Section 3 Compliance - Public Housing Authorities Directors

Report
HUD ECONOMIC
STIMULUS
FUNDING…
…and the creation of jobs,
training and contracting
opportunities
1
Section 3 of the ’68 HCDA…

…provides statutory duty of HUD-funded
recipients to promote Economic
Opportunities for Low and Very Low
Income Persons
 i.e,
same population expected to benefit from
ARRA funding/expenditures
2
“What” is Section 3?

“Legal obligation” established by law to
foster local:
 Economic
development
 Neighborhood economic improvement
 Individual self-sufficiency

Requirement of “HUD-recipients” to
include:
 Public
and Indian Housing Authorities
 Certain CDBG projects
3
Section 3 Purpose & Intent

Sec. 3 is one of HUD’s tools for ensuring
federal expenditures in economically
distressed communities has a multiplier
effect by targeting local (area):
 Low
to very low income persons for jobs,
training and contracting opportunities
 Qualified businesses
4
Section 3 Purpose & Intent

The ’68 Act requires certain funded
projects to meet, “to the greatest extent
feasible” specific goals for:
 Contracting
 Hiring;
and
 Training of low income people to work on
these projects
5
Section 3 Mission & Potential
Benefits
Section 3 recognizes the inherent potential
for affordable housing development (and
modernization) to go beyond providing
basic shelter
 Section 3 is “leverage” to address
unemployment and underemployment,
thereby reducing poverty

6
Section 3 Mission & Potential
Benefits
The law is narrowly tailored to provide
preferences for low income people in the
associated hiring, training and contracting
on projects designed to benefit low-income
people
 This policy recognizes the problems of
housing affordability, employment status
and earnings are all intertwined.

7
Section 3 Basics…
8
“Who” Qualifies?
ALL public housing residents qualify;
 All low-income persons w/ income ≤ 80%
AMI living in metro area or non-metro
county that contains a “covered project”
 Section 8 assisted families not
automatically conferred “Sec 3 status”
because of assistance but can qualify on
basis of their (confirmed) income

9
“What” Projects Carry Section 3
Duties?



ALL HUD-funded public & residential construction
projects valued at $200K+
Some CDBG, HOME, HOPWA programs
For LIPH Only, the $200k threshold does not apply, &
Section 3 duties apply not only to construction but also:





Development
Maintenance
Modernization
Operations
Even when HUD funds are only for a portion of the
project costs, Section 3 applies to the entire project.

Requirements also apply to contractors & grantees
10
Sec. 3 Requirements for Hiring?

Specific goal is to ensure at least 30% of new, full-time
hires are Section 3 residents


Obligation is n/a if a project results in no new employees being
hired
Hiring goals apply to:


Private companies (e.g, contractors)
Public agencies performing Section 3 work (e.g, PHAs and
“force account” crews)


Some projects give highest preference to LIPH residents for LIPH
work
Training & apprenticeship for residents in conjunction
w/employment are also expected
11
Sec. 3 Requirements for
Contracting?


Contracting goals for “Sec 3 business concerns”
must be met
Sec. 3 business concerns” means;
 Companies
owned by Section 3 residents; OR
 Companies w/high % of Section 3 residents as
employees


E.g., a “resident management corporation”
Unlike W/MBE businesses, participation in Sec. 3
contracting program is dependent on income of
owners or employees
12
Is Compliance Required?

Yes, to “the greatest extent feasible”.
 Is
flexibility to achieve goals
 Courts have interpreted “…greatest extent
feasible”…to mean:
Other procurement considerations are subordinate
to fulfilling Sec. 3 goals
 Cost considerations insufficient grounds for
awarding contracts to firms that are NOT Sec. 3compliant.

13
American Reinvestment and
Recovery Act of 2009 (ARRA)

ARRA Purpose


Preserve and create jobs and promote economic
recovery;
Assist those most impacted by the recession;





e.g., “low and very low income persons”
Small businesses
Provide investments needed to increase economic efficiency
by spurring technological advances in science and health;
Invest in transportation, environmental protection, and other
infrastructure that will provide long-term economic benefits;
and
Stabilize State and local government budgets in order to
minimize and avoid reductions in essential services and
counterproductive state and local tax increases.
14
ARRA Funding for DHUD

HUD received $13.6 billion in ARRA
funding
 approximately
$7.8 billion or 57 percent of
which is subject to the statutory and
regulatory requirements of Section 3 of the
Housing and Urban Development Act of
1968.
15
ARRA Funding for PHAs

The majority of Section 3 covered ARRA funding
was provided under the following program
areas:






PIH Public Housing Capital Funds $4 Billion
Neighborhood Stabilization Program (NSP) $2 Billion
Community Development Block Grants (CDBG) $1 Billion
Native American Housing Block Grants $510 Million
Assisted Housing Energy & Green Retrofits $ 250 Million
Lead Hazard Control $ 78 Million (LHC Grants Only)
16
ARRA Purpose & Intent

ARRA funding is specifically intended to
create jobs and other economic oppty for
those most impacted by current recession
 Sec.

3 compliance is therefore critical
ARRA does not increase nor reduce a
recipient’s Section 3 duties
 Direct
recipients of Sec 3 covered ARRA
funding must comply w/statutory & regulatory
requirements of Sec. 3
 Refer to 24 CFR 135 subparts B
17
ARRA-Recipient Duties for Sec 3
Compliance

Each recipient of Section 3 covered
financial assistance (and their contractors
or subcontractors) are required to comply
with the requirements of Section 3 for new
employment, training, or contracting
opportunities that are created during the
expenditure of covered funding.
18
ARRA-Recipient Duties for Sec 3
Compliance

Implement procedures to notify:



Section 3 residents and business concerns
about training and employment opportunities
generated by Section 3 covered assistance;
Section 3 business concerns about the
availability of contracting opportunities generated
by Section 3 covered assistance;
Notify potential contractors completing work
on Section 3 covered projects of their
responsibilities
19
ARRA-Recipient Duties for Sec 3
Compliance






Facilitate the training and employment of Section 3 residents
and the awarding of contracts to Section 3 business concerns;
Assist and actively cooperating with the Department in
obtaining the compliance of contractors and subcontractors;
Refrain from entering into contracts with contractors that are in
violation with the Section 3 regulations;
Document actions taken to comply with Section 3; and
Submit Section 3 Annual Summary Reports (form HUD-60002)
in accordance with 24 CFR Part 135.90
Incorporate the Section 3 Clause into all covered
solicitations and contracts [see 24 CFR 135.38]
20
Section 3 Compliance & ARRA

The Department makes determinations
regarding Section 3 compliance based upon the
following:

Meeting the minimum numerical goals set forth at 24 CFR
Part 135.30



30 percent of the aggregate number of new hires shall be
Section 3 residents;
10 percent of all covered construction contracts shall be
awarded to Section 3 business concerns; and
3 percent of all covered non-construction contracts shall be
awarded to Section 3 business concerns
21
Section 3 Compliance & ARRA
Recipients that fail to meet the numerical goals
above bear the burden of demonstrating why it was
not possible.
Such justifications should describe the:
•
•
•
efforts that were taken,
barriers encountered, and
other relevant information that will allow the Department
to make a determination regarding compliance.
22
Section 3 Compliance & ARRA
Each recipient of HUD ARRA funding will
be required to submit Section 3 summary
data to the Office of Fair Housing and
Equal Opportunity using form HUD60002.
 This form can be submitted online at:
www.hud.gov/section3.

23
Section 3 “covered programs”

PIH assistance for expenditures covering:
 Development
 Modernization
 Operating

CDBG projects that complete…
 Housing
rehab
 Housing construction
 Other public construction
24
Sec 3 Economic Opportunities…

Defined to include:
 Jobs
training
 Employment
 Contracting opportunities w/ “Section 3 area
businesses”
25
Sec 3 Economic Opportunities…

Any employment resulting from these
expenditures must comply, and including:
 Administration
 Management
 Clerical
support
 Construction
26
Section 3 Opportunities might
include..
Accounting
Demolition
Janitorial
Plumbing
Architecture
Drywall
Landscaping
Printing
manufacturing
Purchasing
Appliance repair Electrical
Bookkeeping
Elevator
construction
Machine operation
Research
Bricklaying
Engineering
Marketing
Surveying
Carpentry
Fencing
Painting
Tile setting
Carpet installers Florists
Payroll
Transportation
Cement/masonry
Heating
Photography
Word
processing
Computer info
Iron works
plastering
27
Section 3 priorities established for
…

…training and employment to benefit:
 Persons
in public and assisted housing
 Persons in area where HUD $$$ is spent
 Participants in HUD’s Youthbuild programs
 Homeless persons

…contracting with:
 Businesses
that meet definition of a “Section 3
business concern”
28
Section 3 priorities established for
…

Residents and businesses w/in gen’l
proximity and that qualify under following
guidelines:
 Eligible
resident
 Eligible business concern
29
Key Definitions-Section 3…

Recipients (i.e., PHAs) and contractors
encouraged to have Sec. 3 residents as
30%+ of their permanent, full-time staff
 Sec.
3 resident employed 3+ yrs may not
continue to be counted towards the 30%
requirement.
30
Key Definitions-Section 3…

“resident”?
 Public
housing residents; or
 Persons who live in the area where a HUD-assisted
project is located and who have a household income
that falls below HUD’s income limits.
 Low income means families (incl. single persons)
w/incomes at or below 80% AMI


HUD Sec. can adjust based on area variations
Person(s) must have proof of residency w/in the
gen’l project proximity
31
Key Definitions-Section 3…

“business concern”?
A
business that:




Is formed per state law & state, county or city licensed to
engage in type of activity for which it was formed;
Is 51+ percent or more owned by Section 3 residents; OR
Employs Section 3 residents for at least 30 percent of its fulltime, permanent staff; (or w/in 3 yrs if date if 1st employment
w/the business concern were Sec. 3 residents); OR
Provides evidence of a commitment to subcontract to Section
3 business concerns ≥26 percent or more of the dollar
amount of the awarded contract to persons defined above
32
Required Section 3 Contract
Language-Clause(s)


A. The work to be performed under this contract is
subject to the requirements of Section 3 of the Housing
and Urban Development Act of 1968, as amended, 12
U.S.C. 170lu (Section 3).
The purpose of the Section 3 is to ensure that
employment and other economic opportunities
generated by HUD assistance or HUD assisted projects
covered by Section 3, shall, to the greatest extent
feasible, be directed to low and very low income
persons, particularly persons who are recipients of HUD
assistance for housing.
33
Required Section 3 Contract
Language-Clause(s)

B. The parties to this contract agree to
comply with HUD's regulations in 24 CFR
Part 135, which implement Section 3. As
evidenced by their execution of this
contract, the parties to this contract certify
that they are under no contractual or other
impediment that would prevent them from
complying with the Part 135 regulations.
34
Required Section 3 Contract
Language-Clause(s)

C. The contractor agrees to send to each labor
organization or representative of workers with
which the contractor has a collective bargaining
agreement or other understanding, if any a
notice advising the labor organization or
workers' representative of the contractor's
commitments under this Section 3 clause, and
will post copies of the notice in conspicuous
places at the work site where both employees
and applicants for training and employment
positions can see the notice.
35
Required Section 3 Contract
Language-Clause(s)

The notice shall:

describe the Section 3 preference,
 shall set for minimum number and job titles
subject to hire,
 availability of apprenticeship and training
positions,
 the qualifications for each; and
 the anticipated date the work shall begin
36
Required Section 3 Contract
Language-Clause(s)


D. The contractor agrees to include this Section 3
clause in every subcontract subject to compliance with
regulations in 24 CFR Part 135, and agrees to take
appropriate action, as that the subcontractor is in
violation of the regulations in 24 CFR Part 135.
The contractor will not subcontract with any
subcontractor where the contractor has notice or
knowledge that the subcontractor has been found in
violation of the regulations in 24CFR Part 135.
37
Required Section 3 Contract
Language-Clause(s)

E. The contractor will certify that any vacant
employment positions, including training
positions, that are filled (1)after the contractor is
selected but before the contract is executed, and
(2) with persons other than those to whom the
regulations of 24 CFR Part 135 require
employment opportunities to be directed, were
not filled to circumvent the contractor's
obligations under 24 CFR Part 135.
38
Required Section 3 Contract
Language-Clause(s)

F. Noncompliance with HUD's regulations
in 24 CFR Part 135 may result in:

sanctions,
 termination of this contract for default, and/or
 debarment or suspension from future HUD
assisted contracts.
39
Required Section 3 Contract
Language-Clause(s)

G. With respect to work performed in connection with
Section 3 covered Indian housing assistance, Section 7(b)
of the Indian Self-Determination and Education
Assistance Act (25 U.S.C. 450e) also applies to the work
to be performed under this contract.


Section 7 (b) requires that to the greatest extent feasible (1)
preference and opportunities for training and employment shall be
given to Indians, and (2) preference in the award of contracts and
subcontracts shall be given to Indian organizations and Indianowned economic enterprises.
Parties to this contract that are subject to the provisions of Section
3 and Section 7(b) agree to comply with Section 3 to the
maximum extent feasible, but not in derogation of compliance with
section 7(b).
40
Section 3 Summary

Section 3 Shortcomings
 Generally believed to “fail” its legislative mandate
 Overall implementation deemed “spotty at best”
 Many PHAs/jurisdictions unaware or misunderstand
duties under statute



Assume Sec. 3 “subordinate” to other procurement policies
HUD lacked basic controls for ensuring compliance
Section 3 Successes
 PHAs
doing (a l’il) better job than local jurisdictions
 HUD’s FHEO has put better controls in place


Increased number of compliance reviews
Residents are pushing for PHA compliance
41
Proposed Reforms


Bipartisan support for stronger Section 3 dates
back to President George H. Bush
Rep. Nydia Velazquez (D-NY) has circulated
draft of legislation
 “Earnings



and Living Opportunities Act” (ELOA) to:
strengthen compliance w/Sec. 3
Increase economic opptys for federally asst’d h/h
Build grantee capacity to comply
42
Other Proposed Reforms


New and stronger admin changes at HUD w/better
guidance to grantees
Establish incentives for successful Sec. 3 implementation


Required submission of data to facilitate monitoring by
HUD


E.g., incorporate compliance into competitive grant app
processes
E.g, add as reporting component of PHAS/MASS
Revise regs to use “hours worked” as compliance test

Measure by % of projects’ total work-hours that Sec. 3 persons
perform
43
“Best Practices”
Establish Sec. 3 coordinator position
 Use the local workforce investment system
to provide jobs/skills-based training and
apprenticeships

 Increase

opportunities for hiring
Establish & maintain a LIPH resident data
bank for referrals
44
Information Sources




24 CFR §135
HUD Guidance on ARRA
& Section 3
HUD FAQ About Section 3
An Advocate’s Guide to
Section 3 program (Nat’l
Hsg Law Project)



Center on Budget and
Policy Priorities: Reforming
HUD’s “Section 3”
Requirements…
Section 3 Compliance
Form (Civil Rights Section)
UC-Public Law Research
Institute
45

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