The purpose of Section 3 is to provide jobs, including apprenticeship opportunities, to public housing residents and other specific 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. Currently, Section 3 rules require that a certain percent of new hires are Section 3 residents. HUD has determined that this measure has led to churning, where employers create a series of short-term jobs and hire and fire an employee in order to meet their Section 3 numeric goals. The proposed rule will curb these practices by changing the metric to a percentage of hours worked. HUD anticipates that the change will incentivize employers to create long-term employment opportunities as employers shift their focus to reporting hours worked, a factor that aligns with business practices, rather than on providing employment for a specific number of new hires. HUD also anticipates that the rule’s streamlined reporting requirements will contribute to an increase in the number of employment opportunities provided to Section 3 residents and more funds for Section 3 businesses. HUD estimates that proposed rule would result in an estimated reporting and recordkeeping burden reduction of 25,910 hours or $1.2 million a year. These figures are preliminary estimates and may be updated pending OMB review.   

Initial compliance costs are expected to be minimal and one-time as recipients shift their practices to meet the new requirements. For example, some recipients may have difficulty determining whether employees live in a Qualified Census Tract, or whether they live within a certain distance of a worksite. However, HUD plans to create tools to assist recipients in making these determinations. HUD will pay attention to public comment on this issue to ensure that compliance costs are indeed reduced by this rule change.

Benefits to low-income and very low-income persons are difficult to quantify. As described below, the change from measuring new hires to measuring labor hours could not only reduce churn but, depending on the initial benchmarks established, could also result in employers not needing to add new Section 3 workers in the short-term. However, tracking the amount of work performed by Targeted Section 3 workers would help ensure that the priorities of Section 3 are being considered, consistent with the statutory requirement, when recipients hire and distribute hours to low-income workers. As HUD tracks the new data reported by recipients, HUD expects to move the benchmarks to ensure that recipients are driven to increase their Section 3 opportunities, consistent with the Section 3 statutory intent that Federal financial assistance is, to the greatest extent feasible, directed toward low- and very low-income persons, particularly those who are recipients of government assistance for housing. The goal is that those recipients of government assistance for housing will find Section 3 employment and a path to financial security that removes the need for long-term government assistance.

The initial benefit of this rule is the reduction in administrative costs to both HUD and recipients of HUD financing, which results from aligning the Section 3 requirements with what businesses already track. HUD believes this change would improve compliance by recipients.