Interim Hearing of the Texas House Committee of Urban Affairs
On May 23, 2016, the Texas House Committee of Urban Affairs held a hearing to hear invited testimony on several of its interim charges. I was invited to provide testimony at this hearing. These interim hearings are very important as they inform our legislators on issues within the mission of the committee as well as begins to shape potential legislation for the upcoming session.
The Urban Affairs Committee developed seven (7) interim charges that they are reviewing prior to the 2017 legislative session. The May meeting invited testimony on four (4) of those charges.
3. Examine whether changes are needed to the Texas Department of Housing and Community Affair’s (TDHCA) low-income tax credit program to ensure compliance with the U.S. Supreme Court’s decision in Texas Department of Housing and Community Affairs et al. v. Inclusive Communities Project, Inc., et al. on fair housing in Texas.
4. Review existing housing programs and policies in Texas to determine how to best comply with the U.S. Department of Housing and Urban Development’s new Affirmatively Furthering Fair Housing Rules.
5. Monitor and evaluate the availability of low-income housing in the State of Texas. Identify best practices to ensure that the agencies and local providers receiving state or federal funds for low-income housing are maximizing the number of units of housing available to Texans who need this program.
7. Conduct legislative oversight and monitoring of the agencies, including the Texas Department of Housing and Community Affairs, and programs under the committee’s jurisdiction and the implementing of relevant legislation passed by the 84th Legislature. In conducting this oversight, the committee should:
a) consider any reforms to state agencies to make them more responsive to Texas taxpayers and citizens;
b) identify issues regarding the agency or its governance that may be appropriate to investigate, improve, remedy, or eliminate;
c) determine whether an agency is operating in a transparent and efficient manner; and
d) identify opportunities to streamline programs and services while maintaining the mission of the agency and its programs.
Me and the other invited guests were given 5 minutes to present testimony. I also presented the following written statement to the committee:
House Committee of Urban Affairs
Public Hearing on Interim Charges
Testimony of Antoinette M. Jackson
May 23, 2016
Good morning Madame Chair and committee members, my name is Antoinette M. Jackson known to most as Toni. I am a partner with the law firm of Jones Walker practicing in the area of affordable housing finance. I have a developer practice representing for profit and nonprofit developers and public housing authorities. I represent clients in the development of multifamily housing and mixed use developments utilizing tax credits, FHA financing and other public funding sources. My practice is based here in Texas but I also represent developers across the country and as such I am familiar with the practices of some other state housing agencies.
I truly appreciate this opportunity to come before you today and share some of my thoughts on improving affordable housing in Texas.
Interim Charges #3 and #4
It is encouraging that the Committee’s interim charges seek comments regarding the recent Supreme Court decision of the Texas Department of Housing and Community Affairs (“TDHCA”) v The Inclusive Communities Project (“ICP”), et. al as well as the recent HUD final rule on Affirmatively Furthering Fair Housing. The Supreme Court decision and HUD final rule greatly impact the housing community and how developers will make decisions going forward.
In 2008, ICP filed a disparate impact claim against the TDHCA alleging that it was disproportionately awarding most of the tax credits in racially segregated neighborhoods. Disparate impact is when a policy or practice has an adverse impact on any one group. More specifically ICP claimed that TDHCA was preserving racial segregation in the manner in which it was awarding the tax credits. This claim contended that although its policies appeared race neutral, the TDHCA policies in fact had a discriminatory effect on poor, minority communities. The lawsuit was brought so that TDHCA would change its rules and policies and therefore distribute these awards of credits in more suburban areas.
A month after the Supreme Court ruling, HUD released its final rule for Affirmatively Furthering Fair Housing (“AFFH”) which further set forth the requirements to meet fair housing obligations when utilizing federal funds. The Supreme Court ruling along with the AFFH final rule added to developers’ considerations when identifying development locations which utilize tax credits and other public funding. However, the decisions that are made by tax credit developers are also driven by the Texas Qualified Allocation Plan (“QAP”) and its scoring system.
Every state that administers Low Income Housing Tax Credits (“Tax Credits”) sets out its rules and scoring system in its QAP. However, here in Texas, the top scoring items in the QAP are set out by statute making it one of the most heavily legislated QAPs in the country. As such, TDHCA in conjunction with the development community does not always have the ability to craft the QAP in a manner that is most responsive to both need and fundamental real estate principles. Instead, developers are forced to put together projects that are statutorily point-driven and this doesn’t necessarily produce the best product for the residents.
Those statutory items or “above the line” criteria drive the developments and leave very little room for the agency to add criteria that is responsive to industry needs. Having the QAP written in statute does not give the agency the ability to truly create housing policy that is driven by industry standards and housing needs. It also takes away the ability for the QAP to be flexible and nimble. Instead, the housing community is required to wait until the legislature is in session to make any “above the line” changes. And even if the changes are consensus recommendations from the housing industry, the industry is still subject to the legislative and political process which means the changes are not guaranteed to be passed. This leaves the agency and housing industry without the ability to effectively govern a very complex program. It also removes the ability to respond quickly to major policy changes or laws impacting the industry such as the TDHCA v. ICP decision and the AFFH final rule.
The process is further complicated by the fact that the number of points awarded in the categories of support outweighs the points for development factors. Developers understand the importance of getting local support for their deals and they want to be good neighbors. However, they also want the ability to give weight to factors such as location, type of development and other development and market factors when determining what to build.
TDHCA v. ICP raised issues about the importance of the location of tax credit developments. However, when the weight given to support letters exceeds development factors, those persons and entities empowered to write these letters are able to drive the location of tax credit development. The housing industry is being met with the growing sentiment of Not In My Back Yard or NIMBYism. This community opposition has become very loud, strong and sophisticated. When developers are required to get letters from neighborhoods and legislators who know very little about the development and are sometimes unwilling to listen and learn, the letters of opposition allow these persons and entities to effectively drive development.
A number of states used to require legislative letters as scoring criteria but later determined that these letters were often driven more by political influence than genuine housing need. We have seen examples of legislators who have been educated about the tax credit process and given their verbal and written commitment of support only to retract it later after learning that there is a group of constituents that oppose the deal. This retraction is not made because the legislator learned of changes in the development or was misled. This retraction is made because of the threat of being voted out of office or challenged by an opponent willing to oppose potential housing. This is problematic for the development community because it does not provide a system that can be relied upon.
In July 2013, the Texas Sunset Advisory Commission Final Report recommended that the requirement for letters of support from state senators and representatives be eliminated. The commission report read as follows:
This recommendation was based on the Sunset Commission’s finding that the law governing the tax credit awards process was the only state law that required state representatives and senators to provide letters in support of, or opposition to, development projects of this nature. The Commission concluded that given the size of many electoral districts and the short application timeframe, elected officials were often not in a position to meaningfully evaluate a proposed development or obtain community input sufficient to draft the required letters. Given the point value associated with these letters, if officials opt not to provide letters, projects, especially in the most competitive areas, will almost certainly not be funded.
As a result of that recommendation, the Texas Senate voted to remove senators from the requirement of providing a letter for tax credit deals. However, this continues to be a contentious subject among state representatives and despite the recommendation, the letters from state representatives remain in place. The point system for the letters have changed since that time but the fact remains the same as found by the Commission, state representatives who do not provide a letter or oppose a development effectively kill an application.
The neighborhood letters are also problematic. The development community has experienced examples where neighborhoods may choose not to meet with a developer but yet will write a letter opposing a potential project. In the City of Houston, the Super Neighborhoods are recognized by the QAP and as such allows groups from a distance as far as 5-7 miles away to oppose a development that is not slated in its immediate neighborhood. These letters are problematic because the neighborhood groups are not governed by our process and are often swayed by wrong and misleading information. Yet developers are subject to these neighborhood groups that can kill a deal without a solid, legitimate reason.
The letters of opposition from elected officials and neighborhood groups are a form of NIMBYism and rises to the level of being a fair housing violation. The AFFH final rule is intended for jurisdictions to identify those barriers to affordable housing. The elected official letters and the neighborhood letters are barriers in the tax credit program. The weight of these support letters allows for these parties to effectively drive where housing will or more importantly, will not be placed.
TDHCA v. ICP allows housing policies and practices to be challenged under the Fair Housing Act. The policies and practices set forth in Texas statute that requires letters from elected officials is a policy that is subject to challenge under the Fair Housing Act. Further, this practice does not Affirmatively Further Fair Housing because there is not a process set out that allows the legislator and neighborhood to effectively and objectively evaluate the development. Instead these support letters have become one of the biggest barriers to building new housing in Texas.
Interim Charge #5
The Tax Credit program has become the most successful and effective program for the building and rehabilitation of affordable housing units. The housing industry is dealing with the difficulty of declining resources and the loss of older housing stock. The ability to maximize the number of housing units that are built can only come from maximizing and leveraging the resources.
TDHCA needs to be charged with creating a comprehensive housing plan for the state that sets the housing priorities and identifies additional resources to assure the best use of funds. The agency allocates tax credits utilizing a regional formula. This regional approach could be used to partner with local jurisdictions in identifying the priorities of those areas. Also, having a more nimble QAP would allow TDHCA the ability to respond more effectively to the needs of the state.
Recommendations to the Committee
In summary, I would request for consideration the following:
- Remove the QAP from statute
- Remove the requirement of elected official letters
- Remove the requirement of neighborhood letters and in the alternative, reduce the weight of the neighborhood letters
- Direct TDHCA to create a comprehensive housing policy
Thank you again for this opportunity to testify and submit written comments.
Antoinette M. Jackson