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Using Legal Tools to Bring Debt and Equity into Balance


Stacy Seicshnaydre is William K. Christovich Professor of Law at Tulane University.

This post continues a joint symposium with our comrades at Just Money on Destin Jenkins’s The Bonds of Inequality. Expect new posts in this series to appear on Thursdays throughout the late summer and early fall.


Prof. Jenkins’s sobering and painstaking work on the municipal bond market opens a new window onto the depth and range of harm made possible by racially separate and unequal spaces. Historically isolated and under-resourced spaces in American cities did not emanate from purely private choices but were constructed by law. Prof. Jenkins critiques twentieth century histories of inequality, such as the “white flight narrative,” for their omission of the role of municipal debt. I agree that the white flight narrative is superficial but for a different reason: it emphasizes consumer choice without centering the role of government institutions in erecting a durably unequal geography of opportunity

In the same way that other private actors—e.g., predatory mortgage lenders, blockbusting profiteers, real estate installment contract peddlers, polluting industries sited on cheap land in communities of color—enriched themselves on the playing field of dual housing and credit markets, the municipal bond industrial complex ensured a bottomless well of blight for eradication so long as redevelopment reinforced historic patterns of neighborhood isolation and inequality. The “terms and strings” attached to municipal debt could not have operated to benefit white spaces and burden black spaces without the construct of racial segregation. Racial residential segregation is a profit multiplier. The private sector did not create it, but it had every reason to perpetuate it. 

There is much about the bond market that is opaque, including its extractive manipulation of public programs and the groomed dependency it created on public debt. But, though it evades scrutiny, its power is felt by anyone who happens to be standing (or living) in the way of development, especially ordinary renters and homeowners. Public housing residents whose “concentrated poverty” provides the justification for redevelopment understand that their upward economic mobility is of diminishing concern after the deal is done. Anyone living in the footprint of a new stadium, hospital, or luxury condo development understands that their fortunes are expendable in service of the more diffuse benefits of economic development. Regardless of its shadow role, the municipal bond market Prof. Jenkins illuminates is felt if not seen by those questioning who benefits the most or at all from municipal debt.

As Jenkins shows, municipal debt is not inherently harmful for cities and their most marginalized residents. Rather, the municipal bond sector has caused harm by ensuring that its interests are served first and viewed as synonymous with the long-term best interest of cities. An example Jenkins provides is the favoring of downtown and financial sector development over infrastructural investments in public health, recreation, and social services. The same can be said for other public-private programs billed as public welfare tools while functioning as mechanisms to reinforce or further entrench racial separation and inequality. 

A number of debates persist among those supportive of a government role in addressing housing inequality. For example, should subsidized housing be project-based (subsidies attached to more densely built units) or tenant-based (vouchers assigned to tenants)?  Should public-private interventions be place-based (revitalizing neighborhoods where low-income families already live) or person-based (assisting families to move to better-resourced and opportunity-rich neighborhoods)? Should market-based or public-sector solutions be dominant?

There is an assumption underlying these debates that a particular strategy is inherently more effective than another, or that equity strategies are mutually exclusive rather than complementary. In fact, most programs can be used to perpetuate inequity or disrupt it. Ideally, they would be used in combination in the same way that redlining, federal lending discrimination, racial covenants, exclusionary zoning, and urban renewal were all used to create a durable, dual market regime. This is what Prof. Jenkins suggests about the bond market:  it functioned to undermine those most marginalized because of the way it was deployed. 

From my vantage point as a civil rights lawyer and academic, I appreciated Prof. Jenkins’s technical, yet accessible, explanations of the bond market’s increasingly anti-democratic grip on the pathway of urban “progress.” I’ve always understood that some public housing and economic development projects were “too-big-to-fail.” But I did not appreciate the degree to which bond industry members, lawyers, and raters were able to embed themselves in municipal operations, influence development and spending priorities, reinforce racially unequal housing and infrastructure, and privilege private profits and market logic over the public good. I am keenly interested, therefore, in interrogating how fair housing law can ensure that those most harmed by segregation are not those most harmed by “economic development,” “renewal,” and “improvement.”

Fair housing law could, as written, achieve more than it does in this arena. In the FHA’s core provisions, Congress prohibited anything that “otherwise make[s] unavailable” a dwelling based on race. A carefully assembled record using circumstantial evidence could demonstrate different treatment of neighborhoods based on the race of their occupants. The fact that neighborhoods of color wield less political and economic power in the public-private progress arena doesn’t end the inquiry if pretextual patterns of racially disparate treatment emerge. The text of the FHA doesn’t require conscious, individualized animus; our brains are making racial associations, i.e., thinking and acting “because of race,” whether we admit it or not. Patterns of development that consistently prioritize housing and neighborhood preferences of white residents by removing or limiting services and options for black residents can and do make housing unavailable. We don’t need to stretch or fudge the FHA’s language to apply it to the phenomena Prof. Jenkins describes. Nevertheless, despite its broad language and bold aims, the FHA is suffering from that general “mission accomplished” aura in the courts, where increasingly restrictive requirements of pleading and proof screen out theories of discrimination other than those involving targeted, individualized animus backed up by elephant-sized proof. The FHA provides tools to disrupt structural forms of discrimination using intentional discrimination theories, but the courts are loathe to enforce them. 

Discriminatory effects proof is another avenue for challenging inequitable urban development under the FHA. This “disparate impact” theory of liability, recognized in the 2015 U.S. Supreme Court case of Inclusive Communities, allows litigants to focus less on the state of mind of municipal and private developers and more on the disproportionate harm a development is causing to residents and neighborhoods of color. I’ve written elsewhere that this theory has traditionally been more effective when used to challenge exclusionary zoning barriers in all-white communities (e.g., restrictions on multi-family dwellings) and less effective when used to challenge urban development or “housing improvement” initiatives. Programs purporting to “eliminate blight” and “revitalize neighborhoods” will offer powerful justifications for their alleged racial impacts, and most courts will be reluctant to alter the course of redevelopment. This is true even if a revitalization effort disproportionately displaces, burdens, or makes housing unavailable to communities of color. Of course, revitalization can serve equity goals if equity is prioritized in its planning and implementation. The fact that revitalization frequently frustrates equity goals means that courts should scrutinize this type of blight removal justification more than they do. Revitalization programs that do not explicitly aim to expand housing choice and opportunity to remedy decades of segregation investments will likely further entrench isolation and inequity. 

What was a challenging claim before the Supreme Court issued its Inclusive Communities decision has become even more elusive. In the opinion, Justice Kennedy discusses the complexities of urban development and the fact that it may not be obvious which type of development is prudent or beneficial. In the Court’s view the “FHA is not an instrument to force housing authorities to reorder their priorities” or “decree a particular vision of urban development.” In other words, litigants will have difficulty challenging urban development if it appears they are merely second-guessing development decisions or if it appears that disparate impact theory is being used to “put housing authorities and private developers in a double bind of liability,” thus stopping revitalization altogether; after all, there will always be a disproportionate impact on someone. These sentiments have some abstract appeal, but they must be read in the opinion’s overall context, one that Prof. Jenkins’s work lays bare. As Justice Kennedy writes, “the FHA aims to ensure that [development] priorities can be achieved without arbitrarily creating discriminatory effects or perpetuating segregation.” 

I’ve labored in other work to reconcile the Supreme Court’s laissez faire language on urban development with its soaring civil rights pronouncements in the same opinion: “Much progress remains to be made in our Nation’s continuing struggle against racial isolation,” with the Court acknowledging the FHA’s “continuing role in moving the Nation toward a more integrated society.” Prof. Jenkins’s unveiling of the private bond market’s “extralegal” influence on urban development undermines the Court’s assumption of good faith or benign impact in all public-sector setting of development priorities. The FHA’s traditional recognition that certain neutral policies and practices can be actionable if they perpetuate racial residential segregation may be the most potent means of sorting public activities, as Prof. Jenkins does when examining the bond market, to ensure they move us towards inclusion and equity.

The existing requirement in the FHA that federal agencies and their local counterparts affirmatively further fair housing provides, in theory, an additional accountability measure. This “audacious” provision requiring some assurance that billions of dollars of annual housing and community development spending do not double down on inequality and segregation could be used to ensure that municipal debt serves the most vulnerable municipal residents and those most harmed by segregation. Despite the logic of its premise, the AFFH provision languished for many years and is currently being revived after an Obama-era rule was suspended and neutered. 

I continue to view the Fair Housing Act as a non-inevitable triumph won through blood and sacrifice, but it has been tragically ineffectual as a tool to curb the inequitable implementation of urban economic development. This is not to mention its impotence in requiring that public subsidies be used to remediate historical harms and increase residential and neighborhood opportunities for those most injured by segregation.

Prof. Jenkins’s provocative work demands reform. In addition to shoring up the FHA theories and provisions discussed above, an equity impact statement approach is needed such as that modeled on environmental law and proposed by Professor Deborah Archer in the transportation and infrastructure arenas. Every development project powered by public subsidies should be required to demonstrate who benefits and how; whether it is perpetuating segregation or whether it is restoring choices and opportunity denied under law in prior decades. A required equity impact statement not only inches toward remediation and repair, but also prevents infliction of further injury.