Low-Income Housing Tax Credit Desegregation

Low-Income Housing Tax Credit desegregation

Daniel & Beshara, P.C. represents advocacy groups and individuals seeking to desegregate the Low-Income Housing Tax Credit (LIHTC) Program. Daniel & Beshara, P.C. continues to represent the Inclusive Communities Project (ICP) in ICP’s advocacy campaign to reform the LIHTC program policies and practices that have maintained or increased the exclusion of low-income affordable housing from White areas. The ICP advocacy began with the TDHCA v. ICP litigation described elsewhere on this website. Other ICP advocacy includes litigation against the federal agencies administering both the LIHTC program, and national bank participation in the LIHTC program. The federally supervised banks participate in the LIHTC program by purchasing the tax credits, owning the -projects, and obtaining Community Reinvestment Act (CRA) credit for financing the exclusion of LIHTC units from White areas. The firm also litigates against cities that perpetuate the discriminatory exclusion of LIHTC units from White areas.

Daniel & Beshara also represent homeowners in Black and Hispanic neighborhoods who have an overconcentration of LIHTC housing in and adjacent to their neighborhoods. Such overconcentration continues the concentration of poverty and the negative externalities associated with such high poverty.

The LIHTC program is segregated in Dallas and in the region

LIHTC units in the City of Dallas are marked by locations in areas of high poverty, severe disadvantage, and few White non-Hispanic residents. Through 2017, 62% of the LIHTC units were in census tracts where 30% or more of the population was in poverty. 97% of the LIHTC units were in census tracts where persons of color were the majority of the population. These units were located in census tracts ranked at the highest levels of vulnerability to disasters such as pandemics. There were no LIHTC units in low-income White non-Hispanic census tracts.

Bank ownership of LIHTC housing

Daniel & Beshara P.C.’s litigation has revealed the unequal conditions of LIHTC housing in segregated neighborhoods and shown the national bank ownership of much of those LIHTC projects.

The LIHTC racial segregation issue includes the existence of an additional level of federal involvement. Not only do federal low-income housing tax credits finance the racially segregated system, the individual LIHTC projects are generally owned by national banks and the ownership and investments by these banks is approved by the Office of the Comptroller of the Currency (OCC). OCC is responsible for approving national bank ownership and investments in LIHTC through OCC’s Public Welfare Investment authority. Without such authority, the national banks are unable to own the LIHTC project, which is necessary to secure the tax credits. Owning segregated housing projects with unequal neighborhood conditions does not comport with the public welfare.

OCC also regulates and supervises national banks compliance with the Community Reinvestment Act (CRA) including “qualified investments” in LIHTC housing. Not only do the banks make money on the tax credits the banks also receive CRA credit. The banks make few loans in the same low income, high poverty areas where they own LIHTC projects.

The national bank owned LIHTC projects in the City of Dallas contribute substantially to the perpetuation of racial segregation in Dallas. For example, from 1995 through 2017, 9,782 LIHTC units owned by banks were developed in neighborhoods of color. 98 units were developed in White neighborhoods. 99% percent of the bank owned LIHTC units were in neighborhoods of color. The neighborhoods are not being revitalized but the concentrations of poverty are being exacerbated.

National bank ownership of LIHTC properties contributes to the perpetuation of racial segregation and unequal conditions in the City of Dallas. Families living at bank owned LIHTC properties in Black and Latinx neighborhoods experience conditions unequal and inferior to those living at bank owned LIHTCs in majority White not Hispanic neighborhoods. The LIHTC projects that banks own in racially concentrated areas are disproportionately located in neighborhoods with high crime as shown by City of Dallas crime reports and market data, failing schools, low access to a supermarket or large grocery store, high numbers of other low income assisted housing, high poverty, and neighborhood distress and blight. The only national bank investment in many of these areas are for ownership of LIHTC projects with the resulting concentration of poverty. These national banks do not make significant numbers of home loans in these same neighborhoods in which they own LIHTC projects.

The U.S. Department of Treasury administers the LIHTC program

Part of ICP’s ongoing advocacy effort are the ICP petitions for rule making seeking reforms from the Secretary of the Treasury and the Office of the Comptroller of the Currency. The Treasury, through the IRS, administers the LIHTC program. The Comptroller must approve the national bank purchases of the tax credits and the resulting ownership of the LIHTC projects. The Comptroller also evaluates the effect of the LIHTC investments on the banks’ Community Reinvestment Act compliance. The agencies have a reasonable time for a response to the petitions. The petitions were filed sent to the agencies on March19, 2021.

Click here for the Treasury petition, Treasury exhibits 1-15 and Treasury exhibits 16-34

Click here for the OCC petition, OCC exhibits 1-17 and OCC exhibits 18-33

Daniel & Beshara, P.C. also represented ICP in a long running lawsuit against both the U.S. Department of Treasury and the Office of the Comptroller of the Currency. The suit alleged racial discrimination and a complete abdication of the agencies’ duty to affirmatively further fair housing. Treasury alleged that it had taken some action to affirmatively further fair housing. OCC denied it even had any obligation to affirmatively further fair housing in its review of national bank ownership of and investment in LIHTC projects. The Court of Appeals for the Fifth Circuit found that even if the agencies had caused or contributed to the racial segregation, there was no relief available to satisfy the redressability element of standing. Inclusive Communities Project, Inc. v. Dept. of Treas., 946 F.3d 649, 660 (5th Cir. 2019).

The municipalities in Texas must pass a resolution of support or no objection before a LIHTC project can be developed in their jurisdiction. The federal administrator of the LIHTC program, the Treasury’s Internal Revenue Service, characterizes these required local approvals as a “local veto.” IRS Revenue Ruling 2016-29, page 3. Treasury acknowledges that these municipal vetoes can be discriminatory and violate the Fair Housing Act:

Agency’s practice of requiring local approval has created a pattern of allocating housing credit dollar amounts that has perpetuated residential racial segregation in State X. Agency’s practice, therefore, has a discriminatory effect based on race, which is a protected characteristic under 42 USC 3604. Thus, the practice is inconsistent with at least the policy of the Fair Housing Act of 1968 (the Act), 42 USC 3601–3619. IRS Revenue Ruling 2016-29.

This local veto presents an exclusionary barrier to LIHTC housing in suburban jurisdictions. The IRS Revenue Ruling acknowledges this violation of the Fair Housing Act.

DBPC litigation representing ICP and involving LIHTC projects in Dallas suburban areas

Daniel & Beshara have litigated against suburban cities with exclusionary practices and policies that work to exclude LIHTC housing and federal housing voucher tenants. As a result of litigation and advocacy by Daniel & Beshara, four LIHTC projects have been developed in predominantly White locations in three majority White suburbs. Two projects were developed on the west side of McKinney, one was developed in Sunnyvale where there had been no assisted housing, and one was developed in Frisco. The Sunnyvale litigation is described elsewhere in this website.

Until ICP’s litigation, McKinney’s affordable housing was solely located on the McKinney’s east side. McKinney is the 4th fastest growing suburb in the nation over the last decade according to the Census Bureau. McKinney has a traditional Black neighborhood across a dividing highway on the east side. The east side is Black and Hispanic and the location for the public housing projects, other HUD affordable housing projects, and 12 LIHTC projects. The west side of McKinney is majority White, and predominantly single-family housing.

The ICP litigation against McKinney was based on unique element of the State 2008 Qualified Allocation Plan for LIHTC applications. If the municipality contributed funding for the development, the application could qualify for up to 18 selection points. These additional points would be enough to qualify the application for an allocation. The maximum18 points were available if the contribution was 5% of the total Development cost. The contribution could be a loan. Section 50.9(i)(5) of the TDHCA 2008 Qualified Allocation Plan. There were few if any municipalities that were willing to pay or loan any money to assist a developer to locate a LIHTC project in a White census tract. So ICP developed a program to help the suburban municipalities provide the funding, ICP’s political subdivision loan program. ICP would lend the city the money for the city to loan to the developer. Once the developer received the tax credits and the other funding for the development, the loan would be repaid to the City and to ICP.

Two of the local entities ICP asked to participate in the program were the City of McKinney and the McKinney Housing Authority. Both refused. Litigation ensued. Inclusive Communities Project, Inc. v. City of McKinney, Tex., 2009 WL 2590121 (E.D. Tex. 2009). The City and Housing Authority’s motions to dismiss were denied. Opinion and Order adopting the included U.S. Magistrate Judge's Recommendation to deny the defendants' motions to dismiss. Opinion deny motion to dismiss MHA City.

The case settled. The settlement with the McKinney Housing Authority required it to provide local political subdivision contribution loans for up to 400 Low Income Housing Tax Credit units. ICP would provide at least $1,000,000 for these loans and had the option to provide additional funds to obtain the maximum 400 units required if the funds are made available. The consent decree was subsequently amended to provide for the use of 4% tax credits. The loans were paid back by the developers of both projects and the money returned to ICP. Consent Decree; Modified Consent Decree

The other LIHTC project developed under this local political subdivision program was in Frisco, Texas, a predominantly White suburb north of the City of Dallas. ICP approached the City of Frisco with an offer to loan the city money from the Walker Housing Fund Charitable Trust to assist in the development of low-income housing tax credit units in the City. These units would benefit ICP’s clients and other low-income families. Daniel & Beshara, P.C. represented ICP in successful negotiations with the City of Frisco. The Frisco City Manager credits the litigation brought by ICP against McKinney and Flower Mound for the City’s willingness to negotiate. One LIHTC project was developed in Frisco because of the agreement. The developer paid back the loan and the money returned to ICP.

The program did not work everywhere. ICP asked the Town of Flower Mound to participate in the ICP local political subdivision tax credit development program to encourage the use of low-income housing tax credits to provide desegregated housing opportunities for ICP’s clients and other voucher families. The Town refused. Daniel & Beshara, P.C. filed suit for ICP. Inclusive Communities Project, Inc. v. Town of Flower Mound, Tex., 2009 WL 2591176, E.D. Tex., 2009); Inclusive Communities Project, Inc. v. Town of Flower Mound, Tex., 2009 WL 2145909 (E.D. Tex., 2009) After a bench trial the Court ruled that while ICP had shown the discriminatory effects of the Town’s refusal to participate in the ICP program, ICP failed to prove that the Town’s refusal to participate was due to purposeful discrimination. Inclusive Communities Project, Inc. v. Town of Flower Mound, 2011 WL 13220388 at *12.

LIHTC segregation furthers federal assisted housing segregation

The exclusion of LIHTC housing from White areas not only perpetuates racial segregation in the LIHTC program; it steers the federal voucher program families away from White areas. The steering is accomplished in two ways. The LIHTC program is prohibited from discriminating against voucher families. In areas where few private landlords will rent to voucher families, excluding the LIHTC units from White areas excludes the voucher families who would rent from the LIHTC project.

The original federal program to provide subsidized low-income rental housing was public housing. The program was set up on a racially segregated basis. Public housing for Whites was built in White areas, for Blacks in Black areas, and for Hispanics in Hispanic areas. Occupancy was restricted by race and ethnicity. Whites were assigned to live in the public housing in White areas, Blacks to public housing in Black areas, and Hispanic to Hispanic neighborhoods. Unless the occupants were to be White, the public housing was placed in Black and Hispanic neighborhoods. The federal, state, and local governments required racial segregation by explicit law and regulations. The approximately 1,000,000 currently occupied public housing units remain racially segregated in many areas. The approximately 3,000,000 million Low Income Housing Tax Credit units in many of those same areas have recreated the same exclusion from White areas that was inflicted by the prior de jure racial segregation.

A- state by state comparison illustrates the scope of the exclusion of LIHTC units from White area relative to the historical exclusion of public housing from White areas. HUD’s 2020 Affirmatively Furthering Fair Housing data available at https://www.hud.gov/program_offices/fair_housing_equal_opp/affh shows:

Eleven states and the District of Columbia excluded a higher percentage of LIHTC units from White census tracts than was accomplished by the de jure exclusion of public housing from White census tracts. The states are Texas, Louisiana, Georgia, Illinois, Rhode Island, Tennessee, Missouri, Nebraska, Kentucky, Oregon, and Iowa.
Nine states maintained approximately the same degree of exclusion of LIHTC units from White census tracts compared to the de jure exclusion of public housing from White census tracts. The states are New Mexico, Connecticut, Massachusetts, Michigan, Arkansas, Washington, Indiana, and South Dakota.