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05/18/88 Kathleen Greer Et Al., v. the Illinois Housing

May 18, 1988





524 N.E.2d 561, 122 Ill. 2d 462, 120 Ill. Dec. 531 1988.IL.782

Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County, the Hon. Richard L. Curry, Judge, presiding.


JUSTICE CLARK delivered the opinion of the court.


This case raises a number of issues stemming from a suit by the appellees, several people who own property near a proposed "rehabilitation development" project in Chicago. Apartments in the project are only made available to "very low-income" tenants. One of the appellants, the Illinois Housing Development Authority , approved assisted mortgage financing for the project. The appellees claim that this approval violates an alleged duty on the part of IHDA to avoid undue economic homogeneity in the projects it finances. In a separate action against the other appellants, the owners and developers of the project, the appellees claim that certain structural features of the project violate zoning ordinances, building codes, and rehabilitation codes of the City of Chicago.

The appellees are Kathleen Greer, Petra Harris, Dr. Carol Hurley, George McClelland, Caroline J. Magsaysay, Gonzalo P. Magsaysay, Frank L. Winter, and Aureen L. Winter. The appellants are the Illinois Housing Development Authority, American National Bank & Trust Company of Chicago, as trustee u/t/a dated 3/15/83 known as trust No. 57324, Kenwood Apartments, an unincorporated partnership or association, Elzie Higginbottom, and Alfred Davis.

With respect to the appellees' claim against appellant IHDA, the trial court entered judgment on the pleadings in favor of IHDA. The trial court also entered judgment on the pleadings in favor of the other appellants with respect to the alleged zoning violation. Following an evidentiary hearing, the trial court entered judgment for the other appellants on the building code and rehabilitation code claims as well.

The appellate court reversed in part, affirmed in part, and remanded for further proceedings. The appellate court found that the appellees' complaint stated a claim against appellant IHDA for failure to refrain from promoting economic homogeneity in the projects it finances. It therefore reversed the judgment on the pleadings in favor of appellant IHDA and remanded for further proceedings on the economic homogeneity

Because of the complexity of the facts and issues involved in this case, we have divided this opinion into appropriate headings and discuss the facts pertaining to each issue under each heading.



Since the claim of the appellees against IHDA depends in great part upon the interpretation of the Illinois Housing Development Act (Ill. Rev. Stat. 1985, ch. 67 1/2, par. 301 et seq.) (the Act) and pertinent Federal legislation, we review the history and purpose of both, along with the facts alleged in the pleadings below. Like the appellate court, we also consider various documents-the developers' proposal as well as various letters and memoranda of HUD, other State agencies, and IHDA-which were exhibits incorporated by reference into IHDA's answer to

The Illinois Housing Development Act was enacted in 1967. (See Ill. Rev. Stat. 1985, ch. 67 1/2, par. 301 (eff. July 24, 1967).) Its legislative history reveals that its passage as enacted was heavily influenced by the legislature's dissatisfaction with existing public efforts to house the poor.

There was a particular source of this dissatisfaction. The source was the perception that then current public housing programs tended to segregate poor people in large, ghetto-like high-rises, which inevitably became focal points for crime, delinquency, illegitimacy, and disease.

This perception is clearly reflected, time and again, in the recommendations of the Legislative Commission on Low Income Housing (the Commission), which was created by Illinois House Bill No. 2035, approved August 17, 1965. In April 1967, the Commission presented its report to the Governor, and it was this report which led directly to the creation of IHDA. (See Legislative Commission on Low Income Housing, For Better Housing in Illinois (1967) (For Better Housing).) The Commission's report provides helpful background material for the evaluation of the Act.

The Commission noted that "high density, high-rise public housing, which has provided adequate shelter, has also bred increasing social and environmental problems." (For Better Housing at 5.) A particular drawback of such housing was its tendency to "isolate . . . inhabitants from the rest of the community, exacerbate existing social problems through excessive concentration of multiproblem families, and stigmatize those living there in easily identifiable, separate quarters." For Better Housing at 39.

The Commission traced the origins of high-density, high-rise public housing to the 1930s, when public housing was conceived of as "transient accommodation, designed to provide decent housing for families who, for reasons beyond their immediate control, were temporarily unable to afford private housing." (For Better Housing at 37, citing Final Report of the Massachusetts Special Commission of Low-Income Housing (1965) at 15.) The poverty suffered by these families was thought to be related to the ephemeral hardships of depression and war. After a short period in public housing, they were expected to exceed the maximum income limits for continued occupancy. They would then move "up and out" to decent, nonsubsidized housing in the private sector. As they left, the housing they vacated would become available to other low-income families, and the cycle would begin again. For Better Housing at 37, citing Final Report of the Massachusetts Special Commission of Low-Income Housing (1965) at 15.

In fact, however, the rapid movement "up and out" failed to materialize. There was an increasing awareness that the causes of poverty were systemic and endemic; that among the causes, structural unemployment and racial segregation played a strong role; that the turnover of public housing tenants was very low; and that public housing tenants who did move often returned to the very slums they had left behind. For Better Housing at 37 -- 39.

To solve these problems, the Commission recommended, and the Act established, several new kinds of housing programs. The various programs recommended by the Commission were all designed to remove the stigmatizing effects of economically segregated housing projects by replacing them with developments where poor people could live with others in relative anonymity. For example, the Commission recommended the "purchase of all or parts of new, newly rehabilitated or existing privately built developments." (For Better Housing at 39.) Individual low-income units would be purchased "in blocks or scattered throughout the development or structure." The Commission noted that "the effect of this type of housing through acquisition will be housing of improved design, anonymity (i.e., recipients of public assistance will not be instantly identifiable by their housing), the healthy mixture of diverse social and economic groups, and the flexible provision of financial aid. With regard to the last point, if a family is no longer in need of subsidy, it can remain in its home by assuming the full financial obligation." (For Better Housing at 40.) Similarly, the Commission recommended "leasing private apartments in various sections of a community." Under this program, "[n]ot more than 25% of tenants in any one building can be participants in the program. Subsidized tenants pay their rent as other tenants do, only in a lesser amount, and the difference is made up by the housing authority through a direct payment to the landlord." For Better Housing at 40.

The Commission's recommendations with respect to the planning and construction of public housing shared a similar thrust. The Commission noted that the State's role with respect to the planning and construction of public housing was "meager," and that "even in the area in which State funds and State energies have been more directly involved -- moderate income housing -- the result in terms of units constructed is most disappointing." (For Better Housing at 47.) The Commission proposed that the State program be revamped in two respects: (1) by replacing State grants with direct, low interest, longterm State housing loans to private developers, financed through the sale of tax-exempt State bonds, and (2) by expanding the program to serve low-income families in addition to moderate-income families. (For Better Housing at 47 -- 49.) Therefore the Commission recommended "an expanded State Housing Board be given the power to make federally insured mortgage loans to finance the building and rehabilitation of housing on a cooperative or condominium basis or at low and moderate rentals for families of low and moderate income." For Better Housing at 48.

The Commission justified the inclusion of low-income families in the program by noting that "there is a great scarcity of decent housing for the poor in this State, as our Report amply demonstrates." (For Better Housing at 48.) It noted that the dissatisfaction of low-income families "with themselves and their position in a society which provides others with a high standard of living results in a sense of not belonging. Joining the life style of middle income groups is . . . the aim of the isolated." (For Better Housing at 50.) To ease their dissatisfaction, "a means must be found to give the lower income family a sense of belonging that can arise only from a sense of permanency." (For Better Housing at 51.) Therefore, "it is possible and desirable to make a substantial portion (25% or more) of the units in each building developed under this program available at reduced costs to low income families. By doing this, these families will be allowed to live in decent apartments, without identification, in close proximity to families of differing economic and social levels, and will not be required to move when their incomes increase; they will be able to continue living in the same apartment at an increased cost." (Emphasis added.) For Better Housing at 49.

The Commission proposed two methods of achieving the goal of integrating moderate- and low-income families in the same developments: (1) direct State subsidies to provide the difference between the rent or mortgage payments established by the Federal insuring agency and the amount the low-income family could afford, and (2) "rent skewing," a method by which the rents in the majority of unsubsidized moderate-income apartments would be raised slightly in order to allow larger reductions in the minority of subsidized low-income apartments, the total rent roll remaining constant. For Better Housing at 49 -- 50.

The Commission's observations and recommendations are reflected in the provisions of the Act. The legislative finding and declaration states:

"It is hereby found and declared that as a result of public actions involving highways, public facilities and urban renewal projects and as a result of the spread of slum conditions and blight to formerly sound neighborhoods and as a result of the high costs of heating dwelling units, and as a result of the shortage of and high cost of financing for housing, there exists within Illinois a serious shortage, of decent, safe, and sanitary housing available at low and moderate rentals to persons and families of low and moderate income. This shortage is inimical to the safety, health, morals, and welfare of the residents of this State and the sound growth of its communities. Private enterprise and investment, without the assistance contemplated in this Act, is not disposed to nor can it economically achieve the needed construction of decent, safe and sanitary housing at rentals which persons and families of low and moderate income can afford, nor is it disposed nor can it so achieve the urgently needed rehabilitation of existing housing or the provision of existing housing to those persons and families at those rentals. It is, therefore, imperative that the cost of mortgage financing . . . be made lower in order to reduce rental levels for low and moderate income persons and families . . . and that private enterprise be encouraged to acquire, build and rehabilitate housing which will help prevent the recurrence of slum conditions and assist in their permanent elimination by housing persons of varied economic means in the same structures and neighborhoods." (Emphasis added.) Ill. Rev. Stat. 1985, ch. 67 1/2, par. 303.

To achieve these goals, the Act created the Illinois Housing Development Authority as a body politic and corporate. (Ill. Rev. Stat. 1985, ch. 67 1/2, par. 304.) Under the Act, IHDA is given many powers, among these the power to "make mortgage or other loans to nonprofit corporations and limited-profit entities for the . . . rehabilitation of such developments as in the judgment of the Authority have promise of supplying, on a rental, cooperative, condominium or home ownership basis, well planned, well designed energy-efficient housing for low or moderate income persons or families at low or moderate rentals in locations where there is a need for such housing." (Ill. Rev. Stat. 1985, ch. 67 1/2, par. 307.2.) To raise the money for such loans, IHDA is empowered to borrow money and issue its own negotiable bonds and notes (Ill. Rev. Stat. 1985, ch. 67 1/2, par. 307.14), to accept gifts, grants, and loans from private, State, and Federal agencies (Ill. Rev. Stat. 1985, ch. 67 1/2, par. 307.20), and enter into agreements or transactions with local, State, and Federal agencies (Ill. Rev. Stat. 1985, ch. 67 1/2, par. 307.11).

Whatever the source of IHDA's funds, the Act places several restrictions upon their use. Among these restrictions is the requirement of a plan for selecting the tenants of a development. (Ill. Rev. Stat. 1985, ch. 67 1/2, par. 310.) Before agreeing to lend money to a developer, IHDA "shall approve a tenant selection plan" submitted by the developer. IHDA "shall formulate regulations from time to time setting forth the criteria for tenant selection plans." The criteria for the selection plans "shall include income limits, which may vary with the size and circumstances of the family unit of tenants. The income limits shall be sufficiently flexible to avoid undue economic homogeneity among the tenants of a development." Section 10 also provides that IHDA "may formulate regulations for the alteration of occupancies of tenants who exceed established income limits." Finally, the tenant-selection plan "shall specify how many units in the development shall be held available for rentals to persons of low or moderate income, as defined in this Act." Ill. Rev. Stat. 1985, ch. 67 1/2, par. 310.

The Act defines "[p]ersons and families of low and moderate income" and "persons of low or moderate income" as "families and persons who cannot afford to pay the amounts at which private enterprise, without assisted mortgage financing, is providing a substantial supply of decent, safe, and sanitary housing." (Ill. Rev. Stat. 1985, ch. 67 1/2, par. 302(g).) The Act also provides that "[t]he income limits for the admission of such families and persons to developments shall be those established pursuant to the rules applicable to the assisted mortgage financing program under which such developments are financed." Ill. Rev. Stat. 1985, ch. 67 1/2, par. 302(g).

The Act goes on to provide:

"In determining the number of units which shall be so held available for [rentals to persons of low or moderate income] and in determining the rental charges which may be established for those units, the Authority shall estimate the financial benefit of the mortgage loan to the owner of the development, as compared to the costs of a mortgage loan made in the private unassisted market. The number of such units and the rentals for them shall be determined in such a way that, in the sole judgment of the Authority, a major portion of that estimated benefit is used to reduce rentals for those units to rentals lower than that which would otherwise have been charged for those units, so long as the number of dwelling units reserved for them in each development shall not be less than the number required by applicable federal and State law." (Ill. Rev. Stat. 1985, ch. 67 1/2, par. 310.)

One of the sources of IHDA's funding is the "section 8" housing assistance funds which IHDA receives from the United States Department of Housing and Urban Development . See United States Housing Act of 1937, 42 U.S.C. § 1401 et seq. (the Housing Act).

Under the section 8 program, HUD is authorized to make housing assistance payments "[f]or the purpose of aiding lower income families in obtaining a decent place to live and of promoting economically mixed housing." (42 U.S.C. § 1437f(a) (1985).) In order to distribute the funds, the Secretary of HUD is authorized to enter into "annual contributions contracts" with other public housing agencies, such as IHDA. Public agencies may, in turn, contract with the owners or

While the Housing Act thus contemplates assistance to projects which contain both nonsubsidized and subsidized dwelling units, the actual section 8 subsidies are to be used only for units housing low-income families or very-low-income families, as those terms are defined in the Housing Act. (See 42 U.S.C. §§ 1437a(b)(2), 1437f(c)(4), 1437n (1985); see also 24 C.F.R. §§ 813.101, 813.102, 813.105 (1985).) Originally the Code of Federal Regulations required that the proportion of section 8 funds be used for very-low-income assisted housing, as opposed to low-income assisted housing, could not be less than 30% of HUD's total assistance portfolio (see 42 U.S.C. § 1437f(c)(7) (1985); 24 C.F.R. 883.704(c) (1985).) In 1981, however, Congress amended the section 8 program to increase the required proportion of very-low-income assisted housing from 30% to 95%.

The pleadings of the parties contain no direct information as to how IHDA treated applications for assistance prior to 1981. However, a

letter from IHDA to HUD does shed some light on this subject. In a letter dated February 18, 1983, to HUD, IHDA commented on HUD's (then proposed) regulations implementing the 1981 amendments. IHDA's letter objected to several of the proposed amendments. As background to its specific objections, IHDA noted that "one of the cornerstones of [IHDA's] development activity has been promotion of the concept of mixed-income housing. Approximately one-quarter of all units financed by the Authority do not receive any form of subsidy from the Federal Government. Many of our developments have only 20 to 30% of all units subsidized. In addition, the Authority has promoted economic integration within the subsidized units by attempting to achieve a balance between low-income and very low-income tenants . . .. Given the Authority's emphasis on mixed income housing, the Housing and Community Development Amendments of 1981 and the proposed regulations will have a profound effect on the Authority's program activities."

Another source of information on IHDA's treatment of applications for assistance, both before and after the 1981 amendments to the Housing Act, is contained in an IHDA report which detailed the status of its projects as of January 31, 1985. Without going into the evidence of this report in detail, it is sufficient to say that IHDA has funded some projects entirely composed of section 8 tenants, both before and after 1981, that some, but not all, of these projects are relatively small, and that some, but not all of them, are restricted to the elderly.

We thus arrive at the particular developments involved here. The two developments are located in the Kenwood neighborhood of Chicago. The parties agree that Kenwood is a racially and economically integrated community composed of persons of a variety of racial and economic backgrounds. There is already some subsidized housing in the area.

In November of 1983, the appellant developers filed a request for IHDA funding. They proposed the construction of 48 units of housing in two abandoned, gutted-out buildings. Twenty-seven units were to be, and now are, located at 4710 South Woodlawn Avenue, with the remainder at 4716-28 South Ellis Avenue. The two developments are on the border between the Kenwood neighborhood and a more "ghetto-like" area mainly populated by poor, black people.

The developers' request for funding included a tenant-selection plan which specified that all the units would be available for rental only to section 8 "very low income" families. IHDA submitted the application to HUD for its review and approval. On

June 19, 1984, HUD recommended approval of the project. A memorandum explaining its approval determined: (1) that there was a need for the units, (2) that the development was consistent with the Gautreaux consent decree (see Gautreaux v. Pierce (7th Cir. 1982), 690 F.2d 616 (calling for scattered-site/subsidized housing)) and the City of Chicago's housing assistance program, (3) that the proposed market-rate rents were compatible with the designated fair-market rents for the area, and (4) that the proposed development would not cause an undue concentration of assisted housing in the area.

Following HUD's approval, IHDA sent notices about the development to various governmental bodies, agencies, and representatives. None of these persons or entities objected to the development. The State representative for the legislative district in which the development is located indicated his approval in a letter dated July 27, 1984.

On August 22, 1984, the Northeastern Planning Commission recommended support of the development and a waiver of the 20% section 8 guideline because the "[s]ite is small scale/scattered site proposed (49 units or less)" and the "[p]roposal will replace substandard housing units in the area." The Commission's report enclosed letters from the department of planning and the department of housing of the office of the mayor of the City of Chicago, stating that the development had been ...

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