How state legislators can improve fair housing compliance in Texas

Texas Housers fair housing planner Charlie Duncan and University of Texas professor Heather Way were among the speakers at a recent hearing of the Texas Senate Intergovernmental Relations committee, which is charged with studying fair housing before the start of the 2017 legislative session. Charlie spoke about issues with the State’s housing tax credit program, while Heather outlined the impact of last year’s landmark fair housing ruling by the U.S. Supreme Court. Their testimony has been lightly edited.

Charlie Duncan:

I’d like to first address a particular issue in statute, and then get into a couple of broader changes that seek to create some systemic changes at the Texas Department of Housing and Community Affairs (TDHCA).

The required procurement of support from a multitude of groups and individuals for a single housing development is one of the most significant hindrances to the provision of new affordable housing units in Texas today (see our 2015 Texas Housing Tax Credit Report, which discusses the effect of this issue). The Low Income Housing Tax Credit (LIHTC) program is one of several housing programs administered by TDHCA that produce and preserve affordable housing units, but it is by far the largest such program. In the 2016 competitive cycle alone, for example, developments producing or preserving more than 6,000 units, including over 5,000 affordable units, are set to receive a tax credit award.

The administrative powers vested in statute to neighborhood organizations, elected government bodies and state representatives insert significant inconsistency and unpredictably into this program. These entities’ opposition to tax credit development is often based on misperceptions about what it is and what it will do to communities.

Earlier this year, I surveyed tax credit developers who submitted competitive housing tax credit pre-applications without a corresponding full application, to seek their reasons for doing so. Three out of four developers surveyed stated that it was a lack of local support they based their decision on. The survey showed that this lack of support, or flat-out opposition, manifests itself in different ways, which demonstrates the inconsistency and unpredictability of this program’s current administration.

Below are a number of excerpted statements from surveys so you can perhaps better understand what developers experience when trying to procure local support:

“…to obtain a Resolution of Non-Objection or Support from the County…written support from the school district and written support from the state representative would be required.”

Upon being told the above: “I requested several meetings with the school board and the state representative. Neither would meet with us.”

“The development team reached out to stakeholders identified by the mayor, with no response.”

“I was told in January 2016 the council member was not going to support request for a Resolution of Support. His office told me they were not even going to place it on the agenda.”

“Council member…couldn’t support a low income housing tax credit project for our site because it wasn’t part of the city’s vision for the area. The site was zoned multifamily and we were told that if were to pursue a market rate deal, the city would be willing to work with us…”

“The state rep. has a policy of not writing letters for LIHTC applications.”

From elected officials deferring their support to others, and elected bodies refusing to even consider a resolution required for a developer, are statements and actions that raise serious fair housing issues. And by being denied the courtesy of even getting to speak with concerned individuals or organizations, tax credit developers must navigate a formidable gauntlet of support seeking and arbitrary veto power to build their projects that address a very real housing need.

The state’s Qualified Allocation Plan (QAP) is a complex but thorough set of scoring criteria which makes many considerations and can adequately evaluate the merits of a proposed low income housing development objectively. The subjectivity should be removed from this plan.

This issue needs to be heard and addressed, as it is coming from housing providers who we depend on to physically provide desperately-needed affordable housing in Texas. They have identified an impediment to building affordable housing in high-opportunity areas of the state. This is the definition of an impediment to fair housing and directly relates to the charges that we testify upon today.

Housing cannot be thought of as just four walls and a roof. When someone looks for a place to live, they consider not just the house or apartment itself, but the area in which it is located. School quality, safety, access to jobs and other considerations are important to virtually everyone looking for a place to live. The LIHTC program should be allowed to follow market demand in the unsubsidized market, as guided by the real estate market decisions that regular housing consumers and housing developers would make.

The current state statue in Chapter 2306, while correctly directing TDHCA’s purpose toward serving Texans most in need of housing assistance, only addresses the provision of low income housing. Additional language is needed in statute that addresses the state’s obligation, as a recipient of federal funds, to affirmatively further fair housing and elects TDHCA as the department taking the lead in fulfilling that obligation. Place is as important a consideration as provision when it comes to affordable housing. Ample research emphasizes this concept; urban economist Raj Chetty’s Equality of Opportunity Project and sociologist Patrick Sharkey’s Stuck in Place demonstrate well how important factors of place are on life outcomes.

Additionally, in order to evaluate the department’s performance in this role, statute should include a set of performance measures that the department will report on to the legislature on an annual basis. The department should be asking itself questions like:

• Are our low income housing programs promoting integration or segregation?
• Do residents of LIHTC housing have better access to good schools?
• Do residents of LIHTC housing have better access to job centers?
• Are there more affordable housing choices in areas where they have historically not existed?

Through the removal of arbitrary housing project measures, clearer expectations for TDHCA and a way to measure how the TDHCA meets them, there will be more predictability and consistency in this department’s operations and better housing options for low income families now and into the future of this fast-growing state.

Heather Way:

Thank you for inviting me to present my expert opinion on actions the Texas Legislature can take to ensure that the statutes and rules governing TDHCA conform to the United States Supreme Court’s ruling in Inclusive Communities Project, Inc. v. TDHCA, et al. Before laying out my recommendations, I would like to first provide some background on the Inclusive Communities Project (ICP) litigation against TDHCA, the United States Supreme Court ruling and the status of federal fair housing laws today, as they apply to the State of Texas’ statutes.

In 1968, Congress adopted the Fair Housing Act (FHA) to stamp out housing discrimination, including government practices that perpetuate segregated living patterns. Prior to the adoption of the FHA, decades of federal, state, and local government policies and practices had contributed to deep and pervasive segregation of black families in blighted inner city neighborhoods cut off from opportunity. Conditions were so dire that the National Advisory Commission on Civil Disorders, also known as the Kerner Commission, concluded that “[o[ur nation is moving toward two societies, one black, one white—separate and unequal.”

Since 1968, despite the mandates of the FHA, decades of housing policies have continued to concentrate affordable housing funded by government programs in highly distressed, minority neighborhoods. And 48 years after the adoption of the Act, racial segregation remains a “prime predictor” of where minorities live in our country.

Segregated housing patterns continue to define Texas cities as well. Neighborhoods that were purposefully segregated in Texas in the years prior to the adoption of the FHA remain racially segregated today. The role of government policies in perpetuating these patterns in Texas is undeniable. Mapping the location of subsidized housing units in any major Texas city reveals a stark picture of just how heavily concentrated these units are in minority neighborhoods. In the city of Dallas, for example, 97 percent of non-elderly units built as of 2013 with federal LIHTCs, 6,100 units, are located in predominantly minority Census tracts.

It was against this backdrop that ICP, in 2008, brought a civil rights lawsuit against TDHCA and its officers, alleging that TDHCA’s policies and practices for administering the LIHTC violated the U.S. Constitution and the FHA because they had the purpose and effect of perpetuating discrimination.

In 2010, the federal district court ruled in favor of ICP on its disparate impact claim. The court found that TDHCA disproportionately approved applications for non-elderly units in minority vs. non-minority neighborhoods, thereby establishing a prima facie case of disparate impact under the FHA. Among the evidence the district court considered was the fact that, from 1999-2008, TDHCA approved tax credits for 49.7 percent of the proposed non-elderly units in areas with extremely high rates of minority concentration, while approving only 37.4 percent of units of proposed non-elderly units in areas with similarly high rates of white households. According to the court, this concentration of tax credit units in minority neighborhoods increased the burden on ICP to help African-American clients with housing vouchers secure housing in LIHTC developments located in predominantly white neighborhoods.

Even though the state argued as a defense to the lawsuit that it did not have the intent of discriminating against African-Americans, the district court rejected this defense, holding that illegal discrimination is presumed whenever a discriminatory effect exists. A party “need not show that TDHCA acted with discriminatory intent or motive.”

The State of Texas appealed the district court’s ruling to the Fifth Circuit, which affirmed the availability of disparate impact liability under the FHA. The Fifth Circuit reversed and remanded the case to the district court to apply the burden shifting framework for proving disparate impact claims that had been adopted by the U.S. Department of Housing and Urban Development after the district court’s ruling. TDHCA then appealed the case to the U.S. Supreme Court on the question of whether disparate impact claims are cognizable under the FHA.

The U.S. Supreme Court issued its ruling in the ICP v. TDHCA litigation a little over a year ago, in June 2015, holding that disparate impact claims are indeed covered by the FHA. Illegal practices under the FHA include those that, regardless of intent, “function unfairly to exclude minorities from certain neighborhoods without any sufficient justification.”

In issuing its ruling, the Court placed special emphasis on the legacy of segregated housing patterns that still exists in our society and the critical role that the FHA plays in avoiding a separate and unequal society. As the Court pointed out, we have a “historic commitment to creating an integrated society,” but “[m]uch progress remains to be made in our Nation’s continuing struggle against racial isolation.” Echoing the 5th Circuit’s concerns with the burden shifting standard applied by the district court, the Supreme Court proceeded to remand the case for further proceedings, and the case is now pending in district court.

What ICP v TDHCA boils down to for Texas today is that disparate impact remains the law of the land. The State is prohibited from implementing arbitrary laws, policies, practices, or rules that perpetuate race discrimination in the housing sector.

HUD’s new federal regulations for disparate impact set forth the specific standard for establishing liability under the FHA based on a practice’s discriminatory effect. This burden shifting standard, as applied to a case involving a governmental entity in this instance, is as follows:

• A plaintiff has the burden of proving that a government’s policy or practice has a discriminatory effect, by proving that the policy “actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin.”
• If the plaintiff meets this burden, the government then has the burden of proving that the challenged practice is necessary to achieve “one or more substantial, legitimate, nondiscriminatory interests” of the government.
• If the government meets that burden, the plaintiff then has the burden of showing that the government’s interests “could be served by another practice with less discriminatory effect.”

This legal standard applies to all of the State of Texas’s statutes, policies, procedures, and rules that restrict or deny housing opportunities to African-Americans and other protected classes under the FHA.

In addition to the FHA requiring Texas to eliminate policies with a disparate impact on minority groups’ access to housing, the State of Texas is also required to affirmatively further fair housing. Last year, HUD adopted final regulations spelling out specific requirements for meeting this duty. The affirmatively furthering fair housing requirement is a mandate to “overcome historic patterns of segregation, promote fair housing choice, and foster inclusive communities that are free from discrimination.” This means that the State must proactively take actions that provide African-American and Hispanic households with an opportunity to live in high opportunity, low poverty communities. The emphasis here is on taking proactive steps to undo the vestiges of discriminatory housing patterns that permeate our communities.

A head in the sand approach is inadequate and violates this legal duty.

The following are my recommendations of actions the Texas Legislature can take to ensure that the statutes and rules governing TDHCA conform to federal fair housing laws, including the United States Supreme Court’s ruling in Inclusive Communities Project, Inc. v. TDHCA, et al.

1. TDHCA’s purpose. The first action the Legislature can take to help ensure that the statutes and rules governing TDHCA comply with fair housing laws is to amend Section 2306.011 of the Texas Government Code, which lists the purpose of TDHCA, by adding as a purpose the Department’s duty to further fair housing and provide inclusive housing opportunities. The statute currently lists a number of purposes for the Department, but nowhere mentions the Department’s fair housing obligations under the law. In light of the U.S. Supreme Court ruling in the ICP litigation, and the legal requirement for TDHCA to affirmatively further fair housing, it is in the state’s interest to expand the purpose clause for TDHCA to include a purpose related to fair housing. I also recommend that the Legislature require TDHCA to report to the Legislature on a regular basis as to how it is implementing its legal duty to affirmatively further fair housing, through a set of specific performance measures.

2. Local support requirement in the LIHTC program. A second action the Texas Legislature can take to ensure that its statutes and rules governing TDHCA conform to federal fair housing laws after the ICP ruling is to reform the statutory requirements for LIHTC applicants to obtain legislator letters and local support from neighborhood organizations and elected government bodies. These requirements impose a major and often insurmountable impediment for LIHTC developers attempting to construct safe and decent housing in a high opportunity area. Giving such unfettered power to community groups to block a LIHTC development for whatever reason is the antithesis of creating integrated housing opportunities and affirmatively further fair housing. These local approval requirements are highly suspect under the Fair Housing Act and likely to be struck down by the courts.