HUD’s Office of Community Planning and Development (CPD) issued Notice CPD-21-07 providing guidance for HOME Investment Partners Program participating jurisdictions (PJs) and national Housing Trust Fund (HTF) grantees regarding the new Section 3 regulations (see Memo, 10/5/20). In the context of HOME and HTF, Section 3 requirements apply to housing rehabilitation and housing construction; they do not apply to direct homebuyer assistance or tenant-based rental assistance (TBRA). For other HUD programs, in addition to new construction and rehabilitation, Section 3 applies to other public construction projects (e.g., public improvements and public facilities) assisted by the Community Development Block Grant (CDBG) program and several others. CPD issued Notice CPD-21-09 providing guidance pertaining to CDBG and a number of other programs (see Memo, 9/7).
The purpose of Section 3 of the Housing and Urban Development Act of 1968 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 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 agencies (PHAs) and jurisdictions using Community Development Block Grant (CDBG), HOME Investment Partnerships program, and other HUD funds must comply with Section 3 and ensure that contractors and subcontractors comply.
Notice CPD-21-07 is a useful summary of the new Section 3 rule published in the Federal Register on September 29, 2020. The new rule replaced the interim Section 3 rule that had been in place since 1994. The new rule made three positive changes but includes four harmful provisions (see Memo, 10/5/20).
One harmful new provision establishes a threshold of $200,000 of HUD assistance per project before Section 3 applies to housing rehabilitation, housing construction, and other public construction. The rule defines a “project” as the site or sites together with any building(s) and improvements located on the site(s) that are under common ownership, management, and financing. NLIHC’s comment letter in response to the proposed Section 3 rule opposed this high threshold.
The problem can apply to HOME-assisted single-family housing rehabilitation properties, which are not likely to ever reach the $200,000 per home threshold and comprise most HOME-assisted rehabilitation. For instance, contractors awarded significant amounts of Section 3 covered funds in a single year to spend, all together, on several small, discreet activities (such as homeowner housing rehabilitation) would not have to hire Section 3 Workers or subcontract with Section 3 businesses because each component activity costs less than $200,000. For example, if a contractor receives a commitment of $1 million in HOME funds to rehabilitate seven single-family homes and the contractor spends $130,000 per home, that contractor would not have to comply with Section 3 because each home is considered a single “project;” not one of the seven rehabs had a contract for more than $200,000.
Notice CPD-21-07 is at: https://bit.ly/2XEK8KG
HUD has two Section 3 web pages: a useful overview is on the HUD Exchange at: https://bit.ly/3Bt0RiX, while brief summary is on the main HUD website at: https://www.hud.gov/section3
NLIHC has produced two summaries of the new Section 3 rule, a “Detailed Summary and Analysis of the Final Section 3 Regulations” and a “Brief Summary and Analysis of the Final Section 3 Regulations.” Both resources are on NLIHC’s Public Housing webpage at: https://bit.ly/2WQtcB5
More information about the new Section 3 regulations is on page 7-45 of NLIHC’s 2021 Advocates’ Guide.