NYCHA leaves Section 3 funds on the table
It is arguably the most poorly enforced and yet potentially powerful federal statute: a 25-year-old law that taps into billions of already allocated dollars to provide jobs and work skills training to thousands of the nation’s most vulnerable citizens.
Supporters say if used as intended when it was passed, Section 3 of the Housing and Urban Development Act of 1968 could be a game-changer for low- and very low-income people and neighborhoods around the country. Its use could transform the New York City Housing Authority (NYCHA), local advocates say, by providing public housing residents with incomes that would not only help the agency reduce its staggering delinquent rent rolls but also give many residents life-changing benefits, such as healthcare and payments into Social Security and retirement accounts.
Section 3’s superpower is that no new money would have to be delegated to the program—some $18 billion in annual federal Housing and Urban Development (HUD) contracts fall under its authority nationally, billions of those dollars in New York state and New York City. Those funds are administered in the city by NYCHA, which, as the largest public housing authority in the country, receives by far the lion’s share of federal housing dollars each year.
However, NYCHA is not making sure that contractors honor their Section 3 agreements, which lets money that could change lives and communities go to construction firms and workers who do not live there.
A Section 3 designated percentage of the housing funds sent to the city each year could provide salaries and training not only for thousands of resident workers but also for small and minority- and women-owned businesses working as subcontractors on large NYCHA jobs.
“If you have an eighty-million-dollar project, the Section 3 requirement is going to be a small percentage of that,” said former NYCHA Executive Vice President for Real Estate Takesia Whites, who holds a master’s degree in urban policy analysis from the New School and has worked in city government as a housing planner in former Bronx Borough President Fernado Ferrer’s office, as well as for the nonprofit New York City Housing Partnership and the Enterprise Foundation. “But even if you dedicate just five percent of that to Section 3, that’s still millions of dollars to spread around. You give a small contractor $200,000 to paint a building lobby—that is a significant investment in that business, if you can ensure that that local contractor gets the contract.”
Whites added that “the way to make Section 3 successful is you have to have some sort of mandate in place, because if you don’t make people do it, unfortunately, most people—and I’m not gonna say all, but most—don’t do these things out of the goodness of their hearts. They do it for money.”
Experts say that now is a fiscally opportune time to enforce Section 3 mandates in New York City.
“There’s a lot of money now going into public housing for physical renovation, so there’s an opportunity to use Section 3 in a way that there really wasn’t when there were so many decades of disinvestment” in public housing, said New School University Professor Alex Swartz, who has studied ways NYCHA could improve training and business opportunities for its residents.
Section 3 has broader implications. It could potentially add untold numbers of skilled electricians, plumbers, carpenters, draftsmen, and other trades to a city’s worker ranks—an outcome anyone who has ever needed and been unable to locate such help would appreciate.
By improving job skills among low- and very low-income individuals, Section 3 could reduce public assistance rolls and lift median income levels in whole communities.
“This is an area of public housing [that] has seen extraordinarily little attention over a very long period of time,” said Swartz. “It’s there, on the books, but I’m not aware that it’s been taken seriously. There may be challenges [in] getting residents, especially those who don’t have a lot of work experience or face issues of discrimination…to get jobs in the building trades. But housing authorities could at least try.”
USDA Photo by Preston Keres
Like the Civil Rights Act that created it, Section 3 has been under attack almost since it became law. Head-on opposition is hard to document, but politicians have worked surreptitiously to reduce compliance requirements and contractors have skirted hiring rules, which NYCHA has let them do in New York City.
For instance, in 2020, the Trump administration changed the mandate so HUD no longer requires that construction companies with Section 3-eligible contracts report the names of Section 3 hires or the jobs performed; only the hours they collectively worked. Supporters say the change allows companies to hire workers who can’t work full-time, such as women with children.
Critics say the change gives contractors more leeway for hazy reporting in showing they met Section 3 mandates and has resulted in fewer hires. They say contractors often skirt Section 3’s intent by relegating many of those lucky enough to find a Section 3 job to low-skill labor like moving traffic cones as construction materials and equipment are delivered to a project and not providing real job training.
“With too many of these contractors, the way the process is set up, they’re not producing skilled craftsmen; they’re producing laborers,” said Shelevya Pearson of Brooklyn-based Better New York Brokers, which connects developers and contractors with subcontracting firms.
Smaller firms looking to subcontract Section 3 work with contractors working on NYCHA jobs say the larger companies often either don’t return their calls or require that a small company hold such costly certifications and insurance upfront that they can’t afford the work.
“You have to put in a whole bunch of money upfront before you can even think of getting one of these contracts,” said Shannon Bryant of Brooklyn-based B & S Construction. “And you might not get the work anyway.”
Another Brooklyn minority contractor who asked not to be named said contractors did not return his calls even after he was awarded a Section 3 contract. “I feel like I’m standing in line and when I get to the counter, I still can’t get something to eat,” he said.
That sentiment was reflected at a May 2023 New York City Council hearing about Section 3, where a worker told Councilwoman Alexa Aviles, chair of the council’s Committee on Public Housing, that Section 3 employees are “the last hired and first fired.”
Section 3 has enjoyed some success in other parts of the country, most notably in Chicago, where it has been credited with being the financial root of several successful start-ups and creating jobs in underserved communities. Supporters think it should do the same on every HUD-financed project, but like other groundbreaking legislation of that turbulent era (the Equal Employment Security Act, Voter’s Rights Act, Fair Housing Ac), Section 3 has been under attack since it was enacted.
It’s an easy target.
As noted in the 2008 study, “The Scope and Potential of Section 3 as Currently Implemented” by Deborah Austin and Michael Gerend for the Journal of Housing and Community Development Law, there is no wording in the statute that allows for punishing contractors who do not follow its mandate or under which workers or companies with a Section 3-related hiring grievance against a contractor can seek redress.
“The statute does not provide a private right for action or remedy, and the regulations offer limited viable enforcement tools,” the study said.
That leaves Section 3 enforcement to NYCHA, with HUD oversight, but despite the staggering amounts of money involved, that is not happening, leaving Section 3’s potential unrealized.
How great is that potential?
In their 2008 paper, Gerend and Austin cited 16 HUD funding streams applicable to Section 3 mandates, including the Public Housing Operating Fund, Public Housing Capital Fund, Native American Housing Block Grant, and Housing Trust Fund.
That year, these funding streams totaled $21.6 billion.
Calculating at 22.5% (the median between Section 3’s 15 and 30 benchmark percentages) of that money being spent on hires, Gerend and Austin estimated that more than 112,000 new jobs could have been created if Section 3 mandates were “well implemented and enforced.”
HUD’s 2023 budget was $71.9 billion. The agency proposed a $177 billion 2024 budget, including $100 million earmarked for creating more affordable housing, the construction of which would presumably fall under Section 3 mandates. NYCHA proposed a $106 billion 2023 budget but expects to finish the year in a deficit because of falling rent receipts.
Yet, at the May 2023 City Council hearing, NYCHA officials said contractors reported fewer than 3,000 Section 3 hires by the agency last year.
NYCHA officials at the hearing said one and a half agency employees were tasked with monitoring 800 contracts involving Section 3 hires.
Which is Section 3’s dubious distinction: Even with a dizzying amount of money available and construction abounding in public housing projects across the five boroughs as the city implements the Obama-era Rental Assistance Demonstration (RAD) program and court-ordered lead abatement mandates, contractors who do not want to anger union labor they depend on to work on these profitable projects avoid Section 3 hires and minority- and women-led business enterprises that are interested in a piece of that money.
And nobody is making them do otherwise.
“In regard to Section 3, it is astonishing how they have gotten away with this massive disinvestment of billions of dollars over the last ten years,” said Manuel Martinez, president of the South Jamaica Houses Tenant Association, who also sits on a NYCHA committee examining how Section 3 is used. “We’re not significantly impacting the population that can be affected by Section 3.
“Section 3 could be to New York City what Ford was to Detroit.”
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