[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.
----------------------------------------------------------------------------------------------------------------

    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