Lesson 14: Section 504, Section 3 and fair housing

Two separate obligations sit under this lesson. Section 3 asks who does the work, and tries to route CDBG-funded jobs and contracts toward the low-income people the program is meant to help. Section 504 asks who can use the housing once it is built or rehabilitated, and requires that people with disabilities are not shut out of it. They come from different statutes and different CFR parts, but a grant administrator has to track both on the same project file.

Section 3, 24 CFR Part 75

Section 3 applies once total housing and community development financial assistance to a project exceeds $300,000. Below that threshold, Section 3 does not attach to the project. HUD raised the figure from $200,000 in a Federal Register notice of February 13, 2026, effective March 16, 2026 (the threshold for Lead Hazard Control and Healthy Homes grants moved from $100,000 to $150,000), and 24 CFR 75.3 has HUD update the thresholds at least every five years. Once a project is covered, the rules apply to the entire project, whatever mix of funds pays for it.

Once a project is over the threshold, the regulation measures performance against two safe harbor benchmarks, calculated as a share of total labor hours on the project, with professional services labor hours excluded from the calculation entirely:

• 25 percent or more of total labor hours performed by Section 3 workers.
• 5 percent or more of total labor hours performed by Targeted Section 3 workers.

A caution worth teaching directly: 24 CFR 75.23 does not itself write the 25 percent and 5 percent figures into the regulatory text. The regulation says HUD sets the benchmarks in a Federal Register document and updates them at least every three years. The two percentages above were set in HUD's Federal Register notice of September 29, 2020 (85 FR 60907), and HUD's Section 3 Guidebook repeats them. Know the numbers, but know where they actually live, and check for a newer HUD notice rather than assuming the figures have not moved.

A Section 3 worker is someone who meets at least one of three tests: income below the HUD-established limit, employment by a Section 3 business concern, or participation in YouthBuild.

A Targeted Section 3 worker, for CDBG purposes, is a Section 3 worker who also meets at least one further condition: working for a Section 3 business concern, living within one mile of the project site (with the area widened until it holds 5,000 people if the immediate area is too small), or participating in YouthBuild.

The reason Section 3 is structured this way is worth explaining to a learner, not just naming. CDBG money is meant to benefit low- and moderate-income people directly, and eligible activities alone do not guarantee that. A project can meet a national objective on paper while every paycheck it generates goes to workers who live nowhere near the community being helped. Section 3 closes that gap by asking who is actually hired and paid, on top of asking who benefits from the finished work. That is also why the calculation is tracked in labor hours rather than dollars or headcount: hours are what a payroll record actually proves.

Section 504 of the Rehabilitation Act, 24 CFR Part 8

Section 504 is a civil rights statute. It prohibits disability discrimination in any program or activity receiving federal financial assistance, and 24 CFR Part 8 is HUD's implementing rule for housing and community development programs, including CDBG.

The most demanding standard applies only above a specific size and scope trigger, called substantial alteration: a project of 15 or more units where the cost of the alterations is 75 percent or more of the replacement cost of the completed project. Crossing that line pulls the project into the new construction accessibility standards:

• 5 percent of total units, or at least one unit, whichever is greater, must be accessible for persons with mobility impairments.
• An additional 2 percent, but not less than one unit, must be accessible for persons with hearing or vision impairments.

Below the substantial alteration threshold, a different and lighter standard applies to other alterations in a multifamily housing project (five or more units): units must be made accessible to the maximum extent feasible, which does not require action that would impose undue financial and administrative burdens. That duty caps itself once 5 percent of the units in a project are readily accessible to people with mobility impairments, at which point no further dwelling unit elements are required. These unit rules (8.22 and 8.23) are written for multifamily projects, so a scattered site single family job does not run through them.

Two duties reach every program regardless of project size, and these are the ones a small grantee actually lives with day to day:

• Program accessibility (24 CFR 8.24). Each existing housing program or activity that receives federal assistance must, viewed in its entirety, be readily accessible to and usable by individuals with handicaps. This is a program-level test, not a building-level test. A single rehabilitated house does not have to be independently accessible in every respect as long as the program as a whole meets people's needs, but the program cannot functionally exclude people with disabilities from participating. The duty stops short of a fundamental alteration of the program or undue financial and administrative burdens, but then the grantee must find another way to get the benefits to people with disabilities.
• Reasonable accommodation. Part 8 states the duty at 8.11 for applicants and employees with disabilities: reasonable accommodation of known physical or mental limitations, unless it would impose an undue hardship on the operation of the program. For homeowners seeking assistance, HUD treats disability related requests as part of Section 504 and Fair Housing Act compliance, with the program accessibility limits above. Confirm the current HUD guidance and the TxCDBG manual for how a request is documented.

Fair housing and affirmatively furthering fair housing

Section 3 and Section 504 sit inside a broader fair housing framework. The State CDBG rules at 24 CFR 570.487(b) require the State, and each unit of local government, to certify that it will affirmatively further fair housing (AFFH), consistent with 24 CFR 5.150 and 5.151.

Those two sections were revised on March 3, 2025 (90 FR 11023). "Fair housing" now means housing that is affordable, safe, decent, free of unlawful discrimination, and accessible as required under civil rights laws. To "affirmatively further" it means to take any action rationally related to promoting any attribute of fair housing, and a certification is sufficient if the participant takes such an action in the relevant period. The older assessment of fair housing process from the 2015 rule is no longer in the regulation (sections 5.152 through 5.180 are reserved). None of this relieves a grantee of the Fair Housing Act and other civil rights duties.

In practice for single family rehabilitation

Most GCHS rehab work is scattered site and single family, far below the five unit line where the Part 8 unit rules (8.22 and 8.23) start to apply and the 15 unit threshold that triggers the substantial alteration standard. That trigger will rarely fire on this organization's projects. It does not mean Section 504 is irrelevant. Program accessibility, nondiscrimination and reasonable accommodation of known limitations reach every file regardless of size. If a homeowner discloses a mobility limitation during intake, treat the request as a Section 504 accommodation question even on a single unit, modest budget job. On the Section 3 side, track the $300,000 threshold at whatever project level your grant agreement defines, and if a project crosses it, be ready to document labor hours by worker category from the start of construction, not reconstructed after the fact. Both rules are easiest to satisfy when they are asked about at intake and bid, not discovered at closeout.