Federal Register Date: 2026-02-13 | Type: Rule
Original Source: Read Full Notice Here

Section 3 Project Threshold Updates for Creating Economic Opportunities for Low- and Very Low-Income Persons and Eligible Businesses

Introduction:

The Department of Housing and Urban Development (HUD) is issuing this notice to update the Section 3 project thresholds, as mandated by the final rule, “Enhancing and Streamlining the Implementation of Section 3 Requirements for Creating Economic Opportunities for Low- and Very Low-Income Persons and Eligible Businesses,” published in the Federal Register on September 29, 2020. This notice fulfills the regulatory requirement for HUD to periodically update these thresholds based on a national construction cost inflation factor. This process, as outlined in the 2020 final rule, is crucial for maintaining the relevance and effectiveness of Section 3, ensuring that economic opportunities continue to be available to low- and very low-income individuals and eligible businesses across the nation. These updates are intended to reflect the changing economic landscape of the construction industry, allowing for a more equitable application of the Section 3 requirements.

Background: The 2020 Final Rule and the Mandate for Updates

The 2020 final rule represented a significant effort to streamline and strengthen the Section 3 program. One of the key provisions of this rule was the requirement for regular updates to project thresholds. The rule specifically states that the HUD Secretary must update these thresholds “not less than once every 5 years based on a national construction cost inflation factor through Federal Register notice not subject to public comment.” This provision recognized the dynamic nature of construction costs and the need for the threshold to remain aligned with the realities of the construction market. Without these periodic adjustments, the thresholds could become outdated, potentially limiting the scope of projects subject to Section 3 requirements and thereby reducing the economic opportunities available to low- and very low-income individuals and eligible businesses.

Establishing the National Construction Cost Inflation Factor

The cornerstone of these threshold updates is the establishment of a reliable national construction cost inflation factor. HUD has utilized data from the Bureau of Economic Analysis (BEA) and the Producer Price Index (PPI) for construction materials and labor. The specific methodology used to calculate this factor involves a weighted average, taking into account the costs of labor, materials, and equipment. The weights assigned to each component are based on industry standards and reflect the typical composition of construction projects. The inflation factor is then applied to the existing project thresholds to determine the updated values. This approach ensures that the adjustments reflect the actual cost increases experienced by the construction industry across the nation.

Updated Section 3 Project Thresholds

Based on the analysis of the national construction cost inflation factor, HUD is updating the Section 3 project thresholds as follows. These new thresholds are effective March . It is imperative that all recipients of HUD funding, particularly those involved in projects covered by Section 3, familiarize themselves with these updated thresholds to ensure compliance.

These thresholds are applicable March 16, 2026, to projects where the total amount of federal funding exceeds the following values.

• General Projects: The threshold for general projects subject to Section 3 requirements will be updated from $200,000 to $299,200.
• Lead Hazard Control and Healthy Homes: The threshold for projects that are subject to Section 3 requirements will be updated from $100,000 to $149,600.

Guidance and Technical Assistance

HUD recognizes that the implementation of these updated thresholds may require some adjustment from recipients of HUD funds. To facilitate a smooth transition, HUD will provide guidance and technical assistance. This includes:

• Updated Training Materials: HUD will update its online training modules and webinars to reflect these changes. These resources will provide detailed information on the updated thresholds and how they impact compliance with Section 3 requirements.
• Revised Guidance Documents: HUD will revise its existing guidance documents, including the Section 3 regulations and the Section 3 rule, to reflect the new thresholds. These documents will be made available on the HUD website.
• Technical Assistance: HUD will offer technical assistance to recipients of HUD funds. This assistance will be available through HUD field offices and through the HUD Section 3 Resource Center.

Compliance and Enforcement

HUD is committed to ensuring that recipients of HUD funds comply with the Section 3 requirements, including the updated project thresholds. HUD will monitor compliance through a variety of methods, including program monitoring and performance reviews. HUD will take appropriate enforcement actions against recipients who fail to comply with the Section 3 requirements. Penalties for non-compliance may include, but are not limited to, the withholding of funds, the imposition of sanctions, and the referral of cases to the Department of Justice.

Conclusion

The updated Section 3 project thresholds announced in this notice are designed to ensure that the Section 3 program remains effective in providing economic opportunities to low- and very low-income persons and eligible businesses. HUD encourages all recipients of HUD funds to review the updated thresholds and to take the necessary steps to ensure compliance. HUD is committed to providing the necessary guidance and technical assistance to support recipients in meeting their Section 3 obligations. By working together, we can continue to strengthen the economic well-being of our communities and fulfill the promise of Section 3.

Contact Information:

For questions regarding this notice, please contact the HUD Section 3 Resource Center at [Insert Contact Information: Email, Phone Number, and/or Website].