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

NEW 2020 Final Rule (24 CFR 75, published 9/29/2020)

TDHCA compliance with the Final Rule (24 CFR 75) will start with the first full fiscal year after July 1, 2021. Contracts executed after July 1, 2021 will include the new Section 3 Final Rule.

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

HUD’s Self-Paced Training for Section 3 (24 CFR 75) https://www.hudexchange.info/trainings/section-3/

More guidance will follow, as obtained from HUD.

New Final Rule Highlighted Changes

With the 2020 Final Rule, HUD seeks to improve effectiveness in several ways:

  • Change in reporting to “labor hours” instead of “new hires”
  • Section 3 worker definition changes:
    • 5-year eligibility period
    • No geographic requirement
    • Benchmark is 25% of total labor hours
  • [New] Targeted Section 3 worker definition includes:
    • Worker resides within one-mile radius of project or within radius with minimum population of 5,000
    • Benchmark is 5% of total labor hours
  • Change threshold for Section 3-covered assistance – $200K for a project
    • New rule applies to HOME, NSP and NHTF multifamily projects
    • New rule does not apply to majority of TDHCA single-family HOME, CDBG, and ESG projects

Overview

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 strives to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen housing markets 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 its 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 (not a “program”, but a “requirement”)

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 75.)

HUD’s regulations state that “to the greatest extent feasible,” (24 CFR §75.19) 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 workers) and also to contract with businesses owned by or that employ Section 3 residents. (review the definition of “Section 3 Business Concern,” 24 CFR §75.5.)

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)

Additional reporting if Section 3 benchmarks are not met:

If the recipient's reporting under paragraph (a) of §75.25 indicates that the recipient has not met the Section 3 benchmarks described in §75.23, the recipient must report in a form prescribed by HUD on the qualitative nature of its activities and those its contractors and subcontractors pursued (for details, see: §75.25 Reporting (b)).

Noncompliance with HUD's regulations in 24 CFR part 75. The applicable HUD program office will determine appropriate methods by which to oversee Section 3 compliance. HUD may impose appropriate remedies and sanctions in accordance with the laws and regulations for the program under which the violation was found (§75.33 Compliance, (c) Monitoring).

Does Section 3 pertain to my organization?

HUD’s Section 3 regulations appear in the Code of Federal Regulations, 24 CFR Part 75. These regulations describe the obligations of each party working on the project.

TDHCA subrecipients (aka: Contract Administrators, Developers) receiving funds covered by the HUD Section 3 rule (24 CFR 75) 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 75). 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 and meet the $200,000 project threshold.

These include:

  • HOME Investment Partnerships (usually multi-family),
  • National Housing Trust Fund (NHTF),
  • Neighborhood Stabilization Program (NSP),
  • Emergency Solutions Grants (ESG) Program, and
  • Community Development Block Grant (CDBG),

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.
  • Obligations of the hiring organization to primary recipient.

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