HUD’s Office of Public and Indian Housing (PIH) posted Notice PIH 2022-10 on April 18, providing guidance for public housing agencies (PHAs) regarding their obligation to track and report compliance with the Section 3 final rule published in the Federal Register on September 29, 2020 (see Memo,10/5/20). Although the Notice is oriented to PHAs, residents and advocates will benefit from learning about their PHA’s Section 3 responsibilities and from the definitions of key terms and summaries of key provisions in the final Section 3 rule provided by the Notice.
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 created go to low-income people, “particularly those who are recipients of government assistance for housing.” Another Section 3 obligation involves supporting businesses owned or controlled by low-income people or businesses that hire them. 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.
The Notice clarifies the manner in which Section 3 applies to several PIH-related programs. For example, public housing “mixed-finance” development, whether fully or partially assisted with public housing funds, is subject to the same Section 3 obligations as housing developed solely with public housing funds.
PHAs must track and monitor the Section 3 compliance of Choice Neighborhood Initiative (CNI) projects, phases, and activities that receive $200,000 or more in CNI, CDBG, or HOME funds. CNI projects, phases, and activities that do not receive HUD funds are not subject to Section 3.
Public housing that converts to either Section 8 project-based vouchers (PBVs) or project-based rental assistance (PBRA) through the Rental Assistance Demonstration (RAD) is generally not subject to Section 3. The Notice, however, makes clear that pre-development work conducted before RAD conversion using pre-conversion public housing financial assistance is subject to Section 3. In addition, Section 3 applies to contractually obligated activities that take place after the date of RAD conversion. In addition, after the RAD closing (during RAD-related construction), a property is subject to Section 3 if it receives $200,000 or more in CDBG or HOME funds for rehabilitation or other development assistance (e.g., sidewalks, water and sewer connections, parking lots, street repairs, etc.).
The 2020 Section 3 rule provided a transition period between its effective date of November 30, 2020, and the beginning of the first reporting period on July 1, 2021. First reports are due on August 29, 2022, for PHAs that have fiscal years ending on June 30, 2022. Section 3 reports are due 60 days after the end of each PHA’s fiscal year.
In the past, PHAs submitted Section 3 compliance information through the SPEARS system, which will no longer be used. PIH is creating a new system called “S3R,” which is still not available. If a PHA also receives CDBG or HOME funds, it must use a different system to report Section 3 compliance related to the use of those funds, the Integrated Disbursement and Information System (IDIS) for regular CDBG or HOME, or Disaster Recovery Grant Reporting (DRGR) if CDBG-Disaster Recovery funds (CDBG-DR) are used.
The Notice states that reporting will initially remain at the grant- or individual program-level (for PHAs that are not participating in the Moving to Work (MTW) demonstration). However, PIH is considering PHA-level reporting (which NLIHC fears will prevent a nuanced assessment of a PHA’s Section 3 compliance).
Commenting on the proposed Section 3 rule, NLIHC urged HUD to retain a complaint process similar to the process in the 1994 Interim Section 3 that preceded the 2020 final rule administered by HUD’s Office of Fair Housing and Equal Opportunity (FHEO). Unfortunately, in the final rule, HUD chose to have complaints sent to the relevant HUD program office – PIH in the case of public housing, and Community Planning and Development (CPD) in the case of CDBG and HOME. While program offices can effectively address program-related issues, these offices might not be as objective about, or as well-versed in, Section 3 policy as third-party offices such as FHEO. With the new Section 3 rule, HUD’s Office of Field Policy and Management (FPM) now oversees and administers Section 3.
Notice PIH 2022-10 reflects the final rule and states that complaints must be sent to the local HUD field office or directly to the relevant program office. When a complaint is received, staff in the appropriate field office will gather facts as well as the PHA’s response and work with the PHA to address the complaint. In the case of a complaint regarding public housing, the field office staff must provide PIH’s Section 3 Coordinator in the Office of Field Operations (OFO) with a copy of any complaints. OFO will then track complaints and their outcomes.
Read Notice PIH 2022-10 at: https://bit.ly/3xHNVqS
Find FPM’s (rudimentary) Section 3 page at: https://bit.ly/397zvWH
HUD Exchange offers a more comprehensive Section 3 webpage at: https://bit.ly/3L6S2R2 The page has a virtual Section 3 Guidebook and virtual Section 3 Frequently Asked Questions (FAQs) that cannot be easily downloaded and photocopied for distribution at resident meetings.