The Collaborative consists of the City of Saint Paul, the City of Minneapolis, the Minneapolis Public Housing Authority (MPHA), Hennepin County, Anoka County, Washington Community Development Agency, and the Dakota County Community Development Agency. 

Access the website for the Section 3 Collaborative

The purpose of the Collaborative is to consolidate resources and be a "one-stop shop" for all things Section 3 in the Twin Cities Metropolitan Area. This means that when you get certified with the Collaborative, your Section 3 Business and/or Worker/Targeted Worker certification is reciprocated with any of the agencies and offices in the Collaborative. You can also use the information provided by the Collaborative to gain access to jobs, training, and contracting opportunities offered by any of the Collaborative members and more. 

The City of St. Paul through the Section 3 Collaborative has the administrative responsibilities of reviewing and approving Section 3 worker and business applications. You can submit your application to the City of Minneapolis contractcompliance@minneapolismn.gov mailbox; however, for faster processing, please print out the application linked below, complete it legibly, and email it to Jef Yang.

 

Links and resources

Opportunity portal for Section 3 workers

HUD Section 3 Business Registry 

Jobs and Training Opportunities (coming soon) 

HUD Section 3 Compliance Information for Developers and General Contractors

HUD Section 3 New Rule Provisions

 

Section 3 complaints

You may use one or more of these websites to start your complaint: 

• HUD website
• U.S. Equal Employment Opportunity Commission (EEOC)
• The Department of Labor Office of Federal Contract Compliance Programs (OFCCP)