HUD Proposes New Section 3 Regulations

HUD and the Department of Transportation have proposed new rules governing local hiring and contracting. Anyone interested in submitting comments can do so here. Comments are due by April 6th for the Department of Transportation Rule and May 26th for the HUD rules.

HUD’s Proposed New Section 3 Rules

HUD has released its long-awaited proposed new regulations governing Section 3. The proposed rules can be found by clicking here.

The major changes for Section 3 contracting include the following:

1. Eligible Businesses (Sec. 135.5)

• Perpetual eligibility for category 1 businesses. Category 1 businesses would apparently continue to be eligible for a Section 3 preference after the Section 3 owners no longer meet HUD income requirements.

• Elimination of the so-called “Wal-Mart loophole” for category 2 businesses. Eligibility of Section 3 employees under category 2 would be determined as of the date of hire. Businesses could no longer qualify for a Section 3 preference by paying their employees poverty wages.

• Elimination of the third category. The rule would eliminate category 3 because HUD found “a pattern of misuse by contractors that initially indicated they would award 25% of subcontracts to Section 3 businesses in order to receive preference for contracts, but never provided contracts to them.”
• New category: public housing resident-owned businesses (these businesses are already eligible under category 1)

• New category: businesses that provide substantial training opportunities. Businesses that either sponsor apprenticeship or pre- apprenticeship training for low-income employees or that hire YouthBuild graduates would be eligible for a Section 3 preference.

2. Self-Certification and Presumed Eligibility (Sec. 135.15)

• Self-certification of businesses. Recipient agencies would be allowed to accept self-certifications, but they would be required to verify a sample of self-certified businesses. It’s not clear what size the sample would have to be or how often the sampling would have to be taken.

• Presumed eligibility for businesses in HUD-designated areas. Businesses that are located in HUD-designated distressed areas, or that provide evidence that a substantial number of their employees reside in such areas, would be presumed to be eligible for a Section 3 preference.

3. “Local Area” Limitation (Sec. 135.5)

• Businesses must be located in the “metropolitan statistical area or non-metropolitan county” in which the Section 3 covered project is located in order to receive a Section 3 contracting preference.

4. Changes to Minimum Compliance Thresholds (Sec. 135.35 and 135.55)

• The 3% minimum threshold for non-construction contracts would be eliminated and replaced with a minimum compliance threshold of 10% of the aggregate dollar value of all contracts.

5. Covered Housing and Community Development Projects (Sec. 135.53)

• The $100,000 per contract coverage threshold would be eliminated. Instead, Section 3 requirements would apply to all projects and activities that are funded with HUD housing and community development assistance, regardless of the dollar amount, as long as the recipient agency plans to obligate or commit $400,000 or more in covered assistance per year.

HUD is also proposing a number of changes for the provision of employment and training opportunities for Section 3 residents.

The deadline to submit comments on HUD’s proposed Section 3 rules is May 26, 2015.

Not sure where to start? RHLS can help Section 3 Certified Businesses and nonprofit advocates craft comments. Contact for assistance.

Geographic-Based Hiring Preferences Rule

In addition to the rules proposed by HUD, the Department of Transportation is proposing a rule change that would make it clear that geographic hiring preferences may be used in DOT grant programs.

You can learn more by reading this informative blog by the Partnership for Working Families, or read the rule here.

The deadline to submit comments on DOT’s proposed local hire rules is April 6, 2015.