The Honorable Robert J. Valihura, Jr.
State Representative 10^th District
House of Representatives
Legislative Hall
Dover, DE 19901
 

RE: Senate Bill No. 246
 

Dear Representative Valihura:

You have asked several questions concerning Senate Bill No. 246. Specifically, your questions are:

(1) do the provisions of Senate Bill No. 246 violate, or are they preempted by, either

(a) The Fair Housing Act, 42 U.S.C.§3601 et seq. (FFHA); or,

(b) The Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, 42 U.S.C. §4601 et seq.(URA); and,

For the reasons stated below, we conclude that Senate Bill No. 246 (S.B. 246) is not preempted by either the Fair Housing Act or the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970. As applied, however, the Bill may violate the Fair Housing Act under a disparate impact theory which does not require a showing of intentional discrimination. Legislation can be deemed invalid if there is a disparate impact on individuals who are members of a suspect classification.

S.B. 246 is constitutionally valid on its face because it does not directly deny due process or violate equal protection; however, a facially neutral bill can violate equal protection in its application. If the effect of the notification requirement is to impair housing opportunities for individuals who are members of a suspect classification, the act could be deemed invalid when measured against a standard of strict scrutiny.

BACKGROUND

The low-income housing tax credit authorized by 26 U.S.C.A. §42 is administered by the Delaware State Housing Authority under 31 Del. C. Chapter 40. The credit was enacted as part of the Tax Reform Act of 1986 to provide an incentive for private development of housing opportunities for people having lower incomes. There are income restrictions for the residents that must be met in order for a developer to be eligible for the credit and there are penalties if the set-aside is not maintained. 73 Mich. B.J. 1154(1994). Generally, the states determine how the tax credit is to be allocated.

Senate Bill No. 400 of the 140^th General Assembly established the notification requirement. The Housing Director must notify state senators and representatives as well as the chief executive officer of any local government in the districts where development is planned. Notice of applications and rankings are required. Neither the legislation nor its synopsis reveals the reasons for the notification. [See 72 Del. Laws c. 394].

The changes proposed in S.B. 246 of the 141^st General Assembly expand the notice to require the applicant to notify a "high ranking member of any community, civic and/or neighborhood organization having members within a mile of the development and to notify residents within 200 feet of the project." In addition, the applicant must certify that no resident in an existing complex will be displaced without his or her consent. The purpose according to the synopsis is to insure that the community organizations and residents are "notified of applications and preliminary rankings" in the program and to require the certification that "residents will not be displaced."

Federal preemption of state law can occur under three circumstances. O'Malley v. Boris, Del. Supr., 742 A.2d 845 (1999). The Court noted that preemption occurs:

(1) when Congress, in enacting a federal statute, has expressed a clear intent to preempt state law; (2) when it is clear, despite the absence of explicit preemptive language, that Congress has intended, by legislating comprehensively, to occupy an entire field of regulation and has thereby left no room for the states to supplement federal law; and, finally (3) when compliance with both state and federal law is impossible or when state law stands as an obstacle to accomplishment and execution of full purposes and objectives of Congress.

Id. at 848
 

FEDERAL FAIR HOUSING ACT

There is no express intent or comprehensive legislation to establish that the FFHA was intended to preempt state law. On the contrary, the law preserves the role of the states as follows:

Nothing in this subchapter shall be construed to invalidate or limit any law of a State or political subdivision of a State, or of any other jurisdiction in which this subchapter shall be effective, that grants, guarantees, or protects the same rights as are granted by this subchapter; but any law of a State, a political subdivision, or other such jurisdiction that purports to require or permit any action that would be discriminatory housing practice under this subchapter shall to that extent be invalid. 42 U.S.C.A. §3615
 

The express policy underlying the Federal Fair Housing Act (FFHR) is to "provide, within constitutional limitations, for fair housing throughout the United States." 42 U.S.C.A §3601.

The community notification provisions of S.B. 246 are facially neutral; however, a court can find unlawful discrimination under a disparate impact theory if a "practice 'actually or predictably' results in discrimination." Oxford House, Inc. v. Town of Babylon, 819 F.Supp 1179, 1182 (E.D. N.Y. 1993) quoting Huntington Branch, NAACP v. Town of Huntington, 844 F.2d 926 (2d Cir. 1988).

Whether the community notification and certification provisions can survive judicial scrutiny depends on the effect of the practice. Requirements that have a significant discriminatory effect, regardless of intent, on a member of a suspect classification are barred by the FFHA. Dews, v Town of Sunnyvale, Texas, 109 F. Supp.2d 526, 530 (N.D. Tex. 2000). Under a disparate impact theory, if the notification or certification requirements impair the development of housing for a population predominately comprised of members of a protected classification such as race or familial status, a court would use a strict or heightened scrutiny to determine whether community notification was a valid exercise of governmental authority. Summerchase Ltd. Partnership et al., v City of Gonzales, et al., 970 F. Supp. 522, 528 (M.D. La. 1997). A state law that permits or requires a discriminatory housing practice is invalid. 42 U.S.C.A. §3615.

THE UNIFORM RELOCATION ASSISTANCE AND
REAL PROPERTY ACQUISITION POLICIES ACT OF 1970

The URA does not preempt state law. There is no express intent or comprehensive federal legislation to establish that the URA was intended to preclude State legislation that benefits residents displaced by federally-assisted projects. The primary purpose of the URA is "to ensure that such [displaced] persons shall not suffer disproportionate injuries as a result of programs and projects designed for the benefit of the public as a whole and to minimize the hardship of displacement on such persons." 42 U.S.C.A. §4621(b). Persons who are displaced as a result of projects receiving federal financial assistance may be entitled to relocation expenses under §4622. Compliance with Section 3 of S.B. 246 would not be an obstacle to accomplishing the objectives of Congress expressed in the URA. It was the intent of Congress to mitigate the financial burden when individuals are displaced by federal or federally-assisted programs. Under S.B. 246, the applicant for the Low Income Housing Tax Credit Program would be required to provide relocation assistance to the displaced resident subject to the approval of the Housing Director. The assistance for displaced residents under the State law is in harmony with the similar federal objective and not precluded by preemption.
 

CONSTITUTIONAL CONSIDERATIONS

Due process --

The term "law of the land" in Article I §9 of the Delaware Constitution means "due process" as that term is used in the federal Constitution. In re Carolyn S.S., Del Supr., 498 A.2d 1095 (1984). Thus, an analysis under the due process clause of the Fourteenth Amendment to the United States Constitution is similarly applicable to the Delaware Constitution.

The threshold question in a substantive due process claim is whether the applicant has a protected property interest. Woodwind Estates, Ltd v. W.J. Gretkowski, 205 F. 3d 118, 123 (3d Cir. 2000). Substantive due process does not attach to a governmental benefit such as the tax credit unless there is more than "...(i) an abstract need or desire for the governmental benefit, or (ii) a mere unilateral expectation that the claimant deserves it." Barrington Cove Limited Partnership v. Rhode Island Housing and Mortgage Finance Corporation, 246 F. 3d 1, 4 (1^st Cir. 2001) The tax allocation under federal law is discretionary and does not give a developer a property interest subject to substantive due process. Low income tax credits are not protected property interests. DeHarder Investment Corp. v. Indiana Housing Finance Authority, 909 F. Supp. 606 (S.D. Ind. 1995). The notice and certification provisions of S.B. 246 do not deprive the applicant for the tax credit of due process under the Federal or State Constitution.

Equal protection--

The general rule is that legislation passed by the legislature and signed into law is presumed to be constitutionally valid. City of Cleburne v Cleburne Living Ctr., 473 U.S. 432, 440 (1985). Economic and social legislation challenged on equal protection grounds is reviewed to determine if treatment of different classifications is "rationally related to a legitimate state interest." United States v. Williams, 124 F. 3d 411, 422 (3d Cir. 1997). S.B. 246 imposes requirements on developers of low-income housing seeking tax credits and not on other developers. The legitimate state interest is expressed in the synopsis of the bill as follows:

This legislation ensures that community organizations and local residents are notified of applications and preliminary rankings Low Income Housing Tax Credit Program. This bill also requires applicants under the Low Income Tax Program to certify that residents will not be displaced. However, a resident may consent to displacement, contingent upon receiving adequate relocation from the applicant which is subject to review and approval by the Housing Director.
 

The presumption of validity will probably survive the rational relationship analysis. Keeping citizens informed and protecting constituents from displacement are legitimate government concerns.

Even a facially neutral statute can be deemed invalid if the application of the law is discriminatory. If the community notification requirement has a disproportionate impact on members of a suspect classification, the standard used in a Constitutional analysis is no longer a 'rational relationship test' but rather 'strict scrutiny.' Legislation subject to 'strict scrutiny' must be "suitably tailored to serve a compelling State interest." City of Cleburne v Cleburne Living Ctr., supra at 440. If community notification results in neighborhood resistance to low-income housing development based on racial bias, the community notification provision could be deemed invalid under a "strict scrutiny" analysis. A court can find a violation of equal protection if a decision-making body acts on the racially discriminatory intent of citizens. Buckeye Community Hope Foundation v. City of Cuyahoga Falls, 263 F. 3d 627, 638 (6^th Cir. 2001).

S.B. 246 is not preempted by either the FFHA or the URA, nor does it violate these federal laws on its face. The bill may violate the FFHA if it causes a disparate impact on a suspect classification as applied under particular facts and circumstances. Similarly, the notice and certification process may violate equal protection as applied if it causes a disparate impact. Finally, the legislation does not violate either substantive or procedural due process.

Please advise if you have any questions.

Very truly yours,

Sherry V. Hoffman
Deputy Attorney General

Lawrence Lewis
Deputy Attorney General

APPROVED:

Malcolm S. Cobin
State Solicitor

cc: The Honorable M. Jane Brady, Attorney General
Philip Johnson, Opinion Coordinator