A Texas Surprise and the Future of Disparate Impact Claims in Housing

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August 28, 2016; KERA News/Texas Tribune

In an ironic twist to a story of housing rights, Inclusive Communities, a nonprofit housing advocacy organization in Texas, lost the case that they won in the U.S. Supreme Court last summer. What’s more, this week’s decision in The Inclusive Communities Project, Inc. vs. The Texas Department of Housing and Community Affairs, et al. was based on the principles laid down by the Supreme Court decision. (For the sake of simplicity, the case will be called Inclusive Communities v. Texas in this newswire.)

Here’s what happened. Inclusive Communities Project (ICP) sued the Texas Department of Housing and Community Affairs for discrimination based on an unwritten principle of fair housing called disparate impact. Disparate impact means that a policy which on its face seems to be race-neutral can be found to be discriminatory if the policy affects a specific protected class more than the general public. ICP successfully argued that the method used by Texas to locate Low Income Tax Credit Housing (LIHTC) in low-income neighborhoods perpetuated residential racial segregation in Dallas. ICP won its argument in the Federal District Court, and Texas filed an appeal with the U.S. Supreme Court, arguing that their policy for locating properties was race-neutral.

When the Supreme Court announced that they had accepted the case for review, HUD rushed to issue guidance around disparate impact claims and the Obama Justice Department joined the case with an amicus brief in support of ICP. Then, in June 2015, in a carefully reasoned decision, the Court upheld the principle of disparate impact and laid out some guidelines for how lower courts should view the evidence to determine if disparate impact had occurred in a given situation. NPQ’s Rick Cohen did a good review of the decision at the time.

As a part of the decision, the Supreme Court sent the case back to the original trial court in Dallas to review the evidence using the principles the Supremes had laid out. Surprise! The Federal District Court reviewed the evidence using the Supreme Court’s yardstick and announced that the actions by Texas Department of Housing and Community Affairs did not constitute disparate impact under the principles established by the Supreme Court. In his opinion, Federal District Judge Sidney A. Fitzgerald distinguished between ICP’s earlier claim that the totality of the policies and the discretion in awarding tax credits resulted in segregation and the Supreme Court’s criteria that a successful claim must identify the specific policy or policies that had a discriminatory effect.

In a blog post on the decision, the Tax Credit consulting firm Novogradac & Company identifies three criteria that flow from the Supreme Court decision to the Federal District Court.

  • Identify a specific, facially neutral policy that is responsible for the disparate impact,
  • Make “a causal link” between the policy and statistical disparity, and
  • Show that “other factors” are not responsible.

Dallas Morning News gives a more complete account of the story.

What now? Three questions come to mind.

  1. Will ICP appeal? So far, ICP has been mum about its next steps. If there’s no appeal, this case is over, although a press statement seems to leave the door open to future advocacy work in support of ICP’s mission.
  2. How will this ruling affect the still-evolving HUD guidance for state compliance with the duty to affirmatively further fair housing? Despite the significant victory at the Supreme Court, advocates might find it easier to bring suit against federal grantees under the new HUD regulations than under the concept of “disparate impact.”
  3. Will HUD amend its guidance on disparate impact to reflect the court’s concerns that plaintiffs show a specific policy barrier? As more and more decisions flow from the Supreme Court decision in Inclusive Communities v. Texas, HUD may need to adapt the guidance to Federal grantees and advocates.

These questions are not academic. Last week, the Legal Aid Society of Southwest Ohio released a report prepared by Abt Associates that concludes that the siting decisions of the Ohio Housing Finance Agency resulted in clustering of LIHTC properties in low-income neighborhoods.

Between 2006 and 2015, OHFA made allocations to just nine properties and 526 units of family housing in census tracts in which less than 10 percent of the population is poor. […] In contrast, between 2006 and 2015, OHFA made more than 45 percent of all awards of family housing in metropolitan areas—more than 6,000 units—in neighborhoods with extreme poverty concentrations, more than 40 percent of the population living below the poverty line. Such neighborhoods are considered highly distressed.

In the Ohio situation, as with Inclusive Communities v. Texas, a claim of disparate impact would need to show how specific policies ended up locating low-income housing in a way that perpetuates discrimination—in this case, against families with children.—Spencer Wells