Proposed Section 3 Rule Clears OIRA Review, Moves to HUD

A proposed rule to streamline the Section 3 regulations has cleared review by the Office of Information and Regulatory Affairs (OIRA) at the Office of Management and Budget (OMB). The proposed rule is now back at HUD for eventual publication in the Federal Register for public review and comment. NLIHC will notify Memo readers when the proposed rule is published and will analyze it and offer sample comments.

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 new jobs, training, and contracting opportunities that are created go to low-income people and to businesses owned or controlled by low-income people or to businesses that hire them. Public housing agencies 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 also comply.

Section 3 has been operating under an interim regulation since 1994. During the Obama administration, staff of HUD’s Office of Fair Housing and Equal Opportunity (FHEO), which oversees Section 3 enforcement, proposed significant changes to the interim rule. Many of those changes reflected input from advocates, including NLIHC, after numerous conference calls. That proposed rule never cleared OIRA, however. The Trump administration replaced the previous proposed rule with a different version announced in HUD’s Spring Regulatory Agenda posted on May 9, 2018. That proposed rule was received by OIRA on October 4, 2018.

The current status announcement at OIRA has a link to the Fall Regulatory Agenda providing more background than was provided by the Spring Regulatory Agenda. Removed from the fall description was a troubling sentence in the spring description: “The rule proposes to align and integrate oversight and reporting by eliminating complaint and compliance review provisions in favor of program-specific mechanisms, thereby reducing burden.”

Another hopeful feature in the fall description notes that the interim rule required that 30% of new hires be Section 3 residents. HUD has determined that this led to “churning” – employers creating a series of short-term jobs and hiring and firing employees in order to meet their Section 3 numeric goals. The proposed rule would curb such practices by changing the metric to a percentage of hours worked, a change advocates have long sought. HUD anticipates the change will provide an incentive to employers to create longer-term employment opportunities.

An interesting feature of the proposed Section 3 rule summary is that three HUD officials are listed as references: one from the Office of Community Planning and Development (which oversees CDBG and HOME), one from the Office of Recapitalization (which oversees the Rental Assistance Demonstration, RAD), and one from the Office of Policy, Programs, and Legislative Initiatives – but no one from the Office of Public and Indian Housing or FHEO.

When federal agencies such as HUD propose regulations, they must send them to OIRA for review. OIRA submits comments to HUD and HUD then takes OIRA comments into consideration. Although HUD does not have to abide by OIRA suggestions, given the power wielded by OMB, agencies such as HUD generally accept them. When the OIRA review is completed, HUD eventually has the OIRA-approved proposed or final rule published in the Federal Register.

The announcement that the proposed rule has been cleared by OIRA is at: in the “Regulatory Review Completed in Last 30 Days” window.

The Fall Regulatory Agenda summary is at:

More about Section 3 is available on page 7-38 of NLIHC’s 2018 Advocates’ Guide.