National Housing Law Project Housing Law Bulletin

HUD Report Examines Section 3's Potential as a Job-Creation Tool

In a recently released report,¹ HUD examines the status of Section 3, the longstanding statutory requirement that public housing authorities and other HUD grantees, such as CDBG and HOME Investment Partnership grantees, provide public housing residents with job, training and contracting opportunities generated from the expenditure of public funds.² Although the statute has been on the books since 1968, perennially weak enforcement has limited its utility as a tool for residents' economic progress. An interim rule, in effect since June 1994, sought to provide teeth to the statute by setting target goals for implementation for both the employment of residents and contract awards.

The report represents a collaboration between HUD's Office of Policy Development and Research, the Manpower Demonstration Research Corporation (MDRC) and the Rockefeller Foundation to test the feasibility of Section 3 "as a job creation/job access mechanism in public housing communities." The HUD Assistant Secretary for Policy Development and Research acknowledges in the foreword Section 3's limited viability for job creation since many of the opportunities it generates, mostly construction-related jobs, are short-term or intermittent. MDRC conducted the research through interviews with HUD officials and a field study of seven PHAs nationwide. It concluded that Section 3 is but one part of what should be a comprehensive strategy to create large-scale resident employment. HUD is encouraged to look beyond Section 3 and design a demonstration that marries several components of a resident employment strategy. First, the demonstration should test the effect of removing disincentives to work built into the public housing rent structure, which requires 30 percent of income as rent. This could be achieved through existing rent reforms that disregard a portion of earned income, but which have not been implemented by PHAs.³ Secondly, MDRC encourages the testing of community-building - particularly capitalizing on the "concentration of low-income people in one location" - as a means of stimulating support for work in public housing communities. Finally, MDRC recommends that the demonstration test best employment practices that research has demonstrated as being successful in moving welfare recipients to employment.

MDRC suggests a collaborative approach that partners the energy and opportunities of welfare, employment and training, schools, the private sector and community organizations along with more effective handling of the PHAs' property management and social services roles.⁴

Examples of Section 3 efforts in several of the housing authorities studied are described below.

Tampa Housing Authority

Resident entrepreneurship is the centerpiece of Tampa Housing Authority's (THA's) Section 3 approach. MDRC identified four practices that dominate THA's Section 3 laboratory.

First, local contractors seeking THA business must agree to a goal of employing public housing residents as half their new hires. The sealed bid process has been replaced with more competitive arrangements such as the Request for Proposals (RFP), giving THA the ability to consider Section 3 in the award of contracts.

Second, THA has an aggressive resident business incubator program which includes the Resident Enterprise Assistance Program (Project REAP), a two-year business development course addressing a range of issues, including budgeting, accounting, marketing, bid preparation and taxes. Twenty six resident-owned businesses have THA contracts, including landscaping, janitorial services, maintenance and vacant unit preparation. To the extent possible, THA has used existing federal regulations to limit contracting opportunities to resident-owned businesses.

The third component of THA's strategy is the wide-scale use of Resident Management Corporations (RMCs) to perform management and maintenance services. Resident managers who are familiar with both the development and the residents can facilitate the residents' employment. In one example, an RMC running a brickface installation project that had been contracted out to a minority-owned business obtained an apprenticeship-like training program for teenage residents of the development. Three-month jobs paying up to $7 per hour were the result. The contractor plans to employ the young trainees for additional installation work at THA.

Jersey City Housing Authority

Jersey City Housing Authority's (JCHA's) strategy includes development of two apprenticeship programs in conjunction with local labor unions. The first, with a local of the International Brotherhood of Painters and Allied Trades, is a three-year program with 13 apprentices and four journeymen. A second collaboration with the local plasterers union, has six apprentices and two journeymen.

Residents participated in the creation of the apprenticeship programs, and resident organizations have been involved in negotiations with each union around wages, benefits and other work matters. The unions are required to accept successful apprentices into their journeymen programs. Life skills supportive services outside the ambit of the unions or contractors are cited by JCHA as a major element missing from their program.

Chicago Housing Authority

Chicago Housing Authority's (CHA's) model of HUD's Step-Up program - an apprenticeship program for the building and construction trades -has graduated almost half of the residents who started. Of the 144 residents, only three found work in the private sector and the remainder worked in various capacities for CHA, including lead-based paint abatement, and carpenter and painter apprenticeships. CHA arranged with the United States Department of Labor for a priority position for its Step-Up graduates on the waiting list for pre-apprenticeship positions in union-run programs.

Macon Housing Authority

Macon Housing Authority (MHA), which has been a leader in pushing for rent reforms to remove work disincentives, has created a new nonprofit entity, the Entrepreneurial and Employment Training Center, Inc. The Center is a spin-off of MHA's small business development program, Resident Initiatives for Self-Employment (Project RISE), and will contract with Project RISE to manage Section 3 activities within MHA's jurisdiction. In addition, MHA revised its procurement practices to require that contractors provide Section 3 plans at the time bid documents are submitted, a strategy which still does not guarantee implementation of Section 3 regulations.

Project RISE has recently added to its business development focus a second program that emphasizes employability and occupational skills training for residents who want job preparation skills for the private sector rather than those interested in becoming entrepreneurs. MHA works with the local Department of Economic and Community Development to prepare residents for the small and minority business loan program.

Conclusion

MDRC cites the negative effects in all of the sites it examined of the rent rules as a major impediment to resident work. However, it suggests that the problem posed by the 30-percent-of-income rent rule "is secondary to the disincentives caused by the basic AFDC and tax rules" which result in a sharp decrease in assistance within a short period of time as earnings rise, despite the fact that growth in total income is slow during the initial period of employment. The report also acknowledges resident fears of their loss of housing assistance if they go to work.

Finally, the report sets out what MDRC views as the major impediments to full Section 3 implementation. First, procurement and contracting rules, including state and local laws, that traditionally have required PHAs to accept the lowest responsible bid must be revisited and consideration given to alternative procurement methods, including changes to the sealed bid process and increased use of RFPs which afford greater opportunity for evaluation of competing bids.

Second, more aggressive monitoring of Section 3 implementation is required. Third, PHAs need guidance on the statutory standard that requires only that contractors use their "best efforts" in hiring residents. Finally, new approaches need to be found to change contractor attitudes toward training residents in the construction trades.

The report outlines "social and cultural organization of public housing communities" as a potential obstacle to supporting work. It also identifies the need to address several factors related to public housing residents' job readiness. These include the "social isolation" of public housing communities; lack of pre-employment and job-readiness skills, as well as occupational skills, and supportive services such as childcare, transportation and related services.

The report is available from HUD User, P.O. Box 6091, Rockville, MD 20849. The cost is $5 per copy. For ordering by phone or more information, call 1-800-245-2691 or 1-800-483-2209 (TDD).

¹United States Department of Housing and Urban Development, Office of Policy Development and Research, Lessons from the Field on the Implementation of Section 3 (Nov. 1996).

²Section 3 of the Housing and Urban Development Act of 1968, as amended, Pub. L. No. 90-448, 82 Stat. 476, codified at 12 U.S.C.A. § 1701(u) (West Supp. 1996).

³Balanced Budget Downpayment Act, 1, Pub. L. No. 104-99 (Jan. 26, 1996), 142 CONG. REC. H883 (Jan. 25, 1996).

⁴Lessons from the Field, supra note 1, at 89-90.