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Ignore All the Smoke Around HUD's Case Against Dallas and See Something Ugly in the Mirror

Ignore All the Smoke Around HUD's Case Against Dallas and See Something Ugly in the Mirror
Alvaro Diaz-Rubio

The U.S. Department of Housing and Urban Development's accusation of racial segregation lodged against Dallas has probably reached a point of incomprehensibility for most people, but there is still a simple question in it: What if it's true?

As far as understanding most of what they say now, the city and HUD might as well be two Inuit seal hunters arguing over a dead dog. The cloud of obscurity — both sides shooting acronyms and neologisms at each other — has descended into jibber-jabber.

But last week Dallas Morning News editorial writer Rudy Bush rushed into that cloud — it's his right and duty to do so — and came back out waving chunks of bloody bone and hanks of hair, claiming to know something. Bush said HUD has agreed to drop its demand that Dallas pay back Curtis Lockey the $40 million the city cost him when it kicked the pins from under his downtown tower re-do project in 2009.

I don't think it's true. Bush won't say how he knows it's true, and I won't say how I know he's wrong, so that's helpful, too, isn't it? More seal hunters. I do think, however, that we can dip back in time and recapture a little bit of sanity.

Lockey is the guy who complained to HUD four years ago that Dallas elected officials and City Hall staff had been colluding for a decade to increase racial segregation in the city. Lockey said Dallas pulled the rug out from under his own deal and cost him $40 million when he tried to obey federal law by including low-income rental units.

Lockey told HUD that Dallas broke several laws by taking federal desegregation funds then using the money to subsidize fancy condo towers downtown, smacking down any developer who made his own project affordable for low-income minorities and disabled persons.

The Lockey complaint — put together with help from a top D.C. law firm that has a track record on housing discrimination suits — said much more than that. It painted a picture of Dallas City Hall as a place so racist in its basic assumptions about life that it didn't even know it was racist, which I think adds up to being racist and stupid. The complaint also named names, and for that you can bet the people at City Hall hate Lockey's guts forever.

HUD carried out a four-year investigation of Lockey's accusations. Last November the agency issued a "letter of findings" saying Lockey was right. They said Dallas had broken several laws. More recently, HUD sent Dallas another letter telling the city what it has to do about it.

Why does Dallas have to do anything HUD tells it? If Dallas tells HUD to buzz off and ignores this latest letter, or if Dallas simply fails to negotiate a deal that HUD will accept, HUD can refer the matter to the Justice Department. Doesn't mean they will, but they can. So there's a pretty solid incentive to get it taken care of before that point.

After an interview with Mayor Mike Rawlings at his home last week, Bush wrote an editorial for the Morning News in which he painted Lockey and a partner of his, Craig MacKenzie, as a couple of fly-by-night shysters with a bad project, trying to gouge the city for money they didn't deserve.

"So who are Lockey and MacKenzie?" Bush asked. "Two developers who in the mid-2000s tried to get the city to partner on redeveloping the vacant 1600 Pacific building. Their request? $112 million in government subsidies. Their product: a refinished building worth $37 million with units as small as 375 square feet.

"The city's economic development team, the Downtown Connection TIF board and anyone else at City Hall with a modicum of business sense turned the deal down flat. Lockey and MacKenzie's partnership not only went bankrupt on the building, they were in arrears on their taxes and had completed no significant development project."

I have been reporting pretty much the opposite of this since 2009, that Lockey is a solid guy with sound business credentials, good enough credit to get HUD to lend him $52 million and also to raise tens of millions of dollars in private capital, that his deal was solid and that things only went south when he told City Hall he was going to put low-income units in it.

But before you feel that cloud of obscurity blowing out around you again, let me point something out. The HUD letter of findings is a solid reality check on many of these points

HUD sent federal investigators into the field for four years. The city shipped boxes and boxes of documents and memos to Washington and debated every point HUD came up with, rebutting them on every single issue. So what did HUD find? What did HUD claim it could prove?

 

I went back over the letter last week. I want to hit the highlights for you here: First, a major finding was that Dallas officially and formally drew a line across the city from east to west dividing the city into what it called sectors:

"The Northern sector is predominantly non-minority and includes the downtown business district," the letter states. "The Southern sector is predominantly minority."

The city officially and formally divided up $75 million in federal housing subsidy grants, half for each sector. Then the city adopted markedly different rules for how the money could be spent in each sector, devoting most or all of the southern sector money to housing for poor people and most of the northern sector money to housing for people who are not poor.

What's wrong with that? Well, the first big question for somebody who just landed from Mars or maybe just drove in from Boston might be, "What do you mean, sector?"

Is that like "colored town?" History is history. People can live near and associate with whomever they want. But why would you need official government policy to reinforce such a pattern? Why would you want it? Why does "southern sector" sound so much like "District 9?"

As for the story that Lockey's deal was no good, the HUD investigators pored over that charge carefully and found that Lockey's deal was at least as good or better than deals done by an insider group of developers preferred by City Hall. Yes, Lockey's deal went bankrupt after the city pulled several previously agreed upon sources of financing from it, but HUD found several downtown developers and named them — Hamilton Properties, Forest City Enterprises, Prescott Realty Group — whose projects had gone belly-up or close to it. City Hall continued to offer those developers generous financial help even when the city violated HUD regulations by dealing with some of them so soon after bankruptcy.

What was the difference? The favored developers not only agreed to hold their ratio of affordable units way low, they even wrote their own deed restrictions, in violation of federal law, banning certain demographic groups from their projects.

That was all fine with City Hall. In fact it was what City Hall was looking for. In a trail of emails, meeting notes and public statements, HUD found what City Hall was not looking for downtown — poor people, which in Dallas more likely means black and Latino people.

The investigators found a record of Karl Zavitkovsky, the city's director of economic development, telling Lockey he can't use certain kinds of HUD money, previously OK'd by the city, that would carry a stiff requirement for the inclusion of low-income units. They have a member of a key housing body writing that Zavitkovsky and another city official "appear to have their own plans and do not include affordable housing."

They have former City Council member Angela Hunt, in whose district Lockey's project fell, telling a TV station she was worried about the concentration of affordable units planned for Lockey's building.

HUD found other actions taken by the city strongly corroborating a pattern of intent to keep low-income units out of downtown, such as, for example, the city simply giving back $150 million in federal housing bonds without using them, after the city realized the bonds carried a strong low-income requirement.

The HUD letter runs through a series of measurements to test the financial robustness of the Lockey project, comparing it with other projects downtown the city favored, ones with very little affordable housing. Lockey comes out worse on some measurements, better on others, very much in the ballpark with everybody else, HUD concludes.

In fact City Hall's story about Lockey's project being financially unsound doesn't even hit the airwaves until after he filed his complaint. Up until then, when they still think he's going to crunch his hat in his hands, put his head down and walk away, it's all about how many affordable (minority) units he's going to include. Only when he fights back by going to HUD does City Hall start talking about his finances.

In one email I have seen, not a part of the HUD report, city officials talk about the fact that Lockey has major equity partners backing him. They speculate whether their own actions, cutting off his access to public funding, will be enough to stir his private investors up against him.

Lockey is pursuing his own interests through multiple legal actions. He's a big boy and can take care of himself. What Rudy Bush and The Dallas Morning News never talk about is you and me, our city and what the HUD letter of findings says about us. We are the biggest city in the nation ever to face this kind of accusation from HUD. What if it's true?


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