Section 3: Job Training, Employment, and Business Opportunities

Resources / September 7, 2017

The purpose of Section 3 of the Housing and Urban Development Act of 1968 is to provide economic and employment opportunities to low- and very-low income individuals. Section 3 requires recipients of certain types of HUD funding to ensure to the “greatest extent feasible” that a certain percentage of the job training, employment, and contracting opportunities that arise from the expenditure of the funds benefit low- and very-low income individuals.

There is little information available nationally to determine if public housing agencies (PHAs) or other recipients of HUD funds have met their obligations under the law. A 2003 HUD Inspector General (IG) Report found that HUD did not have adequate controls in place to ensure that Section 3 is meeting its purpose. Similarly, a 2013 OIG Report determined that HUD did not enforce reporting requirements for Recovery Act public housing Capital Fund recipients. The potential for jobs for low-income residents under Section 3 remains extensive and untapped in many areas. Nonetheless, some PHAs and local community development agencies report that they have met or are exceeding their Section 3 hiring and contracting obligations.

How does the program work?

All HUD funds received by public housing agencies (PHAs) are subject to Section 3. Therefore, PHAs must ensure that 30% of all employees newly hired for public housing administrative, modernization or construction jobs are Section 3 residents. Ten percent of all public housing construction, modernization, repair and development contracts must be with Section 3 businesses and 3% of all other contracts must be with Section 3 businesses. Advocates and residents have often focused on Section 3 job and contracting opportunities that have arisen in the context of HOPE VI and the expenditure of public housing capital funds. More recently, the Rental Assistance Demonstration (RAD) program has raised new opportunities for Section 3 activities.

Other recipients of HUD funds, such as cities and local governments, must also comply with Section 3, provided that the recipient receives more than $200,000 and the contract or subcontract exceeds $100,000. Non public housing funds that are subject to Section 3 are for construction and public works and include but are not limited to Community Development Block Grant funds, HOME funds, and Neighborhood Stabilization Program (NSP) funds and Assisted Housing Energy and Green Retrofit investments. In selecting a Section 3 resident or Section 3 business, the PHA or other recipient of HUD funds must give a priority to certain classes of residents such as public housing residents, homeless individuals, YouthBuild participants or other low-income residents or certain classes of businesses, such as businesses owned by Section 3 residents who are public housing residents or that provide economic opportunities for Section 3 residents in the area/neighborhood.

Section 3 residents and businesses that have been harmed by the failure of HUD or recipients of HUD funds to enforce or implement Section 3 have sought both judicial and administrative relief. Residents and advocates have also worked with local agencies, such as PHAs and city or county governments that receive HUD funds subject to Section 3, and commented on local PHA Annual Plans or ConPlans to get them to implement Section 3.

Guidebook and Fact Sheet

NHLP published An Advocate’s Guide to the HUD Section 3 Program; Creating Jobs and Economic Opportunity (Feb. 2009). The guide sets forth the rules of the Section 3 program, highlights successful Section 3 programs, and provides tips on how to advocate for improved Section 3 compliance and results.
NHLP also published a fact sheet on Section 3.

Articles

NHLP has published a number of articles on Section 3 in its Housing Law Bulletin:
This June 2010 NHLP Housing Law Bulletin article reviews the HUD investigation of St. Paul regarding compliance with Section 3, notes that HUD withheld $18 million in Neighborhood Stabilization Program (NSP) funds for a period of time because of a finding of non-compliance and summarizes the Voluntary Compliance Agreement (VCA) in which the City agreed to provide up to $1 million to fund various Section 3 initiatives.
Courts Reluctant to Enforce Section 3
Long Beach Ordered to Designate Additional Projects as Subject to Section 3
Encouraging Compliance with Section 3 Employment Requirements

Cases

In Mannarino v. HUD, 2008 WL 4960083 (W.D. Pa. Nov. 18, 2008), pro se plaintiffs filed an administrative complaint with HUD in 1997 and HUD did not act on the complaint until 2006. The plaintiffs’ judicial complaint alleged harm due to the delay and that HUD failed to provide any redress for the alleged harm. HUD filed a motion to dismiss, which the court denied. The court subsequently found that HUD’s conclusion that it was not authorized to impose monetary sanctions was not arbitrary or capricious. NHLP featured an article about this case in the Housing Law Bulletin.
In Nails Constr. Co. v. City of Saint Paul, 2007 WL 4231187 (D. Minn. Feb. 6, 2007), the district court granted the defendant’s motion for summary judgment as the plaintiffs lacked standing and there was no private right of action. The plaintiffs claimed to be businesses or low-income persons within the meaning of Section 3 and sued the City for allegedly failing to implement Section 3 requirements and violating reporting requirements. The court ruled that the plaintiffs did not identify any opportunities covered by Section 3 that they sought or will seek from the City nor did they explain how the City’s alleged violations of Section 3’s reporting requirements injured them.