FAQs - General Questions

Q. What is Section 3?
Section 3 is a provision of the Housing and Urban Development Act of 1968. The purpose of Section 3 to ensure that employment 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 business concerns which provide economic opportunities to low- and very low-income persons.

Q. What does "To the Greatest Extent Feasible" Mean?
By to the "Greatest Extent Feasible", the Department means the every effort must be made to comply with the regulatory requirements of Section 3. By this, the Department means that recipients of Section 3 covered financial assistance should make every effort within their disposal to meet the regulatory requirements. For instance, this may mean going a step beyond normal notification procedures for employment and contracting procedures by developing strategies that will specifically target Section 3 residents and businesses for these types of economic opportunities.

Q. What does the term "Section 3 resident" mean?
A "section 3 resident" is: 1) a public housing resident; or 2) a low- or very low- income person residing in the metropolitan area or non-metropolitan county where the Section 3 covered assistance is expended.

Q. What does the term Section 3 Business Concern mean?
Section 3 business concerns are businesses that can provide evidence that they meet one of the following criteria:

• 51 percent or more owned by Section 3 residents; or
• At least 30 percent of its full time employees include persons that are currently Section 3 residents, or were Section 3 residents within three years of the date of first hire*; or
• Provides evidence, as required, of a commitment to subcontract in excess of 25 percent of the dollar award of all subcontracts to business concerns that meet one of the first two qualifications

*Example: Alysha was an unemployed Section 3 resident that was first hired by ABC Company on January 1, 2011. She received a raise of $2,500 in March 2012, thereby boosting her household income above the local low income level. ABC Company may continue to count Alysha as one of their Section 3 employees until December 31, 2013 (i.e. within three years of the date of first hire).

Q. How does Section 3 differ from the Minority Business Enterprise / Women Business Enterprise programs?
Section 3 is both race and gender neutral. The preferences provided under this regulation are based on income-level and location. Section 3 regulations were designed to encourage recipients of HUD funding to direct new employment, training, and contracting opportunities to low-income residents, and the businesses that employ these persons, within their community regardless of race and/or gender.

To learn more about the Minority Business Enterprise and Women Business Enterprise programs, please contact HUD's Office of Small and Disadvantaged Business Utilization at 202-708-1428, or visit their website, located at: portal.hud.gov/portal/page/portal/HUD/program_offices/sdb

Q. How are "low-income" and very low-income determined?
Low- and very-low-household income limits are determined annually by HUD. These limits are typically established at 80 percent and 50 percent of the median income for each locality by household size or the number of people residing in one house.

HUD income limits may be obtained from: huduser.org/portal/datasets/il.html

Q. What are "metropolitan areas" and "non-metropolitan counties?"
Metropolitan area means a metropolitan statistical area (MSA), as established by the Office of Management and Budget. A non-metropolitan county means any county outside of a metropolitan area.

Q. What is a "new hire"?
A new hire means a full-time employee for a new permanent, temporary, or seasonal position that is created as a direct result of the expenditure of Section 3 covered financial assistance.

Q. Can laid-off workers that are "re-hired" as a result of a HUD-funded project considered new hires?
Yes. Any employee that was not on the payroll of a recipient, developer, or contractor on the day that Section 3 covered assistance was provided can be counted towards the Section 3 minimum numerical goal for employment.

Q. What is a Section 3 covered project?
A Section 3 covered project involves the construction or rehabilitation of housing (including reduction of lead-based paint hazards), or other public construction such as street repair, sewage line repair or installation, updates to building facades, etc.

Q. Who is considered a recipient of Section 3 funding?
A recipient is any entity which receives Section 3 covered assistance, directly from HUD or from another recipient (i.e., a PHA; unit of State or local government; property owner; developer; etc). It does not include contractors or any intended beneficiary under the HUD program to which Section 3 applies, such as a homeowner or a Section 3 resident.

Q. Which recipient agencies (or sources of HUD financial assistance) are required to comply with Section 3?
Public Housing Authorities (PHAs) regardless of size or number of units are required to comply with Section 3. One exception is PHAs that only receive or administer tenant-based Housing Choice (Section 8) Vouchers and do not utilize any of the financial assistance described above. Although they are exempt, compliance with Section 3 is encouraged.

Section 3 also applies to recipients of more than $200,000 from housing and community development programs. The following are a list of examples of such funds:

• Community Development Block Grant (CDBG)
• HOME Investment Partnership
• Neighborhood Stabilization Program Grants (NSP 1, 2 & 3)
• Economic Development Initiative (EDI)/Brownfield Economic Development Initiative Grants
• Housing Opportunities for Persons with AIDS (HOPWA) Homeless Assistance Grants (ESG)
• University Partnership Grants
• Economic Stimulus Funds (including CDBG-R and CFP Supplemental) 202/811 Grants
• Lead Hazard Control Grants

Note: The requirements of Section 3 typically apply to recipients of HUD funds that will be used for housing construction, rehabilitation, or other public construction. Contact the Economic Opportunity Division at email HUD.gov Section3 to determine applicability to a particular project/activity.

Q. Can a non-profit organization be considered a "business concern" for the purposes of Section 3?
Yes. A non-profit organization can be a legitimate business concern. Non-profit organizations must meet the criteria of a Section 3 business concern as defined at 24 CFR Part 135.5 in order to receive Section 3 preference.

Q. What is a Service Area?
The Service area is the geographical area in which the persons benefiting from the Section 3 covered project reside. The Service Area shall not extend beyond the unit of local government in which the Section 3 covered financial assistance is expended.