Economic Opportunities

Grant Administration: Economic Opportunities

Section 3 of the Housing and Urban Development Act of 1968 requires that economic opportunities created through certain HUD-funded housing and community development programs be directed to low and very low-income individuals. Priority is given to residents receiving government housing assistance and to business concerns that provide meaningful job and contract opportunities to low and very low-income persons.

The purpose of Section 3 is to ensure that people living in communities where HUD-funded projects take place can benefit from the economic activity generated by those investments. Through job creation, training, and contracting opportunities, Section 3 is designed to improve the overall socioeconomic conditions of the neighborhood and its residents. The implementing regulation for Section 3 is located at 24 CFR Part 75.

Applicability

Section 3 applies whenever CDBG funds are used on projects involving housing construction, rehabilitation, demolition, commercial or private improvements for economic development, or other public construction such as roads, sewers, community centers, or public facilities. The requirements apply when a project receives two hundred thousand dollars or more in CDBG or other HUD assistance.

These requirements apply to CDBG recipients, subrecipients, contractors, and subcontractors. Labor hours associated with professional service contracts do not need to be reported, although hours performed by Section 3 workers may be counted toward benchmarks. If a contract has both professional and non-professional components, labor hours for the non-professional portion must still be reported.

Section 3 Benchmarks

HUD has established benchmark goals for projects meeting the funding threshold. The current benchmarks are:
• Twenty five percent of all labor hours must be performed by Section 3 workers.
• Five percent of all labor hours must be performed by Targeted Section 3 workers.

These goals are updated periodically. Grantees must use the correct benchmark year when setting up a project.

Definitions: Section 3 Worker

A Section 3 worker is an individual who meets one of the following conditions:
• The worker’s income is below the CDBG income limit for a household of one.
• The worker is employed by a Section 3 business concern.
• The worker is a YouthBuild participant.

HUD income limits are updated annually.

Definitions: Targeted Section 3 Worker

A Targeted Section 3 worker includes any Section 3 worker who is:
• Living within the service area or neighborhood of the project.
• A YouthBuild participant.

Workers employed by a Section 3 business concern are also considered Targeted Section 3 workers.

Definitions: Section 3 Business Concern

A business qualifies as a Section 3 business concern if it meets one of the following criteria:
• At least fifty one percent of the business is owned by Section 3 workers.
• Seventy five percent or more of all labor hours are performed by low or very low-income individuals.
• At least fifty one percent of the business is owned by public housing or Section 8 assisted residents.

Businesses must provide documentation verifying eligibility.

Grantee Responsibilities

Local governments that receive CDBG funds must comply with Section 3 and ensure the compliance of contractors and subcontractors. Responsibilities include notifying workers and businesses of opportunities, including Section 3 language in bid documents, collecting documentation, responding to complaints, and submitting required reporting.

Forms such as the Contractor Subcontract Section 3 Workforce Report must be completed before construction and at project closeout.

Documentation Requirements

Grantees must document Section 3 worker status through methods such as income self-certification, proof of employment with a Section 3 business, employer wage records, or proof of YouthBuild or Section 8 housing participation.

Contractors must complete pre-construction and final workforce reports.

Best Practices

To support compliance, grantees and contractors may publish job opportunities, post signage, notify nonprofits and employment agencies, assist contractors in locating Section 3 workers, and review benchmark requirements.

Section 3 guidance is intended to support opportunities, not replace existing workers.

Qualitative Efforts

If a project does not meet HUD’s benchmarks, the grantee must document qualitative efforts. These efforts include outreach, job fairs, training, resume support, financial literacy assistance, supporting education or vocational training, dividing contracts into smaller parts, and providing technical assistance to Section 3 business concerns.

Compliance Considerations

Compliance with Section 3 must not violate federal, state, or local laws. Procurement rules must be followed at all times.