Court Rules Texas LIHTC Program Violates Fair Housing Act

Recently, a federal judge ruled that the Texas Department of Housing and Community Affairs (TDHCA) unintentionally discriminated in its allocation of low-income housing tax credits (LIHTCs). The case was filed by The Inclusive Communities Project (ICP), a Dallas fair housing organization. In its complaint, the ICP alleged that TDHCA intentionally discriminates based on race by disproportionately approving LIHTC projects in predominantly minority neighborhoods and disproportionately denying LIHTC in predominantly Caucasian neighborhoods.

According to the ICP, while 19 percent of all renter-occupied units in Dallas are in predominately white census tracts, only 2.9 percent of TDHCA's LIHTC units are in these neighborhoods. And while 51 percent of all renter-occupied units in the city are in minority-concentrated census tracts, 85 percent of TDHCA's LIHTC units in Dallas are in these neighborhoods where minorities make up at least 70 percent of the population.

No Intentional Discrimination

In a small victory for TDHCA, the court found that there was no intentional discrimination based on race. The court found credible evidence of nondiscriminatory reasons for approving or denying the applications.

For example, there was a project denied 4 percent tax credits in a majority Caucasian area. The court found that TDHCA denied the application because the proposed project consisted of only three-bedroom units and that the agency was using its allocations for projects that had a mix of different unit sizes so that, among other reasons, single mothers could afford a unit in the development.

In addition, a number of witnesses had testified that in making its decisions TDHCA does not act with intent to discriminate. The judge also noted there were instances when the agency attempted to use its discretion to de-concentrate tax credit developments in high-minority areas and encourage development in “high-opportunity areas.”

Disparate Impact Claim

TDHCA fell short when it came to another key part of the lawsuit. ICP's claim that the agency's allocation decisions had a disparate racial impact in violation of the Fair Housing Act (FHA) held up in court. In general, a disparate impact occurs when a policy that may appear to be neutral has a discriminatory effect on a group based on race, sex, age, or disability.

TDHCA stressed its use of a racially neutral scoring system. Like other LIHTC allocating agencies, it adopts a qualified allocation plan that sets out the criteria to award tax credits to housing developers. Texas has one of the largest LIHTC programs in the country. It recently received 387 pre-applications seeking $473 million in tax credits in the 2012 cycle. The state has about $44 million in LIHTCs to allocate.

However, the judge said the agency failed to prove that it has adopted the least discriminatory alternative in carrying out its work of allocating LIHTCs. The judge then directed the TDHCA to come up with “a remedial plan that sets out how it will bring its allocation decisions into compliance with the FHA.”

At this point, the TDHCA has not expressly stated whether it will appeal the decision. According to the agency, it is “carefully reviewing the decision and considering next steps” [Inclusive Communities Project v. TDHCA, March 2012].