Fed. Dist. Court in TX Finds Plaintiff Failed to Make Prima Facia Showing Of Disparate Impact Claim under the Fair Housing Act

Plaintiff, the Inclusive Communities Project, Inc. (“ICP”), brought an action against defendants Texas Department of Housing and Community Affairs and its Executive Director and board members in their official capacities (collectively, “TDHCA”). Plaintiffs challenged TDHCA’s allocation of Low Income Housing Tax Credits (“LIHTC”) in the Dallas metropolitan area. ICP was a non-profit organization that sought racial and socioeconomic integration in the Dallas metropolitan area, by assisting low-income, predominantly African-American families who were eligible for the Dallas Housing Authority’s Section 8 Housing Choice Voucher program  in finding affordable housing in predominately Caucasian, suburban neighborhoods. Following the entry of partial summary judgment in ICP’s favor, the trial court found in favor of ICP on its FHA-based disparate impact claim and against ICP on all other claims. On appeal, the Fifth Circuit reversed and remanded.

On remand, ICP argued that the briefing should commence at step two of the three-part burden-shifting approach: that TDHCA should be required to address the justification element, followed by ICP’s addressing the less discriminatory alternative element. The court concluded “that the interests of justice and fundamental fairness required that the court first consider on the current trial record whether ICP had established a prima facie case.” The gravamen of ICP’s complaint is the allocation of 9% tax credits for low-income housing developments. Specifically, ICP alleged that the policy or practice of permitting the TDHCA to use its discretion in allocating 9% tax credits perpetuates racial segregation, in violation of the FHA. TDHCA responded that ICP had not identified a specific, facially-neutral policy that caused a racially disparate impact sufficient to establish a prima facie case under the FHA. TDHCA further argued that discretion itself is not a policy, and ICP had not accounted for the actions, policies, or preferences of third parties: such as Congress, the Texas Legislature, developers, and local communities that could impact the location of LIHTC units.

The court found that ICP failed to point to a specific, facially neutral policy that purportedly caused a racially disparate impact. By relying only on TDHC’s exercise of discretion in awarding tax credits, ICP had not isolated or identified the specific practice that caused the disparity in the location of low-income housing. Moreover, ICP’s disparate impact claim was also dismissed because regardless of the label ICP places on its claim, it was actually complaining about disparate treatment, not disparate impact. Even assuming that TDHCA’s use of discretion was a specific, facially neutral policy, ICP failed to establish that the exercise of that discretion caused the disparity in the location of low-income housing. ICP failed to demonstrate that, had TDHCA not been permitted to exercise any discretion when allocating 9% tax credits, and had those decisions been made strictly by the points system, there would be no, or significantly less, disparity in the location of LIHTC units. Additionally, ICP failed to prove what the distribution of LIHTC units or the percentages of approved 9% applications would have been had TDHCA awarded credits based strictly on points had it exercised no discretion.

ICP also argued that TDHCA perpetuated racial segregation by using its discretion to approve applications for 4% tax credits in minority areas with undesirable site conditions, and by denying two applications for 4% tax credits for projects in Caucasian areas. However, even assuming that ICP proved that TDHCA had a facially neutral policy or practice in allocating 4% tax credits, the use of discretion in the allocation of 4% tax credits, ICP failed to prove that TDHCA’s exercise of discretion caused a statistically-significant disparity in the location of low-income housing. Accordingly, the court dismissed ICP’s disparate impact claim and entered judgment in favor of defendants.

The Inclusive Communities Project, Inc. v. Texas Dept. of Housing and Community Affairs, 2016 WL 4494322 (ND TX 8/26/2016)