Waterman, Smith and Kaufman, Circuit Judges.
IRVING R. KAUFMAN, Circuit Judge:
We have witnessed recently a burgeoning increase in the number of instances this court has been asked by recipients of public assistance to resolve disputes involving alleged denials of their fundamental rights. This case requires us to again intervene in such a controversy. Plaintiffs, all welfare recipients residing in Peekskill, N.Y., allege that rental agents at the Crossroads Apartments, a privately owned complex built by David and Muriel Bogdanoff as part of the Peekskill Urban Renewal Project, refused to consider them as applicants for housing solely because of their welfare status. This refusal, they claim, was an arbitrary and invidious discrimination violative of rights secured to them by the Equal Protection Clause of the Fourteenth amendment. Judge Tenney agreed and granted summary judgment against ment of Housing and Urban Develop-Crossroads and its owners, ordering permanent injunctive relief. Because we believe that the pervasive state involvement in the origins, development, and continued activity of the Crossroads requires that its practices be judged by the dictates of that Amendment, we conclude that the classification scheme employed by the Bogdanoffs may not continue. Accordingly, we affirm.
A. The Peekskill Urban Renewal Project
A full understanding of the factual background of this litigation will be helpful at the outset. In the early 1960's, officials of the City of Peekskill, like those of many other urban communities in the nation, realized that the rapidly deteriorating condition of the city would require a massive recovery effort to avert total blight. Accordingly, Peekskill began development of an urban renewal plan designed to take advantage of available state and federal funding. After the plans had begun to take shape, the Peekskill Urban Renewal Agency was created by the New York legislature in 1964. The Agency, which consists of the Mayor and the six Common Council members of Peekskill, entered into capital grant contracts with the United States Housing and Home Finance Administration (now the Department of Housing and Urban Development) and the New York State Division of Housing and Community Renewal. The basic intention was to replace dilapidated structures which had outlived their usefulness with new commercial and residential buildings designed to revitalize the downtown area. The statutory scheme provided that the net project cost -- the total dollar amount expended to acquire and prepare the site less proceeds from the sale of acreage to private developers -- would be funded two-thirds by the federal government and one-third by state and local agencies. See 42 U.S.C. §§ 1441 et seq.; N.Y.Gen.Mun.Law Art. 15 & 15A (McKinney's Consol.Laws, c. 24, 1965). The actual acquisition of the land was effectuated by exercise of Peekskill's power of eminent domain. See 42 U.S.C. § 1460(c); N.Y.Gen.Mun.Law §§ 554(6), 555 (McKinney 1965).
A vital part of the Peekskill plan, known as the Academy Street Renewal Project, was the construction of middle income apartment residences. The plan contemplated that the construction and ownership of this housing would be undertaken by a private developer. Accordingly, on November 25, 1968, the Agency, acting on behalf of the city, entered into a contract with Crossroads Associates, a partnership organized by David and Muriel Bogdanoff. The contract provided that Crossroads would pay $182,100 for two parcels of land in the Academy Street Project area. Crossroads bound itself to use the land in accordance with the renewal plan at least until 1990. The Agency undertook to demolish and remove any structures on the property, remove any existing streets, fill, grade and level the land, construct new streets and sidewalks, install all necessary utilities, and provide parking facilities at its own expense. Moreover, the Agency assumed the cost of relocating those persons displaced by the project. See 42 U.S.C. § 1455(c); N.Y.Gen.Mun.Law §§ 503(i), 505(4)(e) (McKinney 1965).
In addition to these specific provisions, the entire project was governed by a phalanx of state and federal regulations. See, e.g., 42 U.S.C. §§ 1441 et seq.; HUD Urban Renewal Handbook; N.Y.Gen.Mun.Law Art. 15 & 15A (McKinney 1965). These regulations are designed to insure that the private developer proceeds in accordance with general standards set for urban renewal projects and with the specific renewal plan of the community. Thus, a provision of the contract provided that Crossroads shall "Devote the Property to, and only to and in accordance with, the uses specified in the Urban Renewal Plan." And, the agreement prohibited Crossroads from "discriminat[ing] upon the basis of race, color, creed, or national origin in the sale, lease, or rental or in the use or occupancy of the Property or any improvements erected or to be erected thereon, or any part thereof." These covenants were made binding on any successors in interest and the Agency and the United States were deemed beneficiaries, with the right to institute appropriate legal enforcement actions "for the purposes of protecting the interests of the community and other parties, public or private, in whose favor or for whose benefit such agreements and covenants have been provided."
After execution of this contract, planning continued and on February 21, 1969, a portion of the land was deeded to Crossroads by the Agency. Construction plans called for approximately 275 apartment units and by July, 1970, three buildings had been completed and were open for rental.
B. The Plaintiffs' Inquiries at the Crossroads
The events giving rise to this action occurred in July 1970. Each of the plaintiffs went to the rental office at the Crossroads to apply for an apartment vacancy. On each occasion the rental agent, upon being informed that the applicant was a welfare recipient, refused to provide her with an application form.*fn1 The explanation for this refusal proffered by the Bogdanoffs was that the standard shelter allowances paid to Peekskill welfare recipients by the Westchester County Department of Social Services was less than the corresponding rentals at the Crossroads apartments.*fn2 The Bogdanoffs, understandably concerned with a prospective tenant's ability to pay the monthly rental, considered this differential sufficiently substantial to justify not giving consideration to welfare recipients as potential tenants.
The documents submitted to Judge Tenney, however, reveal that the Westchester County Department of Social Services was authorized to pay excess shelter allowances where appropriate. Department procedures authorized these excess allowances where a recipient's standard allowance was insufficient to secure adequate housing. In such instances, the recipient was required first to locate suitable housing and then to request a caseworker to complete a special document, known as Form 664, to facilitate further processing of the request. After initial screening by the Department's local office, the request was forwarded to the Department of Social Services main office located in White Plains for final action. Because of the shortage of adequate low-income housing in Peekskill and other communities in Westchester County, almost all of these requests were approved by the main office.
But advance approval of an excess shelter allowance prior to seeking an application form at the Crossroads was not possible. According to the deposition of John Allen, Director of the Division of Family and Child Social Services, annexed to the plaintiffs' motion for summary judgment, the Department of Social Services could process a Form 664 request only when a welfare recipient requested an excess allowance for the rental of a specific apartment that a landlord was ready to make available to the applicant. Before such an allowance could be authorized, the case worker and her superiors had to know the general condition of the available apartment, the number of rooms, what utilities were included in the rent, whether a security deposit was required, and whether a written lease was available. In short, it was necessary for a recipient to have "a concrete offer for a specific apartment in the Crossroads" before the Department of Social Services would consider a Form 664 excess shelter allowance.
We observe, therefore, that the plaintiffs were trapped in a vicious circle. The Department of Social Services could not authorize an excess shelter allowance until a specific apartment was available, but the Bogdanoffs refused to even accept an application from a welfare recipient because of the inadequacy of the standard shelter ...