June 15, 2012

Tax credit rules for affordable housing developments may change

Proposed guidelines would steer projects to upscale neighborhoods.

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Texas could change the way it funnels millions of dollars to builders of affordable housing projects, giving preference to complexes in more affluent and diverse areas.

A federal judge in Dallas has ordered the Texas Department of Housing and Community Affairs to refine its rules for awarding tax credits for low-income housing.

The court ruled in March that too many of the projects were being built in poor, minority neighborhoods. Though that wasn't intentional, it was discriminatory, U.S. District Judge Sidney Fitzwater ruled.

The department's plan will apply to the region that includes the Metroplex but could also cover the state, officials said. The court has not yet approved the plan.

Fitzwater is awaiting a response due Monday from the Inclusive Communities Project, the nonprofit that sued over the issue. Michael Daniel, an attorney representing the nonprofit, will not talk about the pending litigation but argued in a lawsuit filed in 2008 that the agency's practices in effect concentrated minorities in areas with poor schools, high crime and bleak opportunities, in violation of the Fair Housing Act.

"The conditions that people were subjected to range from a wide variety of environmental factors and blight and lack of facilities," Daniel said. "Page after page of court record shows that people were put in awful conditions."

John Henneberger, co-director of the Texas Low Income Housing Information Service, an Austin nonprofit that advocates on housing affordability issues, says the agency's plan represents a false choice and if approved as written, won't change much.

Henneberger said Texas towns need to be revitalized and desegregated at the same time. But he isn't hopeful that will happen. "Remember, this is an agency that spent $1.6 million over a period of years trying to defend itself on this policy issue," he said. "That's an obscene amount of taxpayer money to spend on something like this."

On Friday, residents of Prince Hall Gardens apartment complex in southeast Fort Worth were moving into new apartments made possible by an award of more than $1 million in tax credits.

If 10-year resident Dalien Mao could, she said, she and her three children would move to a place with better schools, better opportunities and a better environment.

"If income-wise I had a choice I'd rather move to a better neighborhood, but I really don't have a choice," said Mao, 40.

Gloria Farris, who has lived at Prince Hall Gardens for four years, said she is certain that the energy created by the revitalized apartment community will spread through the neighborhood.

"It will be greater, later," said Farris, who moved into a new apartment with her two daughters Wednesday. "They've cleaned up the crime and the gang problems and fixed up two other complexes right around here. It doesn't even feel like I live in Prince Hall anymore."

High-opportunity areas

The housing agency, in its defense against the lawsuit, has said it doesn't choose proposed project sites but only responds to applications from developers.

While its remedial plan would not take effect until next year, the agency said it has acted to boost development of low-income housing in what it calls high-opportunity areas, those with highest income, lowest poverty and best public education opportunities.

Sixteen applicants for projects in the Metroplex region this year are in such areas, the agency says.

Awards will be made at the end of July. Statewide, the agency will dole out an estimated $55 million in income tax credits this year.

Since 1986, federal tax credits have been available to developers who build housing for low-income residents. The credits are often sold to other investors, and the proceeds are used to help secure financing. To get tax credits, projects are scored on 30 criteria, led by financial feasibility, community participation and the income level of prospective tenants.

It remains to be seen whether the plan will be applied statewide, if the court approves it.

"Pursuant to court order, the plan was drafted to address the circumstances determined by the court to be present in the region that is at issue in the lawsuit," agency spokesman Gordon Anderson said. "Additional process will be needed to determine the extent to which the provisions of a remedial plan, as finally adopted by the court, may be applied statewide."

The tax credits

The focus of the lawsuit is the 9 percent tax credit projects for the general population. Tarrant County has nearly 50 projects that were awarded those credits, and a Star-Telegram analysis showed that most of the housing units are in areas where the poverty rate exceeds the county average.

Prince Hall Gardens and Pilgrim Valley Manor in Fort Worth are in areas where more than half the population lives below the poverty line, according to American Community Survey data.

Some other complexes with much lower poverty rates are in areas where nonwhites are the majority. Autumn Chase is 75 percent minority; Buttercup Place and Residence at Eastland complexes are in Fort Worth census tracts that are more than 80 percent minority.

Exceptions seem to be common outside Fort Worth and Arlington.

In Euless, only one of three apartment complexes built under the program in the last two decades is in a lower-than-average income area, an official said.

Vickery Square Apartments and Mission Pointe/Country Villa are in southern Euless, Ash Lane Apartments in central Euless.

The city's median income is $54,885, city spokesman Stephen Cook said.

"If you look at the median income level for the neighborhood around Vickery Square Apartments, it's in the $66,000 range, a higher income level than the city as a whole," he said. "The area around Mission Pointe has a $33,000 range, significantly less."

Euless has a preponderance of multifamily housing, "something like 92 developments, about 52 percent of our housing stock," Cook said. "I don't think the city is seeking more multifamily housing unless it's associated with more of a master-plan community with mixed-use development."

Proposals for affordable housing have met with opposition in some neighborhoods.

Neighbors' reasons

One project propose for tax credits this year is The Reserve at Western Center, at Western Center Boulevard and Blue Mound Road in far north Fort Worth.

Should it win approval, neighbors may or may not welcome its tenants.

Diego Herrera, who lives on Liberty Crossing, about four miles from the intersection, adamantly opposed the development.

"That would bring the value of our homes down," he said. "When we try to sell our homes, we couldn't get the money they're worth."

Derek Grimes, who lives just north of the site in Heather Ridge Estates and owns two rent houses in the neighborhood, was opposed because of his experience growing up in low-income projects in Watts, in south central Los Angeles.

"My major objection is personal self-management," he said. "I don't feel that the parents would effectively manage their kids or take care of the properties. One or two families with kids who have issues can have a great effect on others."

Jim Brown, executive director of the Texas Affiliation of Affordable Housing Providers, an Austin-based group that represents investors, developers and lenders, said it can be tougher in some cities to push through projects where the land costs more and the opposition is organized, characteristics of high-opportunity areas.

When land costs more, developers have less to spend on construction, which means fewer units will be built. The availability of income tax credits is limited, and competition for them is fierce, Brown said. The state saw a spike in applications for the tax credits: 388 this year compared with 251 in 2011. Last year, only 38 projects were approved, according to the state.

Also, only a limited number of census tracts meet the criteria for high-opportunity areas, Brown said.

"It may be time to bring this before the Supreme Court and take this out of Dallas," Brown said. "It appears there may be a class action case."

This report includes material from the Star-Telegram archives.

Mitch Mitchell, 817-390-7752

Terry Evans, 817-390-7620

Twitter: @stcrime; @fwstevans

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