Affordable Housing Development Corporation v. City of Fresno
By: Robert (Bob) H. Voelker
January 1, 2007
In October 1996, AHDC agreed to buy property in northeast Fresno. AHDC planned to develop Wellington Place, a 324 unit affordable housing apartment complex to be financed with a $30 million bond issue and low income housing tax credits.
As with all tax-exempt bond issuances, the developer needed approval of the City Council. This approval is required by federal law under the Tax Equity and Fiscal Responsibility Act (or "TEFRA") in the form of the TEFRA hearing and inducement resolution.
Vigorous opposition to approval by the City Council was expressed at neighborhood meetings held by one of the City Council members and at an overflow hearing conducted by the Council, where persons of various races, ethnicities, and family size expressed concern over the impact of a large rental unit on nearby single family homes. Council members doubted the need for new rental units in Fresno.
On March 25, 1997, the council voted, 5-2, to deny approval of the bonds On May 13, 1997, AHDC filed suit. The introduction to the complaint charged the Councilman and the City with “vicious, old-fashioned rabble-rousing.” The defendants were the City; the Councilman and the four other members of the council who voted against approval; a Neighborhood Action Committee; and a number of citizens. The complaint alleged that in refusing to authorize the bonds under TEFRA the City discriminated on account of disabilities, family size, ethnicity or race in violation of the Fair Housing Act.
The jury found that the developers met their burden of proving that the denial by a majority of the Council members of the TEFRA bond issue caused a disproportionate impact on persons seeking affordable housing because of their race, national origin, color, or familial status. However, the jury also determined that the decision to deny the TEFRA bond issue was based only on legitimate, non - discriminatory reasons, which overcame the finding of disproportionate impact. Although the developer made a prima facie showing of discriminatory impact, that showing is only the first step in the Fair Housing liability analysis. The second step is to examine the City's defenses.
The court pointed out that the federal statute's explicit provisions for a voter referendum or approval by an elected representative indicate that Congress did not intend to make approval automatic or to exclude the democratic process in the local decision, and that to impose absolute liability, without defense, upon a city whose voters or city council decided not to approve TEFRA bonds would frustrate the federal scheme. In the court's words, TEFRA's requirement for a public hearing "would be a sham if any opponent of housing bonds would have to keep silent."
In a discriminatory impact case, once the plaintiff makes a showing of discriminatory impact caused by the defendant's actions, the defendant may rebut this claim by “supply[ing] a legally sufficient, nondiscriminatory reason.”
The question before the court was what constitutes a legally sufficient, nondiscriminatory reason for a municipality, executing its congressionally mandated duties under TEFRA, to deny a bond issuance where the decision not to provide such financing has a discriminatory impact on minorities. The court reviewed the federal TEFRA provisions, where Congress required the city council to hold a public hearing and vote on the TEFRA bond financing approval. TEFRA mandates that the city council decide the matter after considering local residents' views, and "by clear implication" requires the city council to consider city priorities and housing needs, the wisdom of preferential financing for the project, and "all manner of other relevant considerations to which elected representatives normally give weight in executing their office. Imposing automatic liability for the exercise of this decision for causing a disparate impact would write the relevant considerations and the discretion out of the legislative duties in the statute." The court further deferred to the City's elected representatives in declaring that "it is nearly impossible for a reviewing court to pass judgment on what considerations were 'necessary' to the City's business of good governance and to implement its vision for the future of Fresno." The legitimate nondiscriminatory reasons presented by the City were that a large rental unit would impact on neighboring property values and there was an a lack of need for the project.
The court gave almost carte blanche authority to deny TEFRA bond approval in stating "if an elected representative authority declines to approve TEFRA housing bonds for a legitimate non-discriminatory reason, the defense is good. A governmental interest in not giving approval may outweigh the desirability of furnishing low-rent housing."
The AHDC court effectively closed its eyes to the effect of Not-In-My-Backyard pressures on the local political process by granting deference to local politicians who are placed squarely between their obligations under Federal Fair Housing laws and the need to appease local homeowners to secure reelection. Although the court found the City's reasons for the decision not to be a sham or pretext, the City's rationale's for denying the bond issuance -- impact on property values and lack of need for affordable housing -- are among the stock positions taken by affordable housing opponents.
