| Schutze |

Suddenly, Dallas Says HUD Segregation Investigation Is a Blessing

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For six years we have talked about an accusation that Dallas practiced deliberate racial segregation in redeveloping downtown. In the last six months we have talked about City Hall's absolute defiance of that charge. So, imagine my surprise when assistant city manager Theresa O'Donnell told me the city is no longer disputing the lion's share of the charge.

Amazingly candid and specific in her remarks, O'Donnell said the city intends to comply fully with demands about to be put before it by the federal government. She said the federal investigation leading up to those demands uncovered fundamental weaknesses in the city's approach to housing. She even said the findings would present the city with "a tremendous opportunity" to carry out steps toward reform that, "I don't know we would have taken had this not occurred."

Why is that surprising? Between 2001 and 2010, Dallas collected approximately $300 million in U.S. Department of Housing and Urban Development grants, all of which carried a requirement for affordable housing. A great deal of that money was spent rehabbing towers downtown. In 2010 the Observer began asking the city for the number of affordable units actually available downtown. Our repeated requests for a simple number were repeatedly ignored.


Email the author at jim.schutze@dallasobserver.com

In 2010 two downtown tower developers, Curtis Lockey and Craig MacKenzie, charged that that the absence of affordable units downtown was not an unfortunate accident but the reprehensible deliberate outcome of collusion. Going first to state and then to federal authorities, Lockey and MacKenzie presented reams of evidence to show that city officials had colluded to kill their own tower rehab deal, eventually costing them $30 million, after they had proposed to include the amount of affordable units legally required by HUD.

In other words, Lockey and MacKenzie said city staff and elected officials were colluding to make sure none of the tower projects downtown would include the required ratio of affordable units. Anybody who failed to go along with the collusion was to be cut off at the knees. Sounds like a scene from a gangster movie, doesn't it?

City Hall came back at them hard and personally. At that time, the off-the-record, not-for-attribution advice I got from top City Hall managers and members of the City Council, some of whom I trusted on other issues, was that Lockey and MacKenzie were a couple of ill-tempered fly-by-nights out for vengeance. Their tower redevelopment deal was a flimflam, I was told. Thank goodness City Hall saw through it and killed it in the nick of time, protecting taxpayer funds!

HUD never bought it. Based on evidence brought to HUD by Lockey and MacKenzie, the agency launched what became a four-year federal investigation.

In December 2013 HUD published a report finding Dallas at fault on virtually all of Lockey and MacKenzie's substantive civil allegations. The legal heart of the HUD allegation involved massive multi-year misappropriation of federal funds and all kinds of official false swearing and collusion along the way. The moral and political heart was an accusation of a conspiracy up and down the chain of command to increase racial segregation citywide, including collusion by civic leaders, white and black. Only in Dallas, eh?

The city's reflexive response was strident defiance. Last February instead of offering a plan to remediate past wrongs, then acting City Attorney Warren Ernst fired off a 59-page letter accusing HUD of deliberately ignoring exculpatory evidence, of being complicit itself in racial segregation and of letting lots of other cities get away with worse — basically the "I didn't do nuthin' and those other guys did it, too" defense.

Ernst was proud of the letter. When the council interviewed him for the permanent position of city attorney, which he won, he put his HUD letter in his list of achievements. The council applauded.

Right now we are weeks or days away from delivery of HUD's formal response to the Ernst letter. It will be in the form of a particular kind of document that HUD, with typical federal whimsy, calls a "Voluntary Compliance Agreement." Needless to say, it will not be voluntary, nor will it be an agreement. The "VCA," as it's called in the trade, is a list of edicts. Dallas will have to carry out each and every one of them if it does not want to forfeit federal aid in the future and, more important, if it hopes to shed the ugly charge of practicing deliberate racial segregation.

What O'Donnell told me, previous defiance notwithstanding, is that Dallas is not going to argue with almost any of it. Dallas will seek to satisfy all of HUD's demands, she said, with one caveat. She pointed to one area where the city might balk. More on that in a moment.

Mainly, the city will do as it's told and say thank you. "I think the letter [HUD's findings] and the VCA [when it arrives] have uncovered some underlying weaknesses," she said. "This City Council is clearly headed in a new direction than past administrations."

O'Donnell pointed specifically to the city's longstanding practice of crowding affordable housing into already heavily segregated areas where poverty and crime are problems. "We can't put people in an island of poverty," she said.

O'Donnell acknowledged that past practices to some degree have grown out of the extreme bunker mentality of the single-member district council system, in which each member wants his or her share of federal bounty but no member wants any other member meddling in what's to be done with it. The federal requirement that local governments "affirmatively further fair housing," O'Donnell agreed, requires a new way of doing business.

Some federal housing money must be taken away from districts in southern Dallas that want the housing, and that money must then be spent instead putting affordable housing in affluent districts that don't want it. It's a problem that will require the City Council to do something it almost never does — come up with a rational citywide policy.

Members will have to agree on certain things happening in each other's districts. There is no strictly single-member bunker-mentality way to solve the fair housing conundrum.

"You can't divide that up," O'Donnell said. "It requires a shared approach to the allocation of resources."

Citing another force she thinks may be working to erode some of the battle walls between districts, O'Donnell said she thinks the council has become much less willing to sign off blindly on federally funded so-called economic development deals in other members' districts.

There has been more willingness among members to ask questions, she said, especially about those business subsidies that are either clearly scams or have no chance of attracting significant additional private investment. Some council members — she named Jerry Allen and Lee Kleinman but suggested there are others as well — are no longer willing to shrug and say what happens in another member's district stays in that member's district.

O'Donnell's one caveat has to do with Lockey and MacKenzie. In making their claims to HUD, Lockey and MacKenzie filed what is called a "qui tam" action, on the advice and direction of a law firm called Relman, Dane & Colfax, considered to be a top firm in Washington on these issues.

The qui tam law, which dates to the Civil War, provides that a citizen who reports a federal fraud can claim a percentage of the amount of the fraud as his reward. A federal district court in Dallas has already ruled that Lockey and MacKenzie are not entitled to qui tam money because they were not the first to call the government's attention to the Dallas fraud.

But that ruling, now on appeal, was issued before HUD published its report. The HUD report says plainly that Lockey and MacKenzie were the sole reason HUD ever got on to the situation in Dallas. HUD even went so far in its letter of findings to state specifically that Dallas needs to make Lockey and MacKenzie whole. And that is what sticks in O'Donnell's craw.

"If HUD comes back in the VCA letter and says we have to pay Lockey and MacKenzie $100 million, I might change my mind," she said.

I ran that by Larry Friedman, a Dallas attorney who represents Lockey. Friedman pointed out that HUD has said pointedly Dallas must make Lockey and MacKenzie whole. The HUD findings are their vindication, he said.

I go back to what O'Donnell said about the city doing things that might not have been done without the HUD findings. The credit for that begins with Lockey and MacKenzie. Friedman is correct in stating that events have vindicated them and not the city.

Most of what O'Donnell had to say was enormously positive and hopeful. I guess the last and most bitter pill is always the personal one.

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