[Federal Register Volume 84, Number 65 (Thursday, April 4, 2019)]
[Proposed Rules]
[Pages 13199-13204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06564]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 75

[Docket No. FR-6085-N-02]


Section 3 Benchmarks for Creating Economic Opportunities for Low- 
and Very Low-Income Persons and Eligible Businesses

AGENCY: Office of the Assistant Deputy Secretary for Field Policy and 
Management, HUD.

ACTION: Notification of proposed benchmarks.

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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. Elsewhere in this issue of the Federal Register, 
HUD published a proposed rule that would amend the Section 3 
regulations to, among other things, increase the impact of the Section 
3 requirements, and streamline and update HUD's reporting and tracking 
requirements. The proposed rule includes a requirement that HUD set 
Section 3 benchmarks by publishing a notification, subject to public 
comment, in the Federal Register. The proposed rule provides that HUD 
will set benchmarks based on the number of Section 3 workers and a 
subset of Section 3 workers, defined as Targeted Section 3 workers. If 
a recipient complies with the statutory priorities regarding effort and 
meets the outcome benchmarks, HUD would presume the recipient is 
following Section 3 requirements, absent evidence to the contrary. 
These proposed outcome benchmarks are being published concurrently with 
the proposed rule so the public can comment on the proposed benchmarks 
and methodology for setting the benchmarks prior to adoption of the 
final rule and benchmarks.

DATES: Comment Due Date. June 3, 2019.

ADDRESSES: Interested persons are invited to submit comments regarding 
this document to the Regulations Division, Office of General Counsel, 
451 7th Street SW, Room 10276, Department of Housing and Urban 
Development, 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 comments, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Comments submitted electronically through the 
www.regulations.gov website 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.


[[Page 13200]]


    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 weekdays between 8 a.m. and 5 p.m. 
Eastern Time at the above address. Due to security measures at the HUD 
Headquarters building, an advance appointment to review the public 
comments must be scheduled 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 through 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: Alastair W. McFarlane, Director, 
Economic Development and Public Finance Division, Office of Policy 
Development and Research, Department of Housing and Urban Development, 
451 7th Street SW, Room 8216, Washington, DC 20410; telephone 202-402-
5845 (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:

I. Background

    Section 3 of the Housing and Urban Development Act of 1968 (Pub. L. 
90-448, approved August 1, 1968) (Section 3) (12 U.S.C. 1701u) was 
enacted for the purpose of ensuring, to the greatest extent feasible, 
that economic opportunities generated by the expenditure of certain HUD 
financial assistance are directed to low- and very low-income persons, 
particularly those who receive Federal financial assistance for housing 
and those residing in communities where the financial assistance is 
expended. HUD issued Section 3 regulations through an interim rule 
published on June 30, 1994, at 59 FR 33880, and the regulations are 
codified in 24 CFR part 135. The Section 3 regulations at 24 CFR 135.30 
currently require that Section 3 covered public and Indian housing 
programs and other HUD programs that are covered by Section 3 meet a 
numerical goal of 30 percent of the aggregate number of new hires for a 
1-year period in order to meet a compliance safe harbor. For contracts 
awarded in connection with Section 3 projects and activities, the 
current rule also applies the following goals for each recipient, 
contractor, and subcontractor to commit to award to Section 3 business 
concerns: (1) At least 10 percent of the total dollar amount of all 
Section 3 covered contracts for building trades work for maintenance, 
repair, modernization, or development of public or Indian housing, or 
for building trades work arising in connection with housing 
rehabilitation, housing construction, and other public construction; 
and (2) at least 3 percent of the total dollar amount of all other 
Section 3 covered contracts. Based on HUD's experience with 
implementing the program over the 24 years that have passed since HUD 
promulgated the currently codified Section 3 regulations, HUD is 
proposing to issue new regulations to strengthen and streamline the 
Section 3 requirements.
    HUD issued a proposed rule, found elsewhere in this issue of the 
Federal Register, that would replace the current 24 CFR part 135 
regulations with new Section 3 regulations in 24 CFR part 75. The new 
regulations aim to make Section 3 goals and reporting more meaningful 
and more aligned with statutory requirements, and to make compliance 
easier for recipients. This proposed rule also includes new metrics for 
compliance safe harbors and provides that these benchmarks will be set 
by notification in the Federal Register. The rule separates out the new 
requirements and benchmarks by the type of funding, as follows:
    (1) Public housing program: Subpart B, Additional Provisions for 
Public Housing Financial Assistance, covers development assistance 
provided pursuant to section 5 of the U.S. Housing Act of 1937 (1937 
Act) and Operating Fund and Capital Fund assistance provided pursuant 
to section 9 of the 1937 Act, collectively; these are defined as public 
housing financial assistance in the proposed rule.
    (2) Other HUD programs: Subpart C, Additional Provisions for 
Section 3 Projects, covers housing rehabilitation, housing 
construction, and other public construction projects assisted under HUD 
programs that provide housing and community development financial 
assistance when the amount of assistance to the project exceeds a 
threshold of $200,000, and is defined as a Section 3 project. This 
threshold will not apply to assistance from HUD's Lead Hazard Control 
and Healthy Homes programs.
    As for new metrics, the rule provides that HUD will establish, 
through a Federal Register notification, Section 3 benchmarks by 
setting forth one or both of the following:
    (1) The number of labor hours worked by Section 3 workers divided 
by the total number of labor hours worked by all workers in the 
recipient's fiscal year.
    (2) The number of labor hours worked by Targeted Section 3 workers 
divided by the total number of labor hours worked by all workers in the 
recipient's fiscal year.
    HUD also provides an alternative, titled Alternative 2, in the 
proposed rule that would provide for using new hires, as opposed to 
labor hours, to track Section 3 workers and Targeted Section 3 workers 
for public housing financial assistance (i.e., public housing 
authorities (PHAs) and other recipients of public housing financial 
assistance). In the final rule, HUD will adopt either the use of labor 
hours, Alternative 1, or new hires, Alternative 2, for public housing 
financial assistance.
    The proposed rule explains how HUD plans to determine these 
benchmarks, noting that it may establish a single nationwide benchmark 
for work performed by Section 3 workers and a single nationwide 
benchmark for work performed by Targeted Section 3 workers, or may 
establish multiple benchmarks based on geography, the type of public 
housing financial assistance, or other variables. The proposed rule 
also notes that in establishing the benchmarks, HUD may consider the 
industry averages worked by specific categories of workers or in 
different localities or regions; prior Section 3 reports by recipients; 
and any other factors HUD deems important. In establishing the Section 
3 benchmarks, HUD would exclude professional services, which would be 
defined as non-construction services, including, but not limited to, 
contracts for legal services, financial consulting, accounting 
services, environmental assessment, architectural services, and civil 
engineering services. Lastly, HUD commits to updating the benchmarks no 
less frequently than once every three years through notice, subject to 
public comment, in the Federal Register.
    HUD created the concept of a Section 3 worker and Targeted Section 
3 worker so that HUD could track and set benchmarks to target selected 
categories of workers and to recognize the statutory requirements 
pertaining to contracting opportunities for business concerns employing 
low- and very-low income persons.

[[Page 13201]]

    HUD would define a Section 3 worker for both public housing 
financial assistance and Section 3 projects as a worker that meets one 
of the following:
     The worker's income is below the income limit established 
by HUD;
     The worker lives in a qualified census tract; or
     The worker is employed by a Section 3 business concern.
    HUD would define a Targeted Section 3 worker differently for public 
housing financial assistance and Section 3 projects. For public housing 
financial assistance, Targeted Section 3 workers would be:
     Workers employed by a Section 3 business concern;
     Current residents of public housing or Section 8 assisted 
housing;
     Residents of other projects managed by the PHA that is 
expending assistance; or
     Current YouthBuild participants.
    For Section 3 projects, Targeted Section 3 workers would be:
     Workers employed by a Section 3 business concern;
     Section 3 workers living within the service area or 
neighborhood of the project; or
     Current YouthBuild participants.
    HUD proposes to define a Section 3 business concern as a business 
concern that meets one of the following requirements:
     It is at least 51 percent owned by low- or very low-income 
persons;
     Over 75 percent of the labor hours performed for the 
business are performed by low- or very low-income persons; or
     It is a business at least 25 percent owned by current 
public housing residents or residents who currently live in Section 8-
assisted housing.
    For more information about the proposed rule, HUD refers readers to 
the proposed rule published elsewhere in this issue of the Federal 
Register.

II. This Document

    This document proposes the benchmarks for both public housing 
financial assistance and Section 3 projects consistent with the 
proposed rule. HUD is seeking comment on both the benchmarks numbers 
themselves and the methodology for determining the benchmarks. HUD is 
proposing the same benchmarks for all public housing financial 
assistance and Section 3 projects. Once HUD has more data, it may 
determine whether different benchmarks are appropriate. The following 
benchmarks would apply:

Public Housing Financial Assistance

Alternative 1
    For meeting the safe harbor in proposed Sec.  75.13, PHAs and other 
recipients that certify to following the prioritization of effort in 
proposed Sec.  75.9 and meet or exceed the following Section 3 
benchmarks will be considered to have complied with requirements in 
proposed 24 CFR part 75, subpart B, in the absence of evidence to the 
contrary:
    (1) Twenty-five (25) percent or more of the total number of labor 
hours worked by all workers employed with public housing financial 
assistance in the PHA's or other recipient's fiscal year are Section 3 
workers;
[GRAPHIC] [TIFF OMITTED] TP04AP19.011

    and
    (2) Five (5) percent or more of the total number of labor hours 
worked by all workers employed with public housing financial assistance 
in the PHA's or other recipient's fiscal year are Targeted Section 3 
workers, as defined at proposed Sec.  75.11.
[GRAPHIC] [TIFF OMITTED] TP04AP19.012

Alternative 2
    For meeting the safe harbor in proposed Sec.  75.13, PHAs and other 
recipients that certify to following the prioritization in proposed 
Sec.  75.9 and meet or exceed the following Section 3 benchmarks will 
be considered to have complied with requirements in proposed 24 CFR 
part 75, subpart B, in the absence of evidence to the contrary:
    (1) Thirty (30) percent or more of the total number of new hires 
employed with public housing financial assistance in the PHA's or other 
recipient's fiscal year are Section 3 workers;
[GRAPHIC] [TIFF OMITTED] TP04AP19.013

    and
    (2) Five (5) percent or more of the total number of new hires 
employed with public housing financial assistance in the PHA's or other 
recipient's fiscal year are Targeted Section 3 workers, as defined at 
proposed Sec.  75.11.
[GRAPHIC] [TIFF OMITTED] TP04AP19.014


[[Page 13202]]



Section 3 Project

    For meeting the safe harbor in proposed Sec.  75.23, recipients 
that certify to following the prioritization in proposed Sec.  75.19 
and meet or exceed the following Section 3 benchmarks will be 
considered to have complied with requirements in proposed 24 CFR part 
75, subpart C, in the absence of evidence to the contrary:
    (1) Twenty-five (25) percent or more of the total number of labor 
hours worked by all workers on a Section 3 project are Section 3 
workers;
[GRAPHIC] [TIFF OMITTED] TP04AP19.015

    and
    (2) Five (5) percent or more of the total number of labor hours 
worked by all workers on a Section 3 project are Targeted Section 3 
workers, as defined at proposed Sec.  75.21.
[GRAPHIC] [TIFF OMITTED] TP04AP19.016

The Methodology

    To determine the initial proposed benchmark figures, HUD looked at 
the total hours worked on a construction or development project, the 
total number of workers that would likely qualify as Section 3 workers, 
and the potential pool of Targeted Section 3 workers. For setting the 
total ratio for Section 3 workers/all total labor hours for those 
employed in on-site construction jobs, HUD considered workers in the 
construction trades employed by the construction industry (Industry-
Occupation Matrix for Industry NAICS 230000 and Occupations in 
Construction and Extraction Summary level 47-0000). Although the 
construction industry employs a diversity of types of occupations (such 
as administration), only on-site jobs are covered by Section 3. 
Generally, construction trades are paid higher wages than the average 
occupation. For the purpose of analysis, HUD defines a low-income job 
as one earning no more than 80 percent of the median annual wage. This 
definition is consistent with HUD's definition of a low-income 
household, which is a household earning no more than 80 percent of the 
area median household income. The median annual wage for all 
occupations in the United States was $37,690 in 2017 according to the 
Occupational Employment and Wage Estimates by the Bureau of Labor 
Statistics (BLS); 80 percent of that is $30,152. The low-income 
estimate of $30,152 approximates the upper end of the wage distribution 
for Section 3 workers. HUD considers all occupations with an annual 
wage less than $30,152 as those that could be filled by someone who is 
low-income and meets the Section 3 requirements.
    Data on occupations involved in on-site construction show that a 
very small fraction of occupations are characterized by a median less 
than the measure of low-income ($30,152). That the wages of 
construction occupations are higher than average suggest that Section 3 
workers will not earn the industry's median wage. Instead, a Section 3 
worker is likely to be paid a wage that is lower than the median wage 
(50th percentile) for most industries. Earning less than the median is 
reasonable for recent hires who have less skills and experience than 
the average worker. Most occupations offer a wide distribution of wages 
based on worker productivity and other factors such as location. For 
example, a construction laborer earns a median salary of $34,500, but 
can earn as much as $63,400 (90th percentile annual wages), or as 
little as $22,280 (10th percentile annual wages).
    For the Section 3 employment goal to be attainable, the labor-hour 
threshold must be set at a level that is congruent with the labor 
market. Determining whether it is reasonable to expect there to be job 
openings for low-income workers (80 percent of median income across all 
occupations) requires examining the lower end of the wage distribution 
of the relevant industries. Whether Section 3 workers are to represent 
25 percent of the labor hours completed will depend upon the 25th 
percentile level of wages.

                                                   Distribution of Annual Wages for Full-Time Workers
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                                                                               10th            25th                            75th            90th
                 Industry                            Occupation             percentile      percentile        Median        percentile      percentile
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All.......................................  All.........................          19,970          24,770          37,690          61,110          96,150
Residential Construction..................  All.........................          24,590          32,200          43,730          61,580          88,950
Residential Construction..................  Construction and Extraction.          25,130          32,000          41,430          56,610          74,300
Services to Buildings.....................  All.........................          18,830          21,610          26,790          35,690          49,060
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Source: Bureau of Labor Statistics, May 2017 National Occupational Employment and Wage Estimates, United States.

    The 25th percentile wage for construction occupations in the 
residential construction industry is $32,000, which is slightly above 
the low-income measure of $30,152. The 25 percent employment goal is 
achievable because there are enough low-income construction jobs in 
residential construction. To achieve this goal, however, will require a 
slight stretch. Either all of the low-income labor hours will have to 
be allocated towards Section 3 workers and/or a small portion of the 
jobs above the 25th percentile wage will have to be given to

[[Page 13203]]

Section 3 workers. Examples of low-income construction occupations 
include helpers, cleaners, construction laborers, landscapers, carpet 
installers, roofers, and floor sanders.
    Section 3 applies to other activities than on-site construction 
employment, all of which should be evaluated in the same manner to 
ascertain whether there is sufficient demand for low-income labor. The 
most prominent is the Operating Fund for PHAs, accounting for over 40 
percent of all Section 3 new hires in 2017. Section 3 workers for PHAs 
are likely to be employed in occupations within the ``Services to 
Buildings and Dwellings'' industry. Most of the employment in the 
services to buildings industry is in occupations with a median wage 
below the low-income annual wage. The lowest-income occupations include 
janitors, housekeepers, refuse collectors, receptionists, data entry 
keyers, landscapers, office clerks, and file clerks. Compared to the 
low-income measure of $30,152, the median (50th percentile) annual wage 
in building services is $26,790, and the 25th percentile wage is 
$21,610. The wage distribution for building services is more flexible 
than the one for on-site construction because the wage distribution for 
building services is centered around low-income jobs. The wage 
distribution of the building services industry allows PHAs to offer 
employment to workers with intermediate skills (as well as lower level) 
and to compensate them appropriately.
    Based on the above wage distribution data for on-site construction 
and building services, HUD sets the threshold for Section 3 labor hours 
at 25 percent of all labor hours to encourage recipients, 
subrecipients, contractors, and subcontractors to hire more Section 3 
workers for construction. In both industries, the 25th percentile 
annual wage for that industry is either close to or below the upper 
boundary for low-income.
    For the new hire alternative for public housing financial 
assistance, HUD proposes that the initial threshold for Section 3 hires 
as a percentage of all hires would be 30 percent, which is a figure 
comparable to that in HUD's currently codified Section 3 regulations.
    To establish a Targeted Section 3 benchmark for public housing 
financial assistance projects, HUD estimated the number of residents of 
public housing or Section 8 assisted housing, of current YouthBuild 
participants, and of workers employed by Section 3 business concerns. 
Excluding children, the elderly, and persons with disabilities, there 
are around 2.4 million potential workers living in public housing or 
Section 8 assisted housing across the country's 2,934 PHAs. Because 
small PHAs, those with less than 250 units, make up the majority of 
PHAs and because of their size would have a small number of potential 
workers, HUD believes that the majority of the 2.4 million potential 
workers would be concentrated at the larger PHAs, where approximately 
2,000 potential workers per large PHA could be hired by recipients, 
subrecipients, contractors, or subcontractors. Another pool of workers 
is current YouthBuild workers. Currently, approximately 8,000 youth 
between the ages of 18 and 24 are selected to enroll in the YouthBuild 
program each year.\1\ While some of these workers may be working on 
specific projects for YouthBuild and, thus, are not available to be 
hired as a Targeted Section 3 worker, the rule provides for current or 
previous YouthBuild workers; therefore, this number would be expanded. 
Lastly, the Targeted Section 3 worker for a Section 3 benchmark 
includes workers that are employed by Section 3 business concerns, 
regardless of where the business is located. Based on the data in HUD's 
Section 3 business Registry, there is an ample number of Section 3 
business concerns. HUD, therefore, believes given the multitude of 
available workers that recipients, contractors, or subcontractors can 
find to meet the Targeted Section 3 benchmark, that 5 percent is a 
reasonable goal for the first Targeted Section 3 benchmark.
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    \1\ See About YouthBuild, YouthBuild.com, https://www.youthbuild.org/about-youthbuild-usa (last visited June 19, 
2018).
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    Targeted workers constitute one-fifth (5 percent/25 percent) of the 
proposed goals. To ensure that 5 percent of local workers is not a 
burdensome goal for employers, HUD refers to data on commuting times 
from the U.S. Census. For 5 percent to be easily attainable, the 
journey to work must be a short one for one-fifth of all workers. The 
travel time to work is less than 10 minutes for 12.7 percent of all 
workers; and less than 15 minutes for 26.3 percent of all workers. The 
distribution of travel times indicates that the Section 3 Targeted 
worker goal is attainable, but that the goal may require a slight 
stretch. However, a slight stretch is welcome given that the purpose of 
Targeted worker definition is to provide local employment to those 
workers who are low-income and typically have longer commutes.

                     Travel Time to Work, 2013-2017
------------------------------------------------------------------------
                                                Percentage   Cumulative
                   Minutes                      of workers  percentage *
------------------------------------------------------------------------
Less than 10 minutes.........................         12.7          12.7
10 to 14 minutes.............................         13.6          26.3
15 to 19 minutes.............................         15.3          41.6
20 to 24 minutes.............................         14.6          56.2
25 to 29 minutes.............................          6.4          62.6
30 to 34 minutes.............................         13.7          76.3
35 to 44 minutes.............................          6.8          83.1
45 to 59 minutes.............................          8.1          91.2
60 or more minutes...........................          8.9         100.1
Mean Travel time (minutes)...................         26.4  ............
------------------------------------------------------------------------
*Total is greater than 100 percent due to rounding of percentages.
Source: U.S. Census, 2013-2017 American Community Survey 5-Year
  Estimates.

    As for Section 3 projects, HUD proposes the same fraction of 5 
percent. HUD looked at nearly 3,000 past Community Development Block 
Grant program (CDBG) and HOME Investment Partnership Program (HOME) 
projects in diverse geographic regions with at least $200,000 in 
funding to estimate the number of potential Targeted Section 3 workers 
available for Section 3 projects. For those that fall into the first 
category, based on geographic proximity to the project site, HUD looked 
at the number of low-income persons and all persons living in qualified 
census tracts within the local area, and the percentage of population 
that is working age (to exclude the elderly and children). HUD data 
shows that a median of 4,627 potential Targeted Section 3 workers live 
in the local areas associated with the sample of housing and community 
development projects. HUD notes that the use of geographic proximity to 
define the local area means that there could be significant deviation 
among the number of Targeted Section 3 workers available for different 
projects. The number of potential Targeted Section 3 workers in the 
geographically diverse sample of CDBG and HOME projects ranged from a 
minimum under 500 to a maximum over 125,000. Targeted Section 3 workers 
for Section 3 projects also include current YouthBuild workers and 
workers employed by Section 3 business concerns to meet the Targeted 
Section 3 worker benchmark. While the estimated pool of potential 
Targeted Section 3 workers seems larger for Section 3 projects than for 
public housing financial assistance, HUD believes that given the large 
fluctuation of the number of available workers for Section 3 projects, 
the Section 3 project benchmark for Targeted Section 3 workers should 
initially also be 5 percent.


[[Page 13204]]


    Dated: March 29, 2019.
Matthew F. Hunter,
Assistant Deputy Secretary for Field Policy and Management.
[FR Doc. 2019-06564 Filed 4-3-19; 8:45 am]
 BILLING CODE 4210-67-P