Texas Department of Housing & Community Affairs - Building Homes and Strengthening Communities
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Employment Opportunities For Low-Income People: HUD Section 3

Final Rule (9/29/2020), salient issues

Section 3 “Goals” and “Benchmarks” changed from 30% of New Hires to 25% of total labor hours for all Section 3 workers and 5% of total hours for “Targeted Section 3 Workers” (a new designation). https://www.federalregister.gov/d/2020-19185

Although the Final Rule becomes effective November 30, 2020, compliance with the Final Rule (24 CFR 75) will start with the first full fiscal year after July 1, 2021. For TDHCA and its awardees, the fiscal year begins September 1, 2021. This compliance will include reporting percentages of work hours prescribed in the Rule, among other new requirements.

More guidance will follow, as obtained from HUD.


TDHCA strives to help Texans achieve an improved quality of life through the development of better communities.   The Department provides assistance, educational materials and technical assistance for housing, housing related, and community services matters. 

HUD’s mission is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD is working to strengthen the housing market to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; build inclusive and sustainable communities free from discrimination; and transform the way HUD does business.

In keeping with these ideals, TDHCA wants to insure that HUD-funded projects maximize community benefits and economic opportunities for low-income persons and households.  Numerous existing programs – both within and outside of TDHCA, nonprofit organizations, and social services agencies support similar or complementary goals and aspirations as those of TDHCA and HUD.  In many respects, Employment Opportunities for Low-Income People (HUD Section 3) encourages funding recipients to document procedures and practices currently used, or to better utilize those currently available, to maximize community benefits and economic opportunities for low-income persons and households.

Understanding Section 3

Section 3 (HUD.gov) is a HUD (US Department of Housing & Urban Development) requirement designed to ensure that HUD funds invested in housing and community development activities contribute to employment opportunities for low-income people living in or near the HUD-funded project. (24 CFR 135.)

HUD’s regulations state that “to the greatest extent feasible,” businesses and employers working on HUD-funded projects must make a good faith effort to train and employ low-income individuals living in the local area (Section 3 residents) and also to contract with businesses owned by or that employ Section 3 residents. (review the definition of “Section 3 Business Concern,” 24 CFR 135.5.) 

Good Faith Efforts Coincidental to Tax Credit Applications

Inability to meet Section 3 goals for hiring or subcontracting requires subrecipients to document their good faith efforts to create local economic opportunities, as a consequence of using HUD funds. Alternatives to construction jobs may include supportive services to residents and positions created to qualify for Housing Tax Credits. Examples of supportive services appear in the HTC-QAP explanation of selection criteria §11.9.Competitive HTC Selection Criteria, see Qualified Allocation Plan. Other examples of supportive services appear on the HUD website. Resources for Community and Supportive Services (hud.gov)

Noncompliance with HUD's regulations in 24 CFR part 135 may result in sanctions, termination of this contract for default, and debarment or suspension from future HUD assisted contracts. (24CFR135.38(F).

Does Section 3 pertain to my organization?

HUD’s Section 3 regulations appear in the Code of Federal Regulations, at 24 CFR Part 135 - Code of Federal Regulations site. These regulations describe the obligations of each party working on the project. The Section 3 Report Responsibility Chain diagram (PDF) graphically illustrates award recipients’ reporting obligations.

TDHCA subrecipients (aka: Contract Administrators, Developers, and Reservation System Participants) receiving funds covered by the HUD Section 3 rule (24 CFR 135) may interpret the following terms found in the rule as applicable to them:  recipient, subrecipient, awardee.  Any entity, other than the ultimate beneficiary household and direct hires, receiving Section 3 covered funds from a recipient, subrecipient, or awardee in exchange for providing goods or services should adhere to the requirements for “contractors” and “subcontractors” (in 24 CFR 135).  HUD applies Section 3 obligations equally to TDHCA and its subrecipients except that TDHCA reports directly to HUD; subrecipients submit Section 3 reports to TDHCA; and contractors submit Section 3 reports to the subrecipient who issued them the contract.

Section 3 pertains to all TDHCA programs accessing HUD Section 3-covered funds that allow any construction, demolition, or rehab.

These include:

  • HOME Investment Partnerships,
  • Emergency Solutions Grants (ESG) Program,
  • Community Development Block Grant (CDBG),
  • Neighborhood Stabilization Program (NSP),
  • Multifamily Direct Loan Program / National Housing Trust Fund (NHTF).

An organization’s obligations depend on:

  • Receipt of grant award, contract, subcontract, or sub-subcontract.
  • Organization status as an award [sub]recipient, contractor, subcontractor, or sub-subcontractor depends on the relationship to TDHCA, as the Report Responsibility Chain diagram illustrates.
  • Obligations of the hiring organization:  Review the Report Responsibility Chain diagram (PDF) to determine the path of reports from lowest-tier subcontractor up to primary recipient.

Download the Section 3 Training Presentation (PDF) for additional information.

If you have any questions, please email hudsection3@tdhca.state.tx.us or contact TDHCA Program Services staff.