[Federal Register Volume 85, Number 189 (Tuesday, September 29, 2020)]
[Rules and Regulations]
[Pages 60907-60909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19183]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 75

[Docket No. FR-6085-N-04]


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 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 final rule that would amend the Section 3 regulations 
to, among other things, increase Section 3's impact, and streamline and 
update HUD's reporting and tracking requirements. The final rule 
includes a requirement that HUD set Section 3 benchmarks by publishing 
a notification, subject to public comment, in the Federal Register. If 
a recipient complies with the statutory priorities regarding effort and 
meets the outcome benchmarks in this document, HUD will presume the 
recipient is following Section 3 requirements, absent evidence to the 
contrary.

DATES: Effective Date. October 29, 2020.

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, toll-free at, 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 to ensure, to the greatest extent feasible, that economic 
opportunities generated by certain HUD financial assistance 
expenditures 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.
    In accordance with statutory authority, HUD is charged with the 
responsibility to implement and enforce

[[Page 60908]]

Section 3. HUD's regulations implementing the requirements of Section 3 
have not been updated since 1994 and are not as effective as HUD 
believes they could be. Furthermore, significant legislation has been 
enacted that affects HUD programs that are subject to Section 3 and 
that are not adequately addressed in the current Section 3 regulations. 
On April 4, 2019, HUD proposed a rule to update the Section 3 
regulations. See 84 FR 13177. The proposed rule incorporated a change 
from tracking the number of Section 3 qualified new hires in public 
housing financial assistance and Section 3 projects, to tracking the 
total labor hours worked. In connection with the proposed rule, HUD 
issued a proposed benchmark notification. See 84 FR 13199. The proposed 
benchmark notification included a proposed benchmark number and the 
methodology for determining the benchmarks.

Benchmarks

    For public housing financial assistance, the proposed benchmark 
notification provided that PHAs and other recipients would meet the 
safe harbor in the new Sec.  75.13 by certifying to the prioritization 
of effort in the new Sec.  75.9 and meeting or exceeding Section 3 
benchmarks for total number of labor hours worked by Section 3 workers 
and by Targeted Section 3 workers. (See the definitions of these two 
categories of workers at the end of Section II of this preamble, 
below.) The benchmark for Section 3 workers was set at 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. The benchmark for Targeted Section 3 workers 
was set at 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.
    For Section 3 projects, the proposed benchmark notification set the 
same benchmarks but with regards to the project itself rather than the 
recipient's fiscal year. The proposed benchmark notification provided 
that recipients would meet the safe harbor in the new Sec.  75.23 by 
certifying to the prioritization of effort in the new Sec.  75.19 and 
meeting or exceeding Section 3 benchmarks for total number of labor 
hours worked by Section 3 workers and by Targeted Section 3 workers. 
The benchmark for Section 3 workers was set at 25 percent or more of 
the total number of labor hours worked by all workers on a Section 3 
project. The benchmark for Targeted Section 3 workers was set at 5 
percent or more of the total number of labor hours worked by all 
workers on a Section 3 project.

Methodology

    To determine these benchmarks, 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. In order for the Section 3 employment 
goal to be attainable, HUD determined a labor-hour threshold that is 
congruent with the labor market for low-income workers by examining the 
lower end of the wage distribution of the relevant industries. Based on 
the wage distribution data for on-site construction and building 
services, HUD set 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. For 
the Targeted Section 3 benchmarks, 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. HUD also examined commuting times based on U.S. Census data. 
Finally, HUD reviewed Community Development Block Grant program (CDBG) 
and HOME Investment Partnerships Program (HOME) projects to estimate 
the number of potential Targeted Section 3 workers available for 
Section 3 projects. Based on these data, HUD determined that 5 percent 
of all labor hours, or, in other words, 20 percent of the Section 3 
labor hour threshold, was a reasonable goal for both public housing 
financial assistance and for Section 3 projects.
    HUD sought public comment on both the proposed rule and benchmark 
notification and received 187 public comments, 163 public comments on 
the proposed rule and 24 public comments on the proposed benchmark 
notification. Comments on the proposed rule and notification covered 
both content on the rule and the benchmark numbers. Therefore, all 
public comments received on both the proposed rule and the proposed 
benchmark notification are addressed in HUD's Section 3 final rule.

II. Section 3 Final Rule

    The Section 3 final rule creates new Section 3 regulations in 24 
CFR part 75; the public can find the final rule issued elsewhere in 
today's Federal Register. The Section 3 final rule aims to make Section 
3 goals and reporting more meaningful and more aligned with statutory 
requirements. The final rule, consistent with HUD's Section 3 proposed 
rule, includes new metrics for compliance safe harbors and provides 
that these benchmarks will be set by notification in the Federal 
Register. The final 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. A 
$100,000 project threshold applies to grants under HUD's Lead Hazard 
Control and Healthy Homes programs.
    As for new metrics, the final rule provides, consistent with the 
Section 3 proposed rule, that HUD will establish the Section 3 
benchmarks, through a Federal Register notification. The final rule 
provides that HUD 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 final rule also provides, in 
establishing the benchmarks, that 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 that require an advanced degree or 
professional licensing, 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,

[[Page 60909]]

subject to public comment, in the Federal Register.
    HUD created the Section 3 worker and Targeted Section 3 worker 
concepts 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.
    In the final Section 3 rule, HUD defines a Section 3 worker for 
both public housing financial assistance and Section 3 projects as a 
worker that meets one of the following requirements:
     The worker's income is below the income limit established 
by HUD.
     The worker is employed by a Section 3 business concern.
     The worker is a YouthBuild participant.
    HUD defines a Targeted Section 3 worker differently for public 
housing financial assistance and Section 3 projects. For Sec.  75.11, 
public housing financial assistance, a Targeted Section 3 worker 
includes any worker who is employed by a Section 3 business concern or 
is a:
     Resident of public housing or Section 8-assisted housing;
     Resident of another project managed by the PHA that is 
expending assistance; or
     YouthBuild participant.
    For Sec.  75.21, Section 3 projects, a Targeted Section 3 worker 
includes any worker who is employed by a Section 3 business concern or 
is a Section 3 worker who is:
     Living within the service area or neighborhood of the 
project; or
     A YouthBuild participant.
    HUD defines 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 51 percent owned by current 
public housing residents or residents who currently live in Section 8-
assisted housing.
    For more information about the final rule, HUD refers readers to 
the final rule published elsewhere in this issue of the Federal 
Register.

III. Section 3 Benchmarks

    This document finalizes the benchmarks with regards to labor hours 
for both public housing financial assistance and Section 3 projects 
without changes from what was included in the proposed benchmark 
notification. In the final rule, HUD is not adopting the new hires 
formula as proposed as an alternative in the proposed rule, so the new 
hires formula is accordingly not reflected in this document. HUD is 
finalizing the same benchmarks for all public housing financial 
assistance and Section 3 projects. The methodology in determining the 
Section 3 benchmarks, as discussed above in the Background section, did 
not change from what was described in the proposed benchmark 
notification because the definitions of Section 3 Workers, Targeted 
Section 3 Workers, and Section 3 Business concerns provided in the 
proposed rule and adopted in the Section 3 final rule were not 
substantially different. Once HUD has more data, it may determine 
whether different benchmarks are appropriate. Please see the above 
summary in the Background section of this document and the proposed 
benchmark notification for more information.
    The following benchmarks apply to recipients subject to Section 3 
upon the effective date in the Section 3 final rule:

Public Housing Financial Assistance

    For meeting the safe harbor in Sec.  75.13, PHAs and other 
recipients that certify to following the prioritization of effort in 
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;

 
 
 
             Section 3 Labor Hours                        = 25%
---------------------------------------------
                 Total Labor Hours
 

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 Sec.  75.11.

 
 
 
            Targeted Section 3 Labor Hours                   = 5%
---------------------------------------------------
                         Total Labor Hours
 

Section 3 Project

    For meeting the safe harbor in Sec.  75.23, recipients that certify 
to following the prioritization in 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;

 
 
 
    Targeted Section 3 Labor Hours                        = 25%
---------------------------------------------
                 Total Labor Hours
 

    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 Sec.  75.21.

 
 
 
            Targeted Section 3 Labor Hours                   = 5%
---------------------------------------------------
                         Total Labor Hours
 

IV. Environmental Impact

    This document involves the establishment of new Section 3 
benchmarks for creating economic opportunities for low- and very low-
income persons and eligible businesses, and does not direct, provide 
for assistance or loan and mortgage insurance for, or otherwise govern 
or regulate, real property acquisition, disposition, leasing, 
rehabilitation, alteration, demolition, or new construction; or 
establish, revise, or provide for standards for construction or 
construction materials, manufactured housing, or occupancy. 
Accordingly, under 24 CFR 50.19(c)(1), this document is categorically 
excluded from environmental review under the National Environmental 
Policy Act of 1969 (42 U.S.C. 4321).

Benjamin S. Carson, Sr.,
Secretary.
[FR Doc. 2020-19183 Filed 9-28-20; 8:45 am]
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