HUD left its Section 3 benchmarks where they’ve been since 2020. A notice in Monday’s Federal Register keeps the safe-harbor targets at 25% of total labor hours for Section 3 workers and 5% for Targeted Section 3 workers on covered housing and community development work. The reason is the interesting part: six years after writing the rule, the department says it doesn’t have enough completed-project data to justify moving either number.
What the Section 3 benchmarks require on a HUD-funded job
Section 3 is the 1968 statute that steers jobs created by HUD money toward low- and very low-income residents. The 2020 rewrite at 24 CFR part 75 dropped the old new-hire count and replaced it with labor hours. Hit both ratios, certify that you followed the hiring priorities, and HUD presumes compliance.
The rule reaches any housing rehabilitation, housing construction or other public construction project where HUD assistance tops $200,000. For lead hazard control money the trigger is $100,000. Public housing authorities are measured across a fiscal year instead of project by project.
Two mechanics matter to a contractor pricing this work:
- The denominator is everyone’s hours. Recipients report total hours worked on the project, including subrecipients, contractors and subcontractors.
- Professional services can come out. Legal, architectural and civil engineering hours don’t have to be counted in the total, though Section 3 hours worked in those roles can still be claimed in the numerator.
Miss the ratios and the job isn’t in default. The recipient files a qualitative report on outreach, training and contracting efforts, its own and its contractors’. That’s paperwork that lands on the GC’s desk.
Why HUD says its labor-hour data isn’t ready
The department’s explanation is a timeline. The rule published Sept. 29, 2020, took effect Nov. 30, and compliance began only for projects funded on or after July 1, 2021. Hours aren’t tallied against the benchmark until a project closes out. Many of the larger jobs funded since then, the ones with the most hours, haven’t finished.
Public housing is further behind. HUD’s reporting application for housing authorities didn’t launch until Jan. 21, 2026, and the last cohort’s window closed July 30. Authorities weren’t required to report hours until a system existed, so HUD has one year of that data, not three.
The result, in HUD’s words, is a sample that isn’t large or representative enough to support a change. The regulation requires a benchmark update at least every three years. This one updates nothing.
Comment window and what contractors should send
The notice is effective Nov. 4. Comments run to Dec. 4, a month after the effective date, and HUD says it won’t publish a second notice unless the comments give it a basis to revise. It’s asking grantees and contractors directly for their experience meeting the current goals, the obstacles they’ve hit and what future benchmarks should look like.
That’s a narrow opening, and a real one. The 25% figure was built in 2020 from wage-distribution data and estimates of the eligible labor pool, before a single hour had been reported under the new method. Contractors who’ve closed out Section 3 jobs since 2021 hold the only field data HUD doesn’t have: actual ratios by trade, by market and by project size. We covered another HUD financing change last week, when the department raised the Section 108 loan guarantee fee to 1.05%.
Some of that data is already public. At the Jordan Downs redevelopment in Watts, the Los Angeles housing authority says Section 3 workers logged 58% of labor hours on one recent phase, more than double the benchmark.
The next mandatory review falls in 2029. By then the first wave of post-2021 projects should be closed and counted, and HUD won’t be able to say the numbers aren’t in.