CLPHA Advocacy

CLPHA to Advocate for Additional Time and Resources 

Today, HUD issued a Federal Register notice outlining its final rule for Section 3 compliance and benchmarking. In April 2019, HUD issued its proposed rule, with an accompanying notice on proposed benchmarks. In our June 2019 comments on the proposed rule, CLPHA expressed appreciation to HUD for its efforts to overhaul Section 3, but noted that “we remain concerned that many of the proposed changes do not reflect the current realities of the construction trade and, if finalized, would impose costly new obligations on PHAs without a funding source to pay for those requirements.” Many of HUD’s proposed changes to Section 3 represented a significant new burden to PHAs without the support of any additional funding to help PHAs remain in compliance with the many requirements imposed by Section 3.

Changes to Section 3 for which HUD sought comment included: 

• Focusing on a “labor hours worked” metric rather than “new hires” to better capture the extent to which new hiring opportunities are sustained over time. PHAs would be allowed to use an alternative tracking system that continues to track new hires.
• Changing the definition of a “Section 3 Worker” to include an eligible category of living in a qualified census tract, meaning any census tract in which at least 50% of households have an income of less than 60% of AMI or where the poverty rate is at least 25%.
• Requiring PHAs to track a new category of Section 3 Workers known as “Targeted Section 3 Workers,” a subset of workers that HUD is particularly interested in tracking for fulfilling Section 3 statutory requirements. 
• Defining a service area for determining who qualifies as a “Section 3 Worker” as individuals living within one mile of a worksite or within a circle centered around the worksite that encompasses 5,000 people. 
• Excluding professional services from benchmarking requirements, including, but not limited to, contracts for legal services, financial consulting, accounting services, environmental assessment, architectural services, and civil engineering services.  
• A $200,000 per project threshold for Section 3 reporting requirements, excluding Lead Hazard Control and Healthy Homes Program projects, for which all projects would be covered, and excluding Section 8 programs entirely.
• Changing the definition of a “Section 3 Business” to include a “Section 3 Business Concern” to streamline employment and contracting components of the statute into one outcome metric. 
• Transferring oversight and compliance of Section 3 from the Office of Fair Housing and Equal Opportunity (FHEO) to the applicable HUD program office. 

HUD received 163 public comments on the proposed rule. Based on those comments, HUD is making the following changes reflected in the final rule: 

• PHAs will not be allowed to use an alternative tracking system that uses a new hires metric and will be required to track labor hours for all Section 3 outcomes. The notice states, “HUD believes that the use of new hires provides an incomplete measure of the employment and local contracting opportunities available to low- and very low-income persons envisioned by the Section 3 statute. HUD expects the labor hour data to present a more accurate assessment of Section 3’s impact.” CLPHA had urged HUD to keep the new hires metric for PHAs who wished to continue using it. 
• HUD will implement the $200,000 per project threshold, but the Secretary may adjust the threshold through a future Federal Register notice “in order to ensure Section 3 compliance.” The threshold will also be adjusted no less than once every five years based on inflation factor for national construction costs. CLPHA had recommended a $350,000 per project threshold. 
• HUD will adopt a $100,00 per project threshold for Lead Hazard Control and Healthy Homes Programs, recognizing the fact that these programs issue many small grants, some research-related, that will not result in employment opportunities for Section 3 workers.  CLPHA had urged HUD to exclude the Lead Hazard Control and Healthy Programs entirely from Section 3 requirements. 
• Removing the qualified census tract eligibility category, stating that this category could inadvertently include individuals who are not low- or very low-income. CLPHA had concerns that this eligible category was overly burdensome and did not necessarily align with the spirit of employing “neighborhood” residents.
• HUD is keeping the proposed definition of a “Section 3 Business Concern,” in which over 75% of the labor hours performed for the business on construction are performed by low- or very low-income persons. However, HUD is adding that this performance must be over the last three-month period. Businesses owned by current public housing or Section-8 assisted housing residents qualify for a Section 3 Business Concern, as stated in the proposed rule, though HUD is increasing the required percentage of the business owned and controlled by the resident(s) from 25% to 51%. CLPHA had concerns that a Section 3 Business Concern was overly restrictive and burdensome, resulting in fewer businesses that qualify and additional work for PHAs. The changes included in the final rule do not alleviate but instead magnify these concerns. 
• Amending the exclusion of professional services from benchmarking to clarify that only professional services that require an advanced degree or professional licensing are excluded, rather than all non-construction services. CLPHA was pleased to see that HUD is excluding professional services from Section 3 requirements.
• Labor hours for Section 3 Workers and Targeted 3 Workers will  be counted for five years rather than three, starting from the time of the worker’s hire or when the worker was first certified as qualifying as a Section 3 worker. HUD states in the notice, “Based on public comments and further consideration, HUD agrees that a worker whose income has risen should only be counted for Section 3 purposes for a limited time period.” In choosing to extend the time period, HUD stated that they want “to ensure employers are invested in keeping Section 3 workers employed, and that there is enough opportunity to build skills and experience so that Section 3 workers may develop self-sufficiency and compete for other jobs in the future.” 
• To give PHAs and employers time to implement this final rule, HUD is providing a transition period through at least July 1, 2021.  

CLPHA is disappointed with some changes included in the final rule, as they insufficiently address the unfunded burdens of Section 3 compliance and create additional work for our members. We are particularly disheartened to see HUD removing the alternative option for PHAs to continue tracking new hires, for which some PHAs expressed a strong preference in HUD’s  March and May 2018 listening sessions as well as in a Section 3 feedback call with CLPHA staff.

Most critically, we are concerned that HUD is implementing these changes to Section 3 amid the COVID-19 pandemic, giving PHAs and their contractors only nine months to become fully compliant. This is not a reasonable timeline to make substantial changes to Section 3 that will require updates to multiple systems and practices, particularly in light of increased workloads PHAs are experiencing while supporting residents and staff during the pandemic. CLPHA will advocate that PHAs be given additional time and resources to implement this final rule.

For questions about the notice, contact Research & Policy Manager Emily Warren at ewarren@clpha.org.