New housing bill presents TDHCA a test of its public purpose

When President Bush signed the big housing bill Wednesday he ushered in a number of changes to the Low Income Housing Tax Credit Program.  While most of the attention has been focused on the two year, temporary increase in tax credits there two other far more important changes buried in the bill.

The first provision is captioned “Modification to the enhanced credit for buildings in high-cost areas.”

Twenty years or so ago when the Low Income Housing Tax Credit (LIHTC) was first enacted, lawmakers sought to ensure that some of the new apartment developments were built in lower income communities.  The hope was that new housing would spur the revitalization of physically and economically distressed communities.  To draw new developments to these areas the statute offered developers more tax credits (meaning more money) if they built in these distressed neighborhoods.  The lawmaker’s intentions were good but the result has been highly problematic.

Coupled with the resistance to tax credit developments in middle income, predominately white neighborhoods (NIMBY), this incentive has drawn very large numbers of tax credit developments to these “qualified [low-income] census tracts” and “difficult development areas.”  The result has been to constrain the housing choices of eligible LIHTC tenants, who by definition have low incomes and many of whom are racial or ethnic minorities, to low income and minority segregated areas.  From a public policy and fair housing standpoint it would be better to see most LIHTC apartment developments constructed in “high-opportunity” census tracts, near jobs, good schools and away from crime and neighborhood decay.

The change in the new law gives state housing agencies the ability to designate other areas besides low income and difficult to develop areas eligible for extra credits. These new areas can be any area designated by the state housing credit agency (TDHCA) as requiring the enhanced credit in order to be financially feasible.

This is permissive and is not a federal requirement.  States can elect to use this authority or not.

Should TDHCA use this authority?  Absolutely.

I have previously written about the Dallas fair housing lawsuit against TDHCA. 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.

Responding to the lawsuit Texas Attorney General Greg Abbott blames the disproportionate location of LIHTC developments in minority neighborhoods on the LIHTC 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.

With the enactment of the new housing bill, the State of Texas has been given the power to correct the problem that the state itself has identified as the cause of housing segregation.  It can use the new authority to designate “high opportunity” census tracts eligible for the extra tax credits. This will be resisted by legislators from these predominately white, higher income areas.  TDHCA will catch some heat from them for making this designation.  But it is the right thing to do for the families who will live in the housing and it is the right thing to do to comply with Fair Housing law.

This will be the first test as to whether the agency will fulfill its public purpose.  It is critical that the TDHCA board act swiftly to correct this problem.

This is not the only opportunity the new housing bill offers to correct shortcomings in the LIHTC program.

For years we have pushed private tax credit developers to provide more housing for tenants with incomes below the 50 and 60 percent of median family income required under existing federal law.  Their argument against doing this has been simple and effective: the amount of subsidy offered by the housing tax credits does not provide the developers sufficient equity to lower rents to house families below 50 percent of median income.  To the credit of a few tax credit developers, they have sometimes found other subsidies to create a few units affordable to these lower income families.

This is not an esoteric argument.  Every regional market study conducted by TDHCA has found that the housing needs of these lower income families far exceed the need for housing tenants earning 50 to 60 percent of the median income.  One need look no further that the front page of today’s Houston Chronicle to find more proof of this.

Once again the new housing bill offers the state the option to fix this problem if it chooses to do so by permitting the LIHTC to serve lower income households. At their discretion, state LIHTC allocating agencies like TDHCA can now boost allocations if financially necessary in order for the project to provide lower income families apartments.

TxLIHIS and the National Low Income Housing Coalition have worked for this type of authority since a 1995 TDHCA funded market study, released shortly before Hurricane Katrina evacuees flooded into Houston, found the Houston market substantially overbuilt with apartments in the 50 to 60 percent of median income range while, at the same time, having a crisis shortage of apartments affordable to families below them on the income ladder.

In our meetings with House Ways and Means Committee staff we asked for precisely the type of discretionary authority provided by the bill (although we asked for a 40 percent boost as opposed to the 30 percent boost now permitted).

Now let me be very clear what we are seeking.  We would like a small number of lower rent units available in most tax credit developments.  Something between 8 percent and 20 percent would be ideal.  We do not advocate apartment developments comprised exclusively of extremely low income families.  Economic integration within developments and within neighborhoods is our goal.

Some in the development community may oppose providing enhanced tax credits to create more affordable apartments out of their economic self-interest.  The tax credit program is highly competitive in Texas.  Giving more credits to developments to produce more affordable apartments will mean fewer developers will get funding each year.

How TDHCA responds to this opportunity will be a critical test of who the agency exists to serve: the tax credit developers’ financial interests or the most critical housing needs of the citizens of Texas.