Housing Agency Accused of Discrimination in Allocation of Tax Credits

April 14, 2009
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A court denied the dismissal of a complaint brought against the Texas Department of Housing and Community Affairs (TDHCA) that alleged the agency disproportionately allocated tax credits for proposed developments, which perpetuates housing segregation. The complaint was brought against the TDHCA, and its executive director and board members, by the Inclusive Community Project, Inc. (ICP), a nonprofit organization that helps low-income African-American families eligible for the Dallas Housing Authority’s Section 8 Housing Choice Voucher program secure rental housing in predominantly, Caucasian suburban areas. ICP provides its prospective HCV program residents with move-related counseling and financial assistance, including payment of application fees, deposits, and reasonable moving expenses, and may negotiate with landlords on their behalf.

Violation of FHA
According to the complaint filed by ICP, the TDHCA follows an annual Qualified Allocation Plan (QAP), which sets criteria for applications, but is permitted under Texas law to exercise its discretion when making final decisions regarding tax credit allocation. As a result, the TDHCA takes into account race and ethnicity, both of the geographical area that surrounds a proposed development and of its probable residents. ICP alleges that the TDHCA perpetuates housing segregation by disproportionately allocating tax credits for proposed developments in low-income, predominantly minority areas and denying tax credits for proposed developments in higher-income, predominantly Caucasian areas, and was in violation of the Fair Housing Act (FHA). ICP said that this practice made it more difficult for low-income minority families to obtain rental housing in neighborhoods not plagued with high crime, widespread poverty, and industrial uses.

In addition to violating the FHA, ICP also said that the actions of the TDHCA put a drain on the nonprofit’s resources and alleges that TDHCA’s disproportionate denial of tax credit applications for proposed developments in predominantly Caucasian areas caused a relative scarcity of LIHTC units there that made it more difficult and expensive for ICP to secure integrated housing for its clients. ICP cited numerous statistics related to the location and occupancy of LIHTC developments to prove that they were disproportionately located in census tracts with above-average minority populations.

PRACTICAL POINTER: According to the complaint filed by the ICP, the Dallas Department of Housing March 2006 Section 8 occupancy report showed that:

  • 20 percent or 3,348 of the 16,190 DHA March 2006 Section 8 voucher households were in LIHTC units.
  • Only 80 of the 3,348—2 percent—were in 70 percent or more White census tracts.
  • Over 2,375 of the 3,348—71 percent—were in 0 to 30 percent White census tracts.

Court Refuses Agency’s Motion to Dismiss
The TDHCA filed a motion to dismiss the case on the basis that ICP could not establish injury, and the complaint failed to include the Internal Revenue Service and the City of Dallas as co-defendants. The court denied the motion to dismiss on the first count and also found that the ICP case had merit under the FHA.

The court also refused to dismiss the case on the grounds that the IRS and City of Dallas were not included in the complaint. The TDHCA claimed that the tax code provides certain incentives for developers of LIHTC housing to select low-cost land, which is primarily located in minority neighborhoods. It said that because developers select the land before submitting tax credit applications, it has no control over their decisions to build in predominantly minority areas, and contended that the court could not give complete relief without amending the tax code. The ICP countered that its claims were aimed at the TDHCA’s disproportionate approval of tax credits for proposed developments in minority neighborhoods compared to those in Caucasian neighborhoods. The TDHCA also claimed that the city of Dallas recently enforced a moratorium on new LIHTC developments, which the ICP pointed out was no longer in effect and noted there was adequate zoned land in Caucasian neighborhoods on which to build LIHTC units.

The Housing Agency’s motion to dismiss the case was denied [The Inclusive Communities Project, Inc. v. The Texas Department of Housing and Community Affairs, December 2008].