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Court Dismisses Disparate Impact Claim Against Texas Agency
In an opinion dated August 26, the U.S. District Court for the Northern District of Texas dismissed a disparate impact claim by The Inclusive Communities Project (ICP) against the Texas Department of Housing and Community Affairs (TDHCA). The case has been of great interest in the low-income housing tax credit (LIHTC) community.
TDHCA is responsible for administering the LIHTC program in Texas. One of the responsibilities is creating a qualified allocation plan (QAP). Developers submit applications to build affordable rental homes, and TDHCA evaluates those proposals against the QAP criteria. The resulting decisions affect which properties are built or rehabilitated in the state, and where.
ICP brought an action in 2008 alleging TDHCA was violating the Fair Housing Act. The primary charge was the location of LIHTC developments in Dallas had a disparate impact on residents based on their protected class status (race). Specifically, ICP claimed that minority households did not have the necessary extent of opportunity to move to predominantly white neighborhoods.
The lower court found in favor of ICP on this allegation, and TDHCA appealed. The U.S. Supreme Court considered a narrowly-focused aspect of the case. Last year, the Supreme Court ruled in favor of ICP, established standards for disparate impact claims, and remanded the case. (More information can be found in the June 30, 2015 Notes from Novogradac blog post and September 2015 article in the Novogradac Journal of Tax Credits.) At the time some observers, including this author, noted the possibility of TDHCA prevailing when reconsidered.
Dismissing the Claim
The first step in proving a disparate impact is making a prima facie case. For the initial proceedings in 2008, the burden of proof for doing so was “not a heavy one.” The Supreme Court decision changed this standard, making it more demanding.
The lower court’s opinion explains that plaintiffs (in this case ICP) must:
- “point to a specific, facially neutral policy” responsible for the disparate impact,
- prove “a causal link” between the policy and statistical disparity, and
- demonstrate that “other factors” are not responsible.
The judge determined the allegations had “not identified any barriers to housing” to remove since ICP’s argument was based on TDHCA’s exercise of discretion in making awards under the QAP, not a specific policy. According the judge:
ICP does not seek to remove a specific barrier to fair housing, but to impose on TDHCA the requirement that it award additional points for housing that furthers desegregation. The Supreme Court has made clear that such remedies are constitutionally suspect, and the court declines to impose such remedy.
The court also found that the claim “failed to demonstrate” how “local zoning rules, community preferences, or developers’ choices” were not responsible for the disparities.
Whether ICP will appeal the decision is unknown at this time. If not, the lower court ruling is the last word on this case. Even in that circumstance, what it means in practice is not clear. TDHCA had drafted past QAPs to comply with the initial outcome in favor of ICP, and Texas’ 2017 QAP is not yet complete. Some other allocating agencies have revised their QAPs in response to the initial lower court ruling and/or Supreme Court decision. The extent to which such changes were necessary at the time was a question, and may be even more so going forward.
Another question is what legal impacts the decision will have in other states. Although the ruling technically applies only in the Northern District of Texas, other courts will look to its reasoning. One likely result may be added difficulty in making disparate impact claims against LIHTC allocating agencies and other program administrators. All that said, it’s important to note that the ruling does not change other aspects of fair housing, such as limitations on using criminal records and the duty to affirmatively further fair housing.