Low Income Housing Tax Credit program in Dallas frozen and challanged in lawsuit

The Low Income Housing Tax Credit program in Dallas has been effectively shut down for several years and is now the subject of an important civil rights lawsuit.

For those who have not followed the travails of the affordable housing program in Dallas let’s review where things stand today.

Anyone who has read a newspaper in the past several years in Texas knows about the federal indictments of Dallas politicians and real estate developers in alleged bribery and kickback schemes involving the low income housing tax credit program.  Unless you happen to be paying especially close attention you might not be aware of the other fallout from the federal investigation — the virtual curtailment of the construction of low-income rental housing in the city of Dallas.

As indicted city politicians ran for cover they shut down the housing program for reasons that seem especially short sighted.

Texas state law, in the name of local control and preventing over-concentration of low income properties, requires developers proposing to build apartments in cities with more than twice the state average of housing tax credit or bond apartments per capita to obtain a resolution from the city council approving the development (Tex. Gov’t Code §2306.6703(4)).  The City of Dallas qualifies under this provision, since it has more than twice the per capita average of affordable housing supported by tax credits and private activity bonds.

Effective three years ago the Dallas City Council informed the development community through a memo issued by then-Mayor Laura Miller, that the City Council would not be approving any LIHTC developments.  During this moratorium, only one development received the required certificate.  This was a long planned mixed market rate and homeless development located in the central business district of the City of Dallas.  So the city of Dallas has effectively shut down the production of low income rental housing in Dallas.

The logic of the housing moratorium is unclear.  It seems mostly a knee-jerk reaction.  Punishing low-income Dallas residents by denying them access to decent, affordable housing because of the alleged corruption of a few city officials seems short sighted public policy.

In March of this year a new twist was added.

Dallas civil rights attorneys Mike Daniel and Laura Beshara filed suit in Federal District Court on behalf of the Dallas-based Inclusive Communities Project (ICP) against the Texas Department of Housing and Community Affairs (TDHCA) alleging…

• TDHCA uses race and ethnicity as one factor in its decision whether to award Low Income Housing Tax credits and this factor is a cause of the segregation and other discrimination.
• The use of race as a factor subjects minority tenants to slum and blighted conditions.

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The lawsuit cites the damning indictment of the LIHTC program in the House Committee On Urban Affairs Texas House of Representatives, “Interim Report 2006 A Report to the House of Representatives 80th Texas Legislature”, December 6, 2006, Robert Talton, Chairman…

The Department’s funding allocations, as well as the allocations under the Bond Review Board’s (BRB) Bond Program should promote racial integration, however, the continued failure of these entities to evaluate the implications of prior and current funding decisions permits the Department and the BRB to disproportionately allocate federal low income housing tax credit funds and the tax-exempt bond funds to developments located in impacted areas (above average minority concentration and below average income levels).

Furthermore, QAP provisions requiring multiple notifications to state and local political officials and neighborhood organizations are feared to enable “Not-In-My-Backyard” (NIMBY) opposition to developments that are proposed in nonimpacted areas (above average minority concentration and below average income levels).

The vast majority of low income housing tax credits and tax-exempt bonds that fund developments in the Dallas, Fort Worth, Austin and Houston metropolitan areas have been placed in impacted areas.

…

The Department’s funding decisions arise directly out of the QAP. In recent years, the QAP has continued to place low income individuals in impacted areas, further adding to the concentration problem in most cities today.

The lawsuit also cites HUD as proof of the segregation in the TDHCA tax credit program…

Texas has a segregated LIHTC housing program according to a U.S. Department of Housing and Urban Development report. Over 60% of LIHTC units in Texas are in U.S. Census tracts where more than 50% of the population is minority according to the report. Only Connecticut, California, New Mexico, Washington, D.C., and Hawaii are listed in the report with higher percentages of LIHTC units in census tracts with 50% or greater minority population than Texas. The state wide pattern is duplicated in the Dallas area. The report states that in the Dallas PMSA, 65% of the LIHTC units are in 50% or greater minority census tracts.

The Texas Attorney General, responding to the lawsuit on behalf of TDHCA claiming the selection of the location of LIHTC developments lies with the private developers and not the State of Texas. “The location choices are entirely selected by the developer prior to any application being made to TDHCA for tax credits, and may be based on how the developer believes the low income development will work best for their particular financial needs.”

Second, the AG blames the disproportionate location of LIHTC developments on IRS program rules that award private developers extra points for locating a tax credit development in a “Difficult Development Area” or Qualified Census Tract” which have a tendency to be low-income areas.

Likewise, the IRS, under 26 U.S.C. § 42(d)(4) and (5)(C), provides an adjusted basis to the amount of credits a developer can receive.  In the lexicon of the program, this is frequently referred to as a “boost” and provides a 130% factor in the eligible basis, and as such the credits allocated to the property, thereby providing significant incentive to locate in a Qualified Census Tract (QCT) or a Difficult to Develop Area (DDA) that attracts developers.  The list of QCTs and DDAs are published by the federal government prior to each competitive round and are available to and reviewed by developers.  Qualified Census Tracts are those tracts in which 50% or more of the households are income eligible for the tax credit program and the population of all census tracts that satisfy this criterion does not exceed 20% of the total population of the respective area.

Unless these provisions are removed from the federal statute, TDHCA has no legal ability to overcome the limitations of the program for the need to purchase inexpensive land for financial feasibility or the attraction of developers to the additional 30% boost to the property for developing in QCTs and DDAs that are overwhelmingly located in low income and minority areas.

The AG does not explain how these explanations can be reconciled with the HUD report finding that Texas LIHTC developments are more often in segregated neighborhoods than 44 other states.

Rental housing affordability is a major problem.  In the Dallas metro area 45 percent of renters cannot afford the HUD Fair Market Rent for a two bedroom apartment.

Needless to say, this is a sorry state of affairs as far as the low-income citizens of Dallas are concerned.  No housing is being produced because of political considerations on the part of the dallas Mayor’s Office and serious allegations are made regarding the segregation of low-income housing in low-income and minority neighborhoods.