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HUD ECONOMIC STIMULUS FUNDING…. …and the creation of jobs, training and contracting opportunities. Section 3 of the ’68 HCDA …. …provides statutory duty of HUD-funded recipients to promote Economic Opportunities for Low and Very Low Income Persons

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  1. HUD ECONOMIC STIMULUS FUNDING… …and the creation of jobs, training and contracting opportunities

  2. 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

  3. “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

  4. Section 3 Purpose & Intent • Sec. 3 is one of HUD’s tools for ensuring federal expenditures in economically distressed communities has a multiplier effectby targeting local (area): • Low to very low income persons for jobs, training and contracting opportunities • Qualified businesses

  5. 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

  6. 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

  7. Section 3 Mission & Potential Benefits • The law is narrowly tailored to provide preferences for low income people in the associated hiring, training and contractingon projects designed to benefit low-income people • This policy recognizes the problems of housing affordability, employment status and earnings are all intertwined.

  8. Section 3 Basics…

  9. “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

  10. “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

  11. 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

  12. 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

  13. 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. 3-compliant.

  14. 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.

  15. ARRA Funding for DHUD • HUD received $13.6 billion in ARRA funding • approximately $7.8 billion or 57 percentof which is subject to the statutory andregulatory requirements of Section 3 of the Housing and Urban Development Act of 1968. 

  16. 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)

  17. 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

  18. 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. 

  19. ARRA-Recipient Duties for Sec 3 Compliance • Implement procedures to notify: • Section 3 residents and business concerns about training and employmentopportunities 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

  20. 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 24CFR Part 135.90 • Incorporate the Section 3 Clause into all covered solicitations and contracts [see 24 CFR 135.38]

  21. Section 3 Compliance & ARRA • The Department makes determinations regarding Section 3 compliance based upon the following: • Meeting the minimum numerical goals set forth at 24CFR Part 135.30 • 30 percent of the aggregate number of new hiresshall be Section 3 residents; • 10 percent of all covered construction contractsshall be awarded to Section 3 business concerns; and • 3 percent of all covered non-construction contracts shall be awarded to Section 3 business concerns

  22. 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.

  23. 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 HUD-60002.  • This form can be submitted online at: www.hud.gov/section3. 

  24. Section 3 “covered programs” • PIH assistance for expenditures covering: • Development • Modernization • Operating • CDBG projects that complete… • Housing rehab • Housing construction • Other public construction

  25. Sec 3 Economic Opportunities… • Defined to include: • Jobs training • Employment • Contracting opportunities w/ “Section 3 area businesses”

  26. Sec 3 Economic Opportunities… • Any employment resulting from these expenditures must comply, and including: • Administration • Management • Clerical support • Construction

  27. Section 3 Opportunities might include..

  28. 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”

  29. Section 3 priorities established for … • Residents and businesses w/in gen’l proximity and that qualify under following guidelines: • Eligible resident • Eligible business concern

  30. 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.

  31. 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

  32. 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 full-time, 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

  33. 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.

  34. 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.

  35. 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.

  36. 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

  37. 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.

  38. 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.

  39. 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.

  40. 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 Indian-owned 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).

  41. 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

  42. 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

  43. Other Proposed Reforms • New and stronger admin changes at HUD w/better guidance to grantees • Establish incentives for successful Sec. 3 implementation • E.g., incorporate compliance into competitive grant app processes • Required submission of data to facilitate monitoring by HUD • 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

  44. “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

  45. 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 Information Sources

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