BY Richard Michael Price and Tatiana Gutierrez
HUD published a proposed rule in the Federal Register on April 4, 2019, revising the “Section 3” regulations. Section 3 is the statutory requirement for recipients of federal grants and assistance to hire low-income individuals. It is particularly relevant for public housing authorities (and RAD transactions) but also for recipients of HUD grants, such as CDBG, HOME and Section 202 Capital Advance funds. Pursuant to standard procedures for promulgating regulations, this proposed rule is open for public comment for 60 days, until June 3, 2019. Interested parties can submit comments through regulations.gov (RIN #2501-AD87).
Some highlights of the changes:
- Tracking labor hours instead of initial hires. HUD proposes shifting the focus from process to outcomes. The proposed rule would place a greater value on job retention and long-term work rather than initial hiring. Much of the current Section 3 practices involves documentation of efforts to hire. HUD proposes shifting the tracking and reporting requirements from initial hires to labor hours. However, an “Alternative 2” focused on initial hires is offered for PHAs if the shift to labor hours is rejected in the rulemaking process.
- Benchmarks. In focusing on outcomes, the proposed regulations establish benchmarks for the percentage of total work hours performed by Section 3 workers. The benchmarks create a safe harbor for compliance and exempt the recipient from further reporting requirements. The benchmarks will be published through notice and will be adjustable and tailorable, as HUD learns more information about how the rule is being used and whether different geographies or different industries need different benchmarks. HUD also published a draft benchmark notice alongside the proposed regulations.
- Targeted Section 3 workers. The proposed rule creates the concept of “Targeted Section 3 Workers,” as a subset of all Section 3 workers who are the beneficiaries of the HUD funding and intended targets of the Section 3 statutory goals. Additional tracking and reporting requirements apply to identify the hiring involving Targeted Section 3 Workers.
- Glitches fixed. With the focus on retention, HUD is fixing the current glitch that stops counting Section 3 workers as Section 3 workers when they get hired and start earning a living wage. The proposed regulations define Section 3 workers as being low-income before they were hired, as living in a qualified census tract or working for a Section 3 business. Also, HUD acknowledges that certain professional services do not lend themselves to Section 3 compliance, so recipients can continue to get credit for Section 3 hires in professional services but the benchmark requirement will not include professional services.
- Reporting changes. Section 3 compliance will be integrated into other programmatic compliance and overseen by the relevant program offices. The goal would be to wrap Section 3 compliance into other programmatic reporting, so reporting would no longer be required through SPEARS.
HUD intends to hold an information session on April 22, 2019.