The Obama administration’s disparate impact on taxpayers

A federal agency has agreed to pay out on a preposterous discrimination claim. The settlement will cost taxpayers “only” $62 million, but it displays, once again, the Obama administration’s partiality to bogus legal theories and its willingness to use taxpayer money to pander to left-wing advocacy organizations. This pre-election payoff deserves serious scrutiny.

On July 6, the Department of Housing and Urban Development (HUD) announced it would pay an additional $62 million to some New Orleans residents whose houses were destroyed by Hurricane Katrina to settle a lawsuit. The plaintiffs were African-American homeowners in New Orleans and several ACORN-style organizations such as the Greater New Orleans Fair Housing Action Center and the National Fair Housing Alliance. They claimed black homeowners were discriminated against in payouts under the federal “Road Home” program, which allocated $11 billion for rebuilding communities and resettling displaced residents after the hurricane. According to the complaint, it is “the largest housing redevelopment program in United States history.” It has already paid nearly $9 billion to New Orleans residents in four parishes, but that was not enough according to the plaintiffs in the lawsuit.

Under the terms of the original program, qualifying residents could be awarded up to $150,000 toward rebuilding their homes. But in a straightforward application of standard insurance industry practices, grant recipients would receive the lower of either the pre-Katrina fair market value of their home or the actual cost of damages to their property.

The plaintiffs claimed this HUD standard was racially discriminatory. Why? They 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 an unjustified (and ridiculous) settlement. 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. One can obtain actual replacement insurance coverage for many different kinds of property, but such policies are specially underwritten and cost extra.

Yet the Obama administration has now agreed to use public funds to pay off a nonexistent legal liability. This settlement shows the Obama administration’s unwillingness to mount a vigorous attack on the legal theory of “disparate impact.” After all, its own Justice Department is using strained versions of that dubious legal stratagem to attack employers, educators, police departments and lending institutions. Just last week, Investor’s Business Daily reported that DOJ has launched a witch hunt against supposedly biased banks, forcing them to relax their mortgage standards for minorities with poor credit. DOJ cannot show any actual discrimination against minorities, just that requiring good credit or an unwillingness to count welfare benefits as income will have a “disparate impact” on certain minorities.