Low Income Housing Tax Credits used to Economically and Racially Segregate Communities

~Much of the content below was excerpted from the work of Myron Orfield.

It is important to note that Ron Clark Construction has very little direct investment in this project. The bulk of the financing (over $9 million) comes in the form of Low Income Housing Tax Credits (LIHTC) provided by the Minnesota Housing Finance Agency. It is shocking that the Minnesota HFA would finance a project who’s design is high-density 100% low-income, when their own reports show a correlation with this type of housing and increased crime and decreased property values. It seems that the LIHTC program is being used both intentionally and unintentionally, to increase racial and economic segregation in the Twin Cities.

The Twin Cities region uses federal affordable housing funds like LIHTC to promote affordable housing in suburban areas with strong economies and schools. However, the distribution of housing under these programs is still skewed toward high-density, low-income, segregated neighborhoods. The intention might be to promote desegregation, but programs like LIHTC (and the Community Reinvestment Act) actually intensify segregation.

Affordable housing provided under the LIHTC program concentrates low-income households in racially segregated or transitioning neighborhoods and further intensifies school segregation by creating more racially identifiable schools with high poverty enrollments.

The LIHTC program is the largest federal program that supports building low-income housing. Created by the Tax Reform Act of 1986, the program provides over $5 billion dollars each year for the construction, acquisition or rehabilitation of low-income housing. The program allows investors in residential rental property to claim tax credits for the development or rehabilitation of property to be rented to low-income tenants. While the Internal Revenue Service regulates the distribution of tax credits, state housing finance agencies make the decisions to fund specific projects and administer the allocation of tax credits.

Policy 13/39 and Qualified Allocation Plan

In the 1970s the Minnesota Housing Finance Agency created and operated the most effective suburban affordable housing plan in the nation’s history based on the amount of integration achieved. This program, known as Policy 13/39, operated under the fair share requirement of the Minnesota Land Use Planning Act and the federal A-95 review power with clear guidance from HUD. Both state and federal law provided an independent statutory basis to support the program.

Although never repealed, in the mid-1980s, the Minnesota Legislature effectively ended the Federal Fair Housing Act at the behest of politicians, housing officials and developers based in the central city—not the suburbs. This coalition sponsored successful legislation that mandated that a disproportionate number of units be built in poor central city neighborhoods. They used sub-allocators and Qualified Allocation Plan (QAP) guidelines that promoted segregation rather than integration.

Why Segregation Matters

Racial segregation is not just about race. It is also about access to jobs, good schools and other economic prospects. Where one lives significantly impacts the availability of these opportunities and thus can dramatically impact one’s ability to succeed. To the extent that segregation limits people’s residential choices, it undermines equality of access.

Racial segregation is particularly harmful because it creates segregated schools, which adds another layer of challenges for diverse young people, undermining the region’s economic earning potential. There are a number of reasons to be concerned about segregation in schools and to pursue coordinated policies to increase integration.

A sampling of Graduation rates and percentage of free lunches at different school districts help illustrate the point:

Graduation Rate: 50%
Free lunch: 65%

Graduation Rate: 98%
Free lunch: 8%

Richfield is considered an integrated neighborhood with 62% white and 38% Hispanic/people of color. The Richfield school system is considered segregated with its share of black, Hispanic, or other students of color exceeding 50 percent.


A Comprehensive Strategy to Integrate Twin Cities Schools and Neighborhoods 2009, Institute on Race and Poverty, University of Minnesota Law School

Comments on 2011 Minnesota Analysis of Impediments to Fair Housing Choice Myron Orfield, Executive Director, Institute on Race & Poverty, University of Minnesota Law School

State of Minnesota Housing Tax Credit Qualified Allocation Plan (QAP)

The Pillsbury Commons as proposed.