NMA Blog

Section 3 of the Housing and Urban Development Act of 1968 requires recipients of HUD funding to create job training, employment, and contract opportunities for low- and very low-income individuals. When you think of HUD funding, it's probably subsidized housing that comes to mind. However, HUD also provides financial assistance to community centers, libraries, parks, and local road improvement, among other things.

The intent of Section 3 is to provide these opportunities to the "greatest extent feasible," as outlined in 24 CFR 135.30. This means that other procurement considerations are subordinate to Section 3 goals, and that cost considerations are insufficient grounds for awarding contracts to firms that are not Section 3-compliant.

• Part I: Why does it matter?
• Part II: Is my PHA subject to Section 3?
• Part III: What are my PHA's responsibilities?
• Part IV: Can you recommend some Section 3 best practices?

Why does it matter?

One word: FHEO. The Office of Fair Housing and Equal Opportunity (FHEO) is monitoring Section 3 compliance, and that means it's high on HUD's radar. HUD, FHEO, and the Department of Justice (DOJ) have all stated recently that Section 3 will be a priority for enforcement. PHAs, cities, counties, and even states have been put under voluntary compliance agreements (VCAs) for not adequately implementing Section 3 requirements.

FHEO has also invited businesses and low-income persons to learn more about Section 3 by contacting an FHEO representative at their local HUD field office. Section 3 residents, businesses, or a representative of either may file a complaint if they believe that a violation of Section 3 requirements has occurred where a HUD-funded project is planned or underway. Complaints will be investigated; a complaint that cannot be resolved voluntarily may result in an administrative hearing.

Who are Section 3 residents?

Section 3 residents include not just public housing residents, but also YouthBuild participants and low- and very low-income persons. Low and very low-income household 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 the house. (You can find them online here.) Housing choice voucher (HCV) families are not automatically considered Section 3 residents, but can qualify on the basis of income.

Who receives Section 3 priority?

For training and development, priority is given to persons in public and assisted housing, persons in the area where the HUD funding is provided, and homeless persons.

Priority is also given to participants in HUD's YouthBuild programs. In a recent letter posted to the Section 3 website, HUD and the Department of Labor (DOL) announced a partnership in support of YouthBuild, which provides employment and training opportunities for disadvantaged or at-risk youth. The goal of the partnership is to increase apprenticeship opportunities by connecting Section 3-covered contractors and YouthBuild graduates. According to the letter, contractors that sponsor YouthBuild graduates will increase the competitiveness of their proposals when bidding on HUD-funded construction projects. YouthBuild administrators are prepared to market the availability of training opportunities to local Section 3-eligible residents, particularly those residing in public housing.

For contracting, businesses that meet the definition of a Section 3 business concern receive priority.

What is a Section 3 business concern?

A Section 3 business concern is defined as a business that:

• Is owned (51 percent or more) by Section 3 residents; or
• Employs Section 3 residents as at least 30 percent of its full-time, permanent staff; or
• Provides evidence of a commitment to subcontract to Section 3 business concerns for 25 percent or more of the awarded contract

In Part II, we'll discuss which PHAs are subject to Section 3 and provide some important Section 3 definitions and examples.

NMA senior associate Cara Gillette trains, consults, and provides technical assistance nationwide in fair housing, public housing management, hearings, economic self-sufficiency, and governing boards. Prior to joining NMA, she administered public housing and Section 8 waiting lists, served as hearing officer, managed public housing, and oversaw resident economic development programs at the San Diego Housing Commission. She has previously written for the NMA blog on how to work with sequestration in the public housing program.

Looking for further guidance? We can bring our Procurement and Section 3 seminar to your PHA. Email sales@nanmckay.com for more information about our affordable onsite training options.

Trainer and consultant Samantha Pratter has been a part of the NMA team since 2008. As NMA’s writing supervisor, Samantha oversees publications from concept and creation through the ongoing revision process, including NMA Master Books, model policies, course books, and handbooks. She recently wrote for the NMA blog about the key differences between the project-based voucher (PBV) program and the (HCV) housing choice voucher program.

As NMA's professional development manager, Sheryl Putnam spearheaded the development of our new Blended Occupancy Management and Fundamentals of Low-Income Housing Tax Credit (LIHTC) Management certification seminars. Prior to joining Nan McKay and Associates in 2011, she managed the compliance department for a state housing finance agency, providing compliance oversight activities for the LIHTC, PBRA, and HOME programs. Sheryl will be presenting several sessions at the 2014 NMA and GoSection8 Housing Conference, including this one and How to Avoid Noncompliance: Blended Occupancy.

Ensuring Compliance and Maximizing Financial Resources

How to Avoid Noncompliance: Low-Income Housing Tax Credits (LIHTC) and Hot Topics from IRS Newsletters
Presenters, Sheryl Putnam and Samantha Pratter

The LIHTC Newsletter, which the Internal Revenue Service (IRS) has been publishing since 2000, is an excellent resource for addressing many issues owners face and also provides a valuable forum for networking, sharing information about IRC 42, and communicating guidance. This session will focus on some of the important topics covered in recent newsletters, including information on CHG 4 to the HUD Handbook 4350.3, the exception for married students under the student rule, using new income limits, first-year certifications, reporting noncompliance with utility allowance requirements, treating buildings as part of a multiple building project, and the available unit rule.

Our free one-on-one consulting sessions at the second annual NMA and GoSection8 Housing Conference in Chicago are filling up fast! Sheryl's already fully booked, but Samantha and other industry experts are still available, so sign up now and save your seat. Register online or email sales@nanmckay.com for more information.

NMA professional development manager Sheryl Putnam will be presenting a session on blended occupancy at this year’s NMA Housing Conference

As NMA's professional development manager, Sheryl Putnam spearheaded the development of our new Blended Occupancy Management and Fundamentals of Low-Income Housing Tax Credit (LIHTC) Management certification seminars. Prior to joining Nan McKay and Associates in 2011, she managed the compliance department for a state housing finance agency, providing compliance oversight activities for the LIHTC, PBRA, and HOME programs. Sheryl recently wrote a series for the NMA blog about blended occupancy projects and will be presenting the following session at the 2014 NMA and GoSection8 Housing Conference.

Ensuring Compliance and Maximizing Financial Resources

How to Avoid Noncompliance: Blended Occupancy
Presenter, Sheryl Putnam

Managing housing developments with multiple funding sources can be complicated. Requirements from multiple oversight agencies need to be satisfied, and there's an overall lack of guidance on how to operate blended developments, since each monitoring agency audits for compliance with its own program requirements. Because penalties for noncompliance can be severe, this session will explore some of the most complicated compliance areas, including:

• Applying income limits and income targeting requirements
• Applying correct rent limits/restrictions
• Understanding and applying the LIHTC and Section 8 student rules
• Differences in income and asset calculation and verification
• Applying utility allowances correctly

Sheryl and other industry experts will be available for limited free one-hour consulting sessions at the 2014 NMA and GoSection8 Housing Conference. Registered participants can sign up on a first-come, first-served basis starting July 14. Register online or email sales@nanmckay.com for more information.

This morning HUD published a Federal Register notice implementing program changes contained in the 2014 appropriations act. Like last month’s implementation notice on flat rents (Notice PIH 2014-12), today’s notice will serve as interim guidance pending HUD rulemaking. The effective date for the changes discussed in the notice is July 1.

➤  PHA Consortia: The appropriations act changes the definition of “public housing agency” to include a PHA consortium. While PHAs may request waivers of existing restrictions, HUD notes that it will not approve any consortium for administration of multifamily project-based Section 8 contracts.

➤  Biennial Inspections: In the voucher program, PHAs may now elect to conduct housing quality standards (HQS) inspections biennially rather than annually for assisted units. According to the notice, HUD is implementing this change on a limited basis pending stakeholder input through future rulemaking.

The option to perform biennial inspections applies to assisted units during the term of a HAP contract. PHAs must still perform inspections prior to executing a HAP contract, and on an interim basis when requested by a family or government official. For units which have been inspected during the last 12 months, PHAs may reinspect within 24 months of the most recent inspection. For units which have not been inspected within the past 12 months, PHAs must conduct an annual inspection, and may then schedule the next inspection within 24 months.

The new rule does not require PHAs to adopt a 24-month inspection cycle. PHAs may inspect more frequently if they wish to do so. SEMAP scores will reflect the new requirement.

The rule also permits PHAs to substitute “alternative inspections” for required HQS inspections in some circumstances. After submitting a certification to HUD, the PHA could accept inspection results from the HOME program, the Low Income Housing Tax Credit (LIHTC) program, or similar sources.

For mixed-finance properties, HUD will address changes to inspection requirements in the rulemaking process rather than in this interim notice. Meanwhile, PHAs may adopt biennial inspection policies or alternative inspection methods for these properties.

➤  Definition of Extremely Low Income: In the appropriations act, Congress broadened the definition of “extremely low income (ELI) family” to include families whose income does not exceed the federal poverty level. Under the prior rule, only families whose income did not exceed 30 percent of area median income qualified as ELI.

HUD’s income targeting rule requires that during the PHA’s fiscal year, 75 percent of new admissions to the voucher program and 40 percent of public housing new admissions must be ELI families. The new provision was meant to provide financial relief to PHAs by permitting them to “target” ELI families with slightly higher incomes than the previous rule allowed. For the current fiscal year, PHAs must account for their ELI admissions separately for the period prior to July 1 (under the old rule) and after July 1 (under the new rule).

HUD has recalculated the 2014 income limits to include the new ELI amounts. The revised tables are available here.

➤  Utility Allowances: A change in voucher program rule requires the PHA to now use the utility allowance for the lower of the actual unit size or the voucher bedroom size. Under the previous rule the PHA used the utility allowance for the actual unit size regardless of the voucher bedroom size.

Under the new rule, a family with a 2-bedroom voucher that chooses to lease a 3-bedroom unit will now have the 2-bedroom utility allowance applied. Of course, the PHA must make exceptions if necessary as a reasonable accommodation for a family that includes a person with disabilities.

The new rule on utility allowances is to be applied for all new admissions. For current program participants, the new rule must be applied at the family’s next annual reexamination, as long as the PHA is able to provide the family with written notice at least 60 days in advance of the effective date.

Need help with inspections? Our team of NMAI inspectors have an average background of 12 years’ experience conducting inspections, are highly qualified and certified in HQS and/or UPCS, and have completed required sensitivity and sexual harassment training as well as extensive criminal background checks before beginning work. For more information about NMA Inspections, please visit our website or contact us directly at sales@nanmckay.com.

Up next in our "Meet the Team" interview series is senior associate trainer Sammie Szabo, who joined NMA five years ago after retiring from a four-decade career in the affordable housing industry. With longstanding expertise in complex topics such as project-based vouchers and mixed finance, Ms. Szabo was instrumental in the design of two new seminars focusing on those subjects, Blended Occupancy Management and Developing and Managing Project-Based Vouchers.

Tell us about your work experience.

Before joining Nan McKay and Associates, I worked for a PHA in Southern California for 36 years. That was before the Section 8 program was created, and we administered a public housing program with a total staff of seven people — two in the administrative office (me and the executive director), three in maintenance, and two in the resident services department.

Our waiting list for the public housing program was huge in comparison to the number of units owned by my PHA, and we were very excited when Congress approved the Section 8 program. I wrote our first application for the Section 8 certificate program, and we were approved! Subsequently I wrote and submitted a number of additional applications each and every time funds were available for the certificate program, as well as for the CIAP (pre-capital fund for public housing) and the resident services program.

I became the executive director of the PHA in 1980, and I believe that at age 26 I was the youngest ED. During my tenure with the PHA I expanded the Section 8 program, converted from certificates to vouchers, substantially remodeled the public housing development that had been constructed in 1940, expanded the resident services program, established a vibrant after-school program serving not only children in the public housing program but also in the surrounding community, acquired and rehabbed dilapidated apartments in order to expand affordable housing, and developed affordable housing for seniors using multiple funding sources, including low-income housing tax credits, redevelopment funds, and a loan from the California Housing Finance Agency.

How did you get your start in the industry?

I moved back to California and was looking for a job that interested me, and wasn't just a paycheck. I was offered two jobs on the same day, one at a local college, the other with the housing authority. The people and the work at the housing authority interested me, I hadn't had any experience in the public sector, and after growing up the community, I found the fact that there were programs to help persons of low income in a rather wealthy community fascinating.

I accepted the job with the housing authority, and I was hooked. The job was never boring, and the opportunities to learn, grow, and expand the programs and services that help families move up and out were challenging. I loved it! I always said I would leave the public sector when I got bored, or found the job no longer challenged me. It never happened. Frustrating at times? Absolutely! Boring? Never.

What’s one topic you’re most passionate about in the affordable housing industry?

Providing families, and especially children, with an opportunity to improve their lives and futures. Housing is the keystone to a better future.

What's your favorite part about your job?

Helping the people who help the people. Sounds corny, but it's what we do. At NMA we take pride in providing our students and clients with the tools they need to do their job well. I am thrilled when I complete a consulting assignment or training and know that because of the work we do, our clients are better prepared to serve their agencies and their clients and manage these precious federal resources.

Describe your typical work day?

There isn't a typical work day. Some days are all about travel — getting from home base to the training or consulting site, dealing with airports, security, hotels, car rentals, and all that is associated with the joys of travel. Some days I get up very, very early, often in a  different time zone, locate training rooms and materials, unpack, set up a training room, and prepare myself to be ready and energized when the students arrive. Thank God for coffee!

Other days it's all about meeting with agency staff, getting to know their agency and their needs in order to meet their consulting goals, and respectfully providing the services they need. Yes, living in hotels and eating meals alone is part of the job, but the services we provide are well worth the travel, long days, early mornings, and sore feet.

Tell us about a successful project that you had a part in.

I'm thankful that I've had the opportunity to be a part of many successful projects: working with my team and the local police department to turn a crime-ridden public housing development into a clean, safe, family-friendly environment; developing much-needed senior housing for extremely low-income seniors as well as "gap group" seniors, those above the income limit levels for government subsidies but too poor to afford quality housing with services; and helping agencies create policies and procedures that allow them to better manage their agencies.

The one that touches my heart the most... the development of an after-school program for children in public housing. When I started at the housing authority, I was appalled by the dropout rate of the youth growing up in public housing. By the time I left my agency, 99 percent of our young people graduated from high school, and the majority went on to graduate from college. We made a real difference, long-term, in the lives of those children and their families.

When she isn't traveling, training, or consulting, Sammie Szabo loves to read, and can devour a book or two a day. She also enjoys riding the dunes on her quad and appreciating the beauty of the desert, but her favorite pastime is spending time with her family.