rents. This change greatly simplifies administration and makes it possible for local authorities to deal fairly with their local governments in paying as much as possible toward local government cost and yet meeting the needs of low-income families.

Local authorities are also made responsible for seeing to it that the housing aided by the Federal agency is made available only to lowincome families who cannot afford decent privately-owned housing. Each local authority is required to set and maintain income limits which determine the eligibility of any family for admission to a lowrent public housing project and the eligibility of resident families to remain as tenants of the housing. Periodic written reports are to be made to PHA on investigation of the eligibility of each family admitted, and the local authority must also make periodic reexaminations of the incomes of tenant families to determine whether they are still eligible to reside in the housing. As a further assurance that only low-income families will be housed and that low-rent public housing does not compete with private housing, each local authority must demonstrate to PHA that a gap of at least 20 percent has been left between the upper rental limits for admission to a project and the lowest rents at which private enterprise, unaided by public subsidy, is providing, either through new construction or through available existing structures, a substantial supply of decent, safe, and sanitary housing toward meeting the need for an adequate volume of such housing.

These are working arrangements which had been developed in the course of operations under the 1937 act to make sure that its objectives were attained. Until passage of the Housing Act of 1949, however, they were matters of administrative regulation. Now they have become embodied as law in the basic legislation.

The 1949 act also added provisions giving preferences in admission to low-rent housing projects to families displaced from their homes by construction of a low-rent housing project or by any public slum clearance or redevelopment project and to families of veterans and servicemen. Among the eligible applicants claiming preference by reason of displacement, first priority is to be given to veterans with service-connected disabilities, second priority to families of deceased veterans and servicemen whose deaths were service-connected, and third priority to families of other veterans and servicemen. Similar priorities will prevail among eligible families not entitled to preference because of displacement. In selecting tenants, a local authority may not discriminate against families which derive all or part of their income from public assistance and must give preference to those families having the most urgent housing needs.

Steps also were taken in the 1949 amendments to make the program

more responsive to the housing needs of larger families. The elimination of the per unit cost limitation, previously mentioned, was one of these steps. Another involved changing the prescribed relationship between rent and income for eligible tenants. The 1937 act required that the housing operated under its terms could be made available only to families whose net income at the time of admission did not exceed five times the rental (including the value or cost of utilities) for the dwelling they were to occupy. In the case of families with three or more dependents, the ratio was not more than six to one. This formula had the weakness of giving the same treatment to a family with two children as was accorded a family with no children and the same treatment to a family with four, five, or more children as was given to a family with three children, despite the fact that families with more children inevitably have higher living costs and cannot afford to devote as large a proportion of their income to rent.

To correct this inequitable arrangement, the new law substitutes for the old dual ratios a straight five-to-one ratio with an allowable deduction from net family income of $100 for each minor in the family group. In this way, a measure of consideration is given to each gradation in family size in determining eligibility for admission.

Another special provision is included in the new law to give fair treatment to families with children grown old enough to have some earnings of their own but not yet ready to leave the family group to establish their own households. Under the old law, the children's earnings, although only a temporary addition to the family income, might be sufficient to make the entire family ineligible for continued residence in the housing project and force it to move. To correct this injustice, the law now permits a local housing authority to grant an exemption from the family income of either $100 for each minor member of the family or all or part of the annual income of a minor member. This exemption relates only to determinations for establishing the family's eligibility for continued occupancy in the public housing project. It does not apply to examinations of family income. to determine eligibility for admission or for the purpose of setting rent.

The changes in the program relating to the financing of projects have three principal objectives: encouraging the participation of private capital in financing low-rent public housing, reducing interest costs and shortening the period for which a Government obligation would be required.

The initial financing of a project during its first development period is covered by temporary loans. These may be obtained directly from the PHA or through sale of the local housing authority's temporary loan notes to private investors. In the latter case, the PHA obligates itself to lend to the authority enough funds to cover the principal

and interest on these notes when they mature. Thus the loan notes have excellent security and can be sold at exceedingly low rates.

When the project is far enough along so that costs can be determined accurately, the local authority proceeds to permanent financing by sale of long-term serial bonds. These are secured by the Government's pledge to pay annual contributions to the projects. With this backing, local authority bonds present an attractive investment for private capital and can be marketed at favorable rates.

This financing plan is the same as that followed successfully in the previous low-rent public housing program. In that program, however, the annual contributions to be paid by the Government could not exceed a rate determined by applying the going Federal rate of interest at the time the contract was entered into, plus 1 percent, to the development cost of the project—a formula designed to accomplish amortization in 60 years. In the new program, the maximum rate of annual contributions is increased to the applicable going Federal rate plus 2 percent. With the higher rate of annual contributions, amortization may be completed in not longer than 40 years. Since the amortization period is shortened, the interest rate on borrowings will be correspondingly less. If bonds are sold at interest rates averaging 1% percent, as seemed feasible under conditions prevailing in 1949, a project could be amortized in approximately 29 years. Lower interest rates, of course, would achieve even earlier amortization, while higher rates would result in a somewhat longer amortization period.

The 1949 amendments also contain provisions to permit the PHA, in the event of a substantial default by a local authority, to take over a project, either by a transfer of possession or by a transfer of title. In such an event, the PHA would continue to operate the project and I would be authorized to make annual contributions available in order to maintain its low-rent character. The fact that annual contributions will be continued in any event greatly increases the security on which bondholders depend and will assure much lower interest rates than otherwise would be possible.

The act also amended the National Bank Act to authorize national banks and State banks which are members of the Federal Reserve System to purchase or underwrite the short-time notes and long-term bonds of local housing authorities without regard to the former legal restrictions limiting transactions to a fixed percentage of a bank's capital and surplus.

Chapter III

THE NEW PROGRAM IN ACTION

The Housing Act of 1949, with its provisions for a new, expanded low-rent public housing program, was signed into law by President Truman on July 15, 1949. Three weeks later, on August 8, 1949. the Public Housing Administration announced that it was distributing application forms for local participation in the program to about 500 local housing authorities throughout the Nation.

Eight days later, on August 16, the housing authority of the city of Galveston, Tex., was assigned 600 dwelling units for development in the first 2 years of the 6-year program, becoming the first housing authority to receive a program reservation.

By the end of the year, 463 applications had been received by PHA from local authorities desiring to take part in the program. A total of 320 program reservations had been approved and issued, assigning 263,356 dwelling units for 2-year programs of the local authorities. Program Reservations

The "program reservation" is the device used by PHA to apportion the program among the hundreds of local housing authorities wishing to share in it. Under the law, the local authority must take the initiative in starting its own local program by determining that a need for low-rent housing exists in the community which is not being met by private enterprise, estimating the extent of the need, and applying to PHA for Federal assistance in meeting the need.

At the outset, PHA was faced with the problem of how to distribute fairly the 810,000 units authorized by the statute among the hundreds of local housing authorities that would seek to take part in the program. It was obvious that 810,000 units would not meet the full needs of all localities. The agency therefore had to assume the task of rationing the available authority equitably among all applicants.

It was determined to begin by allotting to applying authorities only their fair share of the program for the first 2 years rather than for the full 6-year span of the program. There were two main reasons for this decision. In the first place, this device would make it possible to allocate the remainder of the localities' programs on the basis of the more accurate data on relative needs to become available from the housing census of 1950.

Secondly, it was apparent that many localities which had not taken part in the earlier low-rent public housing program would

wish to share in the new one. Many of these localities had yet to establish local housing authorities. In six States-Iowa, Kansas, Oklahoma, Utah, Wyoming, and South Dakota 1-State legislation was needed to empower localities to establish housing authorities to operate low-rent housing. In some of these States, the legislatures would not be in session for another year or two. By withholding allocations for the later years of the program, communities which had not yet set up local housing authorities could be assured that they would not be put at an unfair disadvantage by those localities which were ready to act the moment the law was passed.

The application forms for program reservations require the applying authority to submit in detail all available information concerning the housing situation in the locality. This includes data on the existing housing supply, the extent of substandard housing, the extent of available vacancies, if any, and the present local supply of low-rent public housing, if any.

This information forms the factual background to support the local authority's request for the assignment of a specific number of dwelling units to it from the new program. The submission is examined in detail by the PHA, and if found satisfactory, a program reservation is issued to the authority.

A program reservation is not a binding legal obligation upon either PHA or the local housing authority. The reservation simply sets aside for the authority a specified number of dwelling units from the national total of units which may be authorized. The reservation is, however, a statement of PHA's intent to reserve enough of the Federal loan funds and annual contributions funds to cover the development and operation of the reserved units. For that reason, the reservation enables the local housing authority to proceed with its planning with assurance that the necessary Federal assistance will be forthcoming if satisfactory projects are submitted for approval. Each program reservation sets forth the number of units which are assigned for the authority's first-year program and the number assigned to it for its second-year program. The authority is advised that it is expected to proceed expeditiously to prepare its proposed projects for construction. The dwellings assigned for a first-year program are reserved for the authority for 12 months from the date of the reservation. Those allocated to a second-year program are reserved for 24 months from the reservation date. Within the respective reservation periods, the authority is expected to be able to enter into a definitive contract for financial assistance with PHA.

1 South Dakota adopted such legislation early in 1950.