Grant Administration: Section 7.3 Economic OpportunitiesBackground
Section 3 of the Housing and Urban Development Act of 1968, as amended and implemented at 24 CFR Part 135, requires the provision of training, employment and other economic opportunities that arise through certain HUD-financed projects to lower-income residents of the project area, particularly residents of government-subsidized housing, to the greatest extent feasible and consistent with federal, state and local laws and regulations. Also required is that contracts be awarded to businesses that provide economic opportunities for low- and very low-income persons residing in the project area. Amendments to Section 3 in 1992 included requirements for providing these opportunities in contracts for housing rehabilitation, including lead-based paint abatement, and other construction contracts.
Section 3 applies to recipients of $200,000 or more in CDBG assistance. The types of projects that are covered by Section 3 are housing construction, demolition, rehabilitation or other public construction (e.g., infrastructure or community facilities).
Contractors or subcontractors that receive contracts in excess of $100,000 for housing construction, demolition, rehabilitation or other public construction are required to comply with the Section 3 regulations in the same manner as the grantee that provided the funding to them.
In cases where a grantee receives CDBG assistance of over $200,000 for a project or activity, but no housing or other construction contracts exceeds $100,000, the Section 3 requirement applies only to the grantee. In this instance, the grantee must still complete Attachment 7-2: Section 3 Report (HUD Form 60002).
The recipient and, if applicable, its contractors/subcontractors must attempt to reach the Section 3 minimum numerical goals found at 24 CFR Part 135.30 by:
1. Awarding 10% of the total dollar amount of covered construction contracts to Section 3 businesses; and
2. Hiring Section 3 residents for 30% of new employment opportunities.
In order to satisfy the Section 3 requirements, a grantee must develop and implement a Section 3 Plan that outlines how it will achieve these goals. The plan must state the grantee’s commitment to Section 3 and outline steps to implement it. This could include setting aside dollar amounts or a number of contracts to be awarded to businesses that employ low-income residents in the area. CDFA has provided the minimum required Section 3 Plan as Attachment 7-5: Grantee Section 3 Plan.
It is important to document efforts made to comply with Section 3. Files should contain memoranda, correspondence, advertisements, etc., illustrating attempts to meet Section 3 goals (e.g., to reach out to eligible persons regarding employment or training and/or business concerns). Documentation will show the steps taken to implement the plan, and will most likely cross-reference information in other files, such as procurement and construction contracting. The mere existence of a Section 3 Action Plan is not sufficient. Affirmative attempts to reach Section 3 goals must be made. Finally, grantees are required to report on Section 3 as a part of the semi-annual report.
Caution: Compliance with Section 3 does not supersede other applicable laws and regulations. The 1992 amendments specifically state that Section 3 requirements will be consistent with federal, state, and local laws and regulations. Therefore, the federal procurement standards cannot be violated to comply with Section 3.