Racial integration and community revitalization: Applying the fair housing act to the low income housing tax credit

At the heart of a debate about the future of American race, housing, and urban policy are two important lawsuits recently filed in state courts in New Jersey and Connecticut. Plaintiffs challenge the authority of their respective state housing finance agencies to fund subsidized units, with U.S. Treasury issued tax credits, in neighborhoods of racial and social isolation. These cases seek clarification of the Fair Housing Act of 1968 (Title VIII), parallel state fair housing provisions, the equal protection clauses of state and federal constitutions, and the meaning of the two most important state fair housing cases ever decided. On a broader policy level, the litigation highlights critical differences between civil rights advocates and regionalists on one side and many practitioners of community development and urban political leaders on the other. Civil rights forces see racial segregation, and the integrally related concentration of poverty, in the housing market at the core of the problem of individual opportunity and urban redevelopment in America. They argue that building and rebuilding low-income housing in the poorest neighborhoods deepens-or at least makes permanent-racial and economic barriers between individuals and metropolitan communities. Community development forces argue that the building and rebuilding of low-income housing in poor segregated neighborhoods must continue and is the only way, within the existing political context, to revitalize these places. Further, they would argue that civil rights concerns are not applicable to the allocation of tax credits, and even more importantly Congress actually gives preference in statute to using these tax credits in densely poor segregated neighborhoods. The outcome of these cases, and the broader resolution of these policy conflicts, could mark an important turning point in U.S. civil rights law and housing and urban policy. I. INTRODUCTION A growing national debate about the future of race, housing, and urban policy in the United States is reflected in the recent controversy over the administration of the Low-Income Housing Tax Credit1 ("LIHTC") program, the largest federal program that supports building low-income housing.2 Administered by the Treasury Department, the program allows investors in residential rental property to claim tax credits for the development or rehabilitation of property to be rented to low-income tenants.3 The program is implemented mainly through state agencies which distribute the credit to developers on a competitive basis.4 Part of the LIHTC statute, which passed without debate as a later amendment, gives preference in allotting credits to very poor areas.5 Consistent with a common interpretation of this preference, many state agencies have allocated significant numbers of credits to areas with high concentrations of minorities and people with low incomes.6 The concentration of low-income housing in already racially segregated neighborhoods, however, arguably violates the Federal Fair Housing Act of 1968 ("FHA").7 The FHA responded to the government agencies' tendency to impede integration by building low-income housing in poor, segregated neighborhoods. The legislative debate and the judicial and regulatory interpretation of the duty to affirmatively further fair housing reflect the understanding that such building patterns fostered racial and social segregation.8 The Act ordered the federal government and all agencies and grantees involved in federally funded housing to "affirmatively further" fair housing.9 Courts and agency regulations interpreted this duty to require the federal government to use its programmatic leverage to support racial integration and to prohibit, with narrowly defined exceptions, the federal government and its grantees from developing low-income housing projects in areas where minority and low-income residents were concentrated.10 Reconciliation of the tax credit's preference and fair housing duties has received some attention among housing activists and scholars. …