The Texas Department of Housing and Community Affairs (TDHCA) unintentionally discriminated in its allocation of low-income housing tax credits (LIHTCs), ruled a federal judge.

The agency has been ordered to prepare a remedial plan to address the issue.

The ruling by Judge Sidney Fitzwater, chief judge of the U.S. District Court for the Northern District of Texas, comes as a result of a lawsuit filed by the nonprofit Inclusive Communities Project (ICP), which challenged TDHCA’s allocations of tax credits in the Dallas area.

Both sides were reserved in their comments following the March 20 ruling.

“We are pleased with the opinion and look forward to working with the state on a remedy,” said Mike Daniel, one of the attorneys for ICP, a fair housing and civil rights organization.

ICP said that while 19 percent of all renter-occupied units in Dallas are in predominately white census tracts, only 2.9 percent of TDHCA’s LIHTC units are in these neighborhoods. And, while 51 percent of all renter-occupied units in the city are in minority-concentrated census tracts, 85 percent of TDHCA’s LIHTC units in Dallas are in these neighborhoods where minorities make up at least 70 percent of the population, according to the group’s complaint.

TDHCA issued a written statement following the court decision. “The Texas Department of Housing and Community Affairs is ever mindful of, and dedicated to, its responsibilities to all Texans to comply fully with all state and federal laws which govern the administration of our programs,” said the agency. “In light of Judge Fitzwater’s ruling issued this week, we are carefully reviewing the decision and considering next steps. Moreover, we remain committed to fair housing choice for all Texans as the Department carries out its mission of helping all Texans achieve an improved quality of life through the development of better communities.”

Fitzwater ruled that ICP had proved its “disparate impact” claim under the Fair Housing Act.

However, in a victory for TDHCA, the court found that there was no intentional discrimination based on race.

ICP alleged that TDHCA discriminated based on race by disproportionately approving LIHTC developments in predominantly minority neighborhoods and disproportionately denying LIHTC developments in predominantly Caucasian neighborhoods.

The group cited examples, but the court found credible evidence of nondiscriminatory reasons for approving or denying the applications. For example, there was a project denied 4 percent tax credits in a majority Caucasian area. The court found that TDHCA denied the application because the proposed project consisted of only three-bedroom units and that the agency was using its allocations for projects that had a mix of different unit sizes so that, among other reasons, single mothers could afford an apartment in the development.

A number of witnesses had testified that in making its decisions TDHCA does not act with intent to discriminate. The judge also noted there were instances when the agency attempted to use its discretion to deconcentrate tax credit developments in high-minority areas and encourage development in “high-opportunity areas.”

However, TDHCA fell short when it came to another key part of the lawsuit. ICP also challenged that the agency’s allocation decisions had a disparate racial impact in violation of the Fair Housing Act. In general, a disparate impact is when a policy that may appear to be neutral has a discriminatory effect on a group based on race, sex, age, or disability.

TDHCA stressed its use of a racially neutral scoring system. Like other LIHTC allocating agencies, it adopts a qualified allocation plan that sets out the criteria to award tax credits to housing developers. Texas has one of the largest LIHTC programs in the country. It recently received 387 pre-applications seeking $473 million in tax credits in the 2012 cycle. The state has about $44 million in LIHTCs to allocate.

Fitzwater said the agency failed to prove that it has adopted the least discriminatory alternative in carrying out its work of allocating LIHTCs. As a result, the court ruled in favor of ICP.

This isn’t the last on the lawsuit as TDHCA either prepares a remedial plan or appeals the court’s decision. In their statement, agency representatives said they are still weighing their next steps.