In a new audit report, HUD’s Office of Inspector General (OIG) questioned certain costs paid by a public housing authority (PHA) for travel by the PHA’s commissioners.  The OIG alleges violations of uniform cost principals at 2 CFR Part 200, state open meeting laws, as well as the PHA’s own policies.  The report is a reminder to:

  • Remember that not all costs incurred while on official PHA business/educational travel are eligible for reimbursement with federal funds.  For example, PHAs should not reimburse commissioners or staff for alcoholic beverages purchased while on official business, even if other aspects of a meal are reimbursable. Although not addressed in this audit, many entertainment and social activity costs are also unallowable, though there are exceptions, such as situations in which such costs have a programmatic purpose.
  • Be mindful of a PHA’s internal policies pertaining to travel and reimbursements. The OIG and others will often look to internal policies to address situations that may be otherwise allowable under federal requirements.
  • Pay attention to potential conflict-of-interest situations. A PHA’s ACCs with HUD as well as procurement regulations and some state laws prohibit certain types of financial arrangements involving a PHA and its staff or commissioners. The ACCs in particular will prohibit these arrangements during and for one year after a commissioner’s tenure.
  • HUD Announces Nationwide Smoke-Free Policy in Public Housing

The most talked about HUD development this week has been Secretary Castro’s announcement on Wednesday, November 30th that HUD will require all public housing developments to be smoke-free environments. By early February, public housing agencies (PHAs) must implement smoke-free policies that ban listed prohibited tobacco products from public housing living units, indoor common areas, PHA administrative office buildings, and outdoor areas within 25 feet of these spaces. This rule will apply to all public housing, with the exception of Section 8 dwelling units in mixed-finance buildings.

HUD’s Final Rule can be accessed here.

  • HUD Soliciting Comments on HOTMA Public Housing Income Limit Provisions

This week, HUD also published a Federal Register notice that it is soliciting comments on the implementation of the public housing income provisions of the Housing Opportunities through Modernization Act (HOTMA). HOTMA mandates that once a family’s income exceeds 120 percent of the area median income for two consecutive years, the PHA must either terminate the tenancy or charge the family a higher monthly rent. HUD maintains the authority to adjust the 120 percent threshold if the HUD Secretary finds such adjustment necessary.

HUD requests that comments address:

  1.  whether HUD’s current proposed method of determining income limits (as stated in the notice) adequately considers local housing costs and makes appropriate adjustments for higher housing costs, and
  2. other factors HUD should consider when determining whether to make adjustments to the income limit (with specific examples of circumstances not currently captured in HUD’s proposed methodology).

Ballard Spahr’s Housing Group previously commented on HUD’s Advance Notice of Proposed Rulemaking on public housing income limits in March, before HOTMA’s passage.

  • HUD Interim Final Rule on HOME Program Commitment Requirement Changes

By statute, participating HOME Investment Partnership (HOME) jurisdictions must place grant funds under binding commitments within 24 months from the month in which the grant agreement was executed. On December 2, 2016, HUD published an Interim Final Rule changing the way the agency will determine compliance with the commitment requirement. The Rule revises HUD’s longstanding cumulative commitment methodology with a grant specific one that allows participating jurisdictions to select the year HOME grant funds will be committed to a specific project or activity. The Rule also eliminates the 5-year deadline for expenditures of HOME funds appropriated for FY 2015 and following years to better align with recent appropriations statutes and existing HUD deadlines for completing projects assisted with HOME funds.

This Rule affects HOME grants from Fiscal Year 2015 and beyond, and is scheduled to take effect on January 31, 2017. HUD is accepting comments to the interim rule until January 3, 2017 by mail or electronic submission through www.regulations.gov.

 

Last week, HUD issued new guidance confirming that persons with limited English proficiency (LEP) are protected under the Fair Housing Act (FHA). LEP includes a limited ability to read, write, speak, or understand English.  The guidance reasons that LEP persons are covered by the FHA because of their close nexus with the protected class of national origin.

The new guidance confirms that discrimination against LEP persons may include intentional discrimination or disparate impact, the latter of which involves facially neutral policies that have a discriminatory effect.  Examples of prohibited or potentially discriminatory practices include:

  • Refusing to rent to or to renew a lease for a person who speaks a certain language, but renting to those who speak another language
  • Refusing to allow translation of housing-related documents, such as leases or mortgages
  • Lending on unfair terms to certain LEP groups who share national origin
  • Restricting a renter’s or borrower’s use of an interpreter
  • Requiring an English speaker to co-sign a mortgage

This prohibition on LEP discrimination in the housing context is an expansion of HUD’s regulations to assist LEP persons in programs receiving federal financial assistance. Under those regulations, recipients of federal financial assistance have an obligation under Title VI of the Civil Rights Act to assist LEP persons to access to federally funded programs, such as public housing, housing choice vouchers, and other subsidized housing. The new HUD guidance, in contrast, interprets LEP discrimination under the FHA, which applies much more broadly to most rental and home sales whether or not federal assistance is involved, as well as lending activity.  Further discussion of the new guidance is available on Ballard Spahr’s website.

 

This week, HUD issued a final rule that creates liability under the Fair Housing Act (FHA) for housing providers for occurrences of “quid pro quo harassment” or “hostile environment harassment.” The new rule takes effect on October 14, 2016.

The rule prohibits both quid pro quo and hostile environment harassment because of a resident’s protected class which, under the Fair Housing Act (FHA) includes race, color, religion, sex, familial status, national origin, or disability.

The most concerning section of the rule for housing providers relates to direct liability exposure for any type of discriminatory housing practice. The rule creates three categories of direct liability for housing providers—liability for the housing provider’s own conduct; liability for failing to take prompt corrective action relating to the conduct of its employees or agents; and liability for failing to take prompt corrective action for the conduct of a third party (such as another resident). As a result, providers could be liable for behavior among tenants if the housing provider “knew or should have known of the discriminatory conduct and had the power to correct it.” This potentially interjects housing providers into disputes among tenants related to harassing behavior.  See Ballard Spahr’s e-alert on the rule for more discussion of the new rule and it’s implications.

 

After several years of litigation, the U.S. District Court for the Northern District of Texas recently dismissed disparate impact claims filed against the Texas Department of Housing and Community Affairs (TDHCA) in the fair housing case, The Inclusive Communities Project, Inc. v. The Texas Department of Housing and Community Affairs.

The Inclusive Communities Project (ICP) claims alleged that TDHCA’s procedures for allocating low-income housing tax credits had a disparate impact on racial minorities and thus violated the Fair Housing Act (FHA). Following the District Court’s initial ruling that ICP made a successful prima facie showing of disparate impact, the case was appealed to the Fifth Circuit and U.S. Supreme Court. Even though the Supreme Court held that disparate impact claims were cognizable under the FHA, the case was remanded so ICP’s claims and TDHCA’s defenses could be reassessed in light of the standards in the Supreme Court verdict and new U.S. Department of Housing and Urban Development regulations for evaluating disparate impact claims.

On August 26, 2016, the District Court held that ICP failed to make a prima facie showing of disparate impact under the current standard because its claims (i) did not identify any specific, facially neutral policy that caused the disparate impact, (ii) were in essence claims disparate treatment, and (iii) failed to demonstrate that TDHCA’s policies actually caused the statistical disparities asserted by ICP. For more information, see the Housing Group’s e-alert on this verdict.

Housing Plus BlogThis week, HUD’s Office of Inspector General (OIG) issued a report critical of HUD’s oversight of the community service and economic self-sufficiency requirement (CSSR).  This federal requirement, applicable only to public housing residents, generally requires unemployed, non-elderly, non-disabled residents to perform community service or participate in an economic self-sufficiency program for a minimum of 8 hours monthly.  Housing authorities are responsible for annually reviewing and verifying via third party documentation the CSSR compliance of each non-exempt family.

Based on its review of a statistical sample of 80 households nationwide, the OIG report identified certain errors by housing authorities in implementation or reporting into HUD’s systems.  The OIG criticized HUD’s oversight of the program, since HUD did not catch the errors.  The OIG estimated that, extrapolated nationally, its findings with respect to its 80 household sample would result in 201,000 tenants whose CSSR status was improperly reported and 106,000 units occupied by non-compliant tenants. The OIG then concluded, based on its estimates, that HUD paid more than $37 million in improper operating subsidy payments each month, or more than $448 million annually. This extrapolation tactic by OIG, which significantly inflates the impact of its findings, is common in HUD OIG audits, the accuracy of such sweeping conclusions based on such a small sample size seems quesionable.  The OIG’s focus on the CSSR, however, means that housing authorities may need to more closely scrutinize their CSSR enforcement.

The OIG report, perhaps inadvertently, supports critics of the CSSR.  Housing authorities already spend significant staff time and other resources to enforce CSSR.  If the OIG report is correct, these resources are inadequate, given the errors the OIG found in program reporting and oversight.  The significant resources dedicated by housing authorities and HUD to properly ensure that some public housing tenants spend only 8 hours each month engaging in certain activities could certainly be put to better use.  Eight hours of monthly activity is likely inadequate to actually promote work or self-sufficiency.  With public housing funded so significantly below known need, the money spent to enforce this requirement could be more effectively used to support resident services or to maintain housing for residents.

HUD has proposed to streamline the CSSR by allowing tenants to self-certify their compliance; however, this would not address the OIG’s concerns about oversight.   Only Congress can fully eliminate the CSSR and allow housing authorities and HUD to better invest their limited resources in serving their tenants.

Housing Plus BlogSeveral exciting developments have recently brought changes to the affordable housing industry and we are inviting you to explore them with us at our fifth annual Western Housing Conference. Ballard Spahr and CSG Advisors are pleased to announce this year’s Best of the West in Affordable Housing Development and Financing conference on March 13, in San Francisco. The conference features movers and shakers in affordable housing leading panels, roundtables, and discussion about the most pertinent issues and developments shaping the housing industry.

The Legislative Update Panel has its hand on the pulse of Capitol Hill. Discussion will explore the implication and future of legislation and policies that affect the affordable housing industry.

HUD’s Rental Assistance Demonstration (RAD) Program experienced a boost in governmental support with the recent cap increase. The RAD program now offers renewed opportunities for housing authorities and developers to finance, transform, and create long-term housing options for low-income residents. The RAD Panel brings together a panorama of perspectives to discuss the need-to-know policies, timelines, financing structures, and organizational approaches to the revitalized RAD program.

The Finance Trends and Innovations Panel will offer insights to new loan products, lender programs, and interest rate structures taking shape in affordable housing finance. The discussion will examine new funding sources as a strategic means to preserve and sustain affordable housing.

Roundtable forums will feature Year 15 challenges and the implications of Fair Housing: Disparate Impact. Discussion will examine these two important topics and provide strategies, considerations, and expectations for the future of affordable housing development and management.

Registration for the event is free, and a detailed program description is available.

It is our privilege to create such an informative and collaborative forum for dialogue, exploration, and networking within an industry about which we feel so passionate. Though we will certainly blog about conference updates and insights, we hope you will join us in person.

Last week, the U.S. Supreme Court heard oral argument in a case which questioned whether the Fair Housing Act (FHA) allows for a disparate impact theory of liability.  The disparate impact theory of liability is one in which a plaintiff shows (usually through statistical analysis) that a protected class was harmed by a policy even if there was no intentional discrimination.

The case, Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, involves a FHA challenge to the allocation of low-income housing tax credits (LIHTCs). The District Court found that the manner in which Texas Department of Housing and Community Affairs (TDHCA) allocated its LIHTCs, while facially neutral, had a disparate impact on persons of color.  The District Court found that TDHCA disproportionately approved LIHTCs for non-elderly affordable housing developments in predominantly minority neighborhoods while it disproportionately denied tax credits for the similar affordable housing developments in predominantly white neighborhoods. After a bench trial, the district court determined that a disparate impact on minorities had in fact existed based on plaintiff’s statistics. The court also concluded that the TDHCA had a legitimate interest in its review process but failed to produce any evidence that there were no less-discriminatory alternatives.

On appeal, the Fifth Circuit adopted the burden-shifting approach found in HUD’s disparate impact rule adopted in February 2013 that formalized HUD’s use of disparate impact liability under the FHA. As the District Court had not used HUD’s approach, the case was remanded for such consideration.  Meanwhile, the Supreme Court agreed to hear TDHCA’s appeal and consider the question of whether a disparate impact claim is even cognizable under the FHA.

During oral arguments, TDHCA asserted that the plain text of the FHA, when read in conjunction with Court precedent  finding disparate impact under other statutes, does not allow for disparate impact; only intentional discrimination is prohibited by the FHA. Its brief quoted President Reagan on this point.  President Reagan, in signing 1988 FHA amendments, indicated: “I want to emphasize that this bill does not represent any congressional or executive branch endorsement of the notion, expressed in some judicial opinions, that [FHA] title 8 violations may be established by a showing of disparate impact or discriminatory effects of a practice that is taken without discriminatory intent. Title 8 speaks only to intentional discrimination.”

TDHCA also argued that disparate impact liability would force prohibited race-based (rather than race-neutral) considerations.  Inclusive Communities’ counsel argued, to the contrary, that the FHA does allow for disparate impact liability because Congress intended to undo the history of racial segregation and ghettos and that remedies to discriminatory practices need not use racial criteria. Finally, the U.S. Solicitor General argued that deference should be given to HUD’s interpretation of the FHA, both in the 2013 rule and in prior HUD adjudications, because the interpretation was a permissible one.

After watching oral argument, it is clear that the Court could go either way on this case.  Predictably, the four liberal justices on the Court asked questions suggesting their support for disparate impact theory under the FHA.  Justice Breyer, for example, asked, “[I]t’s been the law for 40 years …, disaster has not occurred, and why when something is so well established throughout the United States should this Court come in and change it?”  The liberal justices also tried to distinguish between a finding that disparate impact liability exists, and concerns about the application of HUD’s rule, the latter of which was not to be considered by the Court.   Justice Sotomayor, for example, stated at the beginning of the argument by Inclusive Communities’ counsel that “[w]e’re not talking about this case” and asking counsel to “get to the legal issue, if you could.”

Also, predictably, most of the more conservative members of the Court asked questions that suggested doubt about Inclusive Communities’ interpretation of the FHA.  Justice Roberts repeatedly questioned whether one could “avoid a disparate-impact consequence without taking race into account in carrying out the governmental activity.”  He went on to say: “It seems to me that if the objection is that there aren’t a sufficient number of minorities in a particular project, you have to look at the race until you get to whatever you regard as the right target.” He subsequently asked the United States Solicitor General what would be the disparate impact in a case such as this—not using the LIHTCs in a manner that promotes housing integration in an affluent neighborhood, or not using them in a manner that promotes better housing in a low-income, racially concentrated area?

Somewhat of a surprise, the typically conservative Justice Scalia seemed to side with the liberal justices.  He initially grilled TDHCA’s counsel, asserting that when he looks at the FHA, including amendments from 1988, “as a whole,” he finds “it hard to read those two together in any other way than there is such a thing as disparate impact.”  He also challenged Inclusive Communities’ counsel, however, noting that counsel was arguing “that racial disparity is enough to make … whatever the policy adopted unlawful.” When counsel for Inclusive Communities began to respond that his argument “is that if, in fact, racial discrimination is a foreseeable consequence of what someone is doing,” Justice Scalia promptly interjected that “[r]acial disparity is not racial discrimination” and one should not “equate racial disparity with discrimination” because “[t]he two are quite different.”  Although prior Court precedent would support TDHCA’s argument of no disparate impact, Justice Scalia seems to be prepared to accept disparate impact under the FHA, but then find it unconstitutional on constitutional avoidance and equal protection grounds.  Justice Kennedy’s brief comments suggested a similar concern.

Without question, the decision will be a close vote and may split several ways. The Supreme Court will issue a decision in this case sometime before the end of June 2015.  Further discussion of the oral arguments is available on Ballard Spahr’s website.

DominoesOn December 29, 2014, Benjamin Metcalf, HUD Deputy Assistant Secretary for Multifamily Assisted Properties, issued a memo to HUD Multifamily directors and contract administrators clarifying the impact of medical marijuana use on the admissions process and ongoing occupancy of Multifamily assisted properties located in states that have decriminalized marijuana.  The Metcalf memo echoes similar guidance issued by Sandra Henriquez, former Assistant Secretary for Public and Indian Housing, in 2011 to HUD field offices and public housing agencies regarding the Public Housing and Housing Choice Voucher programs.

Essentially, the guidance confirms that notwithstanding actions by states to decriminalize marijuana or permit the use of medical marijuana, under the federal Controlled Substances Act marijuana is illegal.  As such, marijuana users cannot be admitted to federally assisted housing.  Upon occupancy, the tenant lease provisions shall allow the owner the right to terminate tenancy for use of a controlled substance, including marijuana.  The HUD guidance indicates owners of federally assisted housing have some discretion in addressing the use of marijuana following occupancy.

Pursuant to Section 577 of the Quality Housing and Work Responsibility Act of 1998, an owner of public housing or federally assisted housing may consider whether the use of the controlled substance “interfere[s] with the health, safety, or right to peaceful enjoyment of the premises by other residents.”  As the Henriquez memo points out, a decision regarding termination of tenancy can be made on a case by case basis and in situations where termination is deemed necessary, can decide whether to terminate the offending resident or the entire household.  All decisions must be made in accordance with a written policy established by the public housing agency or multifamily owner.

OHouse in Globen Monday, the United States District Court for the District of Columbia issued a scathing opinion that struck down HUD’s disparate impact rule. The disparate impact rule, also referred to as a “discriminatory effects” standard, established liability under the Fair Housing Act (FHA) for the discriminatory effect of a housing practice, even in the midst of no discriminatory intent. Although many other circuits had found that disparate impact liability did exist under the FHA, in American Insurance Association v. United States Department of Housing and Urban Development, the DC District Court found that such a standard was contrary to the plain language of the FHA.  In an opinion that was very critical of HUD’s strategy for interpreting the Fair Housing Act, the DC District Court noted that most of the other Circuit Courts assessed the question of whether there is disparate impact liability under the FHA only before the U.S. Supreme Court in Smith v. City of Jackson set forth guidance for determining whether such liability exists under the FHA.

In the past few years, the U.S. Supreme Court has agreed to hear three cases that ask the question of whether a disparate impact cause of action exists under the FHA. The first two cases were settled before the Supreme Court could review the question. Last month, however, the Supreme Court agreed to hear the third case, Inclusive Communities Project v. Texas Department of Housing and Community Affairs, which involves a claim that low-income housing tax credits are allocated for non-elderly sites in a manner that has a disparate impact on persons of color.

The DC District Court likely wanted to issue its opinion before the Supreme Court hears the Texas Department of Housing and Community Affairs case; in its opinion this week, the DC District Court stated:

“This is, yet another example of an Administrative Agency trying desperately to write into law that which Congress never intended to sanction…it is nothing less than an artful misinterpretation of Congress’s intent that is, frankly, too clever by half…Fortunately for us all, however, the Supreme Court is now perfectly positioned in Texas Department of Housing to finally address this issue in the not-too-distant future.”

A summary of the American Insurance Association case is available on Ballard Spahr’s website.