[Federal Register Volume 80, Number 59 (Friday, March 27, 2015)]
[Proposed Rules]
[Pages 16520-16545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-06544]
[[Page 16519]]
Vol. 80
Friday,
No. 59
March 27, 2015
Part II
Department of Housing and Urban Development
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24 CFR Part 135
Creating Economic Opportunities for Low- and Very Low-Income Persons
and Eligible Businesses Through Strengthened ``Section 3''
Requirements; Proposed Rule
Federal Register / Vol. 80 , No. 59 / Friday, March 27, 2015 /
Proposed Rules
[[Page 16520]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 135
[Docket No. FR-4893-P-01]
RIN 2529-AA91
Creating Economic Opportunities for Low- and Very Low-Income
Persons and Eligible Businesses Through Strengthened ``Section 3''
Requirements
AGENCY: Office of the Assistant Secretary for Fair Housing and Equal
Opportunity, HUD.
ACTION: Proposed rule.
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SUMMARY: Section 3 of the Housing and Urban Development Act of 1968, as
amended by the Housing and Community Development Act of 1992 (Section
3), 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. HUD is
statutorily charged with the authority and responsibility to implement
and enforce Section 3. HUD's regulations implementing the requirements
of Section 3 have not been updated since 1994. 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.
DATES: Comment Due Date: May 26, 2015.
ADDRESSES: Interested persons are invited to submit comments regarding
this rule to the Regulations Division, Office of General Counsel,
Department of Housing and Urban Development, 451 7th Street SW., Room
10276, Washington, DC 20410-0500. Communications must refer to the
above docket number and title. There are two methods for submitting
public comments. All submissions must refer to the above docket number
and title.
1. Submission of Comments by Mail. Comments may be submitted by
mail to the Regulations Division, Office of General Counsel, Department
of Housing and Urban Development, 451 7th Street SW., Room 10276,
Washington, DC 20410-0500.
2. Electronic Submission of Comments. Interested persons may submit
comments electronically through the Federal eRulemaking Portal at
www.regulations.gov. HUD strongly encourages commenters to submit
comments electronically. Electronic submission of comments allows the
commenter maximum time to prepare and submit a comment, ensures timely
receipt by HUD, and enables HUD to make them immediately available to
the public. Comments submitted electronically through the
www.regulations.gov Web site can be viewed by other commenters and
interested members of the public. Commenters should follow the
instructions provided on that site to submit comments electronically.
Note: To receive consideration as public comments, comments must
be submitted through one of the two methods specified above. Again,
all submissions must refer to the docket number and title of the
rule.
No Facsimile Comments. Facsimile (fax) comments are not acceptable.
Public Inspection of Public Comments. All properly submitted
comments and communications submitted to HUD will be available for
public inspection and copying between 8 a.m. and 5 p.m., weekdays, at
the above address. Due to security measures at the HUD Headquarters
building, an appointment to review the public comments must be
scheduled in advance by calling the Regulations Division at 202-708-
3055 (this is not a toll-free number). Individuals with speech or
hearing impairments may access this number via TTY by calling the
Federal Relay Service at 800-877-8339. Copies of all comments submitted
are available for inspection and downloading at www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Staci Gilliam, Director, Economic
Opportunity Division, Office of Fair Housing and Equal Opportunity,
Department of Housing and Urban Development, 451 7th Street SW., Room
5236, Washington, DC 20410; telephone 202-402-3468 (voice/TDD) (this is
not a toll-free number). Persons with hearing or speech impairments may
access this number through TTY by calling the Federal Relay Service, at
toll-free, 800-877-8339. General email inquiries regarding Section 3
may be sent to: [email protected].
SUPPLEMENTARY INFORMATION:
Executive Summary
Purpose of Regulatory Action
This proposed rule would update the regulations implementing
Section 3. The purpose of Section 3 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. As noted in the summary of this preamble,
the regulations for Section 3 have not been updated in over 20 years.
Since the regulations were last issued in 1994, new HUD programs have
been established to which Section 3 applies. HUD's experience in
administering Section 3 over the past 20 years has identified where HUD
could improve the effectiveness of its regulations implementing Section
3. Recent efforts by HUD to improve Section 3 oversight without
resorting to regulatory change (e.g., increased reporting compliance
through grant competitions and establishment of a business registry)
have not been as successful as HUD hoped. HUD concluded that regulatory
changes are needed to more effectively strengthen Section 3 oversight
and more effectively help recipients of HUD funds achieve the purposes
of the Section 3 statute.
Summary of the Major Provisions of This Regulatory Action
The following provides an overview of the more significant
provisions of this proposed rule.
Standard for Demonstrating Compliance ``To the Greatest Extent
Feasible.'' The proposed rule strives to achieve uniformity with the
statutory standard to undertake ``best efforts'' to provide economic
opportunities to Section 3 residents and businesses, and the statutory
standard to ensure ``to the greatest extent feasible'' that
opportunities for training, employment, and contracting are provided to
Section 3 residents and businesses. HUD views these standards as
essentially the same, and would remove the distinction in the existing
codified regulations. HUD would only use the ``to the greatest extent
feasible'' standard.
The proposed rule clarifies that recipients of HUD funds are
required to demonstrate compliance, to the greatest extent feasible,
by: (1) Establishing and
[[Page 16521]]
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 Sec. 135.11 of
the Section 3 regulations; and (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). HUD believes that this approach will provide recipients
of HUD funds with more flexibility in planning how to meet their
Section 3 obligations while holding them accountable when their actions
do not result in compliance.
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. As a result, the Section 3 regulations create a
loophole, so to speak, by allowing contractors to hire Section 3
residents for relatively short periods of time and this short-term
employment would meet the new hire requirement. This proposed rule
would close this loophole by redefining 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. 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
believes that this new definition will result in more meaningful
employment opportunities for Section 3 residents and prevent
contractors from making nominal efforts to comply with Section 3.
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).
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.
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. HUD would add the
following categories to the definition of a Section 3 business: (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: (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 13-12 \1\; or (ii)
10 percent of the employees of the business are participants or
graduates of a DOL YouthBuild program.\2\
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\1\ See http://wdr.doleta.gov/directives/corr_doc.cfm?DOCN=5842.
\2\ See http://www.doleta.gov/youth_services/youthbuild.cfm.
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Removal of Minimum Numerical Goal for Nonconstruction. Currently,
the Section 3 regulations establish a minimum numerical goal that 3
percent of the total dollar amount of nonconstruction contracts shall
be awarded to Section 3 businesses. Since there is no statutory basis
for making a distinction between construction and nonconstruction
contracts, and the interpretation of the nonconstruction goal has been
problematic for recipients, HUD believes that a 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,
will create more contracting opportunities for them.
Introduction of New Term ``Section 3 Local Area''. The 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. As a result, a public housing resident
or a Section 3 business from anywhere in the U.S. can receive
preference whether or not they live or operate in the specific
metropolitan area where the HUD-funded work is being carried out. To be
more consistent with the Section 3 statute and congressional intent,
this 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.
Section 3 Resident and Business 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. 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. To prevent ineligible persons or businesses from receiving
Section 3 benefits, this 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.
Monitoring Payroll Data of Developers and Contractors. This
proposed rule recognizes that the most successful recipients monitor
payroll data to track new hires. 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,
[[Page 16522]]
retirements, transfers, and other new job vacancies) to proactively
identify instances when Section 3 obligations are triggered. This
practice should increase monitoring and oversight by recipients and
improve contractor accountability. Further, 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. In fact, a review of project labor agreements in
Chicago and New York City revealed that these documents do not make any
reference to HUD requirements, including Section 3. 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 Section 3 Annual Reports. Achieving full
compliance with Section 3 reporting requirements has been a challenge
for many years. While recent efforts to enhance reporting rates have
resulted in increased reporting by 60 percentage points, there has been
minimal imposition of penalties on recipients that are delinquent with
the current regulatory reporting requirements. A 2013 HUD Office of
Inspector General (OIG) audit report of Section 3 found that HUD was
not fully enforcing the Section 3 reporting requirements for public
housing agencies (PHAs).\3\ The final audit report recommended that
HUD's Office of Fair Housing and Equal Opportunity (FHEO) refer PHAs to
HUD's Office of Public and Indian Housing (PIH) for the imposition of
penalties for delinquent reporting. This proposed rule would extend
this 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.
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\3\ See http://www.hudoig.gov/reports-publications/audit-reports/hud-did-not-enforce-reporting-requirements-of-section-3-of.
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Funding Threshold for Recipients of Section-3 Covered Housing and
Community Development Financial Assistance. Another weakness with the
current Section 3 regulations is found in the interpretation that has
been given to the funding threshold for recipients of housing and
community development assistance (i.e., funds allocated or awarded
under the Community Development Block Grants (CDBG) program, HOME
Investment Partnerships program (HOME program), Housing Opportunities
for Persons With AIDS (HOPWA), Lead Hazard Control program, Sections
202 and 811 Supportive Housing programs, Project-Based Section 8,
etc.). The existing threshold is based on the receipt of more than
$200,000 in covered funding. This proposed rule would establish a new
threshold that is based on the expenditure of covered financial
assistance.
Under this proposed rule, Section 3 requirements 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. HUD arrived at the
$400,000 threshold after analyzing 2013 data for recipients of CDBG
assistance from the Integrated Disbursement and Information System
(IDIS) to determine the expenditure dollar amounts on projects
involving construction and rehabilitation that produced the greatest
amount of economic opportunities for Section 3 residents and
businesses. The data revealed that grantees that spent less than
$400,000 on construction and rehabilitation received less than 5
percent of total covered program funding and therefore generated an
insignificant amount of subsequent jobs and contracts. The proposed
threshold would exempt 37 percent of recipients of financial assistance
awarded under programs administered by HUD's Office of Community
Planning and Development (CPD) (i.e., CDBG, HOME, and HOWPA programs,
etc.). Currently just over 3 percent of these recipients are exempt
under the existing threshold. As set forth above, HUD considered a
number of alternate thresholds before selecting the proposed threshold
of $400,000. The new threshold is considered to be more effective
because it would enable HUD to focus on those recipients that produce
the majority of economic opportunities and for which there is a direct
correlation between their expenditure of covered financial assistance
and opportunities created for Section 3 residents and businesses.
Order of Priority Consideration for Recipients of Section 3 covered
Housing and Community Development Assistance. To promote long-term
hiring and create training positions for Section 3 residents, this
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.
Costs and Benefits
With respect to the costs and benefits of this rule, HUD has
prepared a Regulatory Impact Assessment (RIA). The RIA assesses the
likely costs and benefits of the proposed rule. The purpose of Section
3 is to provide jobs, including apprenticeship opportunities, to public
housing residents and other eligible low- and very low-income residents
of a local area, and contracting opportunities for businesses that
substantially employ these persons. However, the Section 3 requirement
itself does not create additional jobs or contracts. Instead, Section 3
redirects local jobs and contracts created as a result of the
expenditure of HUD funds to Section 3 residents and businesses residing
and operating in the area in which the HUD funds are expended. A
reasonable estimate of the impact would be an additional 1,400 jobs
provided to Section 3 residents, annually, and more than $172 million
in contracts to Section 3 businesses, as a result of increased
oversight and clarification of program standards. In addition, with
respect to incomes for tenants of public housing, the Federal rental
subsidies provided to those tenants are expected to be reduced as a
result of the creation of job opportunities resulting from the
expenditure of Federal funds. Such a reduction of Federal subsidies
could result in a reduction of $19 million, annually.
If implemented as proposed, this proposed rule would result in a
reporting and recordkeeping burden of 226,640 hours or $7.3 million \4\
the first year and a reduction of administrative burden by -10,000
hours or $320,000 in succeeding years. This rule will not have any
impact on the level of funding for covered HUD programs. Funding is
determined independently by congressional appropriations, and
[[Page 16523]]
authorizing statutes that may impose such requirements as minimum or
maximum grants. This proposed rule is not an economically significant
rule as defined in Executive Order 12866 (Regulatory Planning and
Review).\5\
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\4\ Average total compensation of all workers, BLS, March 2014.
See http://www.bls.gov/news.release/ecec.t01.htm.
\5\ See http://www.archives.gov/federal-register/executive-orders/pdf/12866.pdf.
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I. Background
Section 3 of the Housing and Urban Development Act of 1968 (Pub. L.
90-448, approved August 1, 1968) (Section 3) was enacted for the
purpose of bringing economic opportunities, generated by the
expenditure of certain HUD financial assistance, to the greatest extent
feasible, to low- and very low-income persons residing in communities
where the financial assistance is expended. Section 3 recognizes that
HUD funds are often one of the largest sources of funds expended in
low-income communities and, where such funds are spent on activities
such as construction and rehabilitation of housing and other public
facilities, the expenditure results in economic opportunities. By
directing HUD-funded economic opportunities to residents and businesses
in the community where the funds are expended, the expenditure can have
the double benefit of creating new or rehabilitated housing and other
facilities while creating jobs for the residents of these communities.
Section 3 was amended by the Housing and Community Development Act of
1992 (Pub. L. 102-550, approved October 28, 1992), which required the
Secretary of HUD to promulgate regulations to implement Section 3,
codified at 12 U.S.C. 1701u. HUD's Section 3 regulations were
promulgated through an interim rule published on June 30, 1994, at 59
FR 33880, and the regulations are codified in 24 CFR part 135.
In the 20 years that have lapsed since HUD promulgated the current
set of Section 3 regulations, significant legislation has been enacted
that affects HUD programs that are subject to the requirements of
Section 3 and that are not adequately addressed in the current Section
3 regulations. This legislation includes, but is not limited to the
following: reforms made to HUD's Indian housing programs by the Native
American Housing Assistance and Self-Determination Act of 1996
(NAHASDA) (Pub. L. 104-330, approved October 26, 1996); public housing
reforms made by the Quality Housing and Work Responsibility Act of 1998
(QHWRA) (Pub. L. 105-276, approved October 21, 1998); reforms made to
HUD's supportive housing programs by the Section 202 Supportive Housing
for the Elderly Act of 2010 (Pub. L. 111-372, approved January 4,
2011), and the Frank Melville Supportive Housing Investment Act of 2010
(Pub. L. 111-347, approved January 4, 2011), and, more recently,
reforms made to HUD's public housing by the Rental Assistance
Demonstration program authorized by the act appropriating 2012 funding
for HUD, the Consolidated and Further Continuing Appropriations Act,
2012 (Pub. L. 112-55, approved November 18, 2011).
HUD has sought to strengthen compliance with Section 3 by
concentrating on oversight, outreach, and technical assistance. As part
of this assistance, HUD has issued guidance related to applicability,
recipient thresholds, and administrative procedures.\6\ These steps
increased recipient reporting from 20 percent to over 80 percent. The
increase in reporting led to a corresponding increase in reported jobs
for Section 3 residents to 21,600 (50 percent of all new hires) and an
increase in reported contracts awarded Section 3 businesses to $675
million.\7\
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\6\ See http://portal.hud.gov/hudportal/HUD?src=/program_offices/fair_housing_equal_opp/section3/section3.
\7\ Source: 2010 Section 3 annual summary report data (Form HUD
60002).
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While these efforts have facilitated increased compliance with
Section 3, they have not resulted in full compliance with Section 3,
nor do such efforts relieve HUD of its good governance responsibility
to update its Section 3 regulations, now 20 years old, to ensure that
the regulations capture new funded programs and current funding
policies and practices.
In August 2010, HUD hosted a Section 3 Listening Forum \8\ that
brought together recipients of HUD Section 3 covered financial
assistance, advocates, Section 3 residents and businesses, and other
stakeholders to highlight ``best practices'' and to discuss barriers to
implementation across the country. The forum offered recipients of
Section 3 covered financial assistance the opportunity to identify
challenges they were facing with their efforts to comply with Section
3. Forum participants stated that the existing Section 3 regulations
are not sufficiently explicit about specific actions that could be
undertaken to achieve compliance; that the existing regulations do not
clearly describe the extent to which recipients may require
subrecipients, contractors, and subcontractors to comply with Section
3; and actions that recipients may take to impose meaningful sanctions
for noncompliance by their subrecipients, contractors, and
subcontractors.
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\8\ See https://nhlp.org/files/09%20Section%203%20Barriers%20and%20best%20practices%208%2024%20d10%20Final%20with%20attachment.pdf.
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As noted earlier, in 2013, HUD's OIG conducted an audit to assess
HUD's oversight of Section 3, in response to concerns about economic
opportunities that were provided (or should have been provided) by the
expenditure of financial assistance under the American Reinvestment and
Recovery Act (Recovery Act) (Pub. L. 111-5, approved February 17,
2009). The audit found that HUD was not fully enforcing the reporting
requirements of Section 3 for recipients of Fiscal Year 2009 Recovery
Act Public Housing Capital funds from HUD.\9\ HUD's OIG made several
recommendations to address its findings. The following chart lists HUD
OIG's recommendations for HUD and describes whether each recommendation
is addressed by this proposed rule.
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\9\ See: http://www.hudoig.gov/reports-publications/audit-reports/hud-did-not-enforce-reporting-requirements-of-section-3-of.
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Recommendation #: Recommendation Addressed in Proposed Rule
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1A................................. Implement the new HUD-60002 [Section This recommendation will provide
3 Summary Report] submission and FHEO the vehicle to impose the
tracking system that has been in proposed sanctions for delinquent
development, as well as the planned reporting described in Sec.
system enhancements. 135.23(f) and to address concerns
with the reliability of data
previously submitted by recipients.
1B................................. Establish procedures to follow up on See Recommendation 1C.
missing and inaccurate information
on HUD-60002 submissions.
[[Page 16524]]
1C................................. Establish procedures regarding when FHEO has developed procedures for
to refer to Public and Indian reviewing HUD-60002 submissions and
Housing (PIH) any public housing established the steps that will be
authorities (PHAs) that fail to make taken to refer PHAs to PIH when
required submissions or corrections. Section 3 reports are inaccurate or
delinquent. Pursuant to this
proposed rule, FHEO will expand the
implementation of these procedures
to all recipients of Section 3
covered financial assistance and
make subsequent referrals for
appropriate action to all HUD
program offices.
1D................................. Resolve issues with CPD and complete This regulatory action represents
the process to publish final FHEO's efforts to comply with this
regulations for 24 CFR Part 135. recommendation.
1E................................. Require the six housing authorities FHEO has incorporated this
in this finding that reported recommendation into its enforcement
Section 3 noncompliance to provide actions at Sec. 135.99 and the
justification or support that they sanctions for noncompliance at Sec.
met the [minimum numerical] goals. 135.27.
If they cannot show compliance,
enter into a voluntary compliance
agreement to bring their Section 3
programs into compliance, or refer
them to PIH for repayment of the $26
million that should have been used
for Section 3.
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For the reasons set forth above, through this rule, HUD proposes to
revise its Section 3 regulations at 24 CFR part 135 in a manner
designed to better fulfill the goal of Section 3.
II. This Proposed Rule
In order to provide better parameters for achieving the goals of
Section 3, this proposed rule: communicates how recipients may meet
minimum numerical goals for employment and contracting opportunities;
provides other direction to recipients of Section 3 covered financial
assistance and their contractors in order that they may more
effectively comply with Section 3; vests more discretion and
responsibility with recipients on how to verify the eligibility of
Section 3 residents and businesses for employment and contracting
opportunities; and articulates procedures for complaint processing.
This rule organizes the regulations of 24 CFR part 135 into five
subparts: Subpart A--General Provisions; Subpart B--Additional
Provisions for Public Housing Financial Assistance; Subpart C--
Additional Provisions for Housing and Community Development Financial
Assistance; Subpart D--Additional Provisions for Recipients of
Competitively Awarded Section 3 Financial Assistance; and Subpart E--
Enforcement.
General Provisions--Subpart A
Subpart A--General Provisions contains those provisions applicable
to all Section 3 covered financial assistance, whether public housing
financial assistance, housing and community development financial
assistance, or competitively awarded financial assistance, including
the following: definitions of terms applicable to compliance with
Section 3 (Sec. 135.5); demonstration compliance with the ``greatest
extent feasible'' requirement (Sec. 135.7); description of official
Section 3 policies and procedures to be developed and implemented by
recipients (Sec. 135.9); recipient responsibilities under Section 3
(Sec. 135.11); a general description of minimum numerical goals for
employment and contracting opportunities (Sec. 135.13); the procedures
for verifying the eligibility of Section 3 residents and Section 3
businesses (Sec. 135.15); descriptions of written agreements and
contractors that must be entered into by the recipient and its
subrecipients, contracts, or subcontractors before the disbursement of
any Section 3 covered financial assistance (Sec. 135.17 and Sec.
135.19); an overview of certifications of compliance with this part
(Sec. 135.21); description of annual reporting requirements (Sec.
135.23); a summary of recordkeeping responsibilities and HUD's
authority to have access to records demonstrating compliance with this
part (Sec. 135.25); an outline of sanctions that may be imposed for
noncompliance with this part (Sec. 135.27); and communication of other
Federal requirements that may apply during the administration of
Section 3 covered projects and activities (Sec. 135.29).
Section 135.3 of the existing regulations, which addresses the
scope of applicability of the requirements of Section 3, would be
removed by this proposed rule. The applicability of Section 3 would now
be addressed by the following: (1) The definitions of ``housing and
community development financial assistance'' and ``public housing
financial assistance'' in Sec. 135.5; (2) the individual applicability
sections for public housing financial assistance and housing and
community development financial assistance, in Sec. 135.31 and Sec.
135.51, respectively; and (3) the thresholds that trigger applicability
of Section 3, which are addressed in Sec. 135.33, and Sec. 135.53.
HUD believes that placing this information in the subparts associated
with each type of Section 3 covered financial assistance will prevent
recipients from inadvertently referring to the wrong requirements.
Section 135.3 of the proposed rule describes the Secretary's
delegation of authority to the Assistant Secretary for Fair Housing and
Equal Opportunity (FHEO) to implement and oversee compliance with the
requirements of Section 3. This delegation of authority is unchanged
from Sec. 135.7 of the existing regulations. While FHEO has the
overall authority for carrying out Section 3 obligations within HUD,
monitoring and oversight takes place in coordination with various HUD
program offices, such as PIH, CPD, Healthy Homes and Lead Hazard
Control (HHLHC), Housing, etc.
Section 135.5 of the proposed rule provides the definitions of
terminology used throughout the regulation (as it is in the existing
regulations), introduces new definitions, revises definitions contained
in the existing regulations, and removes definitions that are no longer
applicable. Some of the newly defined terms include: ``construction,''
``contracting opportunities,'' ``numerical goals,'' ``priority
consideration,'' ``professional services,'' ``project-based rental
assistance,'' ``public housing financial assistance,''
``rehabilitation,'' ``routine maintenance,'' ``service area,'' and
``Section 3 local area.'' The terms ``housing and community development
financial assistance,'' ``new hires,'' ``Section 3 business (formerly
Section 3 business concern),'' ``Section 3 covered financial
assistance,'' and ``Section 3 resident'' have been revised with the
objective of improving the
[[Page 16525]]
understanding of their meanings. The following existing defined terms
are proposed to be removed: ``annual contributions contract,'' ``HUD
YouthBuild programs,'' ``Job Training Partnership Act.''
Section 135.7 of the proposed rule addresses how recipients may
demonstrate compliance to the greatest extent feasible. The 1968
statute established two standards for achieving compliance with the
requirements of Section 3. PHAs and their contractors and
subcontractors were required to make their ``best effort,'' consistent
with existing Federal, State, and local laws and regulations to provide
economic opportunities to Section 3 residents and businesses. On the
other hand, programs that receive housing and community development
assistance are required to ensure that, to the greatest extent
feasible, and consistent with existing Federal, State, and local laws
and regulations, opportunities for training and employment arising in
connection with housing rehabilitation, housing construction, or other
public construction are given to Section 3 residents and businesses.
HUD's 1994 interim rule, published on June 30, 1994, at 59 FR 33880,
established HUD's position that there is very little difference in the
common meaning of these statutory standards. Further, the Section 3
statute requires every recipient and contractor that generates economic
opportunities from the expenditure of Section 3 financial assistance,
regardless of the HUD program from which the assistance is derived, to
provide these economic opportunities to low- and very low-income
persons and the businesses that employ them. Accordingly, this rule
maintains one standard for achieving compliance. Recipients, as defined
in Sec. 135.5, are required, to the greatest extent feasible, to
target low- and very low-income persons for employment and training
opportunities funded with Section 3 financial assistance, and
businesses that are either owned by or substantially employ such
persons.
Section 135.7 provides that while reaching the minimum numerical
goals is one way to demonstrate compliance with the statute's
``greatest extent feasible'' requirement, compliance to the greatest
extent feasible is demonstrated by the recipient, first and foremost,
establishing and implementing procedures and strategies by which the
recipient and, where applicable, its subrecipients, contractors and
subcontractors will comply with the requirements set forth in Sec.
135.11. This section also provides that where a recipient is unable to
reach the minimum numerical goals set forth in the subpart associated
with the type of financial assistance provided, (Sec. 135.35 and Sec.
135.55, respectively) such inability does not necessarily mean that the
recipient did not undertake efforts to meet these goals. Accordingly, a
recipient that does not reach the minimum numerical goals will be
required to provide a written justification explaining: (1) Why it was
unable to meet these goals; (2) the impediments the recipient
encountered; and (3) the actions the recipient will take to address
identified impediments in the future. For instance, if a recipient held
a job fair to hire Section 3 residents for jobs in specific building
trades (e.g., plumbers, electricians, welders, etc.) for an upcoming
construction project, HUD may consider the recipient to be in
compliance with Section 3 even if none of the participants of the job
fair had the requisite job qualifications for the positions to be
filled. HUD will take such justifications into consideration when
making final compliance determinations. Written justifications that do
not contain a valid explanation for why the recipient did not reach the
minimum numerical goal may result in a finding of noncompliance.
Section 135.9 of the proposed rule presents a new means of
strengthening Section 3 compliance. This section would require the
recipient to develop and adopt official policies and procedures to
implement the requirements of Section 3, as a means of demonstrating
compliance with the ``greatest extent feasible'' requirement, as
provided in Sec. 135.7. This section provides that official policies
and procedures must include at a minimum, steps that the recipient will
take to: inform subrecipients and contractors about Section 3
obligations; evaluate potential bidders for Section 3 compliance during
contract selection; notify Section 3 residents and businesses about
economic opportunities; implement verification and/or certification
procedures for residents and businesses; provide priority consideration
to qualified Section 3 residents and businesses; monitor subrecipients
and contractors for compliance; establish consequences for
noncompliance; and utilize local community resources to meet its
Section 3 requirements. The preceding list presents the minimum steps
that the recipients' policies and procedures should address, but
recipients should include in official policies and procedures any
additional steps tailored to their funding practices and operations
that would increase compliance with Section 3. Section 135. 9 provides
that updates to official policies and procedures shall discuss the
relative success of the immediate past policies and procedures and how
any changes are aimed to better promote compliance with Section 3.
This section further requires that to the extent a recipient must
prepare a strategic plan, action plan, or other such plan in accordance
with HUD program regulations, such plans must include a general
description of the recipient's official Section 3 policies and
procedures. This section provides that if a recipient is not required
to submit official plans to HUD--such as public housing plans,
strategic or annual action plans, or other similar plans--the
recipient's official Section 3 policies and procedures shall be
developed as an independent document at the time that Section 3 covered
financial assistance is awarded and updated every 5 years thereafter.
Section 135.11 describes steps that all recipients must take to
implement the requirements of Section 3, and describes steps that would
be unique to recipients of public housing financial assistance and
housing and community development financial assistance.
Section 135.13 of the proposed rule addresses the minimum numerical
goals, generally, and provides that the goals apply to the aggregate
number of employment and contracting opportunities generated by the
expenditure of the Section 3 covered financial assistance. Specific
minimum numerical goals are set forth in the subpart associated with
the type of financial assistance provided; i.e., Sec. 135.35 and Sec.
135.55, respectively. This section removes the current requirement that
3 percent of the total dollar amount of nonconstruction contracts shall
be awarded to Section 3 businesses since there was no statutory reason
to make a distinction between construction and nonconstruction
contracts. HUD believes that requiring recipients to award 10 percent
of the total dollar amount of all covered contracts to Section 3
businesses regardless of the type or dollar amount of the contract will
result in more potential contracting opportunities for Section 3
businesses.
Section 135.11 of the proposed rule describes the responsibilities
of the recipient for complying with the requirements of Section 3 and
ensuring the compliance of their subrecipients, contractors, or
subcontractors, who have the same responsibilities as the direct
recipient. This section responds to requests that HUD more clearly
identify specific actions that a recipient is to undertake to
demonstrate compliance
[[Page 16526]]
with Section 3. These responsibilities reflect best practices that are
being implemented by successful recipients, and will result in a
reduction of an estimated 10,000 hours of administrative burden
annually. The actions listed in this section would replace the list of
examples of efforts that recipients may undertake to demonstrate
compliance with Section 3, which are found in Appendix A to the
existing regulations.
As provided in Sec. 135.11, the listed responsibilities apply to
all recipients and have been expanded to ensure that: (1) Section 3
residents and businesses are notified about economic opportunities, (2)
payroll data is monitored for new hires on projects that are subject to
wage rates determined under the Davis Bacon Act (40 U.S.C. 3141 et
seq.), (3) labor unions are notified about Section 3 obligations, (4)
existing collective bargaining or project labor agreements with labor
unions are amended to acknowledge HUD and Section 3 obligations, (5)
procedures are developed by public housing agencies to comply with the
earned income disregard and resident-owned business provisions set
forth at 24 CFR part 963, and (6) contractor selection procedures
employ Section 3 compliance measures.
Section 135.13 of the proposed rule addresses the minimum numerical
goals, generally, and provides that the goals apply to the aggregate
number of employment and contracting opportunities generated by the
expenditure of the Section 3 covered financial assistance. Specific
minimum numerical goals are set forth in the subparts associated with
the type of financial assistance provided (Sec. 135.35 and Sec.
135.55). This section removes the current requirement that 3 percent of
the total dollar amount of nonconstruction contracts shall be awarded
to Section 3 businesses since there was no statutory reason to make a
distinction between construction and nonconstruction contracts. As
noted earlier in this preamble, HUD believes that requiring recipients
to award 10 percent of the total dollar amount of all covered contracts
to Section 3 businesses regardless of the type or dollar amount of the
contract will result in more potential contracting opportunities for
Section 3 businesses.
Section 135.15 of the proposed rule would require a recipient to
verify that residents and businesses seeking employment and contracting
opportunities generated by the expenditure of Section 3 covered
financial assistance are in fact Section 3 residents and businesses as
defined in Sec. 135.5. This section does not dictate the manner of
verification of the eligibility of Section 3 residents and businesses,
but instead allows the recipient to decide how verification should be
undertaken. HUD is aware that verifying Section 3 eligibility for
residents and businesses often requires recipients to review and
maintain confidential and sensitive personal information. In order to
address concerns that have emerged regarding the secure handling of
confidential information, this section of the proposed rule provides
that a recipient may allow residents and businesses to self-certify
their eligibility, and to presume that residents or businesses that are
located in, or provide economic opportunities to persons that reside in
a neighborhood, census tract, or area designated by HUD are eligible to
receive Section 3 priority consideration absent evidence to the
contrary. Both of these practices may be used if the recipient conducts
procedures to verify that a sample of self-certified or Section 3
presumed benefit residents and businesses meet one of the regulatory
definitions. Descriptions of procedures for verifying a sample of self-
certified or Section 3 presumed benefit residents and businesses will
be provided in guidance materials after the publication of the final
rule. This guidance will assist recipients with determining sample
size, selecting self-certified beneficiaries for verification,
identifying the type of evidence that may be requested, and steps that
may be taken in the event that false certifications are discovered.
Section 135.17 of the proposed rule stipulates that a written
agreement must be executed by the recipient and any of its
subrecipients, contractors, or subcontractors before the recipient
disburses any Section 3 covered financial assistance to them. The
purpose of this section is to both emphasize the responsibilities that
subrecipients, contractors, and subcontractors have in complying with
Section 3 and to assist the recipient in ensuring the compliance of
these entities.
Section 135.19 of the proposed rule contains provisions to be
included in contracts with developers, contractors, and subcontractors
and the Section 3 clause language that is currently found in Sec.
135.38 of the existing regulations.
Section 135.21 of the proposed rule addresses certifications of
compliance. This section would require a recipient to annually submit
to HUD a certification documenting compliance with Section 3, including
the compliance of any subrecipients, contractors, or subcontractors.
This section provides that, where applicable, certifications may be
submitted as part of a submission of annual strategic plans,
consolidated plans, or public housing plans, or as part of a submission
of an application for a competitively awarded grant, cooperative
agreement, or other submissions.
Sections 135.23 and 135.25 of the proposed rule contain reporting
and recordkeeping requirements, now found in Sec. 135.90 and Sec.
135.92 of the existing regulations. Section 135.23 continues to require
the submission of Section 3 annual reports, and clarifies that, going
forward, the time frame applicable for Section 3 reports should
coincide with the recipient's local program or fiscal year. If the
recipient does not have a local program or fiscal year, the Section 3
report shall follow the federal fiscal year (i.e., October 1 through
September 30). Since the timely submission of Section 3 reports
continues to be an issue, the proposed rule would provide procedures
for HUD to sanction recipients for delinquent or missing reports. Any
sanction imposed would be in accordance with the requirements of the
Section 3 regulations or a notice of funding availability (NOFA)
governing the program under which the Section 3 covered financial
assistance is provided. Section 135.23 of the proposed rule also
specifically requires a State or county recipient to submit to HUD an
annual report regarding compliance with Section 3 in its own operations
and in those of its subrecipients, contractors, and subcontractors.
Section 135.25 of the proposed rule contains the requirement in
existing Sec. 135.92 that HUD shall have access to records, reports,
and other documents recipients maintain to demonstrate compliance with
Section 3, and it adds examples of such records.
Section 135.27 of the proposed rule describes sanctions for
noncompliance with the requirements of Section 3, 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 pursuant to 2 CFR part
2424, where appropriate.
Section 135.29 of the proposed rule clarifies that neither the
Section 3 statute nor the Section 3 regulations supersede the
employment and wage provisions of the Davis-Bacon Act or requirements
of bona fide Federal or State apprentice or training programs.
[[Page 16527]]
Additional Provisions for Public Housing Financial Assistance--Subpart
B
Subpart B addresses demonstration of compliance that would be
unique to recipients of public housing financial assistance or PHAs.
Section 135.31 of the proposed rule provides that PHAs that receive
public housing financial assistance, as defined in Sec. 135.5, are
subject to the provisions in subpart B in addition to those in subpart
A. This section also provides that the requirements in subpart B apply
to all new internal and external employment and training opportunities
resulting from the expenditure of public housing financial assistance
(i.e., those within the PHA and with its subrecipients, contractors, or
subcontractors). Further, this section clarifies that the requirements
of Section 3 apply to the entire project or activity that is funded
with public housing financial assistance regardless of whether the
activity is fully- or partially-funded with Section 3 covered financial
assistance.
Section 135.33 of the proposed rule would continue to maintain
HUD's position that a monetary or unit threshold in public and Indian
housing programs is not consistent with the Section 3 statute. Section
3 applies to public and Indian housing operating assistance,
development assistance and modernization assistance, which covers
virtually all PHA projects and activities. Additionally, the Section 3
statute is very specific about the residents and businesses to which
PHAs and their contractors and subcontractors must give preference.
These residents and businesses are tied to the housing development for
which the assistance is expended, or another development managed by the
PHA. HUD believes that the statute's expansive coverage of public and
Indian housing projects and activities indicates that any attempt to
diminish the coverage would be inconsistent with the statute.
Notwithstanding, HUD will make efforts to implement measures to reduce
administrative burden for PHAs whose expenditure of covered financial
assistance did not trigger Section 3 obligations, but who still are
required to submit annual reports, by only requiring the submission of
an electronic certification.
Section 135.35 would maintain the minimum numerical hiring goals
for public housing financial assistance. PHAs, as well as any
subrecipients, contractors, or subcontractors, would be required to
employ, to the greatest extent feasible, Section 3 residents as 30
percent of new hires, both within the agency and with its contractors.
HUD chose to maintain this minimum numerical goal even though a review
of recent national aggregated data indicated that recipients are
exceeding the employment goal by 10 to 20 percentage points. HUD OIG's
2013 Section 3 Audit report advises that concerns exist regarding the
reliability and accuracy of the data previously submitted into the
Section 3 Summary Reporting System. In light of such information, HUD
is not changing at this time the current minimum numerical goals based
on the previously reported data. The reliability of subsequent data
submitted will be addressed when HUD implements its new Section 3
Summary Reporting System in FY 2015.
The rule would establish that for a Section 3 resident to be
considered a new hire by a contractor or subcontractor, the Section 3
resident must work, during the resident's employment with a contractor
or subcontractor, a minimum of 50 percent of the average staff hours
worked for the category of work for which they were hired throughout
the duration of time that the category of work is performed on the
covered project. For instance, if electricians employed on a particular
Section 3 covered project work an average of 40 hours each week,
Section 3 new hires in this category must work a minimum of 20 hours
each week throughout the duration of time that the category of work is
performed on the covered project to be counted towards the recipient's
minimum numerical goal for employment.
Section 135.35 would also establish the minimum numerical
contracting goals for public housing financial assistance. Under this
section, PHAs, as well as any subrecipients, contractors, or
subcontractors, would be required to award, to the greatest extent
feasible, at least 10 percent of the total dollar amount of all
subsequent contracting or subcontracting opportunities to Section 3
businesses. This proposed rule would remove the current 3 percent
minimum numerical goal for contracts that do not involve construction
or rehabilitation. Instead, this proposed rule seeks to ensure that 10
percent of the total dollar amount of all covered contracts (including
contracts for professional services) will be awarded to Section 3
businesses. Since there is no statutory basis for making a distinction
between construction and nonconstruction contracts, and the
interpretation of the nonconstruction goal has been problematic for
recipients, HUD believes that requiring recipients to award 10 percent
of the total dollar amount of all covered contracts to Section 3
businesses regardless of the type is easier to administer and will
result in more opportunities for Section 3 residents and businesses. In
establishing this minimum numerical goal, HUD reviewed aggregated data
submitted by recipients, which indicated that only 13.3 percent of
recipients are meeting both of the current minimum numerical goals for
contracting. However, 17.4 percent of recipients would meet the
proposed numerical goal for all covered contracts. HUD is not changing
the minimum numerical contracting goal for the same reasons that HUD is
not changing the minimum numerical hiring goal.
Section 135.37 of the proposed rule would revise the priority
consideration given when hiring Section 3 residents and in awarding
contracts to Section 3 businesses. The proposed rule provides that PHAs
must give priority consideration to a Section 3 resident or business
when equally qualified for the work under consideration. Priority
consideration may be given to Section 3 residents or businesses when
they are minimally qualified.
Additional Provisions for Housing and Community Development Financial
Assistance--Subpart C
Section 135.51 of the proposed rule provides that recipients of
housing and community development assistance, as defined in Sec.
135.5, are subject to the provisions in subpart C in addition to those
in subpart A. Section 135.51 of the proposed rule addresses the
applicability of Section 3 to housing and community development
financial assistance. This section provides that Section 3 only applies
to economic opportunities that arise from the expenditure of housing
and community development financial assistance involving the
demolition, rehabilitation, or construction of housing, public
buildings, facilities, infrastructure, or other public construction or
rehabilitation-related projects and activities. While HUD always
considered demolition projects to be a part of rehabilitation
activities, this proposed rule makes the applicability of Section 3 to
demolition explicit. This section also clarifies that professional
service contracts are subject to the requirements of this part,
provided that the work to be performed arises in connection with a
Section 3 covered project (i.e., housing rehabilitation, housing
construction, or other public construction project).
Consistent with the Section 3 statute, Sec. 135.51 exempts housing
and community development financial
[[Page 16528]]
assistance that is used for acquisition, routine maintenance,
operations, administrative costs, and project rental assistance
contracts (PRAC) from compliance with Section 3 because these are not
considered construction or rehabilitation activities. This section also
exempts Indian tribes and tribally designated housing entities from
complying with Section 3 requirements if the Indian tribe has adopted,
and is complying with, tribal employment and contract preference laws
(including regulations and tribal ordinances) in accordance with
section 101(k) of the Native American Housing Assistance and Self-
Determination Act (NAHASDA) and 24 CFR 1000.42. This section also
exempts Indian tribes and other tribal entities from Section 3
requirements if they are subject to Indian preference requirements
under section 7(b) of the Indian Self-Determination and Education
Assistance Act. HUD recognizes that both tribal preference and Indian
preference requirements already often require Indian tribes, tribally
designated housing entities, and other tribal entities, to apply local
preferences in employment and contracting in projects receiving
assistance under NAHASDA and other grant programs for the benefit of
Indians, such as the Indian CDBG program. This exemption reduces
administrative burden for tribal grantees that have expressed concerns
to HUD about the difficulty of complying with Section 3 requirements
while also complying with Indian and tribal preference requirements.
Section 135.53 of the proposed rule replaces the current threshold
for recipients that administer housing and community development
assistance. HUD has reassessed the policy behind the existing threshold
and has decided to propose a new threshold requirement that is based on
the total expenditures (rather than receipt or per-project). This
change recognizes that it is the expenditure of covered financial
assistance (not the receipt) that produces economic opportunities for
Section 3 residents and businesses. Under this proposal, the threshold
would be based on the aggregate expenditure of $400,000 of housing and
community development financial assistance on construction related
activities. In the section of this preamble entitled ``Summary of Major
Provisions of this Regulatory Action,'' HUD described in detail the
basis for selection of the $400,000 threshold.
Section 135.55 of the proposed rule establishes the minimum
numerical hiring goals that recipients of housing and community
development financial assistance must meet to demonstrate compliance,
to the greatest extent feasible, with the Section 3 statute and Section
3 regulations. Similar to the numerical goals established for public
housing financial assistance, this section provides that recipients of
housing and community development financial assistance must, to the
greatest extent feasible, have its contractors and subcontractors
employ Section 3 residents as 30 percent of direct new hires. This
section also provides, similar to Sec. 135.35, that in order for a
Section 3 resident to be considered a new hire by contractors and
subcontractors, the Section 3 resident must work, during the resident's
employment with a contractor or subcontractor, a minimum of 50 percent
of the average staff hours worked for the category of work for which
they were hired, throughout the duration of time that the category of
work is performed on the covered project. For instance, if brick masons
employed on a particular Section 3 covered project work an average of
40 hours each week, Section 3 new hires in this category must work a
minimum of 20 hours each week to be counted towards the recipient's
minimum numerical goal for employment.
With respect to contracting opportunities, this section provides
that recipients of housing and community development financial
assistance, as well as their subrecipients, contractors, and
subcontractors, must, to the greatest extent feasible, award at least
10 percent of the total dollar amount of all contracts to Section 3
businesses, similar to Sec. 135.35. This proposed rule removes the
requirement that 3 percent of the total dollar amount of
nonconstruction contracts will be awarded to Section 3 businesses in an
attempt to reduce administrative burden. Instead, this proposed rule
seeks to ensure that 10 percent of the total dollar amount of all
covered contracts (including contracts for professional services) will
be awarded to Section 3 businesses. HUD makes this change in Sec.
135.55 for the same reasons presented for the identical change in Sec.
135.35.
Section 135.57 of the proposed rule establishes the orders of
priority consideration for employment and contracting opportunities for
housing and community development financial assistance and adds
additional categories for priority consideration for businesses that
promote job retention and training opportunities.
Additional Provisions for Recipients of HUD Competitive Grant Financial
Assistance--Subpart D
Subpart D of this proposed rule, clarifies the scope of
applicability of Section 3 to HUD NOFAs. This section would replace the
existing regulatory section, Sec. 135.9.
As provided in proposed new Sec. 135.71, Section 3 applies to
competitively awarded (1) public housing financial assistance, and (2)
housing and community development financial assistance that is
anticipated to generate significant economic opportunities.
Section 135.73 provides that each NOFA that is subject to the
requirements of Section 3 shall describe the selection criteria and
points to be awarded.
Section 135.75 requires recipients of competitive Section 3 covered
financial assistance to sign assurances of compliance with Section 3,
and provides that applicants that are awarded competitive funds will be
monitored on their compliance with Section 3, and their progress in
carrying out the strategies described in the narrative statements
submitted with their application package. Section 135.77, prohibits any
recipient with outstanding findings of noncompliance with Section 3
from receiving additional competitively awarded financial assistance.
Enforcement--Subpart E
Subpart E of this proposed rule contains the complaint and
compliance review provisions currently found in subpart D of the
existing part 135 regulations. This subpart also clarifies that
voluntary compliance agreements that are drafted to address findings of
noncompliance shall seek to protect the public interest, provide denied
economic opportunities to Section 3 residents and businesses, and may
include the provision of damages and other relief for those injured by
the recipient's noncompliance.
III. Specific Questions for Comment
While HUD welcomes comments on all aspects of this proposed rule,
HUD specifically requests comments on the following:
1. To address a loophole in the current regulation that does not
limit jobs, training, and contracting opportunities to Section 3
residents residing and Section 3 businesses located within the
proximity of the covered project or activity, this proposed rule
introduces a new term ``Section 3 local area'' to clarify that in
[[Page 16529]]
order for Section 3 residents and businesses to receive priority
consideration they must be residing or located within the metropolitan
area or nonmetropolitan county where the Section 3 covered financial
assistance is expended. HUD seeks comment on whether this clarification
may adversely impact Section 3 residents and businesses located in
neighboring jurisdictions, particularly when no Section 3 businesses
are located in the Section 3 local area, and in rural communities where
Section 3 residents in adjacent counties may be the most qualified job
applicant. See Sec. 135.5.
2. The proposed rule revises the definition of a Section 3 business
to remove the third category of the existing definition, which refers
to businesses that can provide evidence of a commitment to subcontract
in excess of 25 percent of the dollar award of all subcontracts to
other Section 3 businesses. This revision is made in response to
complaints that the commitment presented an easy loophole for some
businesses, and did not equate to a legal obligation. HUD solicits
comment on the removal of this third category. See Sec. 135.5.
3. The proposed rule seeks to provide incentives to contractors
that retain Section 3 residents who were hired to work on previous
projects, and to provide apprenticeship opportunities to Section 3
residents by adding two new categories to the orders of priority
consideration for projects that are financed with housing and community
development assistance at Sec. 135.57. HUD solicits comment on the
proposed orders of priority consideration.
4. For the reasons presented in the preamble, HUD is maintaining
the existing minimum numerical goals for employment and construction
contracts. HUD seeks comments on whether other proposed minimum
numerical goals for employment and contracting would be more
appropriate.
5. The proposed rule would replace the 3 percent minimum goal for
the total dollar amount of all building trades and professional service
contracts associated with construction (formerly referred to,
respectively, as construction and nonconstruction contracts) with a
goal of 10 percent. HUD seeks comment on whether the proposed goal that
applies to building trades and professional services would result in
any unintended consequences. See Sec. 135.37 and Sec. 135.57.
6. For the reasons presented in this preamble, under the ``Summary
of the Major Provisions of this Regulatory Action,'' the proposed rule
would change the threshold for recipients of housing and community
development financial assistance to cover recipients that plan to
obligate or commit $400,000 or more of annual expenditures of covered
funds on construction or construction related projects. As discussed,
the current threshold is based on the receipt of covered funds, not its
expenditure. HUD believes that the expenditure of funds is a better
indicator of the type and amount of economic opportunities that HUD
funds create. The proposed threshold applies Section 3 to all
construction and construction related projects (regardless of the
dollar amount invested into individual projects) if a grantee plans to
spend $400,000, or more, of covered HUD funding during the reporting
period. HUD seeks comment on whether an alternate threshold would be
more appropriate or equally effective to the proposed $400,000
threshold. In the table below, HUD sets out alternative expenditure
thresholds and the percentage of funding that would be covered. While
HUD believes that the proposed expenditure threshold of $400,000 is the
appropriate threshold and would best enable the Department to focus on
those recipients that produce the majority of economic opportunities,
HUD would consider a different threshold but no lower than $400,000.
HUD would consider a high threshold but no higher than $1 million.
Although the $1 million threshold would capture almost 85 percent of
the funding, which HUD finds reasonable and acceptable, HUD believes
the $400,000 threshold, which would cover more than 95 percent of the
funding, 10 percentage points higher than a $1 million threshold,
presents the better approach, but HUD welcomes comment on the
thresholds.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Expenditure level $250K $300K $400K $500K $750 $1M
--------------------------------------------------------------------------------------------------------------------------------------------------------
Agencies Below.......................................... 265 329 440 542 703 816
% of those below........................................ 22.3% 27.7% 37.0% 45.6% 59.1% 68.6%
Agencies Above.......................................... 924 860 749 647 486 373
% of those above........................................ 77.7% 72.3% 63.0% 54.4% 40.9% 31.4%
% change # of agencies.................................. 4.2% 5.4% 9.3% 8.6% 13.5% 9.5%
% of covered funding.................................... 98.3% 97.5% 95.7% 93.6% 89.0% 84.4%
--------------------------------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Threshold level Expenditure excluded Agencies excluded % Covered
----------------------------------------------------------------------------------------------------------------
$250K+.......................... $35,622,322.04 265 98.3
$300K+.......................... 53,260,584.53 329 97.5
$400K+.......................... 91,850,709.06 440 95.7
$500K+.......................... 137,962,427.28 542 93.6
$750K+.......................... 237,242,870.83 703 89.0
$1M+............................ 335,799,935.66 816 84.4
----------------------------------------------------------------------------------------------------------------
7. In order for a Section 3 resident to be counted as a new hire,
the proposed rule would require a resident to work, during employment
as a new hire, a minimum of 50 percent of the average staff hours
worked for the job category for which the resident was hired,
throughout the duration of time that the category of work is performed
on the covered project. HUD seeks comment on whether this proposed
change effectively addresses concerns that were raised about
contractors that hired Section 3 residents for short time frames for
purposes of circumventing meaningful compliance with Section 3. See
Sec. 135.35 and Sec. 135.55.
8. HUD seeks comment on the specific challenges for State CDBG
grantees with meeting Section 3 goals and how HUD can assist in
addressing these challenges in this proposed rule.
9. HUD solicits comments from Indian tribes, tribally designated
housing entities, and other tribal entities on its proposal to exempt
them from Section 3 compliance when they adopt, and are complying with,
tribal employment and contract preference laws (including regulations
and tribal ordinances) in
[[Page 16530]]
accordance with section 101(k) of NAHASDA (25 U.S.C. 4111(k)), or are
subject to Indian preference requirements under section 7(b) of the
Indian Self-Determination and Education Assistance Act. See Sec.
135.519(b)(3).
10. HUD seeks comment on ways that recipients can demonstrate
compliance with Section 3 in communities that are governed by
agreements that prohibit work by non-labor union workers.
11. HUD seeks comment on requirements or goals that should apply to
contractors whose expenditure of covered financial assistance will only
enable them to sustain their current workforce and will not result in
new employment, training, or subcontracting opportunities.
12. HUD solicits comment on goals or strategies for training
opportunities that the proposed rule should address.
13. HUD seeks comment on whether the proposal to require recipients
to incorporate compliance with Section 3 into procurement procedures
for responsive and responsible bidders creates an undue burden on
recipients? See Sec. 135.37(a)(3), Sec. 135.57(a)(4), and Sec.
135.11(b)(9).
14. In 2012, HUD implemented a Section 3 Business Registry Pilot
Program in five metropolitan areas as a potential resource to help
recipients meet, or exceed, the minimum numerical goals for contracting
and reduce administrative burden in identifying section 3 businesses.
Under the pilot program, businesses that met one of the definitions of
a ``Section 3 Business'' self-certified their status with HUD, and were
placed into a database to be used by recipients, developers,
contractors, and others to notify these businesses about the
availability of Section 3 contracting opportunities. See www.hud.gov/sec3biz. In 2014, HUD expanded the Section 3 Business Registry
nationally. HUD seeks comments about this registry and ways that HUD
should incorporate its usage into the Section 3 requirements.
IV. Findings and Certifications
Regulatory Review--Executive Orders 12866 and 13563
Under Executive Order 12866 (Regulatory Planning and Review), a
determination must be made whether a regulatory action is significant
and, therefore, subject to review by the Office of Management and
Budget (OMB) in accordance with the requirements of the order.
Executive Order 13563 (Improving Regulations and Regulatory Review)
directs executive agencies to analyze regulations that are ``outmoded,
ineffective, insufficient, or excessively burdensome, and to modify,
streamline, expand, or repeal them in accordance with what has been
learned. Executive Order 13563 also directs that, where relevant,
feasible, and consistent with regulatory objectives, and to the extent
permitted by law, agencies are to identify and consider regulatory
approaches that reduce burdens and maintain flexibility and freedom of
choice for the public.
This rule was determined to be a ``significant regulatory action''
as defined in Section 3(f) of the order (although not an economically
significant regulatory action under the order). Consistent with
Executive Order 13563, this rule revises the existing part 135
regulations that have not been revised or updated since 1994, with the
intention to make them less burdensome, and more effective and,
therefore, help to contribute to job creation for low-income persons.
As noted earlier in this preamble, HUD has prepared an initial RIA that
addresses the costs and benefits of the proposed rule. HUD's RIA is
part of the docket file for this rule.
The docket file is available for public inspection in the
Regulations Division, Office of the General Counsel, Room 10276, 451
7th Street SW., Washington, DC 20410-0500. Due to security measures at
the HUD Headquarters building, please schedule an appointment to review
the docket file by calling the Regulations Division at 202-402-3055
(this is not a toll-free number). Individuals with speech or hearing
impairments may access this number via TTY by calling the Federal Relay
Service at toll-free 800-877-8339.
Environmental Impact
This proposed rule is a policy document that sets out regulatory
requirements and standards for complying with Section 3 of the Housing
and Urban Development Act of 1968 (12 U.S.C. 1701u). Accordingly, under
24 CFR 50.19(c)(3), this proposed rule is categorically excluded from
environmental review under the National Environmental Policy Act of
1969 (42 U.S.C. 4321 et seq.).
Unfunded Mandates Reform Act
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
(UMRA) establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and on the private sector. This proposed rule does not
impose a Federal mandate on any state, local, or tribal government, or
on the private sector, within the meaning of UMRA.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) generally
requires an agency to conduct a regulatory flexibility analysis of any
rule subject to notice and comment rulemaking requirements, unless the
agency certifies that the rule will not have a significant economic
impact on a substantial number of small entities. As has been discussed
in this preamble, this rule proposes to update HUD's Section 3
regulations in 24 CFR part 135, for which the objective is to increase
employment opportunities for low-income persons and businesses that are
owned by or employ such persons, by requiring that they be considered
for employment, including training positions, and contracting
opportunities that are generated by the expenditure of certain HUD
financial assistance. These entities generally are small and therefore
strengthening the requirements of Section 3 should benefit small
businesses that are Section 3 businesses.
As more fully discussed in the accompanying RIA, the number of
economic opportunities generated for Section 3 residents and businesses
will not increase to the degree that this rule would have a significant
economic impact on a substantial number of small entities. In addition,
for those small entities that are recipients of Section 3 covered
financial assistance and must comply with this proposed rule, the
changes made by this proposed rule are designed to reduce burden on
them, as well as all recipients. For these reasons, HUD has determined
that this rule would not have a significant economic impact on a
substantial number of small entities. In fact, streamlined procedures
in the proposed rule and HUD's recent implementation of a national
Section 3 Business Registry will reduce the current administrative
burden for grantees by a net -10,000 hours or $320,000 annually.\10\
---------------------------------------------------------------------------
\10\ Average total compensation of all workers, BLS, March 2014.
See http://www.bls.gov/news.release/ecec.t01.htm.
---------------------------------------------------------------------------
Notwithstanding HUD's determination that this rule will not have a
significant effect on a substantial number of small entities, HUD
specifically invites comments regarding any less burdensome
alternatives to this rule that will meet HUD's objectives as described
in this preamble.
[[Page 16531]]
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either: (1) Imposes substantial direct compliance costs on State and
local governments and is not required by statute, or (2) preempts State
law, unless the agency meets the consultation and funding requirements
of Section 6 of the Executive Order. This proposed rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments nor preempt state law
within the meaning of the Executive Order.
Paperwork Reduction Act
The information collection requirements contained in this proposed
rule have been submitted to OMB under the Paperwork Reduction Act of
1995 (44 U.S.C. 3501-3520). In accordance with the Paperwork Reduction
Act, an agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection
displays a currently valid OMB control number. HUD anticipates only
marginal additional impact of this rule on document preparation time.
Recipients are required already to provide HUD with reports documenting
Section 3 activities under the existing interim regulations. The
additional time to submit the new proposed information required by the
rule is minimal. The burden of information collection in this proposed
rule is estimated as follows:
Reporting and Recordkeeping Burden Existing Regulation Versus This Proposed Rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
Existing regulation (hours) Proposed rule (hours)
Estimated ---------------------------------------------------------------
Number of average time One-time
Section reference in proposed rule Number of responses per for Total burden not One-time
parties respondent requirement estimated reoccurring Incremental burden--not
(in hours) annual burden annually (in burden reoccurring
hours) annually
--------------------------------------------------------------------------------------------------------------------------------------------------------
Section 3 resident and business 2,000 1 80 160,000 0 \11\-80,000 0
verification (Sec. 135.15)...........
Maintain lists of eligible Section 3 2,000 2 40 160,000 0 \12\-80,000 0
residents and businesses (Sec.
135.11)................................
Notify Section 3 residents and 2,000 2 20 80,000 0 \13\-20,000 0
businesses about the availability of
economic opportunities (Sec. 135.11).
Post signs or notices at job sites (Sec. 2,000 10 1 20,000 0 0 0
135.11)..............................
Ensure that bid solicitations 2,000 1 0.5 0 1,000 0 0
acknowledge Section 3 obligations (Sec.
135.11)..............................
Monitor the payroll data of developers 2,000 1 40 N/A N/A 80,000 0
and contractors (Sec. 135.11)........
Incorporate Section 3 factors into 2,000 1 40 N/A N/A 0 80,000
contractor selection procedures (Sec.
135.11)................................
Amend and renegotiate existing 500 1 40 N/A N/A 0 20,000
collective bargaining agreements, PLAs,
etc., as appropriate (Sec. 135.11)...
Coordinate with DOL, Youth Build, etc. 1,000 1 40 N/A N/A 40,000 0
(Sec. 135.11)........................
Draft written subrecipient agreements 1,110 1 24 N/A N/A 0 26,640
(Sec. 135.17)........................
Include the Section 3 Clause in covered 2,000 1 0.5 1,000 0 0 0
contracts (Sec. 135.19)..............
Develop official Section 3 policies and 5,000 1 40 0 200,000 0 100,000
procedures (Sec. 135.9)..............
Annual Certifications of compliance 5,000 1 0.5 2,500 0 0 0
(Sec. 135.21)........................
Provide priority consideration to 1,000 2 10 20,000 0 0 0
Section 3 residents and businesses
(Sec. 135.37 and Sec. 135.57)......
NOFA certification of compliance (Sec. 500 1 0.5 250 0 0 0
135.71(d)).............................
Reporting requirements (Sec. 135.23).. 5,000 5 10 250,000 0 0 0
Recordkeeping requirements (Sec. 5,000 1 40 200,000 0 50,000 0
135.25)................................
Complaint investigations (Sec. 135.95 30 1 80 2,400 0 0 0
and (Sec. 135.97)....................
Right to review letter of findings (Sec. 5 1 8 40 0 0 0
135.99(c)............................
---------------------------------------------------------------------------------------------------------------
Total Burden........................ .............. .............. .............. 896,190 201,000 -10,000 226,640
--------------------------------------------------------------------------------------------------------------------------------------------------------
In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments
from members of the public and affected agencies concerning the
information collection requirements in the proposed rule regarding:
---------------------------------------------------------------------------
\11\ Due to the recent expansion of the national Section 3
Business Registry, HUD estimates a decrease in the original 80 hours
that it estimated for this activity. As such, administrative burden
for covered recipients is reduced.
\12\ See footnote 1.
\13\ See footnote 11.
---------------------------------------------------------------------------
(1) Whether the proposed collection of information is necessary for
the proper performance of the functions of the agency, including
whether the information will have practical utility;
(2) The accuracy of the agency's estimate of the burden of the
proposed collection of information;
(3) Whether the proposed collection of information enhances the
quality, utility, and clarity of the information to be collected; and
(4) Whether the proposed information collection minimizes the
burden of the collection of information on those who are to respond;
including through the use of appropriate automated collection
techniques or other forms of information technology (e.g., permitting
electronic submission of responses).
Interested persons are invited to submit comments regarding the
[[Page 16532]]
information collection requirements in this rule. Under the provisions
of 5 CFR part 1320, OMB is required to make a decision concerning this
collection of information between 30 and 60 days after the publication
date. Therefore, a comment on the information collection requirements
is best assured of having its full effect if OMB receives the comment
within 30 days of the publication. This time frame does not affect the
deadline for comments to the agency on the proposed rule, however.
Comments must refer to the proposed rule by name and docket number (FR-
4893) and must be sent to:
HUD Desk Officer, Office of Management and Budget, New Executive Office
Building, Washington, DC 20503, Fax number: 202-395-6947
and
Colette Pollard, HUD Reports Liaison Officer, Department of Housing and
Urban Development, 451 7th Street SW., Room 2204, Washington, DC 20410.
Interested persons may submit comments regarding the information
collection requirements electronically through the Federal eRulemaking
Portal at http://www.regulations.gov. HUD strongly encourages
commenters to submit comments electronically. Electronic submission of
comments allows the commenter maximum time to prepare and submit a
comment, ensures timely receipt by HUD, and enables HUD to make them
immediately available to the public. Comments submitted electronically
through the http://www.regulations.gov Web site can be viewed by other
commenters and interested members of the public. Commenters should
follow the instructions provided on that site to submit comments
electronically.
List of Subjects in 24 CFR Part 135
Administrative practice and procedure, Community development, Equal
employment opportunity, Government contracts, Grant programs--housing
and community development, Housing, Loan programs--housing and
community development, Reporting and recordkeeping requirements, Small
businesses.
0
Accordingly, for the reasons described in the preamble, and under the
authority of 42 U.S.C. 3535(d), HUD proposes to revise 24 CFR part 135
to read as follows:
PART 135--ECONOMIC OPPORTUNITIES FOR LOW- AND VERY LOW-INCOME
PERSONS
Subpart A--General Provisions
Sec.
135.1 Purpose.
135.3 Delegation of authority.
135.5 Definitions.
135.7 Compliance to the greatest extent feasible.
135.9 Official Section 3 policies and procedures.
135.11 Recipient responsibilities.
135.13 General minimum numerical goals.
135.15 Verification of Section 3 resident and Section 3 business
status.
135.17 Written agreements.
135.19 Contracts and Section 3 clause.
135.21 Certifications of compliance.
135.23 Reporting requirements.
135.25 Recordkeeping and access to records.
135.27 Sanctions for noncompliance.
135.29 Other Federal requirements.
Subpart B--Additional Provisions for Public Housing Financial
Assistance
135.31 Applicability.
135.33 Public housing agency unit thresholds.
135.35 Minimum numerical goals.
135.37 Orders of priority consideration for employment and
contracting opportunities.
Subpart C--Additional Provisions for Housing and Community Development
Financial Assistance
135.51 Applicability.
135.53 Funding thresholds that trigger Section 3 compliance.
135.55 Minimum numerical goals.
135.57 Orders of priority consideration for employment and
contracting opportunities.
Subpart D--Additional Provisions for Recipients of Competitively
Awarded Financial Assistance
135.71 Applicability.
135.73 Applicant selection criteria.
135.75 Section 3 compliance for NOFA grantees.
135.77 Resolution of outstanding Section 3 matters.
Subpart E--Enforcement
135.91 Cooperation in achieving compliance.
135.93 Conduct of investigations
Authority: 12 U.S.C. 1701u; 42 U.S.C. 3535(d).
PART 135--ECONOMIC OPPORTUNITIES FOR LOW- AND VERY LOW-INCOME
PERSONS
Subpart A--General Provisions
Sec. 135.1 Purpose.
(a) Section 3. The purpose of Section 3 of the Housing and Urban
Development Act of 1968 (12 U.S.C. 1701u) (Section 3) is to direct, to
the greatest extent feasible, and consistent with existing Federal,
State, and local laws and regulations, training, employment,
contracting, and other economic opportunities generated by the
expenditure of certain HUD financial assistance to:
(1) Low- and very low-income residents of the neighborhood or
neighborhoods where the Section 3 covered financial assistance is
expended, particularly those that receive assistance from the Federal
government for housing; and
(2) The businesses that are owned by, or substantially employ, low-
or very low-income residents of the neighborhood or neighborhoods where
the Section 3 covered financial assistance is expended.
(b) Part 135. The purpose of this subpart is to establish the
standards and procedures by which all recipients of Section 3 covered
financial assistance and their subrecipients, contractors, and
subcontractors that may be administering Section 3 covered financial
assistance on behalf of the recipient may meet the requirements of
Section 3.
Sec. 135.3 Delegation of authority.
Except as may be otherwise provided in this part, the functions and
responsibilities of the Secretary of the Department of Housing and
Urban Development, pursuant to Section 3, and described in this part,
are delegated to HUD's Assistant Secretary for Fair Housing and Equal
Opportunity. The Assistant Secretary for Fair Housing and Equal
Opportunity is further authorized to redelegate functions and
responsibilities in this part to other employees of HUD. However, the
authority to issue or waive regulations of this part may not be
redelegated by the Assistant Secretary. Monitoring and enforcement may
be carried out in coordination with the HUD program office that
provided Section 3 covered financial assistance to recipients, and the
imposition of sanctions shall be in accordance with the requirements of
the regulation or NOFA governing the program under which the Section 3
covered financial assistance is provided, as set forth at Sec. 135.27.
Sec. 135.5 Definitions.
For purposes of this part, the terms in this section have the
meanings provided in this section. The terms Department, HUD, Public
housing agency (PHA), and Secretary are defined in 24 CFR part 5.
Applicant means any entity which makes an application to HUD for
Section 3 covered financial assistance,
[[Page 16533]]
and includes but is not limited to, any State, unit of local
government, PHA, public housing commission, Indian tribe, tribally
designated housing entity, or other public agency, public or private
nonprofit organization, private agency or institution, mortgagor,
developer, limited dividend sponsor, builder, property owner, property
manager, resident management corporation, resident council, or
cooperative association.
Assistant Secretary means the Assistant Secretary for Fair Housing
and Equal Opportunity (FHEO).
Business means a business entity formed in accordance with State
law, and licensed as appropriate under State, county or municipal law
to engage in the type of business activity for which it was formed.
Awarding Agency means the recipient or subrecipient that awards
Section 3 contracting opportunities.
Complainant means the party that files a complaint with the
Assistant Secretary alleging that a recipient has failed or refused to
comply with the regulations of this part.
Complaint means an allegation of noncompliance with the
requirements of this part as provided in subpart E.
Construction, unless inconsistent with or otherwise defined in the
regulation or NOFA governing the program under which the Section 3
financial assistance is provided, means the act or process of building
houses, roads, public buildings, infrastructure, and other structures.
Contract. See the definition of ``contracting opportunities'' in
this section.
Contracting opportunities subject to the requirements of Section 3
means contracts or subcontracts for work awarded in connection with
Section 3 covered projects and activities. Contracting opportunities
include, but are not limited to: Demolition, rehabilitation, housing
construction, other public construction, architectural design, legal
representation, or other services directly related to construction and
rehabilitation activities. In addition, for public housing financial
assistance, contracting opportunities include, but are not limited to,
facilities maintenance, landscaping, painting, professional services,
police and security, equipment servicing, janitorial services, and
extermination. This term does not include material-only contracts;
i.e., contracts that are awarded for supplies without installation,
demolition, rehabilitation, or other construction activities.
Contractor means any entity that enters into a contract or
agreement to perform work generated by the expenditure of Section 3
covered financial assistance for a recipient, subrecipient, or another
contractor, or for work in connection with Section 3 covered projects
or activities, including contracts for services, but excluding
contracts for supplies or materials that do not involve installation,
rehabilitation, or construction.
Department of Labor or DOL refers to the U.S. Department of Labor.
Department of Labor YouthBuild program is a nonresidential,
community-based alternative education program that provides classroom
instruction and occupational skills training to at-risk individuals
ages 16 to 24. The classroom training leads to a high school diploma or
a general education development or other state-recognized equivalency
diploma. The occupational skills training component provides YouthBuild
participants with industry-recognized certifications in construction or
other occupations. The construction skills training component teaches
skills through a program to build or rehabilitate housing for low-
income or homeless individuals and families in their communities.
Economic Opportunities Generated by Section 3 Covered Financial
Assistance Means
(1) Training, employment, or other opportunities generated by the
expenditure of Section 3 covered financial assistance as such term is
defined in this section. Examples of economic opportunities may
include, but are not limited to: Jobs (including training positions or
on-the-job training opportunities), skills development (e.g., computer
classes, secretarial courses, etc.), registered apprenticeships, and
business development; or
(2) Other training opportunities; and contracting opportunities for
building trades, professional services, and other activities directly
associated with demolition, rehabilitation, or construction.
Housing and community development financial assistance subject to
the requirements of Section 3 means Section 3 covered financial
assistance, provided in the form of a grant, loan, cooperative
agreement, or contract, expended for housing demolition,
rehabilitation, or construction, or the construction or rehabilitation
of public facilities, infrastructure, or buildings and provided, or
otherwise made available, from such HUD financial assistance. HUD
housing or community development programs subject to the requirements
of Section 3 include, but are not limited to, the following programs:
The Community Development Block Grants (CDBG) program, authorized by
title I of the Housing and Community Development Act of 1974 (42 U.S.C.
5301 et seq.); the HOME Investment Partnerships program, authorized by
the HOME Investment Partnerships Act (42 U.S.C. 12701 note); the HUD
homeless assistance programs authorized under title IV of the McKinney-
Vento Homeless Assistance Act (42 U.S.C. 11360 et seq.); the Housing
Opportunities for Persons With AIDS (HOPWA) program, authorized by the
AIDS Housing Opportunity Act, subtitle D of title VII of the Cranston-
Gonzalez National Affordable Housing Act (42 U.S.C. 12901 note);
disaster recovery grants (DRG), as authorized by appropriations acts;
the Supportive Housing for the Elderly program, authorized by Section
202 of the Housing Act of 1959 (12 U.S.C. 1701q); the Supportive
Housing for Persons with Disabilities program, authorized by Section
811, subtitle B of title VIII of the Cranston Gonzalez National
Affordable Housing Act (42 U.S.C. 8013); the Project-Based Rental
Assistance programs authorized by Section 811, subtitle B of title VIII
of the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C.
8013); the Healthy Homes and Lead Hazard Control programs, as
authorized by the Lead-Based Paint Poisoning Prevention Act (42 U.S.C
4801 et seq.) and Residential Lead-Based Paint Hazard Reduction Act of
1992 (42 U.S.C. 4851 et seq.); and any housing and community
development programs that HUD designates as covered by Section 3 and
announced by HUD as such through a Federal Register notice, notice of
funding availability, or announcement posted on HUD's Section 3 Web
site(s). Housing and community development financial assistance does
not include financial assistance provided for mortgage insurance.
Indian tribe means a tribe that is a federally recognized tribe or
a State recognized tribe as defined in 25 U.S.C. 4103(13).
Low-income person means a person as defined in section 3(b)(2) of
the United States Housing Act of 1937 (42 U.S.C. 1437(b)(2)), or a
person whose median household income does not exceed 80 percent of the
median household income within the metropolitan area or nonmetropolitan
county where the Section 3 covered project or activity is located.
Metropolitan area means the primary metropolitan statistical area
(PMSA), as established by the Office of Management and Budget (OMB).
[[Page 16534]]
Neighborhood, unless otherwise defined in the regulation or NOFA
governing the program under which the Section 3 financial assistance is
provided, means Zip codes or other geographical locations within the
jurisdiction of a unit of general local government (but not the entire
jurisdiction) designated in ordinances, or other local documents as a
neighborhood, village, or similar geographical designation;
New hires mean full- or part-time employees for permanent,
temporary, or seasonal employment opportunities. This term refers to
any employee who:
(1) Was not on the payroll of the recipient, subrecipient,
contractor, or subcontractor administering Section 3 covered financial
assistance funds on behalf of the recipient at the beginning of the
award of Section 3 covered financial assistance; or
(2) Any person hired by an entity on a per-project basis as a
result of a Section 3 covered project or activity.
NOFA means a notice of funding availability issued by HUD for
discretionary grant funding that is awarded competitively to eligible
applicants.
Nonmetropolitan county means rural counties or any other county
outside of a metropolitan area.
Numerical goals means minimum numerical targets that recipients,
subrecipients, contractors, or subcontractors that may be administering
Section 3 covered financial assistance on behalf of the recipient
reach, or exceed, in order to demonstrate compliance with this part.
These goals are not construed as quotas, set-asides, or a cap on the
provision of economic opportunities, and may be exceeded.
Other HUD programs subject to the requirements of Section 3 means
HUD programs, other than HUD programs providing public housing
financial assistance, that provide covered housing and community
development financial assistance, as defined in this section.
Priority consideration means that recipients, subrecipients,
contractors, or subcontractors that may be administering Section 3
covered financial assistance on behalf of the recipient must give, to
the greatest extent feasible, training, employment, or contracting
opportunities to Section 3 residents or Section 3 businesses as defined
in this section in accordance with the appropriate orders of priority
consideration related to the Section 3 covered financial assistance, as
provided in Sec. 135.37 and Sec. 135.57. Priority consideration
should not be construed to be a quota or set-aside program, or an
entitlement to economic opportunities such as a particular position or
contract.
Professional services means non-building trade services that are
performed in connection with construction and rehabilitation
activities, including but not limited to: architecture, professional
engineering, structural engineering, land surveying, mapping, project
management, planning, design, accounting, and other related services,
which are required to be performed or approved by a person licensed,
registered, or certified to provide such services.
Project-based rental housing assistance means rental assistance
contracts provided under section 8(b)(1) of the U.S. Housing Act of
1937 or section 8(b)(2) of U.S. Housing Act of 1937 as it existed
immediately prior to October 1, 1983.
Public housing has the meaning that this term is given in 24 CFR
5.100 or 24 CFR 963.5.
Public housing financial assistance subject to the requirements of
Section 3 means any HUD financial assistance, subject to minimum unit
thresholds specified in Sec. 135.33, that is provided through the
following HUD assistance:
(1) Annual contributions for low income housing projects provided
pursuant to Section 5 of the U.S. Housing Act of 1937 (42 U.S.C.
1437c);
(2) Capital fund project assistance provided pursuant to Section 9
of the U.S. Housing Act of 1937 (42 U.S.C, 1473g);
(3) Operating subsidy provided pursuant to Section 9 of the U.S.
Housing Act of 1937 (42 U.S.C, 1473g);
(4) Competitively awarded HUD public housing financial assistance
for activities that will result in new employment, training, or
contracting opportunities, under such programs as the Family-Supportive
Service Coordinator (FSS), or Resident Opportunity Supportive Service
(ROSS) grant funding;
(5) Emergency funds, for example, authorized for emergency capital
repair of public housing or public housing facilities;
(6) Financial assistance made available under an appropriations act
such as financial assistance provided for the Choice Neighborhoods
program; and
(7) Such other financial assistance designated by HUD as public
housing financial assistance covered by Section 3 as announced through
a Federal Register notice, NOFA, or announcement on HUD's Section 3 Web
site.
Public housing project has the meaning given this term in 3(b)(1)
of the United States Housing Act of 1937.
Public housing resident has the meaning given this term in 24 CFR
963.5.
Recipient means:
(1) Any entity that receives Section 3 covered financial assistance
directly from HUD, including but not limited to: Any State, unit of
local government, public housing agency (PHA), public housing
commission, Indian tribe, tribally designated housing entity, or other
public agency, public or private nonprofit organization, private agency
or institution, mortgagor, developer, limited dividend sponsor,
builder, property owner, property manager, community housing
development organization (CHDO), resident management corporation,
resident council, or cooperative association. The term ``recipient''
also includes any subrecipients, successor, assignee, or transferee of
such entity.
(2) ``Recipient'' does not include any ultimate beneficiary under a
HUD program to which Section 3 applies (for example an individual or
family receiving a housing rehabilitation grant financed with HOME
assistance) and does not include contractors and subcontractors, but as
provided in this part, contractors and subcontractors are subject to
compliance with this part.
Rehabilitation, for the purposes of this regulation, means
improvements or interventions taken to improve or restore the
structural condition, architectural components, energy performance, or
environmental quality of an existing building, dwelling, unit, or
structure that are taken to improve its safety, aesthetics, or
suitability for use. For project-based rental assistance contracts,
including project-based Section 8, Section 202, and Section 811
properties, this definition shall apply when performed as part of a
recapitalization event where Reserve for Replacement funds are
utilized. Examples include replacement of roofing, gutters, electrical,
plumbing, heating systems, flooring, windows, doors and concrete.
Routine maintenance, for the purposes of this regulation, means
activities that do not materially add to the value of the building,
appreciably prolong its useful life, or adapt it to new uses. Examples
include: Painting, caulking, sealing, repairing minor components,
including work required to prepare units for new tenants upon turnover,
or other activities planned and performed at regular intervals normally
established by manufacturers or associations. In the case of project-
based
[[Page 16535]]
rental assistance contracts these planned activities include the work
described in the required Project Capital Needs Assessment (PCNA).
Section 3 means Section 3 of the Housing and Urban Development Act
of 1968 (12 U.S.C. 1701u).
Section 3 business means a business that is located in the Section
3 local area as defined in this section and that is able to demonstrate
one of the following:
(1) Meets the definition of ``resident-owned'' business in 24 CFR
963.5;
(2) The business is 51 percent or more owned by Section 3
residents;
(3) The permanent, full-time employees of the business include
persons, at least 30 percent of whom are Section 3 residents; or
(4) The business demonstrates that at least 20 percent of its
permanent full-time employees are Section 3 residents and the business
either: 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 a pre-apprenticeship training
program that meets the requirements in outlined DOL/ETA Training and
Employment Notice 13-12 ; or that 10 percent of its employees are
participants or graduates of a DOL YouthBuild program. For the purposes
of determining Section 3 business eligibility only, Section 3 residents
include persons who:
(i) Met the definition of Section 3 resident, provided in this
section, at the time the resident was hired or became an owner, or met
such definition within the 3 years before the business sought
certification; or
(ii) Graduated from a DOL, State approved, or YouthBuild training
program within the 3 years before the business sought certification;
and
(iii) Eligibility as a Section 3 business only applies as long as
the businesses' employees continue to meet the definition of a Section
3 resident set forth in this part.
Section 3 clause means the contract provisions set forth in Sec.
135.17.
Section 3 covered financial assistance means HUD loans, grants, or
other financial assistance provided under:
(1) Public housing financial assistance as defined in this section;
and
(2) Housing and community development financial assistance as
defined in this section.
Section 3 covered project or activity means any project or activity
that is funded by Section 3 covered financial assistance.
Section 3 local area is the:
(1) Primary metropolitan statistical area where the Section 3
covered project or activity takes place; or
(2) Nonmetropolitan county where the Section 3 covered project or
activity takes place.
Section 3 resident means an individual residing in the Section 3
local area who can document that he/she is:
(1) A public housing resident;
(2) A participant in a DOL YouthBuild program;
(3) A member of a family that receives federal housing assistance;
or
(4) An individual who meets the HUD income limits for determining
the eligibility of low- and very low-income persons for HUD assisted
housing programs within the metropolitan area or nonmetropolitan
county.
Service Area, unless defined in the regulation or NOFA governing
the program under which the Section 3 covered financial assistance is
provided, means the area to be served by a Section 3 covered project or
activity.
Subcontractor means any entity (other than a person who is an
employee of the contractor) that has a contract with a contractor to
undertake a portion of the contractor's obligation to perform work
generated by the expenditure of Section 3 covered financial assistance,
or arising in connection with a Section 3 covered project or activity.
Subrecipient means
(1) An entity that receives Section 3 covered financial assistance
from a recipient or other subrecipient of Section 3 covered financial
assistance to carry out a Section 3 covered project or activity on the
recipient's or other subrecipient's behalf. This term includes, but is
not limited to: any unit of State, county or local government, public
housing agency (PHA), public housing commission, Indian tribe, tribally
designated housing entity, or other public agency, public or private
nonprofit organization, private agency, institution, mortgagor,
developer, limited dividend sponsor, builder, property owner, property
manager, community housing development organization (CHDO), resident
management corporation, resident council, or cooperative association.
Subrecipients also include any successor, assignee, or transferee of
any such entity.
(2) ``Subrecipient'' does not include any ultimate beneficiary
under a HUD program to which Section 3 applies (for example an
individual or family receiving a housing voucher) and does not include
contractors or subcontractors, but as provided in this part,
contractors and subcontractors are subject to compliance with this
part.
Tribally designated housing entities have the meaning this term is
given in 25 U.S.C. 4103(22).
Very low-income person means the definition for this term set forth
in Section 3(b)(2) of the U.S. Housing Act of 1937 (42 U.S.C.
1437a(b)(2)), or persons whose household income does not exceed 50
percent of the median household income within the metropolitan area or
nonmetropolitan county where the Section 3 covered project or activity
is located.
Sec. 135.7 Compliance to the greatest extent feasible.
(a) General. In accordance with the findings of Congress, as stated
in section 3 of the Housing and Urban Development Act of 1968, economic
opportunities offer an effective means of empowering low- and very low-
income persons residing in the metropolitan area where HUD financial
assistance is expended. Recipients, as defined in Sec. 135.5, are
required, to the greatest extent feasible, to ensure that employment
and training opportunities funded with Section 3 covered financial
assistance be provided to low-and very low-income persons, and that
contracts are awarded to businesses that are either owned by, or
substantially employ such persons.
(b) Demonstrating compliance to the greatest extent feasible.
Absent evidence to the contrary, recipients of housing and community
development assistance that meets the funding threshold set at Sec.
135.53 and PHAs shall demonstrate compliance with Section 3 and the
requirements of this part by:
(1) Establishing policies and procedures to achieve compliance with
Section 3, as provided in Sec. 135.9;
(2) Fulfilling its responsibilities, as specified in Sec. 135.11;
and either
(3) Reaching or exceeding each minimum numerical goal for
employment and contracting opportunities, as provided in Sec. 135.13
and either Sec. 135.35 or Sec. 135.55; or
(4) If the minimum numerical goals for employment and contracting
are not met, providing written justification explaining the extent of
efforts taken to meet the minimum numerical goals and the impediments
confronted in trying to meet the minimum numerical goals. Such
justifications must include, at a minimum, a summary of: impediments
encountered; actions taken to address the identified impediments; and
an identification of steps that may be successful in overcoming
impediments in the future. Justifications provided by recipients will
be taken into
[[Page 16536]]
consideration by HUD when making compliance determinations.
(c) Compliance monitoring and enforcement. (1) When determining if
efforts taken by recipients demonstrate compliance with Section 3, to
the greatest extent feasible, HUD shall review:
(i) Policies and procedures, as specified in Sec. 135.9 developed
by the recipient to ascertain the extent to which they present measures
for achieving compliance with Section 3; and
(ii) The extent to which the recipient fulfilled its
responsibilities, as specified in Sec. 135.11; and either:
(A) Whether the minimum goals at Sec. 135.35 or Sec. 135.55 were
met; or
(B) Whether written justifications for not meeting the minimum
goals explain the extent of efforts taken to achieve the goals of
Section 3, identify the impediments encountered, the actions taken to
address the identified impediments, and steps that may be successful in
overcoming impediments in the future. Justifications provided by
recipients will be taken into consideration by HUD when making
compliance determinations.
(2) Recipients that fail to comply with the requirements of this
part are subject to sanctions for noncompliance in accordance with the
requirements of the regulation or NOFA governing the program under
which the Section 3 covered financial assistance is provided, as set
forth at Sec. 135.27.
Sec. 135.9 Official Section 3 policies and procedures.
(a) Official Section 3 policies and procedures. (1) All recipients
that plan to undertake Section 3 covered activities must develop and
adopt official policies or procedures to implement the requirements of
this part in accordance with the ``to the greatest extent feasible''
requirement as set forth at Sec. 135.7. Official policies and
procedures shall be updated as appropriate.
(2) Official policies and procedures must include, at a minimum,
steps that the recipient will take to: inform subrecipients and
contractors about Section 3 obligations; evaluate potential bidders for
Section 3 compliance during contract selection; notify Section 3
residents and businesses about economic opportunities; implement
verification and/or certification procedures for residents and
businesses; provide priority consideration to qualified Section 3
residents and businesses; monitor subrecipients and contractors for
compliance; establish consequences for noncompliance; and utilize local
community resources to meet its Section 3 requirements. The preceding
list is not inclusive of all elements that recipients should include in
official policies and procedures. Updates to official policies and
procedures shall discuss the relative success of the immediate past
policies and procedures and how any changes are aimed to better promote
compliance with Section 3.
(3) Section 3 official policies and procedures shall be
incorporated into any strategic and annual plans required of recipients
of HUD covered assistance by HUD program regulations.
(i) Recipients of Section 3 covered funding shall include a general
description of their Section 3 official policies and procedures in
required recipient plans, such as public housing plans required by HUD
regulation in 24 CFR part 903, strategic and annual action plans
required by HUD regulations in 24 CFR parts 91 and 570, or other
similar plans that may be required under other covered HUD programs.
(ii) If a recipient is not required to submit official plans to HUD
such as public housing plans required by regulations in 24 CFR part
903, strategic or annual action plans required by regulations in 24 CFR
parts 91 or 570, or other similar plans, the recipients' official
section 3 policies and procedures shall be developed as an independent
document at the time that Section 3 covered financial assistance is
awarded and updated every 5 years thereafter.
(4) Official policies and procedures shall be available for review
by HUD, Section 3 residents and businesses, and the general public upon
request.
Sec. 135.11 Recipient responsibilities.
(a) General. Recipients have the responsibility for monitoring and
ensuring compliance with this part in their own operations, and
ensuring compliance in the operations of their subrecipients,
contractors, or subcontractors. The use of subrecipients, contractors,
or subcontractors does not relieve a recipient of its responsibility.
Recipients are also responsible for determining the adequacy of
performance under subrecipient agreements or procurement contracts, and
for taking appropriate action when performance problems arise.
(b) Specific responsibilities for all recipients. Recipients shall
comply with the following requirements:
(1) Develop and implement official Section 3 policies and
procedures in accordance with Sec. 135.9.
(2) Maintain lists of eligible Section 3 residents and businesses
that have asked to receive priority consideration for training,
employment, contracting, or other economic opportunities.
(3) Notify Section 3 residents and businesses that have asked to
receive priority consideration about the availability of new
employment, training, contracting, or other economic opportunities
created as a result of the expenditure of Section 3 covered financial
assistance.
(i) Recipients must ensure that all communications are provided in
a manner that is effective for persons with hearing, visual, and other
communications-related disabilities consistent with section 504 of the
Rehabilitation Act of 1973 and, as applicable, the Americans with
Disabilities Act.
(ii) Notifications shall be made in accordance with ``HUD's Final
Guidance to Federal Financial Assistance Regarding Title VI Prohibition
Against National Origin Discrimination Affecting Limited English
Proficient Persons'' published in the Federal Register on January 22,
2007 at 72 FR 2732 (or other subsequent updated guidance).
(4) Ensure that priority consideration is provided to Section 3
residents and businesses in accordance with the orders of priority
consideration set forth at Sec. Sec. 135.37 and 135.57.
(5) Monitor the payroll data of developers, contractors, and
subcontractors throughout the project or activity, to ensure that new
employment opportunities are made available consistent with the
requirements of this part. This requirement only applies to projects or
activities that are subject to wage rates determined under the Davis
Bacon Act (40 U.S.C. 3141 et seq.).
(6) Ensure that all bid solicitations associated with Section 3
covered projects or activities acknowledge the applicability of Section
3 to the project or activity and communicate the selected contractor's
obligation to comply with the requirements of this part to prospective
bidders. Some examples include: notifying prospective contractors about
Section 3 applicability during pre-bid meetings or conferences;
requiring bidders to certify that they have received a copy of the
recipient's Section 3 policies/procedures; etc.
(7) Ensure that subrecipients, contractors, or subcontractors enter
into written agreements consistent with Sec. 135.17, and include the
Section 3 clause at Sec. 135.19, as appropriate.
(8) Ensure that notices or signs acknowledging Section 3
obligations and advertising vacant employment,
[[Page 16537]]
training, contracting, or subcontracting opportunities are posted in
places where they can be clearly seen by both current employees and
prospective applicants for economic opportunities.
(i) At a minimum, such notices shall include the following:
anticipated dates that work will begin and end; anticipated number and
type of job vacancies available; anticipated number and type of
registered apprenticeship or training opportunities offered;
anticipated dollar amount and type of subcontracting opportunities;
application and bidding procedures; required employment and
subcontracting qualifications; and the name and contact information for
the person(s) accepting applications.
(ii) Notifications shall be in accordance with ``HUD's Final
Guidance to Federal Financial Assistance Regarding Title VI Prohibition
Against National Origin Discrimination Affecting Limited English
Proficient Persons'' published in the Federal Register on January 22,
2007 at 72 FR 2732 (or other subsequent updated guidance).
(9) If applicable, ensure that new or existing subrecipient or
contractor selection procedures, including those developed in
accordance with 24 CFR part 85; assess the responsible bidder's
previous compliance and ability to:
(i) Retain Section 3 hires for employment opportunities;
(ii) Comply with Section 3 requirements; and
(iii) Provide training opportunities for Section 3 residents.
(10) If applicable, ensure that labor unions are notified about
recipient's and contractor's obligations to comply with the
requirements of this part. Collective bargaining agreements, project
labor agreements or other agreements between labor unions and
recipients, or subrecipients that are established, or revised, after
[EFFECTIVE DATE OF FINAL RULE], shall ensure that projects generated
from the expenditure of Section 3 covered financial assistance provide
employment, registered apprenticeship, training, contracting, or other
economic opportunities to Section 3 residents and businesses in a
manner that is consistent with this part
(11) Coordinate with local DOL Workforce Investment Boards,
YouthBuild grantees, or other State or Federal training programs to
ensure that Section 3 residents and businesses are notified about the
availability of federal training opportunities.
(12) Document actions taken to comply with the requirements of this
part; the results of actions taken; sanctions imposed upon
subrecipients, contractors, subcontractors, or subcontractors;
impediments encountered; actions taken to address the identified
impediments; and steps that may be successful in overcoming impediments
in the future.
(c) Responsibilities specific to PHAs. In addition to the
responsibilities set forth in paragraph (b) of this section, PHAs must
comply with the following additional requirements:
(1) PHAs are required to monitor successful bidders for compliance
with descriptions provided in qualified bid proposals.
(2) Develop appropriate procedures to comply with the earned income
disregard requirements; and
(3) Develop procedures to set-aside eligible contracting
opportunities for public housing resident-owned businesses that are
consistent with 24 CFR part 963, as appropriate.
(d) Responsibilities specific to recipients of housing and
community development financial assistance. In addition to the
responsibilities set forth in paragraph (b) of this section, recipients
of housing and community development financial assistance must comply
with the following additional requirements:
(1) Where practicable, recipients are required to monitor
successful bidders for compliance with descriptions provided in
qualified bid proposals.
(2) Recipients must ensure that qualified local Section 3
businesses are included on lists of preferred or recommended
contractors when such lists are provided to homeowners for
rehabilitation loan or grant programs. The recipient or subrecipient
may count any Section 3 businesses that are selected by homeowners
towards their minimum numerical goals annually. The recipient is not
required to count any non-Section 3 businesses that are selected by
homeowners toward the total amount of contracts awarded to Section 3
businesses annually.
Sec. 135.13 General minimum numerical goals.
(a) Calculation of goals. The minimum numerical goals established
in this part apply to the aggregate number of employment and
contracting opportunities generated by Section 3 covered financial
assistance during each annual reporting period as defined at Sec.
135.23(b).
(b) Minimum numerical goals. (1) Recipients of public housing
financial assistance shall, to the greatest extent feasible, reach the
minimum numerical goals set forth at Sec. 135.35.
(2) Recipients of housing and community development financial
assistance shall, to the greatest extent feasible, reach the minimum
numerical goals set forth at Sec. 135.55.
(3) Recipients of competitively awarded Section 3 covered financial
assistance shall, to the greatest extent feasible, reach the minimum
numerical goals set forth in the subpart associated with the type of
financial assistance provided, Sec. Sec. 135.35 and 135.55,
respectively.
(c) Inability or failure to meet goals. Recipients that are unable
or fail to meet minimum numerical goals must provide to HUD a written
justification as to why the goals were not met, as provided in Sec.
135.7(b)(4). Justifications provided by recipients will be taken into
consideration by HUD when making compliance determinations.
Sec. 135.15 Verification of Section 3 resident and Section 3 business
status.
(a) General. Recipients of Section 3 covered financial assistance
are required to verify that residents and businesses seeking the
employment and contracting opportunities offered by the recipient meet
the definitions of Section 3 residents and Section 3 businesses at
Sec. 135.5 prior to providing priority consideration for employment,
training, contracting, or other economic opportunities. Unless
otherwise directed by HUD, recipients may use their own discretion for
developing specific verification procedures for Section 3 residents and
Section 3 businesses.
(b) Section 3 residents. (1) A recipient may allow persons to self-
certify that they are a Section 3 resident as defined in Sec. 135.5
provided that the recipient conducts procedures to verify a sample of
self-certified Section 3 residents.
(2) A recipient may presume a person that can provide evidence that
they reside within a neighborhood, zip code, census tract, etc. that
has officially been identified by HUD is eligible to receive priority
consideration as a Section 3 resident absent evidence to the contrary.
(3) A recipient may require information verifying that a person
meets the definition of a Section 3 resident. Examples of evidence of
eligibility include but are not limited to: evidence of receipt of
Federal housing assistance; evidence of receipt of other Federal
subsidies or Federal assistance programs; Federal tax returns; proof of
residence in a neighborhood, zip code, census tract, or other area that
has officially been identified by HUD.
(4) A recipient shall impose sanctions upon individuals who make
false claims or representations regarding their income eligibility,
residence, or other factors in order to be determined a
[[Page 16538]]
Section 3 resident. In addition, the recipient will refer such
individuals to the HUD Office of Inspector General.
(c) Section 3 businesses. (1) A recipient may allow a business to
self-certify that they are a Section 3 business as defined in Sec.
135.5, provided that the recipient conducts procedures to verify a
sample of self-certified Section 3 businesses.
(2) A recipient may presume that a business meets the eligibility
criteria if the business provides evidence that it is located within a
neighborhood, zip code, or census tract that has been identified by
HUD; or if the business is able to provide evidence that it
substantially employs residents from neighborhoods, zip codes, or
census tracts identified by HUD, absent evidence to the contrary.
(3) A recipient may require information verifying that a business
meets the definition of a Section 3 business. Examples of evidence of
eligibility for priority consideration as a Section 3 business may
include: Federal tax returns for workers, owners, or businesses;
payroll data; employee-self-certification statements; articles of
business ownership; evidence that owners or employees received housing
or other Federal subsidies within 3 years from the date that the
business sought designation as a Section 3 business.
(4) A recipient shall impose appropriate sanctions upon businesses
that make false claims or representations regarding their eligibility,
business location, eligible employees, or other factors in order to be
determined a Section 3 business. In addition, the recipient will refer
such individuals to the HUD Office of Inspector General.
Sec. 135.17 Written agreements.
(a) General. Before disbursing any Section 3 covered financial
assistance to subrecipients that may administer all or a part of
Section 3 covered financial assistance on- behalf of a recipient, the
recipient must ensure that the parties enter into a written agreement
to facilitate compliance with the requirements of this part.
(b) Provisions in written agreements. The contents of the agreement
may vary depending upon the role the subrecipient is asked to assume on
behalf of the recipient, the type of Section 3 covered project or
activity that is to be undertaken, or the dollar amount of the
contract. Recipients are responsible for enforcing the provisions of
written agreements, including imposing sanctions upon subrecipients for
noncompliance. This section specifies the minimum provisions that must
be included in written agreements and contracts.
(c) [Reserved].
(d) [Reserved].
(e) Subrecipient agreements. Agreements between the recipient and
the subrecipient must:
(1) Describe the subrecipient's plan for implementing Section 3 and
meeting the numerical hiring and contracting goals; ensuring
eligibility of Section 3 residents and businesses; and monitoring
contractor compliance. This description must provide enough detail to
provide a sound basis for the recipient to monitor performance under
the agreement;
(2) Specify the duties set forth in this part that the subrecipient
will undertake;
(3) State that the subrecipient will incorporate the Section 3
clause, as provided in Sec. 135.19, into all contracts or
subcontracts, memoranda of understanding, cooperative agreements, or
similar legally binding arrangements, ensure that contractors and
subcontractors certify their compliance at the time of contract award,
and monitor parties for compliance, as appropriate;
(4) Specify other responsibilities as needed to ensure that the
subrecipient or contractor complies with all requirements at Sec. Sec.
135.23 and 135.25;
(5) Specify the particular records that must be maintained and the
information or reports that must be submitted in order to assist the
recipient in meeting its recordkeeping and reporting requirements for
Section 3; and
(6) Provide for a means of enforcement and describe the sanctions
for failure to comply with this part.
Sec. 135.19 Contracts and Section 3 clause.
(a) General. Before disbursing any Section 3 covered financial
assistance to contractors or subcontractors that may administer all or
a part of Section 3 covered financial assistance on- behalf of a
recipient, the recipient must ensure that the parties enter into a
contract to facilitate compliance with the requirements of this part.
(b) Provisions in contracts. The contents of the contract may vary
depending upon the dollar amount of the contract. Recipients are
responsible for enforcing the provisions of contracts, including
imposing sanctions upon contractors or subcontractors for
noncompliance. This section specifies the minimum provisions that must
be included in contracts.
(c) Contracts of $200,000 or above. Contracts of $200,000 or more
shall include the Section 3 clause at Sec. 135.19 in its entirety.
(d) Contracts less than $200,000. Contracts of less than $200,000
shall include provisions A, B, C, F, H, and M of the Section 3 clause
at Sec. 135.19.
(e) Where required, the following Section 3 clause shall be
included in contracts:
Section 3 Clause
A. The work to be performed under this contract, subcontract,
memorandum of understanding, cooperative agreement or similar
legally binding agreement, is subject to the requirements of section
3 of the Housing and Urban Development Act of 1968 (Section 3). The
purpose of Section 3 is to ensure, to the greatest extent feasible,
that training, employment, contracting, and other economic
opportunities generated by Section 3 covered financial assistance
shall be directed to low- and very low-income residents of the
neighborhood where the financial assistance is spent, particularly
to those who are recipients of government assistance for housing,
and to businesses that are either owned by low- or very low-income
residents of the neighborhood where the financial assistance is
spent, or substantially employ these persons.
B. The parties to this contract, subcontract, memorandum of
understanding, cooperative agreement, or similar legally binding
agreement agree to comply with HUD's regulations in 24 CFR part 135,
which implement Section 3. As evidenced by their execution of this
contract or subcontract memorandum of understanding, cooperative
agreement or similar legally binding agreement the parties certify
that they are under no contractual or other impediment that would
prevent them from complying with the requirements of 24 CFR part
135.
C. The contractor agrees to identify current employees on its
payroll when the contract or subcontract was awarded who will be
working on the Section 3 covered project or activity and certify
that any vacant employment opportunities, including training
positions, that are filled:
1. After the contractor is selected; and
2. With persons other than those that meet the definition of a
Section 3 resident, were not filled to circumvent the contractor's
Section 3 obligations.
D. The contractor agrees to maintain records documenting Section
3 residents that were hired to work on previous Section 3 covered
projects or activities that were retained by the contractor for
subsequent Section 3 covered projects or activities.
E. The contractor agrees to post signs advertising new
employment, training, or subcontracting opportunities that will be
available as a result of the Section 3 covered projects and
activities in conspicuous places at the work site where potential
applicants can review them.
F. The contractor agrees to hire, to the greatest extent
feasible, Section 3 residents as 30 percent of new hires, or provide
written justification to the recipient that is consistent with Sec.
135.7(b)(4), describing why it was unable to meet minimum numerical
hiring
[[Page 16539]]
goals, despite its efforts to comply with the provisions of this
clause.
G. The contractor agrees that in order for a Section 3 resident
to be counted as a new hire, the resident must work a minimum of 50
percent of the average staff hours worked for the category of work
for which they were hired throughout the duration of time that the
category of work is performed on the covered project.
H. The contractor agrees to award, to the greatest extent
feasible, 10 percent of the total dollar amount of subsequent
subcontracts awarded in connection with the Section 3 covered
project or activity to Section 3 businesses, or provide written
justification that is consistent with Sec. 135.7(b)(4) describing
why it was unable to meet that goal, despite their efforts to comply
with the provisions of this clause.
I. The contractor agrees to notify Section 3 residents and
businesses about the availability of new employment, training, or
contracting opportunities created as a result of the receipt of
Section 3 covered financial assistance, as stipulated by the
awarding agency.
J. The contractor agrees to verify the eligibility of
prospective Section 3 residents and businesses for employment,
training, or subcontracting opportunities, in accordance with the
recipient's policies and procedures.
K. The contractor agrees to provide priority consideration to
eligible residents and businesses in accordance with 24 CFR 135.37
or 24 CFR 135.57, as applicable.
L. The contractor agrees to notify potential bidders on
subcontracts that are associated with Section 3 covered projects and
activities about the requirements of Section 3, and include this
Section 3 clause in its entirety into every subcontract awarded.
M. The contractor agrees to impose sanctions upon any
subcontractor that has violated the requirements of this clause in
accordance with the awarding agency's Section 3 policies and
procedures.
N. The contractor agrees to comply with all monitoring,
reporting, recordkeeping, and other procedures specified by the
awarding agency.
O. If applicable, the contractor agrees to notify each labor
organization or representative of workers with which the recipient,
subrecipient, or contractor has a collective bargaining or similar
labor agreement or other understanding, if any, about its obligation
to comply with the requirements of Section 3 and ensure that new
collective bargaining or similar labor agreements provide
employment, registered apprenticeship, training, subcontracting, or
other economic opportunities to Section 3 residents and businesses,
and to post notices in conspicuous places at the work site advising
the labor union, organization, or workers' representative of the
contractor's commitments under this part.
P. Failure to comply with this clause shall result in the
imposition of sanctions. Appropriate sanctions for noncompliance may
include: Requiring additional certifications or assurances of
compliance; termination or cancelation of the contract, subcontract,
memorandum of understanding, cooperative agreement, or similar
legally binding arrangement for default; refraining from entering
into subsequent contracts, subcontracts, memoranda of understanding,
cooperative agreements, or similar legally binding arrangement;
repayment of funds, and withholding a portion of contract awards,
subcontracts, memoranda of understanding, cooperative agreements, or
similar legally binding arrangements.
Sec. 135.21 Certifications of compliance.
(a) Annual certifications.--(1) Recipient certifications. (i) A
recipient shall submit annual certifications to HUD documenting its
acknowledgement of obligations to comply with the requirements of this
part in its own operations and those of its subrecipients, contractors,
subcontractors, and others that may be administering Section 3 covered
financial assistance on behalf of the recipient. Certifications shall
be submitted in accordance with the requirements of the regulation or
NOFA governing the program under which the Section 3 covered financial
assistance is provided.
(ii) HUD may require recipients to provide additional documentation
or assurances as evidence of compliance with the requirements of this
part prior to the acceptance of annual certifications. HUD may refuse
to accept any certification when there are reasonable grounds to
believe that the recipient is not in compliance with the requirements
of this part.
(2) Subrecipients, contractors and subcontractors. (i)
Subrecipients, contractors, and subcontractors shall certify their
compliance by entering into a written agreement with the recipient, as
specified at Sec. 135.17 or contract that contains the Section 3
clause provided at Sec. 135.19.
(ii) [Reserved]
(b) [Reserved]
Sec. 135.23 Reporting requirements.
(a) Recipient reporting requirements. (1) Each recipient shall
submit to HUD an annual report documenting the recipient's compliance
with Section 3 in such form and with such information as HUD may
request. The purpose of the report is to summarize efforts undertaken
by the recipient and accomplishments (or lack thereof) towards meeting
the employment and contracting goals set forth at Sec. 135.11.
(i) The report will include an accounting of all new hires, as
defined at Sec. 135.5, and Section 3 new hires employed as a result of
the expenditure of Section 3 covered financial assistance in a manner
that allows HUD to determine if the minimum numerical goal for
employment was met during the reporting period.
(ii) The report will also account for the total dollar amount of
contracts awarded as a result of the expenditure of Section 3 covered
financial assistance during the reporting period, and the dollar amount
of those contracts that were awarded to Section 3 businesses in a
manner that allows HUD to determine if the minimum numerical goal for
contracting was met.
(iii) The report must include a written justification consistent
with Sec. 135.7(b)(4) if a recipient failed to meet the minimum
numerical goals during the reporting period.
(2) Only recipients are required to submit Section 3 annual reports
to HUD. HUD will not accept reports from subrecipients, contractors, or
subcontractors administering Section 3 covered financial assistance on
behalf of a recipient.
(b) Reporting periods. Unless otherwise indicated, a recipient's
reporting period shall coincide with their local program of fiscal
year.
(c) Report due dates. (1) Unless otherwise indicated, all Section 3
annual reports shall be submitted to HUD's Office of Fair Housing and
Equal Opportunity. Where the program providing the Section 3 covered
assistance requires submission of an annual performance report, the
Section 3 report will be submitted with that annual performance report.
If the program providing the Section 3 covered assistance does not
require an annual performance report, the Section 3 report is to be
submitted by January 10 of each year or within 10 days of project
completion, whichever is earlier.
(2) HUD may grant an extension of the due date for a Section 3
annual report for good reason based on a recipient's demonstration of
the inability, through no fault of its own, to meet the reporting due
date.
(d) Electronic submission. Unless otherwise specified, Section 3
annual reports shall be submitted electronically through online
reporting systems as specified by HUD.
(e) Data collection. Data presented in a Section 3 annual report
shall be used to make determinations regarding the recipient's efforts
to ensure compliance with the requirements of Section 3 in its own
operations, and those of its subrecipients, contractors, or
subcontractors that may be administering Section 3 covered financial
assistance on behalf of the recipient. Data from Section 3 annual
reports may be used to produce reports for the Secretary, for the
Executive Branch, Congress, housing professionals, the general public,
and
[[Page 16540]]
others that may benefit from the information provided in such reports.
(f) Sanctions for delinquent reports. (1) Recipients that fail to
submit Section 3 annual reports by the reporting due date may be
sanctioned in accordance with the requirements of the regulation or
NOFA governing the program under which the Section 3 covered financial
assistance is provided.
(2) Continuing failure to submit Section 3 annual reports may
result in HUD denying or withholding HUD financial assistance.
(g) Subrecipient reporting. A state or county recipient that
distributes Section 3 covered financial assistance to subrecipients
shall compile data regarding compliance with the requirements of this
regulation in its own operations, and in the operations of its
subrecipients, contractors, and subcontractors into one annual report
to HUD in a manner that allows HUD to make an accurate determination
regarding the State or county recipient's efforts to ensure compliance
during the reporting period. Subrecipients are not required to submit
annual reports directly to HUD.
(h) Availability of Section 3 reports. All Section 3 annual reports
submitted to HUD in accordance with the requirements of this part will
be made available to the public upon request.
Sec. 135.25 Recordkeeping and access to records.
HUD shall have access to all records, reports, documents,
contracts, or other items that are maintained by a recipient to
demonstrate compliance with the requirements of this part, in the
recipient's own operations or those of its subrecipients, contractors,
or subcontractors. These records include, but are not limited to:
Section 3 policies, procedures, and other guidance materials; lists of
Section 3 residents and businesses; evidence of efforts to notify
Section 3 residents and businesses about the availability of employment
training, contracting, or other economic opportunities; payroll data or
other similar documentation verifying new hires; copies of Section 3
contracts, clauses, and assurances; evidence of efforts taken by
contractors or subcontractors to comply with the terms of the Section 3
clause and efforts taken to reach the minimum numerical goals; and
other data, evidence or materials deemed by HUD as demonstrating
compliance with the requirements of this part.
Sec. 135.27 Sanctions for noncompliance.
Sanctions imposed on recipients that fail to comply with any of the
requirements of this part shall be in accordance with the requirements
and procedures concerning the imposition of sanctions or resolutions
set forth in the regulations governing the program under which the
Section 3 financial assistance is provided. Appropriate sanctions for
noncompliance may, depending on the regulation governing the program
under which the Section 3 financial assistance was provided, include:
requiring additional certifications or assurances of compliance;
repayment of HUD financial assistance; ineligibility for HUD financial
assistance; withholding HUD financial assistance; or suspension,
debarment, or limited denial of participation in HUD programs pursuant
to 2 CFR part 2424 where appropriate.
Sec. 135.29 Other Federal requirements.
Compliance with Section 3 and the regulations of this part does not
supersede other Federal requirements that may be applicable to the
execution of HUD programs.
(a) Federal labor standards provisions. Certain construction
contracts are subject to compliance with the requirement to pay
prevailing wages determined under the Davis-Bacon Act and with
implementing DOL regulations, including those at 29 CFR parts 1, 3 and
5. Additionally, maintenance activities on public housing developments
are subject to compliance with the requirement to pay prevailing wage
rates, as determined or adopted by HUD, for maintenance laborers and
mechanics engaged in this work.
(b) Use of apprentices. Apprentices and trainees will be permitted
to work at less than the predetermined rate for the work they perform
when they are employed pursuant to a bona fide apprenticeship program
registered with the DOL Office of Apprenticeship, or a state
apprenticeship agency recognized by that Office, or pursuant to a
trainee program approved by the DOL Employment and Training
Administration, under the conditions specified in DOL regulations at 29
CFR 5.5(a)(4). Apprentices and trainees may be utilized only to the
extent permitted under either DOL regulations or, for work subject to
HUD-determined or adopted prevailing wage rates consistent with HUD
policies and guidelines. The allowable use of apprentices and trainees
includes adherence to the wage rates and ratios of apprentices or
trainees to journeymen set out in the approved program.
Subpart B--Additional Provisions for Public Housing Financial
Assistance
Sec. 135.31 Applicability.
(a) General. The requirements of Section 3 apply to training,
employment, contracting and other economic opportunities arising from
the expenditure of public housing financial assistance, as defined in
Sec. 135.5. This subpart communicates provisions to be implemented by
PHAs in addition to those set forth in subpart A.
(b) Scope of applicability. (1) The requirements of this subpart
apply to all new employment and training opportunities that are
generated as a result of the expenditure of public housing financial
assistance.
(2) The requirements of this subpart apply to all contracting
opportunities (including contracts for professional services) that are
funded with Section 3 public housing financial assistance, regardless
of whether the Section 3 project is fully- or partially-funded with
Section 3 covered financial assistance. Accordingly, if any amount of
Section 3 covered financial assistance is invested into Section 3
covered projects or activities, the requirements of this subpart apply
to the entire project.
Sec. 135.33 Public housing agency thresholds.
There are no thresholds for Section 3 public housing financial
assistance. The requirements of this subpart apply to Section 3 public
housing assistance provided to recipients, notwithstanding the amount
of the assistance provided to the recipient. The requirements of this
subpart apply to all subrecipients, contractors, or subcontractors
performing work in connection with projects and activities funded by
public housing Section 3 covered financial assistance, regardless of
the dollar amount of the contract or subcontract.
Sec. 135.35 Minimum numerical goals.
(a) Employment opportunities. (1) PHAs must employ, to the greatest
extent feasible, Section 3 residents as 30 percent of direct new hires
within the public housing agency (PHA). Employment opportunities are
not limited to those related to construction and rehabilitation and may
include, but are not limited, to the following employment
opportunities: management, administrative, accounting, food services,
case management, information technology, facilities maintenance,
janitorial, daycare, construction, etc.
(2) PHAs must direct their subrecipients, contractors,
subcontractors, and others that may be
[[Page 16541]]
administering Section 3 covered financial assistance on the PHA's
behalf to employ, to the greatest extent feasible, Section 3 residents
as 30 percent of its direct new hires.
(3) For a Section 3 resident to be considered a new hire by a
contractor or subcontractor, the Section 3 resident must work, during
its employment with the contractor or subcontractor, a minimum of 50
percent of the average staff hours worked for the category of work for
which they were hired throughout the duration of time that the category
of work is performed on the covered project.
(b) Contracting opportunities. (1) PHAs must award, to the greatest
extent feasible, to Section 3 businesses at least 10 percent of the
total dollar amount of all contracting opportunities generated from the
expenditure of Section 3 covered financial assistance.
(2) PHAs must direct their subrecipients, contractors,
subcontractors, and others that may be administering Section 3 covered
financial assistance on the PHA's behalf to award, to the greatest
extent feasible, to Section 3 businesses at least 10 percent of the
total dollar amount of all subsequent contracting or subcontracting
opportunities.
Sec. 135.37 Orders of priority consideration for employment and
contracting opportunities.
(a) General. (1) Priority consideration should not be construed to
be a quota or set-aside program, or an entitlement to economic
opportunities such as a particular position or contract.
(2) Section 3 residents must possess the same job qualifications,
skills, eligibility criteria, and capacity as other applicants for
employment and training opportunities being sought.
(3) Section 3 businesses must be selected in accordance with the
procurement standards of 24 CFR 85.36, including price, ability and
willingness to comply with this part, and other factors, to be
considered lowest responsible bidders on contracting opportunities
being sought.
(4) A PHA may give priority consideration to a Section 3 resident
or business if such resident or business is qualified for the
respective employment or contracting opportunity.
(5) A PHA must give priority consideration to a Section 3 resident
or business when that Section 3 resident or business is equally
qualified with other individuals or businesses to which the PHA would
offer employment or contracting opportunities.
(b) Order of priority consideration for Section 3 residents in
employment and training opportunities. A PHA, its subrecipients,
contractors, and subcontractors shall direct their efforts to provide
employment and training opportunities generated from the expenditure of
Section 3 covered financial assistance to Section 3 residents in the
following order of priority consideration:
(1) Residents of the public housing project or projects where the
Section 3 covered financial assistance is expended.
(2) Residents of other public housing projects managed by the PHA
that is spending Section 3 covered financial assistance.
(3) Section 3 residents participating in DOL YouthBuild programs.
(4) Other Section 3 residents in the Section 3 local area,
including individuals and families receiving Section 8 housing choice
vouchers.
(c) Order of priority consideration for Section 3 businesses in
contracting opportunities. A PHA, its subrecipients, contractors, and
others shall direct their efforts to award contracting and
subcontracting opportunities to Section 3 businesses in the following
order of priority consideration:
(1) Section 3 businesses that are 51 percent or more owned by
residents of the public housing project(s) where the Section 3 covered
financial assistance is expended; or whose full-time, permanent
workforce is comprised of 30 percent or more of residents of the public
housing project(s) where the Section 3 covered financial assistance is
expended.
(2) Section 3 businesses that are 51 percent or more owned by
residents of any public housing projects administered by the PHA; or
whose full-time, permanent, workforce is comprised of 30 percent or
more of residents of any public housing projects managed by the PHA.
(3) Grantees selected to carry out DOL YouthBuild programs.
(4) Any other Section 3 business in the Section 3 local area.
Subpart C--Additional Provisions for Housing and Community
Development Financial Assistance
Sec. 135.51 Applicability.
(a) General. This subpart communicates provisions that must be
implemented by recipients of Section 3 housing and community
development financial assistance in addition to those set forth in
subpart A. Section 3 applies to training, employment, contracting
(including contracts for professional services), and other economic
opportunities arising in connection with the expenditure of housing and
community development financial assistance that is used for projects
involving:
(1) Housing rehabilitation (including demolition);
(2) Housing construction; or
(3) Other public construction (including the demolition,
rehabilitation or construction of other public buildings, facilities,
or infrastructure).
(b) Exemptions. (1) The following is a list of some activities and
projects that are exempt from the requirements of this subpart. This is
not intended to be an all-inclusive list of activities that may be
exempt from the requirements of this subpart.
(2) Covered housing and community financial assistance used for
acquisition, routine maintenance, operations, administrative costs, and
project rental assistance contracts (PRAC) is exempt from the
requirements of this subpart.
(3) Indian tribes and tribally designated housing entities shall
comply with the responsibilities set forth in subpart A and in this
subpart. However, Indian tribes and tribally designated housing
entities that adopt, and are complying with, tribal employment and
contract preference laws (including regulations and tribal ordinances)
in accordance with Section 101(k) of Native American Housing Assistance
and Self-Determination Act of 1996 (NAHASDA) (25 U.S.C. 4111(k)) shall
also be deemed to be in compliance with this subpart. Indian tribes,
tribally designated housing entities, and other tribal entities that
are subject to the Indian preference requirements of Section 7(b) of
the Indian Self-Determination and Education Assistance Act (25 U.S.C.
450e) shall also be deemed to be in compliance with this subpart. The
requirements of this subpart apply to Indian tribes that have not
adopted tribal preference laws for employment and contracting in
accordance with Section 101(k) of NAHASDA, and Indian tribes, tribally
designated housing entities, and tribal entities that are not subject
to Indian preference requirements of Section 7(b) of the Indian Self-
Determination and Education Assistance Act, in the same manner as other
recipients of housing and community development financial assistance
set forth in subpart C of this part.
Sec. 135.53 Funding thresholds that trigger Section 3 compliance.
(a) Funding thresholds for recipients and subrecipients. (1) The
requirements of this subpart apply to recipients of housing and
community development
[[Page 16542]]
financial assistance that plan to obligate or commit an aggregate
amount of $400,000 or more in Section 3 covered financial assistance on
projects involving demolition, housing rehabilitation, housing
construction, or other public construction during an annual reporting
period.
(2) The $400,000 funding threshold is comprised of the combined
expenditure of all sources of housing and community development
financial assistance set forth in Sec. 135.5.
(b) Applicability of Section 3 requirements to individual projects.
(1) Where the thresholds set forth in paragraph (a) of this section are
met, the requirements of this subpart apply to all Section 3 projects
and activities that are funded with housing and community development
financial assistance, regardless of the specific dollar amount invested
into the Section 3 covered project or activity.
(2) The requirements of this subpart apply to the entire project
that is funded with Section 3 covered financial assistance, regardless
of whether the Section 3 project is fully- or partially-funded with
housing and community development financial assistance. Accordingly, if
any amount of Section 3 covered financial assistance is invested into a
project involving housing demolition, rehabilitation or construction,
or the rehabilitation or construction of public buildings, facilities,
or infrastructure, the requirements of this subpart apply to the entire
project, both HUD and non-HUD funded portions.
Sec. 135.55 Minimum numerical goals.
(a) Employment opportunities. (1) Recipients of housing and
community development financial assistance must direct its contractors
and subcontractors employ, to the greatest extent feasible, Section 3
residents as 30 percent of direct new hires. For a Section 3 resident
to be considered a new hire, the Section 3 resident must work, during
the resident's employment with the contractor or subcontractor, a
minimum of 50 percent of the average staff hours worked for the
category of work for which they were hired throughout the duration of
time that the category of work is performed on the covered project.
(2) Recipients of housing and community development financial
assistance must ensure, to the greatest extent feasible, that 30
percent of any new hires within the agency that will primarily work on
HUD-funded projects or activities involving demolition; housing
rehabilitation; housing construction; demolition, rehabilitation, or
construction of other public buildings, facilities, or infrastructure;
or construction and rehabilitation-related (professional service)
projects and activities are Section 3 residents. For example, these
positions may include electricians, plumbers, construction managers,
general laborers, consultants, accountants, and architects.
(c) Contracting opportunities. (1) Recipients of housing and
community development financial assistance must award, to the greatest
extent feasible, at least 10 percent of the total dollar amount of all
contracts to Section 3 businesses.
(2) Recipients of housing and community development financial
assistance must, to the greatest extent feasible, have its
subrecipients, contractors, and subcontractors that receive contracts
for Section 3 covered projects and activities award at least 10 percent
of the total dollar amount of all subsequent contracting and
subcontracting opportunities to Section 3 businesses.
Sec. 135.57 Orders of priority consideration for employment and
contracting opportunities.
(a) General. (1) Recipients of housing and community development
financial assistance and their subrecipients, and contractors shall
provide priority consideration to Section 3 residents and Section 3
businesses for new training, employment, and contracting opportunities
generated as a result of the expenditure of Section 3 covered financial
assistance.
(2) Priority consideration should not be construed to be a quota or
set-aside program, or as an entitlement to economic opportunities such
as a particular job or contract.
(3) Section 3 residents must possess the same job qualifications,
skills, eligibility criteria, and capacity as other applicants for
employment and training opportunities being sought.
(4) Section 3 businesses must be selected in accordance with the
procurement standards of 24 CFR 85.36 or 24 CFR 84.40, as appropriate,
including price, ability and willingness to comply with this part, and
other factors, to be considered lowest responsible bidders on
contracting opportunities being sought.
(5) Recipients of housing and community development financial
assistance and their subrecipients, and contractors may give priority
consideration to a Section 3 resident or business if such resident or
business is qualified for the respective employment or contracting
opportunities
(6) Recipients of housing and community development and their
subrecipients, and contractors must give priority consideration to a
Section 3 resident or business when that Section 3 resident or business
is equally qualified with other individuals or businesses that would be
offered employment or contracting opportunities.
(b) Orders of priority consideration for employment and training
opportunities. (1) Recipients of housing and community development
financial assistance that meet the funding thresholds set forth at
Sec. 135.53 shall direct their efforts to provide training and
employment opportunities generated from the expenditure of Section 3
housing and community development financial assistance, to Section 3
residents in the following order of priority consideration:
(i) Section 3 residents residing in the neighborhood or service
area where the housing and community development financial assistance
is spent;
(ii) Section 3 residents participating in DOL YouthBuild programs;
(iii) Section 3 residents residing in a neighborhood or service
area within the Section 3 local area that has been officially
identified by HUD;
(iv) Other Section 3 residents located in the Section 3 local area.
(2) Recipients of housing and community development financial
assistance may, at their own discretion, provide priority consideration
specifically to residents of public housing or recipients of other
Federal assistance for housing, including individuals or families
receiving Section 8 housing choice vouchers within the neighborhood
where work on the Section 3 covered project or activity is located.
(c) Orders of priority consideration for Section 3 businesses in
contracting opportunities. (1) Recipients of housing and community
development financial assistance and their subrecipients, and
contractors shall direct their efforts to provide contracting or
subcontracting opportunities generated from the expenditure of housing
and community development financial assistance to Section 3 businesses
in the following order of priority consideration:
(i) Section 3 businesses that can provide evidence, to the
satisfaction of the awarding agency, that a minimum of 75 percent of
previously hired Section 3 residents residing in the service area of
the project or neighborhood will be retained for the project.
(ii) Section 3 businesses that can provide evidence to the
satisfaction of the awarding agency that a minimum of
[[Page 16543]]
50 percent of on-the-job training or registered apprenticeship
opportunities will be provided to Section 3 residents in the
neighborhood or area to be served by the Section 3 project or activity.
(iii) Section 3 businesses that are located in the neighborhood or
service area where the Section 3 covered project or activity is
located, and a minimum of 30 percent of its permanent full-time
workforce is comprised of Section 3 residents residing in the
neighborhood or service area where the Section 3 covered project or
activity is located.
(iv) Grantees selected to carry DOL YouthBuild programs.
(5) All other businesses that are located in the Section 3 local
area that meet the definition of Section 3 business in Sec. 135.5.
Subpart D--Additional Provisions for Recipients of Competitively
Awarded Section 3 Financial Assistance
Sec. 135.71 Applicability.
(a) General.--(1) Competitively awarded assistance. The
requirements of this subpart apply to Section 3 covered financial
assistance competitively awarded by HUD.
(2) HUD Notices of Funding Availability (NOFAs). (i) All HUD NOFAs
announcing the availability of Section 3 covered financial assistance
will provide notification of the requirements of Section 3.
(ii) For competitively awarded public housing financial assistance
involving activities that are anticipated to generate significant
employment, training, contracting, or other economic opportunities,
regardless of the source or amount of the public housing financial
assistance, HUD's NOFA will include a statement advising that
successful applicants shall, to the greatest extent feasible, and
consistent with existing Federal, State, and local laws and
regulations, ensure that employment, training, contracting, or other
economic opportunities created as a result of the provision of
financial assistance be directed to Section 3 residents and businesses
consistent with the orders of priority consideration set forth at Sec.
135.37.
(iii) For competitively awarded housing and community development
financial assistance involving housing demolition, rehabilitation, or
construction, or the demolition, rehabilitation or construction of
other public buildings, facilities or infrastructure, HUD's NOFA will
include a statement acknowledging that if the award of competitive
financial assistance will result in the successful applicant receiving
and planning to obligate or commit Section 3 covered financial
assistance that exceeds the thresholds set forth at Sec. 135.53, the
grantee is required to ensure that employment, training, contracting
(including contracts for professional services), or other economic
opportunities generated as a result of the provision of Section 3
covered financial assistance that is competitively awarded be directed,
to the greatest extent feasible, and consistent with existing Federal,
State, and local laws and regulations, to Section 3 residents and
businesses.
(3) Exemption. HUD NOFA competitions that primarily use volunteer
labor, sweat equity, homeowners, or other beneficiaries to carryout
construction or rehabilitation projects or activities are exempt from
complying with the requirements of this subpart.
(b) [Reserved]
Sec. 135.73 Applicant selection criteria.
Where not otherwise precluded by statute, and where applicable, in
the evaluation of applications for the award of assistance,
consideration shall be given to the extent to which an applicant has
described in their applications their plans to train and employ Section
3 residents and contract with Section 3 business concerns in
furtherance of the proposed activities. The program NOFAs for which
Section 3 is applicable will include information regarding how Section
3 activities will be considered in rating the application.
Sec. 135.75 Section 3 compliance for NOFA grantees.
(a) Certifications of compliance with this part. Successful
applicants must certify that they will comply with the requirements set
forth in this part. A HUD office that awards Section 3 covered
financial assistance may require execution of a certification that
reflects the requirements and goals of the Section 3 covered financial
assistance. The Assistant Secretary for the program office will accept
an applicant's certification absent evidence to the contrary.
(b) Monitoring and compliance. Successful applicants shall be held
accountable for complying with the requirements of this subpart;
implementing strategies described in narrative statements; meeting
annual reporting requirements; and will be subject to monitoring at the
discretion of HUD.
Sec. 135.77 Resolution of outstanding Section 3 matters.
Applicants that have received a letter of finding from HUD
identifying noncompliance with Section 3 or that have received a
sanction from HUD for noncompliance with Section 3, which has not been
resolved to HUD's satisfaction before the application deadline, are
ineligible to apply for competitive HUD funding. HUD will determine if
actions taken to resolve the letter of findings or sanction taken
before the deadline are sufficient to resolve the matter.
Subpart E--Enforcement
Sec. 135.91 Cooperation in achieving compliance.
(a) General. HUD recognizes that the success of ensuring that
Section 3 residents and Section 3 businesses have the opportunity to
benefit from employment, training, contracting, and other economic
opportunities generated from Section 3 covered financial assistance
depends on the cooperation and assistance of recipients and their
subrecipients, contractors, and subcontractors. Accordingly, all
recipients shall fully and promptly cooperate with monitoring reviews,
compliance reviews, or complaint investigations undertaken by HUD.
(b) Records of compliance. Each recipient shall maintain adequate
records demonstrating compliance with Section 3 in its own operations
and those of its subrecipients, contractors, and subcontractors,
consistent with Sec. 135.25. Recipients shall submit to HUD timely,
complete and accurate data at such times, in specified formats, and
containing information determined by HUD to be necessary to ascertain
whether the recipient has complied with this subpart.
Sec. 135.93 Conduct of investigations.
(a) Periodic compliance reviews. The Assistant Secretary or
designee may periodically review the practices of recipients to
determine whether they are complying with this part and where he or she
has a reasonable basis to do so may conduct on-site or remote reviews.
Such basis may include any evidence that a problem exists or that
programmatic matters exist that justify investigation in selected
circumstances. The Assistant Secretary or designee shall initiate
compliance reviews by sending to the recipient a letter advising the
recipient of the practices to be reviewed; the programs affected by the
review; and the opportunity, at any time prior to receipt of a final
determination, to make a documentary or other submission that explains,
validates, or otherwise addresses the practices under review. In
addition, normal program compliance reviews and monitoring
[[Page 16544]]
procedures shall identify appropriate actions to review and monitor
compliance with general or specific program requirements designed to
effectuate the requirements of this part.
(b) Interdepartmental coordination. Monitoring and enforcement may
be carried out in coordination with the HUD program office that
provided Section 3 covered financial assistance to the recipient being
reviewed for compliance with Section 3.
(c) Investigations. The Assistant Secretary may conduct an
investigation whenever a compliance or monitoring review, Section 3
annual report, complaint or any other information indicates a possible
failure by a recipient to comply with this part, or that a recipient
failed to ensure compliance with this part by its subrecipients,
contractors, or subcontractors that may be administering Section 3
covered financial assistance on behalf of the recipient.
(d) Who may file a complaint. The following individuals and
businesses may file a complaint alleging noncompliance of the
requirements of Section 3 with the Assistant Secretary, personally or
through an authorized representative:
(1) Any Section 3 resident on behalf of himself or herself, or as a
representative of persons similarly situated, seeking employment,
training or other economic opportunities generated from the expenditure
of Section 3 covered financial assistance by a recipient, subrecipient,
or contractor, or by a representative who is not a Section 3 resident
but who represents one or more Section 3 residents;
(2) Any Section 3 business on behalf of itself, or as a
representative of other Section 3 businesses similarly situated,
seeking contract opportunities generated from the expenditure of
Section 3 covered financial assistance from a recipient, subrecipient,
or contractor, or by an individual representative of Section 3
businesses.
(3) The Assistant Secretary or designee shall hold in confidence
the identity of any person submitting a complaint, unless the person
submits written authorization otherwise, and except to the extent
necessary to carry out the purposes of this part, including the conduct
of any investigation, hearing, or proceeding under this part.
(e) When to file. Complaints shall be filed within 180 days of the
last occurrence of the alleged violation, unless the time for filing is
extended by the Assistant Secretary for good cause shown. For purposes
of determining when a complaint is filed under this paragraph (c) of
this section, a complaint mailed to HUD shall be deemed filed on the
date it is postmarked. Any other complaint shall be deemed filed on the
date it is received by HUD.
(f) Where to file a complaint. A complaint must be filed with the
Office of Fair Housing and Equal Opportunity, U.S. Department of
Housing and Urban Development, 451 7th Street SW., Washington, DC,
20410, or any FHEO Regional or Field Office, as stipulated by HUD.
(g) Contents of complaint. Each complaint must contain the
complainant's name and address, the name and address of the recipient
alleged to have violated this part, and a description of the
recipient's alleged violation in sufficient detail to inform HUD of the
nature and date of the alleged violation of this part. HUD may provide
assistance in drafting a complaint based on information received.
(h) Amendment of complaints. Complaints may be reasonably and
fairly amended at any time. Amendments to complaints, such as a
clarification and amplification of allegations in a complaint, or the
addition of other recipients may be made at any time during the
pendency of the complaint and any amendment shall be deemed to be made
as of the original filing date.
(i) Notification. The Assistant Secretary will notify the
complainant and the recipient of the agency's receipt of the complaint
within 10 calendar days.
(j) Preliminary investigation. (1) Within 30 calendar days of
acknowledgement of the complaint, the Assistant Secretary will review
the complaint for acceptance, rejection, or referral to the appropriate
Federal agency.
(2) If the complaint is accepted, the Assistant Secretary will
notify the complainant and the applicable HUD program office. The
Assistant Secretary will also notify the recipient of the allegations
and provide them an opportunity to make a written submission responding
to, rebutting, or denying the allegations presented in the complaint.
(3) The recipient may send the Assistant Secretary a response to
the notice of complaint within 30 calendar days of receipt. With the
agreement of the Assistant Secretary, an answer may be amended at any
time. The Assistant Secretary will permit answers to be amended for
good cause shown.
(k) Dismissal of complaint. If the investigation reveals no
violation of this part, the Assistant Secretary or designee will
dismiss the complaint and notify the complainant and recipient.
(l) Letter of finding. If no informal resolution of the complaint
or compliance review is reached, and the facts disclosed during a
compliance review or an investigation indicate a failure by the
recipient or its subrecipients or contractors to comply with the
requirements of this part in its own operations or to ensure the
compliance of subrecipients, contractors, or subcontractors that may be
administering Section 3 covered financial assistance on behalf of the
recipient, the Assistant Secretary will issue a letter of findings
within 180 calendar days of receipt of the complaint or culmination of
a compliance review. The letter of findings shall contain the
following:
(1) Preliminary findings of fact and preliminary finding of
noncompliance;
(2) The actions that must be taken to address the areas of
noncompliance within a specified timeframe;
(3) A notice that a copy of the Final Investigative Report of HUD
will be made available, upon request, to the recipient; and
(4) Provide complainants or recipients 30 days to respond to HUD's
findings and resolve or remedy findings of noncompliance identified
during the compliance review or investigation.
(m) Right to review of the letter of findings. (1) A complainant or
recipient may request that a complete review be made of the letter of
findings within 30 calendar days of receipt, by mailing or delivering
to the Assistant Secretary, Office of Fair Housing and Equal
Opportunity, U.S. Department of Housing and Urban Development, 451 7th
Street SW., Washington, DC 20410, a written statement of the reasons
why the letter of findings should be modified in light of supplementary
information.
(2) The Assistant Secretary will send by certified mail, return
receipt requested, or other similar mail services, a copy of the
request for review to the other party, if any. Such other party shall
have 30 calendar days to respond to the request for review.
(3) The Assistant Secretary will either sustain or modify the
letter of findings within 60 calendar days of the request for review.
The Assistant Secretary's decision shall constitute the formal
determination.
(4) If neither party requests that the letter of findings be
reviewed, the Assistant Secretary shall send a formal written
determination of noncompliance to the recipient and the appropriate
[[Page 16545]]
HUD program office that administers the Section 3 financial assistance
provided within 14 calendar days of the expiration of the time period
provided in paragraph (c)(1) of this section.
(n) Voluntary compliance time limits. If it has been determined
that the matter cannot be resolved by voluntary means within 30 days
HUD may proceed with sanctions as described at Sec. 135.27.
(l) Informal resolution of complaint investigations and compliance
reviews. (1) General. It is the policy of HUD to encourage the informal
resolution of matters. The Assistant Secretary may attempt to resolve a
matter through informal means at any stage of a complaint investigation
or compliance review.
(2) Objectives of informal resolution/voluntary compliance. In
attempting informal resolution, the Assistant Secretary will attempt to
achieve a just resolution of the matter and will take such action as
will assure the elimination of any violation of this part or the
prevention of the occurrence of such violation in the future.
(3) The terms of such an informal resolution shall be reduced to a
written voluntary compliance agreement and signed by the recipient and
the Assistant Secretary. Such voluntary compliance agreements shall
seek to protect the public interest, provide denied economic
opportunities to Section 3 residents and businesses, and may include
the provision of relief for those injured by the recipient's
noncompliance.
(o) Intimidatory or retaliatory acts prohibited. No recipient or
other person shall intimidate, threaten, coerce, or discriminate
against any person for the purpose of interfering with any right or
privilege secured by this part, or because he or she has made a
complaint, testified, assisted, or participated in any manner in an
compliance review, investigation or hearing under this part.
Dated: March 2, 2015.
Gustavo Velasquez,
Assistant Secretary for Fair Housing and Equal Opportunity.
[FR Doc. 2015-06544 Filed 3-26-15; 8:45 am]
BILLING CODE 4210-67-P