Texas LIHTC corruption case should embarrass us into taking action

I don’t know who, if anyone, is guilty in the Dallas Low Income Housing Tax Credit public corruption case that is set to get underway in federal court today. But I do believe that all of us who work in affordable housing in Texas are little guilty for not speaking up louder to demand a fix for the problem that lies at the root of this case.

If you aren’t not up to date on this mess, check out the summary of the cast of  characters the Dallas Morning News has prepared..

In a front-page story in today’s Dallas Morning News the Dallas corruption case was summarized as follows…

Jurors will hear how a change in state law opened the door for Hill, Lee and others to allegedly cash in on low-income housing deals.

In 2003, the Legislature passed a law that required developers wanting to build low-income apartments in cities already saturated by subsidized housing, like Dallas, to get approval from city councils and community groups before they could get tax breaks.

Ratcheting up the pressure was a ban on having two or more such complexes within one mile of each other.

Fast-forward to Oct. 27, 2004, a critical crossroads in the government’s narrative. That day’s council agenda contained proposals for dueling low-income developments from both Potashnik and Fisher [LIHTC developers]. Some of the developments were to be built on opposite sides of the road from each other.

Prosecutors contend that five days before [former Dallas Mayor Pro Tem Don]Hill led his council colleagues to favor Southwest Housing’s projects, the Potashniks cut Sheila Farrington [Hill’s girlfriend] the first of a dozen $14,000 checks she allegedly funneled to her paramour, Hill.

According to prosecutors, Hill at one point had schemes involving separate groups of people hitting both Fisher and Potashnik up for cash funneled through phony contracts.

First, let me say that the Morning News is dead wrong in saying that Dallas is saturated with “subsidized housing.” Far from it. In 2009, 44% of Dallas renters can’t afford to rent a modest two-bedroom apartment. For rent to be affordable would require a full-time worker to earn $17.40 an hour. (These figures are according to the National Low Income Housing Coalition in a report entitled Out Of Reach, which is available on their website).

But it is true that state law awards critical scoring points to Low Income Housing Tax Credit developers who secure letters of support from elected officials at the state and local levels. This requirement should be repealed.

Sen. John Whitmire (D- Houston) attempted, unsuccessfully, to convince the Legislature this session to allow state elected officials the option of refusing to write letters of support without penalizing the points the developer would earn in the competition to get their development funded.

We really need to go further than Sen. Whitmire proposed however.

There is an elaborate process for assessing the worthiness of a Low Income Housing Tax Credit application already in place with the issuing entity, the Texas Department of Housing and Community Affairs. There are ways that this assessment process could be further strengthened, including making the market analyst assigned to the development completely independent of the developer.  The market analyst is responsible for preparing a report on the appropriateness of the project at its proposed location.

It is the appropriateness of the project that is the issue here. While local elected officials do have a general knowledge about the districts they represent, they are hardly experts in the intricacies of the market needs for of affordable rental housing among a narrow market share of low income renters. Thus, the letters of support from the local elected officials are not of great use in deciding whether the proposed housing development is needed or not. But because of the highly competitive nature of the LIHTC process, the scoring points awarded for a favorable letter from a public official often make or break a proposed development.

The Texas Department of Housing and Community Affairs will be reviewed by the Texas Sunset Commission over the course of the next year and a half. This is an excellent opportunity to repeal the requirement for local elected officials to write letters of support and to put in place a more sound and nonpolitical assessment of the need for a proposed LIHTC development.

In the meantime, we are all going to be treated to a sordid, painful and drawn out public accounting of just what is wrong with the current law through front page media coverage of this case. The association of affordable housing with public scandal will do much to further erode the public’s all too weak support for government efforts to assist the poor to find affordable housing.

2 thoughts on “Texas LIHTC corruption case should embarrass us into taking action

  1. I would suggest that the issue goes much further than this. TX’s QAP violates Fair Housing laws in a number of ways — signage on site saying affordable housing coming; points for State Senator/State Rep Letters; proximity rules; neighborhood support/opposition points; etc. TX has empowered NIMBY’ism. The Inclusive Communities Project has filed suit against TDHCA (really against the State Legislature for passing the rules, but you can’t sue them) on these issues.
    – Bob Voelker

    • Agreed.

      The Inclusive Communities lawsuit survived a motion by the state to dismiss and is set for trial early next year.

      It should not take a lawsuit to restore compliance with Fair Housing laws by the State of Texas however. The level of public “warnings” about an application for a housing development in Texas is unequaled in other state activity. I found out this session for example that the TRC permits oil and gas wells to be set up and operated in neighborhoods in Texas without any notice, right next door to someone’s home. Contrast that with all the notices and hearing opportunities that are afforded a homeowners association when the State considers financing housing so families can have a place to live.

      The message is clear, that State believes people have more to fear from low-income families and people of color moving into their neighborhood than they do from a gas well exploding next door.

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