navigating the proposed section 3 proposed regulations overview, status and concerns of the housing...

Navigating the Proposed Section 3

Proposed Regulations

Overview, Status and Concerns of the Housing

Industry1/12/16 D L Morgan & Associates Professional

Development 1

2

Contact Information• D L Morgan & Associates– Dennis Morgan- Senior Associate/Owner– 6119 Winchester Place– Sarasota, FL 34243

• Telephone- 941 355 5912• Fax- 941 355 7823• Cell- 941 704 4068• Email- [email protected]

D L Morgan Professional Development Seminar

mailto:[email protected]

What is Section 3?• Section 3 is a program designed that

contributes to the establishment of stronger, more sustainable communities by ensuring that employment and other economic opportunities generated by Federal financial assistance for housing and community development programs are, to the greatest extent feasible, directed toward low- and very low-income persons, particularly those who are recipients of government assistance for housing.1/12/16 D L Morgan & Associates Professional

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History of Section 3

60 ‘s Urban

Conflicts

Kerner Commiss

ion Report

Section 3 of

Housing and

Urban Development of 1968

Housing and

Community

Development Act of 1992

1/12/16 D L Morgan & Associates Professional Development 4

Covered Recipients

Public and Indian HousingHousing and Community Development


Public and Indian Housing (PIH)

Section 3 applies to all Public and Indian

Housing (PIH) programs and all contractors who

receive awards from PIH funds.

Section 8 only PHAs are exempt


Public and Indian Housing• Give preference to

Section 3 Persons and Businesses in training, employment, contracting, economic opportunities

Use developm

ent, operating

and moderniza

tion assistance

…• Applies regardless of size

or number of units• Applies to contractors

awarded with PIH funds regardless of contract amount

No Threshold


Current Standard of Compliance with

Section 3Greatest Extent

FeasibleNumeri

cal Goals

Best Efforts


The Goal of Section 3 When there’s a need to

employ additional personnel, Recipients of HUD funds and

their Contractors should direct employment and other

economic opportunities, to the greatest extent feasible, to

Section 3 Residents and Section 3 Business Concerns1/12/16 D L Morgan & Associates Professional

Development 9

Who does Section 3 Help? Section 3 Residents

A Section 3 Resident is a:Public Housing resident; orLow or very low income person residing in the metro area or non metro County in which the Section 3 covered assistance is expended


Who does Section 3 Help? Section 3 Businesses

A Section 3 Business is a:Business that can provide evidence

that it meets one of the following:51% + owned by Section 3 residents; or

30%+ full time employees are Section3 residents; or

Commitment to subcontract 25% + of the dollar award of all subcontracts to business concerns that meet the above qualifications 1/12/16 D L Morgan & Associates Professional

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Who must comply with Section 3?

HUD Recipients and Sub-Recipients

What is a Recipient and Sub Recipient?

Any entity which receives Section 3 covered

assistance, directly from HUD or from another

recipient1/12/16 D L Morgan & Associates Professional Development 12

Who must comply with Section 3?

Contractors and Sub-ContractorsWhat is a Contractor and

Sub Contractor?Any entity which contracts to perform the work or a portion of the work generated by the

expenditure of Section 3 covered assistance, or for work in connection with a Section 3 covered project. 1/12/16 D L Morgan & Associates Professional

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Numerical GoalsTraining and Employment of

Section 3 Residents at all job levels

30% of total number of new

hires1/12/16 D L Morgan & Associates Professional

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Current Numerical Goals

Contracts to Section 3

BusinessesAt least 10% of the total dollar amount of all

Section 3 contracts for

building trades work

At least 3% of the total dollar

amount of all Section 3

contracts for non-construction

work1/12/16 D L Morgan & Associates Professional

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Failure to Meet Numerical Goals

Does not equate to non-compliance with Section 3

HUD will consider the following:Why was it not feasible to meet the numerical goals?

What impediments were encountered despite actions taken?

What best efforts were taken to comply?


Best EffortsSection 3 Residents

Did you post notices and flyers in the common areas or other areas of low income housing, such as HUD assisted or Housing Authority complexes?

Did you contact resident councils, resident management corporations and other resident organizations in low income housing, such as HUD assisted or Housing Authority complexes?1/12/16 D L Morgan & Associates Professional

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Best EffortsSection 3 Residents

Did you allow for job applications to be delivered/collected at and allow for job interviews to be conducted in the complexes where the Section 3 Residents reside (allowing for ease of applying)?

Did you contact agencies administering the Youthbuild programs?

Did you contact Worksource or other Unemployment Agency programs?


Best EffortsSection 3 BusinessesDid you contact business assistance agencies, minority contractor associations and community organizations?

Did you provide notice to all known Section 3 Businesses of the contracting opportunities?

Did you post notices in the common areas or other areas of HUD assisted or Housing Authority housing facilities?1/12/16 D L Morgan & Associates Professional

Development 19

Best EffortsSection 3 Businesses

What steps did you take to give preference to Section 3 Businesses?

Did you have a qualified Section 3 Business bid within 10% of the lowest qualified bid (if award based on lowest price)?

Did you provide for a range of 15-25% of the total rating points for Section 3 preference (if bids are based on other factors beyond price)?

See Appendix to Part 135 in 24 CFR Section 135 for examples


Section 3 Proposed RuleThe Section 3 Proposed Rule was

published March 27, 2015-the proposed rule seeks to: clarify obligations for PHAs and

other granteesincorporate HUD programs that

have been created since the publication of the current Regulation

codify “best practices” that have proven successful for providing employment and contracting opportunities

http://www.huduser.org/portal/economicOpportunities.html






Section 3 Proposed RuleComment Period is OverHUD plans to host a series of

webinars to solicit input from stakeholders- have seen little activity in this

area as of this date**Until this Rule is finalized,

however, the existing Section 3 Regulations are still in

effect**1/12/16 D L Morgan & Associates Professional Development 22

Section 3 Requirements(24 CFR Part 135.32)

Notify Section 3 Residents about availability of training and/or employment opportunities

Notify Section 3 Business Concerns about availability of contracting opportunities

Notify contractors about Section 3 requirements

Incorporate a Section 3 clause in contracts

Train and employ Section 3 Residents


Section 3 Requirements (24 CFR Part 135.32)

Give preference to Section 3 Residents (A Section 3 resident must meet the qualifications of the position to be filled)

Give preference to and award contracts to Section 3 Business Concerns (A Section 3 business concern must have the ability and capacity to perform successfully under the terms and conditions of the proposed contract)

Document actions to comply with Section 3 and submit annual Section 3 Summary Report


HUD 60002 Section 3 Summary

ReportSubmitted to HUD by Recipients of HUD funding

Submit one form for each major program funding source

Submit annually by January 10th or in accordance with the Annual Report (e.g. SPEARS) submission to HUD1/12/16 D L Morgan & Associates Professional

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ReportSub-recipients, contractors and sub-contractors should provide the direct recipient documentation of compliance with Section 3Recipients should obtain certification forms from Section 3 Businesses and Section 3 Residents (see sample forms at: http://www.hud.gov/offices/fheo/section3/section3.cfm)1/12/16 D L Morgan & Associates Professional

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http://www.hud.gov/offices/fheo/section3/section3.cfm



Report Official Submission goes to:• HUD’s Office of Fair Housing and Equal Opportunity Economic Opportunities Division in HQ, using the Online Form in SPEARS• Section 3 Performance Evaluation and Registry System (SPEARS)1/12/16 D L Morgan & Associates Professional

Development 27

HUD 60002 Section 3 Summary Report – Online

SystemSPECIAL NOTE:In August 25, 2015, HUD’s enhanced Section 3 Summary Reporting System that replaced the previous online system went down due to unanticipated technical problems. The Section 3 Summary Reporting System was updated and current reporting was required by 12/15/15.1/12/16 D L Morgan & Associates Professional

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Purpose of Proposed Rule- Statement From Rule

• This proposed rule would update HUD’s Section 3 regulations to address new programs established since 1994 that are subject to the Section 3 requirements and promote compliance with the requirements of Section 3 by recipients of Section 3 covered financial assistance, while also recognizing barriers to compliance that may exist, and strengthening HUD’s oversight of Section 3.


Purpose of Rule Change• The rule would update regulations

implementing Section 3. • The purpose of Section 3 and the update is

to ensure that employment, training, contracting, and other economic opportunities generated by certain HUD financial assistance shall, to the greatest extent feasible, and consistent with existing Federal, State and local laws and regulations, be directed to low- and very low- income persons, particularly those who are recipients of government assistance for housing, and to businesses that provide economic opportunities to low- and very low-income persons.


Section 3 Opportunities• Funds are in many cases the largest source of economic activity in many distressed areas.• The HUD/Grantee investments are then used and expand economic opportunity for low-income families in the neighborhoods where they live.


Summary of Major Changes• Standards for Demonstrating

Compliance– To the “Greatest Extent Feasible”

• Revised Definition of “New Hire”• New Definition of “Section 3

Business”• Removal of Numerical Goal for Non-

constuction• Introduction of New Term “ Section 3

Local Area”• Revision in Resident and Business

Verification Procedures


Summary of Major Changes- continued

• Monitoring Payroll Data of Developers and Contractors

• Amending Agreements with Labor Unions

• Sanctions for Delinquent Section 3 Annual Reports

• Funding Threshold for Recipients of Section 3 Housing and Community Development Financial Assistance

• Order of Priority Consideration for Recipients of Section 3 Housing and CD Assistance


Standards for Demonstrating Compliance• Recipients of HUD funds are required

to demonstrate compliance, to the greatest extent feasible, by: – (1) establishing and implementing

policies and procedures designed to achieve compliance with the goals of Section 3 as reflected in HUD’s regulations;

– (2) fulfilling the recipient responsibilities set forth at § 135.11 of the Section 3 regulations; and1/12/16 D L Morgan & Associates Professional

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Standard for Demonstrating Compliance- continued

– (3) either reaching or exceeding the minimum numerical goals for employment and contracting, or providing a written explanation as to why the goals were not met (for example, identifying barriers encountered that prevented the recipient from achieving targeted goals and actions that will be taken to overcome such barriers).


Revised Definition of New Hire

• The current Section 3 regulations establish a goal for 30 percent of new hires to be Section 3 residents, regardless of the length of time that the Section 3 resident is employed.

• This proposed rule would redefine a Section 3 new hire for contractors or subcontractors as a person who works a minimum of 50 percent of the average staff hours worked for the job category for which the person was hired throughout the duration of time that the work is performed on the covered project.


Proposed Definition of New Hire- continued

• For example, if a Section 3 resident is hired as a painter, and painters typically work 40 hours each week, the Section 3 resident must work a minimum of 20 hours each week during their employment on the project in order to be counted towards the recipient’s minimum numerical goal for employment.

• HUD’s reason-This will provide more meaningful employment opportunities and prevent nominal efforts


New Definition of Section 3 Business

• Currently, a “Section 3 Business” must meet one of the following three definitions: – (a) the business is 51 percent or more

owned by Section 3 residents; – (b) the business employs at least 30

percent of the permanent, full-time employees who are Section 3 residents;

– (c) the business provides evidence of a commitment to subcontract 25 percent or more of the dollar amount of all subcontracts to businesses that meet definitions (a) or (b).


Revised Definition of Section 3 Business

• This proposed rule would remove the third category, paragraph (c) of the current definition of a Section 3 Business in response to a pattern of misuse by contractors that initially indicated that they would award 25 percent of subcontracts to Section 3 businesses, in order to receive preference for contracts, but never provided contracts to them.


Revised Definition of Section 3 Business-

continued• The proposed rule would add to

categories (a) and (b) of the current definition of Section 3 Business the following categories in an effort to increase contracting opportunities for businesses that are owned by residents of public housing and to incentivize contractors to sponsor Section 3 residents to attend Department of Labor (DOL) or DOL-recognized registered apprenticeship programs.



continued• HUD would add: (1) the business

meets the definition of a resident-owned business, as set forth in HUD’s regulations at 24 CFR 963.5; and (2) the business demonstrates that at least 20 percent of its permanent full-time employees are Section 3 residents and the business either:



continued• (i) sponsored a minimum of 10 percent of

its current Section 3 employees to attend a DOL or DOL-recognized, State Apprenticeship Agency-approved, registered apprenticeship or pre-apprenticeship training program that meets the requirements outlined in DOL’s Employment Training Administration (ETA) Training and Employment Notice 13-121; or

• (ii) 10 percent of the employees of the business are participants or graduates of a DOL YouthBuild program.


Current of Goals- Non-construction

• Currently, the Section 3 regulations establish a minimum numerical goal that 3 percent of the total dollar amount of non-construction contracts shall be awarded to Section 3 businesses.


Revisions of Goals- Non-construction

• A total numerical goal of 10 percent of the total dollar amount of all covered contracts to Section 3 businesses, regardless of the type of contract or its dollar amount is proposed to be established.


Section 3 Local Area• The current definitions of

“Section 3 resident” and “Section 3 business concern” in the current Section 3 regulation do not limit eligibility to residents and businesses, respectively, residing or located in proximity to Section 3 covered projects or activities.


Proposed “Section 3 Local Area”

• The proposed rule clarifies that Section 3 residents and businesses must reside or be located, as applicable, in the Section 3 local area, which is defined as:

• (1) the primary statistical area where the Section 3 covered project or activity takes place, or

• (2) the nonmetropolitan county where the Section 3 covered project or activity takes place.


Current Verification Procedures

• The current Section 3 regulations do not require recipients to verify that a Section 3 resident or Section 3 business meets the applicable definitions in the regulations.

• Instead, residents and businesses are merely required to comply with whatever procedures recipients put in place, if such procedures exist.


Verification- Proposed Rule• This proposed rule would continue to

allow recipients to use their discretion for developing verification procedures.

• However, the proposed rule explicitly allows recipients to accept self-certifications from residents or businesses, or presume that residents residing in or businesses located in disadvantaged census tracts are eligible to receive the preference in hiring and contracting.


Verification- Proposed Rule• The proposed rule would require

recipients that implement self-certification or presumed benefit procedures to verify that such self-certification or presumption policy is an acceptable approach by undertaking a sample of residents or businesses in the disadvantaged census tract or in areas which HUD funds are being expended for covered projects and activities.1/12/16 D L Morgan & Associates Professional

Development 49

Monitoring Payroll Data• In an effort to formalize a long-

standing best practice, this proposed rule would require recipients that are administering projects that are subject to both Section 3- and Davis Bacon-covered requirements to monitor a contractor’s payroll for changes in employment (i.e., terminations, retirements, transfers, and other new job vacancies) to proactively identify instances when Section 3 obligations are triggered.


Monitoring Payroll Data- continued

• This practice should increase monitoring and oversight by recipients and improve contractor accountability.

• HUD states that since the Davis-Bacon regulation requires recipients administering covered projects to monitor payroll data for compliance with prevailing wage laws, adding this Section 3 requirement should result in minimal administrative burden


Amending Agreements with Labor Unions

• Recipients that are located in jurisdictions that are governed by bargaining agreements with labor unions typically have low rates of compliance with the minimum numerical goals for contracting because unions operate outside of Section 3 obligations.


Amending Agreements with Labor Unions- continued

• This proposed rule would require recipients to amend all existing agreements with labor unions to ensure that Section 3 obligations are included and to prevent labor unions from obstructing the recipients’ ability to achieve compliance.


Sanctions for Delinquent Annual Reports

• This proposed rule would extend the current policy to all covered recipients and inform recipients that continuing failure to submit Section 3 annual reports may result in HUD denying or withholding subsequent funds.


Further Sanctions for Failure to Comply

• Proposed rule has sanctions for noncompliance, and provides that these sanctions may include – requiring additional certifications or

assurances of compliance; – repayment of Section 3 covered

financial assistance;– ineligibility for future HUD financial

assistance; – withholding HUD financial assistance; – or suspension, debarment, or limited

denial of participation in HUD programs, where appropriate.


Housing and Community Development Assistance

Section 3 applies to Recipients of Housing and Community Development Assistance, such as:CDBG Funding (incl.

for Indian Tribes and Alaska Native Villages)

Housing Opportunity for Persons with AIDS (HOPWA)

Section 202 Supportive Housing for the Elderly

Section 811 Supportive Housing for the Disabled

HOPE VI Funds HOME FundsContinuum of Care Homeless Assistance Programs

Self-Help Homeownership Opportunity Programs


Specific Funding Threshold Housing and Community

Development (H&CD)• Impacts:–CDBG–HOME–HOPWA–Lead Hazard Control–Section 202 and 811 Supportive

Housing–Project-based Section 8, etc.


Current Housing and Community Development

AssistanceRecipients of HUD HCD Funds-$200,000 +Contractors/subcontractors of HUD HCD Funds-$100,000+

Perform Development, Renovation, Rehabilitation, Modernization

Trigger Section 3 Responsibilities:Training, employment, contracting, economic opportunities with preference to Section 3 Residents and Section 3 Business Concerns


Funding Threshold for Recipients of Covered H&CD

• The proposed rule would apply to recipients of housing and community development financial assistance that plan to obligate or commit an aggregate amount of $400,000 or more in Section 3 covered financial assistance to projects involving housing rehabilitation, housing construction, demolition, or other public construction during a given annual reporting period


Order of Priority Consideration For Covered

H&CD Assistance• The proposed rule would give highest

priority consideration for projects financed with housing and community development financial assistance to Section 3 businesses that will: – (1) retain a minimum of 75 percent of

previously hired Section 3 residents and (2) provide a minimum of 50 percent of on-the-job training or registered apprenticeship opportunities to Section 3 residents


Overall Concerns Expressed By Housing Industry

• While funding for many of these programs is at record lows, the proposed rule would raise the bar for compliance and increases administrative requirements.

• The success of Section 3 in permanently raising the economic status of intended beneficiaries has not been demonstrated. – Doing the same thing with the same

results1/12/16 D L Morgan & Associates Professional

Development 61

Overall Concerns Expressed by the Housing Industry

• Concerned about the efforts of the proposed rule to expand the reach of Section 3 requirements and to increase the program requirements, without having any basis in evidence that such a strategy is actually beneficial.

• Before ramping-up Section 3, maybe HUD should step back and reconsider a fundamental way that will accomplish economic opportunities with a broader alternative program that is more effective



• Section 3 fails to employ an inter-agency, cooperative approach reaching beyond HUD to involve participation by the Departments of Labor, Education, Health and Human Services, Commerce and the Small Business Administration.

• The ultimate objective should include not only affording employment and economic opportunities but also providing the education, training and counseling necessary for program beneficiaries



• Second, Section 3 diverts HUD funding appropriated for specific purposes other than creating employment opportunities.

• On the job training should be encouraged through independent financial incentives rather than funded with amounts appropriated for other programmatic purposes.



• It is impossible to accomplish so important a goal “on the cheap” by the simple expedient of dual-purposing program funding.

• This means, at a minimum, that employment and business opportunities created by program funding must be offered only to fully qualified and suitably trained individuals, subject to the same workplace standards as other employees.



• Section 3 suffers from weaknesses in its implementation, many of which are exacerbated by the proposed rule.

• First, HUD fails to recognize the administrative burdens of implementation and compliance; by virtue of failing to consider these burdens in the first place, HUD misses out entirely on the opportunity to consider means of mitigating these costs.



• Second, HUD has chosen to implement Section 3 using overly narrow and prescriptive requirements that limit the possible avenues for compliance with the spirit of the statute. (Adding features that Congress never intended).

• By narrowing the definitions of what satisfies Section 3 requirements, HUD is discouraging its grantees from undertaking additional activities that meet the goals of Section 3.



• Finally, the proposed rule fails to recognize the limitations and challenges that communities- particularly in small and rural contexts face. – Lack of resources– Lack of qualified entities– Lack of understanding

• General reasons to further eliminate smaller PHAs because of non-compliance


Concerns Expressed by the Housing Industry- Definition

of Compliance• The term “compliance” in the

proposed rule• The clarification of compliance

measures offered in the proposed rule does not meet the spirit of the “greatest extent feasible” standard.

• By specifying that standard, the Congress clearly contemplated that there would be situations in which grantees were not able to reach the numerical goals.


Concerns Expressed by the Housing Industry- Definition

of Compliance• HUD should provide a safe-harbor in

order to allow grantees increased operational certainty.

• The proposed rule is overly vague, simply stating that grantees efforts will be “taken into consideration” for purposes of compliance determinations.

• To much is based on the traditional “got you” mode that has come from HUD’s Office of Fair Housing.


Industry Concerns in Revised Definition of “New

Hire”• Numerical targets for new hires

are one of the main metrics for measuring compliance with Section 3, so the definition of who can or cannot be counted as a new hire significantly impacts agencies’ ability to meet these targets.


Concerns Expressed by the Housing Industry- New Hire• The Industry urges HUD to apply any

standard in the aggregate, not on a weekly basis.

• Tracking will be an issue • It would be nonsensical to exclude

workers from counting under this definition of “new hire” if they elected to take a vacation and therefore worked fewer hours in a single week.1/12/16 D L Morgan & Associates Professional

Development 72

Concerns on Definition of “New Hires”

• The average number of hours worked by individuals in a given job category will only be known at the conclusion of the project; as a result, a grantee will only know if they have reached their numerical goals for new hires after the project is completed, at which point they will not have the opportunity to take steps to bring themselves into compliance.


Concerns on Definition of “New Hires”

• The proposed definition would impose a substantial administrative burden by requiring HUD grantees and their contractors to track the number of hours worked by each job category.

• This would be a substantial new burden and cost that contractors would likely pass on by submitting higher bids, and would serve to further reduce the interest of contractors in competing for contracts.


Concerns on New Definition of “Section 3 Business”

• HUD’s proposed definition would unnecessarily narrow the universe of businesses that could receive a Section 3 designation by removing eligibility for businesses that commit to awarding 25 percent of sub-contracts to Section 3 businesses.

• This definition would decrease the rate at which HUD grantees meet their numerical goals.1/12/16 D L Morgan & Associates Professional

Development 75

Concerns on New Definition of “Section 3 Business”

• Alternatively, HUD grantees may take on higher contract costs or face increased pressure to use questionable contractors without established track records, increasing the risk of misuse or mismanagement of federal funds.


Concerns on Maintain Numerical Goals

• These numerical goals are not based in statute, and HUD should revise them to balance the interests of providing economic opportunities to low-income people and the potential unintended consequences created by the numerical goals.

• The statute does not require HUD to adopt any minimum numerical goal

• The one-size-fits-all types of requirements do more harm than good.


Concerns on Numerical Goals

• HUD has been unable to accept a report for the past two years and it is widely acknowledged that data submitted in prior years was not of high quality.

• Even if the data were of high quality and could be taken as conclusive evidence, it would only serve to further the argument that numerical goals are not needed. 1/12/16 D L Morgan & Associates Professional

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Concerns on Removal of Numerical Goal for Non-

Construction• The justifications offered are not

based on operational concerns but rather are thinly-veiled attempts to expand the reach of Section 3 requirements, without regard to burdensome or practicality.

• HUD’s claim that applying a 10 percent requirement to all contracts is “easier to administer” considers only the interests of HUD while completely ignoring the interests of its grantees


Concerns on New Term “Section 3 Local Area”

• The proposed definition would create yet another unnecessary impediment to HUD grantees’ ability to comply with Section 3.

• Particularly in small and rural communities, but also in communities near geo- political boundaries, the proposed definition would substantially limit the universe of individuals and businesses who could be counted for purposes of meeting numeric goals.


Concerns on New Term “Section 3 Local”

• Narrowing the eligible universe of Section 3 residents and businesses who can be counted would decrease the chances that HUD grantees will be able to find sufficient applicants to meet their hiring and contracting needs.

• At the same time, Section 3 residents or businesses who may be qualified for available openings will be needlessly excluded from these opportunities.


A searchable, online database that lists firms that have self-certified that they meet one of the regulatory definitions of a Section 3 business

To search the database for self-certified Section 3 businesses, register your business for inclusion, or for more information on the Business Registry, http://www.hud.gov/Sec3Biz

Section 3 Business Registry May be Obsolete


http://portal.hud.gov/hudportal/HUD?src=/section3businessregistry



Concerns on Section 3 Verification Process

• The purpose of self-certification is to shift the burden of proof from the HUD grantee to the individual or organization claiming Section 3 eligibility.

• By continuing to hold HUD grantees accountable for the veracity of the certifications made by other parties, HUD effectively undermines the purpose of such self-certification. 1/12/16 D L Morgan & Associates Professional

Development 83

Concerns on Section 3 Verification Process

• The proposed rule includes vague language authorizing HUD grantees to use sampling to verify the accuracy of self-certifications, but provides no clarity regarding what methodologies will be deemed adequate.


Concerns on Amending Agreements with Labor

Unions• The proposed rule would require HUD

grantees to unilaterally amend contracts with labor unions, a requirement with which they cannot legally comply.

• By its very nature, a contract requires the concurrence of all parties, a fact which they proposed rule conveniently overlooks.

• Bargaining units will dispute unless it is in their best interest


Concerns on Sanctions for Delinquent Annual Reports• The concept of reporting and

“achieving full compliance with Section 3 reporting requirements has been a challenge for several years.”

• The preamble does not acknowledge, that HUD has not had for two years, the ability to receive the required reports and generally has not had the opportunity to evaluate the accuracy of the current submissions just received


Concerns on Threshold Requirements for H&CD

Financial Assistance• $400,000 threshold is a step in the

right direction. However, $1 million may be a better standard under todays protocol.

• Continued singling out of PHAs for more onerous requirements is fundamentally unfair and lacks any reasonable public policy justification.

• Congress has recognized the disparate impact of program requirements on small entities, while HUD does not offer additional relief and flexibility


Concerns on Threshold for H&CD Compliance

• The industry is concerned by HUD’s application of Section 3 requirements to all funds associated with a covered project, regardless of their origin.

• The placing of additional restrictions on non-HUD funds is a substantial overreach of governmental authority and that such provisions should be stricken from the Section 3 regulations.


Concerns on Priority Consideration

• The proposed regulations would require HUD grantees to give priority consideration to Section 3 residents and businesses that are equally qualified for the work.

• Such a provision is entirely unnecessary given that grantees are already required to target opportunities toward these populations.1/12/16 D L Morgan & Associates Professional

Development 89

Concerns on Priority Consideration

• “Equally Qualified” is not an objective standard

• Grantees will face significant uncertainty as a result of having to prove that residents or businesses who are not selected for work were not equally qualified.

• Furthermore, the proposed revision permitting grantees to prioritize Section 3 applicants who are only minimally qualified counters the industry’s efforts to uphold efficiency and professionalism.


Concerns on Order of Priority Consideration

• The monitoring and record-keeping required to prove that 75 percent of previously hired Section 3 residents were retained and that 50 percent of training opportunities were directed to Section 3 residents are extremely burdensome, potentially even to the point of being entirely impossible to accurately accomplish.


Concerns on Additional Prioritization of Businesses

that Retain Workers• Rather than layering on yet another

requirement that is not related to the business’s ability to perform the work in question at the highest standard and/or lowest price is simply unworkable.

• Instead, HUD should add businesses that retain previously-hired Section 3 residents to the definition of eligible Section 3 businesses.1/12/16 D L Morgan & Associates Professional

Development 92

Concerns on Enforcement• At its core, Section 3 is an unfunded

mandate• These funds are appropriated to

support the housing and community development needs of communities—to take them away because a grantee is unable to comply with additional administrative burdens for which no funds were provided is likely to penalize the very people who Section 3 is intended to benefit


Concerns on Cost/Benefit Analysis

• HUD entirely ignores the massive compliance costs with which HUD grantees would be saddled, fundamentally skewing the analysis

• The proposed rule would require HUD grantees to undertake very resource-intensive activities in the areas of advertising, recruiting, coaching, training, monitoring, verification, etc., but offers no resources with which to undertake these efforts.


Concerns on Analysis and Cost Benefit

• HUD’s characterization fails to recognize the marketing, recruiting, evaluation, and training activities that are inherent to the success of channeling these opportunities


For additional information and questions…

May use the Section 3 listserv at www.hud.gov/section3 to receive updates

about the status of the Section 3 Proposed Rule, the Section 3 reporting system and other relevant information.May use HUD’s Section 3 website at:



http://www.hud.gov/section3



QUESTIONS????


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