Tuesday, July 19, 2011

Dreamed-up Discrimination

The Federal Road Home program was designed "to help Louisiana residents rebuild or sell houses severely damaged by Hurricanes Katrina and Rita." It awarded up to $150,000 to owners based on the lesser of the actual damages and the pre-storm value of the house. Having paid out $9.8 billion, it is "the largest housing recovery program in the nation’s history."

Apparently, that wasn't enough. In early July, President Obama's Department of Housing and Urban Development added $62 million to the program to settle a racial discrimination lawsuit. Why?:
They [plaintiffs] alleged that since homes in predominantly African-American neighborhoods in New Orleans generally had lower property values, black residents tended to receive lower amounts of federal payouts than other homeowners. Thus, other homeowners were supposedly more likely to receive their damage costs than African-Americans who would most often receive their pre-storm home value. HUD has now agreed with the plaintiffs’ claim that this had a racially "discriminatory impact on African-American homeowners" because they faced larger gaps than white families between the grant amount and the cost to rebuild (where the cost to rebuild exceeded what their homes were worth before the damage).
This is nuts, for several reasons: First, why is the Road Home compensation formula discrimination at all? The law is facially neutral--race was neither mentioned nor targeted.

Second, by analogy to employment discrimination, disparities in outcomes are not racial discrimination where the practice in question fulfills legitimate economic needs. The Road Home program was over-subscribed. Especially during the budget crisis, implicitly rejecting limits to taxpayer funding is lunacy.

Third, the economic rationale is unassailable. Simply put, it's illogical to reward owners with more than their house is worth:
If you have an accident in your 10-year-old automobile, your insurance company is liable for the cost of repairing the car up to the pre-accident value of the car. It would be foolish and reckless underwriting for the company to be liable for the total cost of repairs if they exceed the fair market value before the accident.
Perversely, it's another subsidy for risky housing where it should be discouraged.

Fourth, although a majority of Federal community development block grants must go to those with low or moderate incomes (24 C.F.R. § 570.484), earnings aren't race. The New York Times equates the two--an error, but, by settling the lawsuit, the Administration apparently agrees.

Conclusion: Sixty-two million dollars isn't a budgetary back-breaker. Perhaps the outcome is less than expected litigation costs. But it's bad law and policy--and a pattern in the Obama Administration.

(via reader Warren)


OBloodyHell said...

> Simply put, it's illogical to reward owners with more than their house is worth

Not by postmodern logic (remember GIGO) -- the primary goal of all Federal programs under these circumstances is not actual reimbursement, as claimed as justification for the program, but redistribution.

Redistribution is ALWAYS at the heart of all postmodern liberal policies.

Lame-R said...

Perhaps the administration will be similarly open to seeing the racial discrimination inherent in Social Security? After all, Blacks tend to have a shorter life expectancy than Whites, so a Black person who works an equal amount of time as a White person and pays the same into Social Security will not receive the same benefit in the end. The reasonable thing to do is to privatize it so that at least a person's heirs can benefit.

(Shamelessly pulled from an editorial written 7 or 8 years back by one of Bush's Secty of something or other--unfortunately I don't remember who...)