The Supreme Court on Wednesday will hear arguments in a case that could change the way low-income housing tax credits (LIHTCs) are allocated.

In the Texas Department of Housing and Community Affairs (TDHCA) v. The Inclusive Communities Project (ICP) case, the court will determine the scope of the Fair Housing, specifically whether disparate impact can be used in claims made under the Act.

Much is at stake for the affordable housing industry and low-income residents.

If the Supreme Court decides that the disparate impact theory of liability is part of the Fair Housing Act, it could trigger more discrimination cases being brought forward, says Michael Skojec, a partner at the Ballard Spahr law firm.

On the other hand, "if the court determines disparate impact is not part of the Fair Housing Act, it could basically reverse the direction that the courts and the Department of Justice have been going in for the last 30 or 40 years in bringing various discrimination claims forward,"  he says.

These lawsuits will come to a halt, and cases around the country would be dismissed, he says.

In general, 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.

The Texas case began several years ago when ICP claimed that TDHCA’s allocation of housing tax credits resulted in a disparate impact on African-Americans. The nonprofit organization said the state agency discriminated based on race by disproportionately approving LIHTC developments in predominantly minority neighborhoods and disproportionately denying LIHTC developments in predominantly Caucasian neighborhoods.

If the Supreme Court supports ICP, it will “require virtually every state to have to rewrite their QAP (qualified allocation plan) and change the way they’ve been administering their tax credit program,” Skojec says.

A group of leading housing associations filed an amicus brief last year, saying the Supreme Court should conclude that the Fair Housing Act does not recognize disparate impact liability.

The organizations filing the brief are the National Leased Housing Association, National Multifamily Housing Council, National Apartment Association, National Association of Housing and Redevelopment Officials, National Association of Residential Property Managers, Public Housing Authorities Directors Association, National Affordable Housing Management Association, and Council for Affordable and Rural Housing.

The use of disparate impact liability would mean that established practices may now be at risk of violating the Fair Housing Act, according to the associations, which raise concerns about the use of criminal background screening and Sec. 8 policies and practices.

They say there are state and municipal laws that encourage or require criminal background checks of prospective tenants. In addition, apartment owners who participate in federal housing programs are required to refuse admission to tenants who have records of crime or drug use or engage in criminal activity while tenants.

“Disparate impact liability casts doubt on the legality of criminal background screening because it raises the possibility that such screening will unintentionally result in the exclusion of a disproportionate number of individuals from protected classes” under the Fair Housing Act, says the brief.

Skojec will be among the industry attorneys paying close attention to the case. He notes that some justices, particularly Antonin Scalia, are very technical and may look very carefully at the wording of the law to determine what Congress intended.

If some of the justices start to sound like they think the statute is ambiguous, that may mean the case is swinging toward the Inclusive Communities position, says Skojec.

After hearing arguments Wednesday, the Supreme Court would likely make a ruling in the spring.