Chicago Changes How It Allocates Tax Credits to Improve Racial Equity

How did the Windy City expand the idea of advancing racial equity through low-income housing tax credits beyond where affordable housing is built?

Top of Chicago City Hall and bright sky. Photo by Flickr user Daniel X. O’Neil, CC BY 2.0

A view looking up toward the top of Chicago City Hall, with blue sky above it. Accompanying an article about the city's REIA and resulting new QAP.

Top of Chicago City Hall. Photo by Flickr user Daniel X. O’Neil, CC BY 2.0

Low-Income Housing Tax Credits (LIHTC) are typically allocated to developers at the state level by a housing finance agency. The documents that lay out priorities for who should get credits are known as qualified allocation plans, or QAPs. These highly technical documents have a significant amount of influence over the outcomes of tax credit housing—who builds it, what they build, and where they build it—and various advocates have long sought to make strides on issues such as integration, green building, and health equity through them.

Chicago is unusual in that it has its own pot of tax credits to allocate directly within the city and therefore its own QAP. The current commissioner of Chicago’s Department of Housing, Marisa Novara, who came out of the community development field and worked on the report Cost of Segregation, decided that with LIHTC being such a large source of affordable housing funding, her department should undertake a racial equity impact assessment of the QAP.

Racial equity impact assessments, much like health impact assessments, are a tool for systematically exploring the potential outcomes of particular program or decision. The City of Chicago worked with a fellow from Chicago United for Equity to lead the process and contracted with Enterprise Community Partners for research support. The resulting changes to their QAP were released in late May.

Shelterforce spoke with Katanya Raby, who managed the process at the city, and Miriam Zuk, who worked on the project for Enterprise (Zuk has since left Enterprise and is working for an independent consulting group), about how they went about expanding the idea of racial equity and LIHTC beyond merely where the units are sited.

Miriam Axel-Lute: Why is it important to bring a racial equity lens to LIHTC in particular?

Headshot of Katanya Raby, who led Chicago's REIA, resulting in a revised QAP

Katanya Raby

Katanya Raby: The idea of the QAP came up through Commissioner Novara. I had to make it something that I could be truly passionate about, and the way I made it make sense was through my personal experience, as a resident of LIHTC [and] growing up in Section 8 housing. That’s where it became personal for me. What measures are in place for families like mine to actually make steps into building community wealth and generational wealth, and get to a point where that level of need isn’t as great, so that another family can take advantage of it?

Miriam Zuk: LIHTC is the No. 1 financing source for affordable housing, and yet what we hear about around equity and LIHTC is mostly about the siting of it in higher-opportunity neighborhoods and the need to produce more, and more, and more. [There’s not] enough reflection on how this [is] serving communities and households, which are disproportionately households of color. Something like 70 percent of LIHTC residents are Black and Brown families. [Editor’s Note: Most recent national data shows that 61.6 percent of LIHTC residents are either people of color or don’t have a race reported. Of those with race reported, 52.5 were people of color.]

What did you find are the racial equity implications of the way that LIHTC is currently administered in Chicago?

Miriam Zuk

Zuk: Given Chicago’s long history of segregation, and Commissioner Novara’s long history of working on issues of racial residential segregation, that was front and foremost on our minds going into it, especially since that was the data that we had available. Part of the reason we tend to hyperfocus on location is because that’s what we have data on, but to me, what was really fascinating about this process [was] engaging community, engaging different stakeholders.

One of the key things we heard when we talked to residents was the need to be involved, to have their voice heard, and to meaningfully participate both in the ongoing functioning of their residence so that they had self-determination and dignity [and] in the [LIHTC] process altogether.

We also heard from the community about the quality of the units, which is really variable. Some units are new and have top-of-the-line amenities. Others have a lot of deferred maintenance, or property management that is totally unresponsive, or a feeling of being disrespected by property managers. That came out loud and clear.

Katanya, would you tell me how you managed that process so that it generated the information you needed?

Raby: Well, first, I really had to understand what the QAP was. I’m a planner with capital P, and this [is a] very jargony, deeply technical tool. So I really had to start at square one. I knew that it was really important to make sure that we had conversations with the community about this in a way that they could understand, to break down what the QAP was, give some general facts about it that people could digest, but then also help them understand the process for doing a racial equity impact assessment (REIA).

Looking at the QAP in this way was completely new to everybody that was involved. [In] the workshops we focused the process for the REIA and then understanding the data within the QAP. Then we were able to open it up with a list of questions that are predetermined for REIAs.

Given that we are in the middle of a pandemic, we had to do [almost] everything online. [But] we also really felt that it was important to reach residents in person as well. So we went out to five different LIHTC properties and set up shop in front, to get some more insights from residents as they were passing by. That was really, really important.

A lot of the residents and our housing advocates really brought home how important it is to think about the steps that it takes to get a resident into the property, and then maintenance. But then also what it takes to get someone to move out on good terms and move out and upwards.

I just bought a house about six months ago, but prior to buying this house, I lived in a LIHTC property for about five years. There were a lot of things that could have been done [to help me with that process] that weren’t, or maybe there were tools available, but they weren’t shared. Are developers really thinking about the end users’ experience and how to help them get a footing to be able to move into the homeownership space?

Zuk: The City of Chicago is so blessed to have this visionary leader Commissioner Novara both inviting this process in and shepherding it through. But at the beginning, it was “We produce housing,” right? And this idea about resident outcomes and homeownership and upward mobility was kind of seen as “Oh, but that’s not what this program does.” This process helped the department think about, “All right, how do we link all these different programs and initiatives together so that they’re not so isolated? How do we have collective impact through all of our programs?”

How does a racial equity impact assessment usually go? Are there particular key questions that help people identify racial equity impacts that they might not be seeing, otherwise, in whatever they’re looking at?

Raby: The main thing is really to assess the benefits and burdens. Who is actually benefiting from this? Who is being burdened? Through the workshops we were asking questions to get a better sense of where those benefits and burdens lie. Our findings show that the benefits were greatly on the side of the developers, more so than the side of those who were the end users or the residents.

We asked questions trying to get an understanding of what they thought we were trying to solve through having a more equitable QAP, how the outcomes of the updated QAP could advance racial equity, what can this proposal impact, and how can communities most impacted partner with DOH.

[We were] thinking about not just the developers, but also about the policymakers, the city of Chicago itself, the syndicators, and the funders, because they play a large role in this as well.

How do you compare benefits and burdens since there are different kinds of benefits that are going to a developer versus going to folks who are living there?

Zuk: It was all qualitative. The idea wasn’t to compare who’s benefiting more versus less, but to try to understand all the different players involved and who is benefiting from this program. And if the goal is to advance racial equity, how can we better realign this program and funding source to do that?

Was there anything that came up from the stakeholders that surprised you?

Zuk: Who’s able to get in and who’s kept out came up a lot. I’d say mostly we think about access in terms of spatial access, and access to different geographically rooted systems of opportunity. But [there is also] access in terms of who is able to get in by [tenant] screening and what [size] of families and households are able to benefit from the units [being built].

So we looked a lot at who’s screened out. All these different ways that some of the most marginalized groups are actually screened out from this key resource, either because of credit history, eviction records, conviction records, or things like that. I’d say actually, I came into this thinking location, location, location. Anything that was not location based was a big thing for me.

And then the other thing was what are the demographics of the developer companies that are benefiting from this program? That came up in one of our early meetings with the [Chicago] Department of Housing staff, while things were percolating nationally and with a lot of nonprofits around these issues. But for me, it was sort of like an aha! moment. This was mostly benefiting a primarily white industry, and smaller, newer, developers or maybe established developers of color just were not able to access this resource.

I’m interested in the recommendation on the property maintenance. I think of a QAP as determining who gets the credits. Maintenance sounds like something that would have to come into the compliance side of it.

Zuk: For the most part, that is how that works. There is nationally this whole compliance system. There are many eyes on these developments. Often what they’re looking at are occupancy and issues that may threaten the financial viability of the buildings. Obviously many of them are also looking at the quality of the buildings, but it’s different in different places.

What we heard when we talked to the compliance division from the department of housing was first, a feeling of overwhelm. They are super underfunded. I think it was every three years, they do a site visit mostly focusing on things like occupancy. When we asked them about maintenance, they started talking about some real terrible actors and how there wasn’t that much accountability there.

They had some ideas of what they could do [to] show that a developer might not be in compliance based on the maintenance, [such as requiring a] maintenance plan. There are certain states that have in their QAPs consequences for an owner [who] takes longer than three days to respond to certain critical maintenance requests that can affect the health and safety of residents.

Some of it has to do with [educating residents about] who to turn to beyond [their] property manager. Can you make a complaint to the city? What’s the accountability mechanism there?

One thing we heard was that some of the bad actors continue to get credits year after year, even though they might not be maintaining their existing properties. There were no mechanisms to deal with that. That’s another thing the city was able to incorporate—doing a backwards check to see how are their existing properties? Are they complying?

How did you move from all the information you gathered to formulating some top recommendations for how to change the QAP?

Raby: Miriam and Chandra [Christmas-Rouse] did a really amazing [job] outlining everything that was said during our workshops and synthesizing all of that. We had a series of meetings to break it down and try to group things into different themes and the themes helped us tell the story, which was really amazing to be able to create a document that could be better understood by the general public through stories.

Racial Equity Impact Assessment Recommendations for Chicago’s Qualified Allocation Plan

Here are the eight goals, with some examples of the specific recommendations attached to them, that were included in the draft racial equity impact assessment.

  1. Ensure Black, Indigenous, people of color (BIPOC) developer/service providers benefit from LIHTC. Track the demographics of the developers benefiting from the tax credit and explore barriers that are keep others from participating.
  2. Create production targets for specific subpopulations based on need. Collect data to be able to identify these needs and then prioritize tax credit allocations to serve them.
  3. Improve access to units for marginalized groups. Change screening procedures so they do not exclude people based on credit score, eviction, or conviction.
  4. Coordinate housing with other neighborhood amenities. Ensure residents have choices about where they live. Prioritize developments that are thinking about supporting existing culture in the community.
  5. Improve engagement, management standards, and enforcement in properties.
  6. Improve resident outcomes and support homeownership and wealth-building opportunities. Incentivize applications that offer or provide access to programs like homeownership support and workforce development, require owners to track and report tenant outcomes, and connect LIHTC residents to other department of housing programs.
  7. Create more accessible, family-friendly homes (i.e., family sized) and make applications more user-friendly.
  8. Ensure LIHTC developments address mental health needs of residents. The QAP can support incentives for partnership and wrap-around services that create or provide access to health and wellness spaces and activities.

Those eight themes became this chapter book, sharing stories of fictional characters who were affiliated with LIHTC in some way, whether they’re a resident, or a property manager, or a developer. These characters help paint a picture to explain the process and explain the struggles that they were experiencing, and then [we] attach those recommendations. That is a completely unorthodox way of doing a policy plan.

I’ve never seen one where there was a narrative that attached to the recommendation. That was really cool. That spoke to us really wanting to create an equitable document, something that was not full of technical jargon, that would help those who are applying for tax credits to know what it is that may come in the next version of the QAP, but then also help folks who are just your general Chicagoans to better understand what this process is all about.

Zuk: Some of these residents, this is the first time anybody’s asking them about their experience or how their building is affecting their lives and things like that. So we definitely heard things that may or may not have been relevant to the LIHTC and QAP process. So some of it was filtering through all that information, making sure that [the department of housing] received that information anyway.

Then thinking about how might this affect the QAP? Is this something that is relevant for LIHTC-financed properties but maybe not something that’s encompassed within the QAP? We did come up with a series of recommendations that were, say, QAP adjacent.

And then doing a lot of research to see what are other people doing in other places? Trying to figure out some strategies that can address the issues that we heard about.

The fact that we were able to narrow it down to eight areas of focus was really a feat.

For some of these the racial equity implication is clear, such as diversifying the developers or adjusting your screening practices to not use measures that have a racially disparate impact. For some of the others, it’s not so direct. Are you figuring that items that improve the program for residents have a racial-equity impact because of who the residents tend to be?

Zuk: I would say so. Who do LIHTC properties serve? And how do we ensure that they have good outcomes? All too often in the industry, all we’re talking about is more units, more units, more units. It’s really about the development instead of necessarily who lives in the development.

The last [recommendation we made] is around mental health needs of residents, which came up so much, both with advocates and when we talk to residents. If their needs aren’t being met and served, then they’re not going to be able to achieve their dreams, [and] live healthy and prosperous lives. Housing is a necessary but insufficient component to health equity, racial equity, any kind of equity.

There’s been a concern that as we keep trying to achieve every social goal through the QAP—green building, accessible building, etc.—that we’re hamstringing ourselves by making the cost to build higher and higher. Many of your suggestions won’t necessarily add a lot of cost. Some of them probably do. What do you think about that framing of trade-offs, and were you thinking about that in making your recommendations?

Zuk: I wouldn’t say that we were thinking about it when we were developing our recommendations. I do think it’s true that you need to think about cost, but this is a highly complex system that we have developed to basically produce something that people know we need, but we’ve done a bad job funding. Developing a LIHTC unit is more expensive than developing a market-rate unit because of all of the financing, and complications, and how many times are we underwriting these properties, and the capital stacks. If the goal is minimizing costs, we have to look at how to simplify the program. To me, adding some cost to ensure the positive outcomes of residents should be prioritized over complex financial instruments.

When the LIHTC program was first introduced, Shelterforce’s headline was “Feeding the Horses to Feed the Sparrows.”

Zuk: In our scarcity mindset, people are fearful of critiquing because they think that this scarce resource is going to go away. What was refreshing for me [about] this racial equity impact assessment and the commissioner’s openness and desire to see more equitable outcomes was, “OK, we can critique it. We’re not going to just protect this flawed instrument for the sake of protecting it because it’s all we have. Let’s critique it and make it better.” It was pretty refreshing to be of that mindset.

It was a little scary for staffers, especially since we were kind of outsiders coming in. It’s scary when you learned how to do your job within an existing system and then you’re being told, “Oh wait, maybe this isn’t benefiting the people that you believe you’re serving.”

How did you approach that in conversation with the staff?

Raby: It was tough, especially in the beginning, prior to one of the deputy managers coming in to help usher through the process. I didn’t have rank at the city. People didn’t necessarily respond to my requests for things, initially. They were like, “Who is this girl?” But then after getting some more backing from the commissioner and one of the managing deputy directors to put a little bit more fire behind it, things started to get much, much better.

We were able to get a lot more information, schedule more meetings to get more insights from the crew that knows the QAP inside and out. And they’ve been great. It took a little bit of getting to know [each other] and breaking down some of those walls. [The QAP] is a sensitive document, and I understand that and respect those who’ve been really giving their all to this program.

Then also reassuring them that we weren’t critiquing their work, because we know that there’s limitations as far as what they can do. Over the years, they have done things to add to the QAP to try and make it more equitable. This is a government thing, so it’s always going to be slow-moving. But their willingness to be open and really consider different ways to approach it was really refreshing.

It turned out to be a really wonderful, delightful experience and we did a great job. Were there some [more] things that we might’ve been able to put in? Yes. But we were also constrained by the time. The QAP is due this summer, and they had to get the drafts out and make sure that there was enough time for input from the public. So we were up against the wall when it came to the clock.

I’m hoping that it doesn’t stop here, that there will be more interest in ways to really boost equity in this space.

Are you hoping that this will be a model for other states and cities?

Zuk: Part of me is like, no—not everybody has to do a REIA. We know [what] we need to do. But actually there is something beneficial to doing some self-reflection, and without that it may be harder to be so brave. This took a lot of bravery for staff and leadership at the department of housing. It is a useful exercise for everybody to do.

When you really dig in and understand how even the solutions we’ve devised may not be serving adequately the people that they’re intended to and may be reproducing inequalities or just maintaining the status quo, it’s helpful to motivate change.

Are there any stories from the process or from the various stakeholders that really stick out to you? You mentioned an aha! moment earlier when you were looking at the data about who the developers were, but are there other things that jump out to you?

Zuk: There is no data on the demographics of developers. People don’t actually know what we have or who lives in the developments. It is an intentionally not-centralized system, but that makes it really hard to do a good job of understanding. Just a clarification.

Raby: The residents were open and candid with government officials. It was really special. That’s a scary thing to do. They supported my hypothesis of wanting to have more access to opportunities through being a resident of LIHTC.

This whole project became very personal. Not many professionals get to merge those two worlds. I was able to buy my house because I was able to save, living in a [LIHTC unit], once I got a better-paying job. I was able to figure it out on my own, but just imagine if there was additional support; maybe I would have been able to get into a house sooner.

Zuk: I want to add on to just how amazing it was to have somebody leading this process that had firsthand experience. There would be feedback that we got where I was like, “I don’t know what this means or how it relates.” There was one I remember really vividly. It was about a resident in a LIHTC property in a gentrifying neighborhood feeling like their community was changing around them. They didn’t know if they were going to be able to stay in their community, but also they didn’t necessarily feel like there was resilience of their culture in their building or the outside neighborhood. And I remember I was like, “I don’t know how to fit this in.”

And Katanya was like, “No, that’s really important. And here’s the ways that we can think about this. Why don’t we talk about like arts and culture, or make sure that we prioritize developers and projects that do think about arts and culture of their residents and the neighborhoods and think contextually?” And you’ll see that that is one of the priorities in the current QAP. We’re trying to set new standards for how we think about housing, place, and belonging. Having somebody with lived experience leading this process was one of the primary ways that we were able to do that.

Were there moments, Katanya, where you felt able to translate, like, “I know what you’re talking about,” and use that to draw people out and get more information?

Raby: There were a number of times where I was like, “Oh yeah, I totally understand that.” I kind of had to limit how much connection I was making. I couldn’t take my hat off and be like, “Yeah, I live in LIHTC, too. Girl, that’s the same problem I’m having.”

But there were moments where I felt that on the inside very much. I was really happy to be able to come back to the team, and come from that perspective, and I’m glad that everyone was receptive to that.

I wanted to come back to that question of location, because it does come up so much. You said, Miriam, when you started out, that was your lens. Now how do you see location in the larger context of improving the racial equity of LIHTC?

Zuk: It’s complicated. We framed it in a really good way. We called it coordinating housing with other neighborhood amenities, instead of accessing opportunity. Yes, we want to make sure that residents have choices and are able to access more neighborhoods. But we also want to make sure they’re able to access the neighborhoods that they love. Those are not just white, affluent neighborhoods. Those are also neighborhoods with communities of color and with long history and tradition.

These quantitative measures of opportunity can drive things [but] actually in the end don’t make sense. But it’s complicated. There is still this desire to dismantle segregation and to make sure that we are building LIHTC in affluent neighborhoods, which we should. At the end of the day we need to be thinking about how do we invest? And in what types of neighborhoods? And, in a thoughtful way.

Thank you.

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