Promoting LIHTC Allocation Beyond Traditional Low-Income Areas: MHDC Proposal and Supreme Court Case Potentially at Odds

While the Missouri Housing Development Commission (“MHDC”) considers a proposal to encourage LIHTC allocations away from areas with high concentrations of low-income housing, the Supreme Court of the United States is considering depriving plaintiffs an important tool used for enforcement of the Fair Housing Act—which may have the effect of discouraging allocating agencies from diminishing high concentrations of low-income housing.

MHDC Report Proposes Altering LIHTC Allocation Priorities

A recent report from the MHDC may eventually lead to substantial changes in Missouri’s annual allocation of nearly $145 million in federal and $137 million in state LIHTC.[1]  Missouri Treasurer, Clint Zweifel initially asked for MHDC to study the “disproportionately high concentration of low-income housing in North St. Louis County.”[2]  The request came on the heels of August’s Michael Brown shooting and subsequent unrest in the North St. Louis County municipality of Ferguson.[3]  Specifically, a concern exists that having a high number of low-income housing developments in one area tends to lead to a rise in crime.   

Issued in late February, the report could lead to significant changes as to how MHDC considers LIHTC applications.[4]  The report details several suggested changes to MHDC’s review of LIHTC applications, many of which focus on addressing the high concentration of low-income housing in certain areas of St. Louis and Kansas City.[5]   Some of the proposals include:

• Prohibiting new construction in census tracks where more than 20% of housing units are subsidized, with exceptions and creating a new priority for proposals in census tracts where the poverty rate is below 15%
• Giving priority to proposals that are part of a municipal approved redevelopment or master plan
• Prohibiting any developments with more than 50 units, with exceptions
• Adding local police departments to the list of entities that need to be informed about the project proposal
• Prioritizing proposals that include “service enriched housing features” (tutoring, day care services, etc.)[6]

These proposals would still need to go through a series of public hearings and a final approval by the MHDC before being factored into the evaluation of future LIHTC allocations.[7]  If approved, these changes lead to the MHDC awarding LIHTC allocations to projects outside of areas with a high concentration of low-income housing. 

Supreme Court Considers Fair-Housing Act’s “Disparate Impact” Theory

While the MHDC mulls over a proposal for encouraging the expansion of low-income housing programs away from traditional low-income areas, the Supreme Court of the United States is considering taking away a powerful tool used to enforce housing discrimination under the Fair Housing Act—a move which may put less pressure on allocating agencies to diminish high concentrations of low-income housing.   

For years, the federal government has used the theory of “disparate impact” to sue housing authorities and businesses for committing racial discrimination even without proof of intentional discrimination.[8]  However, enforcement under the “disparate impact” theory could soon be coming to an end.  In late January, the Supreme Court of the United States heard oral arguments for Texas Dept. of Housing vs. The Inclusive Communities Project—a case which will decide whether people can sue under the Fair Housing Act by showing a practice had a “disparate impact” on racial minorities, or whether they must meet a higher standard by showing intentional bias.[9]

The present case originated in Texas, when current Gov. Greg Abbott reopened litigation centering on the allocation of LIHTC.[10]  The suit alleges that landlords, housing agencies, and developers created “the functional equivalent of a quota system” by going out of their way to promote projects away from the traditional high-poverty minority neighborhood in hope of avoiding a Fair Housing Act lawsuit under the “disparate impact” theory.[11]  A decision is expected this summer.[12]

The case could have a significant impact on how LIHTCs are allocated.  In particular, if the Supreme Court overturns the use of the “disparate impact” test under the Fair Housing Act, state allocating agencies will feel less pressure to proliferate affordable housing projects beyond low-income areas solely for the sake of preventing a “disparate impact” theory lawsuit.