Delete subtitle if none Date will automatically update Use this title slide if your title is long and you have 1 presenter Disparate Impact Ruling for the 2015 Governor’s Housing Conference October 7, Mark Shelburne Novogradac & Company LLP (919)

Disclaimer 2 Only a summary National focus, specifics vary by state Another side to many aspects Not providing legal advice

Two Areas Legal Requirements Policy Considerations 3

Two Areas Policy Considerations Legal Requirements Policy Considerations A great deal of overlap, but not the same Important to be aware when dealing with each 4

Protected Classes 5 Poverty?

Traditional Text Slide with Subtitle Overall Components of the Fair Housing Act Intentional Discrimination – most common Definition: Individual of a protected group is shown to have been treated less favorably than others similarly situated Disparate Impact – less common, complicated proof issues Definition: A practice has a discriminatory effect on a protected group regardless of evidence of an intent to discriminate Affirmatively Furthering – applicable when accept HUD funding Definition: Taking meaningful actions to further fair housing Each apply at project and program level 6

Blank Slide 7 Fair Housing In General Affirmatively Furthering Applicable... regardless of any subsidy. when using certain federal subsidies (e.g., HOME). Meaning for owners and managers: Cannot intentionally discriminate, or use policies/ practices which have a disparate impact. Must actively market housing to those in protected classes who are the least likely to apply for occupancy. Meaning for agencies / authorities: Same as above. Jurisdictions receiving HUD funding must use all program resources to advance desegregation. How enforced: Either through HUD administrative complaints or in federal court. Same as the other column, plus HUD review of agencies’ compliance with the applicable requirements.

Traditional Text Slide HUD adopted a new regulation (24 CFR ) after the lower court case was decided: 8 “A practice has a discriminatory effect where it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin.”

Three-Step Burden Shifting Approach The plaintiff (or charging party) must make a prima facie showing of either a disparate impact or a segregative effect. If the discriminatory effect is shown, the burden of proof shifts to the respondent to justify its actions. If the respondent satisfies the burden, the plaintiff may still establish liability by proving that these substantial, legitimate, nondiscriminatory interests could be served by another practice that has a less discriminatory effect.

Traditional Text Slide Legally Sufficient Justification A practice or policy with a discriminatory effect may still be lawful if it has a “legally sufficient justification.” Exists where the challenged practice: – is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests; and – those interests could not be served by another practice with a less discriminatory effect. A legally sufficient justification must be supported by evidence and may not be hypothetical or speculative. 10

Traditional Text Slide with Subtitle Texas DHCA v. Inclusive Communities Project Agreed with lower courts that disparate impact can be the basis for a claim Emphasizes that a claim must be supported by more than statistical disparities Plaintiff must prove a “causal connection” between its evidence and the challenged practice in order to make out a prima facie case For subsidy resource allocation (LIHTCs), it may be “difficult to establish causation because of the multiple factors that go into investment decisions about where to construct or renovate housing units” 11 Majority Opinion Justice Kennedy

Traditional Text Slide with Subtitle Texas DHCA v. Inclusive Communities Project Even when there is a connection, the Court said governments “must not be prevented from achieving legitimate objectives” Policies are “not contrary to the disparate-impact requirement unless they [create] ‘artificial, arbitrary and unnecessary barriers’” Specifically mentions “revitalization of communities that have long suffered the harsh consequences of segregated housing patterns” as a legitimate objective Affirmed Fifth Circuit’s remand using the HUD rule 12 Majority Opinion Justice Kennedy

13 Most fair housing disparate impact activity is not in the courts, but instead administrative complaints HUD investigates to determine if discrimination HUD is required to encourage conciliation, are often settled Process does not involve the same safeguards / legal protections for defendants

Blank Slide 14 Fair Housing In General Affirmatively Furthering Applicable... regardless of any subsidy. when using certain federal subsidies (e.g., HOME). Meaning for owners and managers: Cannot intentionally discriminate, or use policies/ practices which have a disparate impact. Must actively market housing to those in protected classes who are the least likely to apply for occupancy. Meaning for agencies / authorities: Same as above. Jurisdictions receiving HUD funding must use all program resources to advance desegregation. How enforced: Either through HUD administrative complaints or in federal court. Same as the other column, plus HUD review of agencies’ compliance with the applicable requirements.

Traditional Text Slide Affirmatively Furthering Fair Housing AFFH has been in place for >40 years Means more than not discriminating Goal is to eliminate barriers to fair housing HUD changed its approach – GAO report on Analysis of Impediments – Westchester County legal action Focus is on plans issued by participating jurisdictions and public housing authorities Must undertake “meaningful actions” as a condition of accepting federal resources 15

AFFH Process Will be part of the Consolidated Plan or PHA Plan HUD will provide the data, which can be supplemented by local information Used to prepare an “Assessment of Fair Housing”: Patterns of integration and segregation; Racially and ethnically concentrated areas of poverty; Disparities in access to opportunity; and Disproportionate housing needs 16

AFFH Process Assessment “Tool” will be available, a template to follow Jurisdiction will set goals to overcome issues identified Include input from public participation process Goals must inform later funding decisions Varying deadlines based on current Con/PHA Plan: – A few dozen jurisdictions will submit to HUD by 2016 – States and smaller cites/PHAs have until 2017 – Essentially all due by 2020 Uncertain how much consulting help will be necessary 19

Meaningful Actions Overcome patterns of segregation and foster inclusive communities free from barriers to opportunity based on protected characteristics Address significant disparities in housing needs and access to opportunity Replace segregation with truly integrated and balanced living patterns Transform racially and ethnically concentrated areas of poverty into areas of opportunity Fostering and maintaining compliance with civil rights and fair housing laws 20

AFFH and LIHTCs Does AFFH apply to the LIHTC program? – When also a HUD participating jurisdiction, the rule requires allocating agencies to consider – Question is what applies on a federal level Subject of a different lawsuit in Texas – Still in preliminary stages – Will be heard by the same judge ICP has sued Treasury to force it to issue AFFH regulations DoJ’s: Section 42 “does not contemplate or require” Treasury’s involvement in determining projects’ locations Likely will take years to resolve 21

“Explanations exist; they have existed for all time; there is always a well-known solution to every human problem --- neat, plausible, and wrong.” - H.L. Mencken, Prejudices: Second Series, 1920 Policy Implications 22

Overall Consequences In one sense SCOTUS decision and AFFH rule maintain the status quo Opinion alone does not mean agencies have to change policies Substance of Texas QAP was not an issue on appeal Does allow disparate impact claims, but also provides limitations AFFH will involve a new, more clear process Agencies will have to be thoughtful about past and future actions Continuing current practices may not be an option Still have tremendous complexity in one jurisdiction, let alone all 23

Delete subtitle if none Date will automatically update Use this title slide if your title is long and you have 1 presenter Disparate Impact Ruling for the 2015 Governor’s Housing Conference October 7, Mark Shelburne Novogradac & Company LLP (919)