2015 Texas Housing Tax Credit Report: When politicians enable prejudice

This week Texas Housers will release our 2015 Texas Housing Tax Credit Report, an analysis of the state’s competitive process to award subsidies for low income housing developments. Before the report’s release, a series of blog posts here will explain some of our key findings how parts of the process hurt the cause of fair housing in Texas – and what can be done about it. This is part one in the series.

Our analysis of the State of Texas’ Competitive Housing Tax Credit program identified a major problem with its scoring system: The power being exercised to state legislators maintains the segregation of low income housing in Texas.

Texas’ state representatives have granted themselves the power to add or subtract points from housing tax credit applications, in a manner that effectively overturns all other points in the tax credit scoring system. This can put representatives in a bind, caught between local prejudice against tax credit tenants and fair housing law.

This is a critical time for tax credits in our state. In June, the U.S. Supreme Court issued a landmark decision to uphold the disparate impact provision of the Fair Housing Act. The parties to that suit — the Dallas-based Inclusive Communities Project (ICP) and the Texas Department of Housing and Community Affairs (TDHCA) — will now head back to district court, where the state agency was previously found guilty of discrimination in the way that housing tax credits were allocated in the Dallas-Fort Worth area.

The federal courts have found that the State of Texas’ policies, rules and scoring methods have resulted and continue to result in tax credits being disproportionately allocated to developments in low opportunity, high poverty areas, thereby disparately impacting the eventual tenants of these developments, who are largely members of a protected class under the Fair Housing Act, i.e. racial and ethnic minorities and families with children.

Texas must do a better job of affirmatively furthering fair housing in order to protect the people living in tax credit properties, mostly people of color, from segregation. But the way that the current tax credit system is designed often creates the opposite effect, due in large part to the influence of state representatives.

Here’s how the current scoring system works:

– Applicants first score their own project based on rules set by TDHCA. This score reflects the merits of the project itself, its location and the area’s amenities. The self-score is entered into competition with other applications in the local service region. Texas has 13 regions, each with its own urban and rural competitions.

– Next, there is a public review process that includes four kinds of local entities which can score an application. The four kinds of “support points” are:

• Local government support (0 to 17 points)
• Support from a state- or county-registered neighborhood organization, known as Quantifiable Community Participation, or QCP (0 to 9 points)
• Support from a community organization (0 to 4 points)
• Letter of support from the state representative of the district where the proposed development is located (-8 to 8 points)

– Finally, TDHCA reviews the self-scores and public input and performs a financial feasibility assessment. The agency has broad discretion to evaluate claims, but TDHCA has historically been unwilling to adjust the scoring factors, even when the support points undermine the state’s policy objectives of siting housing in the best location and complying with fair housing law.

It’s important to note that all four types of support points are awarded only by people who live in or represent the areas around a proposed development. No points are awarded on behalf of people who need affordable housing, who might actually live in the proposed development. The scoring process is weighted against the input of housing consumers, most of whom are people of color and families with children.

The difference between tax credit award winners and losers is often a matter of only one or two points, and can even result in a tie (we’ll look at the results of tie breaking in the third part of this series). As you may have noticed, state representatives are the only actor in the process allowed to deduct points from an application. As such, the points that state representatives wield are highly influential, coveted and contentious in the housing tax credit allocation process.

Representatives can support a project by submitting a letter that expressly states his or her direct support, netting an application eight points. But more importantly, they have three ways to effectively veto a development in their district: By submitting a letter of opposition (-8 points), a letter that does not expressly state support or opposition (zero points) or simply not submitting a letter at all (zero points). Unlike QCPs and community organizations, representatives do not need to include a justification of the their decision nor a demonstration of any coordination with local government or organizations. Many simply say, in effect, “I object.”

Although a great majority of the 173 applicants in this year’s cycle received a support letter (84 percent), the projects that do not receive representatives’ support are almost always in “high opportunity areas.” In practice, many of these applications are in areas where no subsidized housing is available, poverty is low and the population is majority white.

Of the 33 proposed projects that did not receive representative support in 2015:

• 29 (88 percent) are in a Census tract where the median household income is in the top 50 percent for the county or metropolitan area
• 33 (100 percent) received QCP and/or community organization support
• 21 (64 percent) received local government support
• 7 (21 percent) withdrew their application

As the system currently stands, representatives have the power to make or break a project regardless of its objective fair housing benefits. In many cases representatives must choose between the state’s responsibility to affirmatively further fair housing and the anti-low income housing biases of some of their constituents. And too often, representatives choose the latter. The prominence of representative points in the current system ensures that prejudice against low income housing consumers is built into a process that is supposed to work for, not against, families in need.

It’s worth remembering that members of the Texas Senate also used to have the power to assign or take away points from tax credits applications. The Senate moved to repeal this provision of state law several years ago after a joint House and Senate committee studied the practice and recommended doing away with it.

This was one of several reforms intended to remove politics from the process, and would have been more successful had it not been for a last-minute amendment by Rep. Debbie Riddle of Harris County. Her amendment did the opposite, proposing to increase representative points enough to override the support or opposition of a local city council’s decision. While the amendment was not adopted verbatim, it succeeded in preserving representative support points. Riddle has been a perennial opponent of affordable housing developments in her district since she was elected to the House in 2002, and her efforts have been effective: Only one development has been awarded tax credits in her district – for a 180-unit elderly development in 2012 – since she took office.

While there are House members who are unlikely to willingly cede the power they are currently granted to block affordable housing projects from their districts, it is also possible that many members would very much like to remove themselves from this often contentious process. Local and neighborhood organizations can be vehement in their opposition to low income housing, putting representatives’ responsibilities to their constituents at odds with their responsibility to comply with fair housing law.

It is not uncommon for some state representatives in majority white, suburban communities to find themselves facing angry crowds of constituents outraged that their representative would support the construction of tax credit developments in their district (similar to the scenes currently playing out on the HBO miniseries Show Me a Hero). Such efforts, however misguided, can make trouble for incumbents come election time. So some legislators make an executive decision to effectively veto a development in an effort to appease an outspoken group fueled by NIMBYism.

As we will explore on the blog tomorrow, the victims of these actions are the low income families who would benefit from quality affordable housing in good neighborhoods, yet are restricted to living in areas where developments can be built with the least political resistance.

State representative support points are not the only issue here, and are certainly not a silver bullet for solving issues of disparate impact. But perhaps they are a pellet. As long as representatives are elected, they will be stuck between succumbing to local prejudices and doing what the law requires of them.