On November 22, HUD sent a 29-page “Letter of Findings” to Dallas, Texas stating that the city is not in compliance with three civil rights statutes: Title VI of the Civil Rights Act of 1964; Title 109 of the Housing and Community Development Act of 1974; and Section 504 of the Rehabilitation Act of 1973. The letter also reminds the city that it certified that it has complied with Title VIII of the Civil Rights Act, which includes the obligation to affirmatively further fair housing choice.
HUD’s Office of Fair Housing and Equal Opportunity conducted an investigation in response to a complaint alleging discrimination filed on February 4, 2010 by a developer, 1600 Pacific L.P. The city did not approve 1600 Pacific’s plan to convert a vacant office building into a mixed-use, 590 housing unit development with 40% of the units targeted to households with incomes at 60% of the area median income (AMI). The structure is in a census tract where African-Americans and Hispanics are significantly under-represented. The developers applied for financing from several sources: city tax increment financing (TIF), federal Low Income Housing Tax Credits (LIHTC), bonds available through the Housing and Economic Recovery Act (HERA) of 2008, and a CDBG Section 108 Loan Guarantee.
HUD’s letter stated, “There is overwhelming evidence reflecting a need for affordable housing for the low-income strata (at or below 50% AMI) in the City of Dallas. As discussed, there is an overrepresentation of minorities and persons with disabilities at this income level. Furthermore, the Central Business District and Downtown Connection TIF District [the site of the project] are overrepresented by white, non-disabled residents. Lastly, the average rents in the Central Business District and Downtown Connection TIF District are not affordable for persons at the 30% or 50% income strata. In addition, the evidence indicates that there was a need for affordable housing to be available in Dallas in an equitable manner and that there was in particular a need for affordable housing in the downtown area for which TIF and Section 108 financing should be resources.”
Because 1600 Pacific sought HERA bonds, LIHTC financing was automatically included. The LIHTC statute requires owners to accept vouchers, which the developers’ financing plan relied upon. In an email to the developers, the city’s Director of the Office of Economic Development wrote that he did not see vouchers as an option for the project. HUD found a similar theme in internal emails of the Dallas Housing Finance Corporation board.
Much of HUD’s letter describes how three other projects using Section 108 Loan Guarantees and TIF received terms and conditions different from those that Dallas placed on the failed 1600 Pacific applications. HUD’s investigation led to six “findings,” including:
- Dallas failed to fund 1600 Pacific because it would serve high percentages of very low and low income residents who were disproportionately minorities and people with disabilities, thus denying those residents of housing opportunities and perpetuating segregation.
- The manner in which Dallas administered its resources, in particular the Section 108 Loan Guarantee program, had the effect of: defeating or substantially impairing the objectives of the programs; limiting the availability of housing for minorities and people with disabilities; and, perpetuating segregation.
Although loans guaranteed by Section 108 are backed by the full faith and credit of the United States government, the more immediate backing is a jurisdiction’s pledge of collateral amounting to up to five years’ worth of its entire CDBG entitlement. Section 108 loan guarantees are typically used for large commercial projects such as hotels and shopping malls. In most instances, there is no intention to use CDBG funds to repay the loan; instead, revenues generated by the project (such as hotel room charges, retail store sales, parking lot fees, etc.) repay the loan. However, if revenues are not sufficient a jurisdiction’s CDBG money must be used to make up the short fall.
The 2012-2013 Dallas Consolidated Annual Action Plan indicates that after the November 2008 economic downturn, the city turned to the Section 108 program to address its multifamily housing needs. The Action Plan also states that Dallas’ highest need is for one-bedroom units for extremely low income minority households, those with income below 30% AMI.
Section 108 Loan Guarantees must follow all CDBG requirements. For instance, at least 51% of the households occupying a Section 108-assisted housing project must have incomes at or below 80% of AMI, $48,600 for a three-person Dallas household in 2013. HUD’s letter reports that Dallas had a routine practice of seeking waivers [from HUD] to reduce the 51% minimum to 20%.
The Letter of Findings concludes that HUD would like to resolve matters through a Voluntary Compliance Agreement. Nine corrective measures are listed, including:
- Developing a long-term strategy for siting housing throughout the city that addresses patterns of segregation and that affirmatively furthers fair housing.
- Adopting an ordinance requiring housing projects funded through public subsidies such as CDBG, LIHTC, and TIF to:
- Prohibit denial of tenant applications based on their source of their income (such as vouchers);
- Accept vouchers in at least 25% of their units;
- Require determination of a tenant’s ability to pay to be based on their portion of the rent.
- Funding a project within the Central Business District or Downtown Connection TIF District that has at least 51% of the units affordable to households with incomes at or below 80% AMI, with at least half of those for households at 50% AMI.
- Updating its Section 108 loan guarantee program to comply with the requirement that at least 51% of the units be occupied by households with incomes at or below 80% AMI, to bring existing projects in to compliance with this rule, and to monitor future compliance.
- Encouraging the development of affordable multifamily housing in areas of non-minority concentration and in areas of greater economic opportunity by providing tax abatement.
- Encouraging developers to work with organizations that provide housing counseling to low income people.
- Developing a 10-year plan aimed at providing the infrastructure and service improvements needed in the unincorporated areas of Dallas County to create an environment equal to that of the incorporated areas.
The HUD Letter of Findings is available at: http://bit.ly/19bSfwI