financial assistance. At the first of the year, there were 102 urban developments of 16,690 units in deferment as well as 55 rural developments of 6,460 units, making a total of 157 deferred developments of 23,150 units. The projects were located in 94 cities and 24 States, the District of Columbia and Hawaii. Existing loan contracts covering these projects showed an estimated total development cost of $113,553,752.

Theoretically, these projects could have been removed from their deferred classification and reactivated with expiration of the wartime priorities system. In actual practice, however, the local authorities. discovered they could not reactivate deferred projects after the war, even though the Federal aid funds were available and earmarked for them, because of the cost limitations contained in section 15 (5) of the United States Housing Act. That section provides that "no contract for any loan, annual contribution, or capital grant made pursuant to this Act shall be entered into by the Authority with respect to any project hereafter initiated costing more than $4,000 per family dwelling unit or more than $1,000 per room (excluding land, demolition and nondwelling facilities); except that in any city the population of which exceeds 500,000 any such contract may be entered into with respect to a project hereafter initiated costing not to exceed $1,250 per room (excluding land, demolition and nondwelling facilities), if in the opinion of the Authority such higher family dwelling unit cost or cost per room is justified by reason of higher costs of labor and materials and other construction costs."

These cost limits were established in 1937. In the intervening decade, building costs had risen so markedly that local authorities found it impossible to erect low-rent projects within the permissible cost limits. As a result, all the deferred projects but one have remained in deferment.

Public Law 301, enacted during 1947, was intended to relieve this situation. Section 1 of this measure permits the development of projects with costs in excess of the original statutory limits on condition that the over-limit costs are contributed by the locality. Although several cities began examining their resources to determine whether they were able to make the financial outlay necessary to reactivate deferred projects under this plan, only one city actually succeeded in reactivating a project by the close of 1947. This was a 230-unit project in Milwaukee, Wis., which PHA approved for reactivation on November 13, 1947. The city of Milwaukee made a capital donation of about 35 percent of the estimated total project development cost of $2,752,988. The PHA had contracted to lend the Milwaukee housing authority up to $1,607,000 to assist in financing this project.

D. Transfers of Lanham Act Projects to Low-Rent Use

Section 4 of the Lanham Act, as amended, provides that housing projects constructed under its terms shall not be conveyed to any public or private agency organized for slum clearance or to provide subsidized housing for persons of low income unless specifically authorized by Congress.

Since many localities were interested in acquiring permanent Lanham Act war housing projects for use as public low-rent housing for low-income families, the HHFA Administrator authorized PHA to receive requests for such transfers, providing the local governing bodies had officially approved the acquisition of the projects concerned. In addition, proof must be submitted of the projects' suitability for low-rent use and of the need in the communities for low-rent housing for low-income families. If these conditions were met, PHA could reserve the projects from other disposition until the requests could be considered by Congress. All such reservations are subject to the approval of the HHFA Administrator.

During the year, local officials made requests for reservation of 120 permanent war housing projects for low-rent use. As of December 31, 1947, 61 formal applications covering 70 projects had been received by PHA and were being reviewed.

E. Payments in Lieu of Taxes

PHA's policies on authorizing local housing authorities to make payments in lieu of taxes to local taxing bodies were examined by Congress in 1947. The question of payments in lieu of taxes evolves from the requirement of the United States Housing Act that local governments must make contributions to the operation of low-rent projects amounting to at least 20 percent of the maximum annual Federal contribution. This local contribution may, and uniformly does, take the form of tax exemption for the projects as prescribed in the various State statutes. The value of this exemption nearly always is far in excess of 20 percent of the Federal contribution. At the same time, local governmental units, pursuant to their cooperation agreements with the local housing authorities, must furnish the projects with various services such as police and fire protection, street and sewer maintenance, garbage collection and schooling for project children.

In the early days of the USHA program, the cooperation agreements between local authorities and the local governments provided for no payments in lieu of taxes. Later on, in view of the services provided to the projects and the fact that local contributions were exceeding statutory requirements, the PHA's predecessor agencies adopted the policy of approving agreements for authorities newly entering the program which did provide for payments in lieu of taxes. These

payments were set either in specified dollar amounts or in terms of percentages ranging from 2 to 5 percent-of shelter rents.

As experience was gained with the program, the policy was revised further to permit local authorities to make payments in lieu of taxes in addition to the amount provided in contracts. The total payments, including those provided by the cooperation agreements, could not exceed 10 percent of the shelter rents. Furthermore, they could not reduce the amount of the total local contribution to less than 20 percent of the Federal contribution actually paid plus, as a measure of safety, 10 percent of the maximum contribution payable under the assistance contract.

These policies were scrutinized in detail by the House Appropriations Committee, which reached the conclusion that over-contract payments should not be permitted if such payments would result in any increase in the amount of Federal contribution required by a project. As expressed in the Government Corporations Appropriation Act of 1948, "no part of this appropriation shall be used to pay any public housing agency any contribution occasioned by payments in lieu of taxes in excess of the amount specified in the original contract between such agency and the Federal Public Housing Authority." Since the contracts covering 56 percent of the locally owned projects in the program provided for no payments in lieu of taxes, these projects were obliged to forego payments in lieu of taxes entirely to be eligible for the annual Federal contribution. Of the other projects, a few had the amount of payment fixed in a specific dollar figure and the others had agreements providing for varying percentages of shelter rent ranging from 2 percent to 5 percent, with most providing for 3 percent. These projects were required to reduce their payments from the 10 percent of shelter rents previously authorized to the amounts specified in their assistance contracts in order to maintain their eligibility for Federal contributions.

F. Local Housing Authority Reserves

As a regular part of local housing authority operations, the authorities establish and maintain certain reserve funds. The major reserves are intended to cover repairs, maintenance, replacements, vacancy and collection losses and other expenses which might reasonably be expected to occur during the anticipated 60-year life of a lowrent housing project.

The size of these reserves was questioned by Congress and the conference report on the 1948 appropriation measure expresssed the congressional desire that these reserves should be reduced in amount wherever possible. Consequently, PHA undertook an exhaustive reexamination of the existing policies and practices relating to the maintenance of reserves by local housing authorities. The object

of the study was to determine how and to what extent reserves might be reduced without endangering the budgetary and fiscal soundness of the low-rent projects. This study was well underway by the end of the year and revised policies were expected to be formulated early in 1948.

G. Income and Expense Experience

Operations of the United States Housing Act projects during the year were marked by a rising trend in both operating income and operating expense. In the final quarter of the year, operating income was rising at a slower rate than in the first three quarters, while operating expenses were rising at a more rapid rate than earlier. The increase in operating income through the year, however, was great enough to more than absorb the rising cost of operating.

Average operating income reached a new peak in the last quarter of the year, rising from $30.85 per unit per month in the first quarter to $31.85 per unit per month in the final quarter. The continuing high level of income was due in part to the continued presence of ineligible tenants paying economic rents.

Average operating expenses, which had stood at $20.70 per unit per month for the first quarter and dropped seasonally in the next two quarters, reached $20.77 per unit per month in the last quarter of the year. The greatest relative increase in cost occurred in dwelling and commercial utilities. This expense averaged almost 18 percent higher in the fourth quarter of 1947 than in the same quarter of 1946. For all quarters of the year, utility costs averaged 13.5 percent higher than in 1946.

Chapter III

THE VETERANS' REUSE HOUSING PROGRAM

Of the programs for which PHA has operating responsibility, only one was in the stage of active development during 1947. This was the veterans' reuse housing program, authorized by Title V of the Lanham Act, as amended by the Mead resolutions (Public Law 292, 79th Congress, approved December 31, 1945, and Public Law 336, 79th Congress, approved March 28, 1946). This was also the only PHA program for which additional development funds were approved during the year.

The Title V program is an emergency program, designed to help meet the critical housing needs of distressed veterans. The authorizing legislation directed the National Housing Administrator (now the HHFA Administrator) to obtain, convert, and where necessary, dismount, transport and re-erect surplus Government-owned structures for use as temporary housing for distressed families of service

men and for veterans and their families who were affected by evictions or other unusual hardships. Such housing is provided to municipalities or other local bodies where the housing shortage is particularly acute and to educational institutions for use by student veterans. Operating responsibility for this program was delegated to PHA by the HHFA Administrator.

A total of $438,462,814 of appropriated funds was allotted to this program in 1946 to cover the cost of dismantling, moving, re-erecting and remodeling the structures. The legislation also authorized the transfer of temporary structures to local public bodies and educational institutions which would pay the costs of conversion themselves. Under terms of contracts with PHA, the local sponsors accept title to the housing and responsibility for managing and operating it. Net revenues after operating expenses from the federally financed projects return to PHA. Like other temporary housing provided under the Lanham Act, Title V housing is subject to the removal provisions of section 313 of the act.

A. Status at the Beginning of the Year

When this program was initiated early in 1946, it was estimated that the Federal funds provided would produce about 200,000 units of temporary housing. Experience with the program during its first year, however, soon indicated that this estimate was too high. The costs of movement and conversion exceeded early estimates and rose throughout 1946. This was a reflection, in part, of the rising level of building costs in all kinds of construction. Other added costs arose from delays caused by the shortage of skilled building labor and the scarcity of materials. Originally, it had been expected that most of the Title V program would be carried out by utilizing temporary war housing. Because of the housing shortage, however, much of this housing continued to be occupied and therefore could not be made available for the Title V program. As a result, it was necessary to resort to use of military and other structures which were more expensive to convert than temporary war housing structures would have been.

All these factors added higher costs to the program and consumed available funds much more rapidly than anticipated. As the funds neared depletion, it was necessary to reduce the scope of the program. By the start of 1947, active allocations-units programmed-had been reduced from the high point of 199,000 accommodations 6 months earlier to less than 178,000. Work on about 8,000 more had been suspended and the agency was concentrating its activity on finishing those units which were 85 percent or more completed. A total of 91,410 federally financed accommodations, about 51 percent of those allocated, had been completed and were ready for occupancy.