TAXPAYER DOLLAR SAVINGS RESULTING FROM GOVERNMENT OWNERSHIP OF WHERBY HOUSING PROJECTS Each year the firm that I represent has always requested, in conjunction with their annual audit reports, a study of the owners' actual operating income and expenses compared to the FHA estimate of income and expense for the Wherry housing projects which they own and operate, in order to determine whether the return that FHA set forth in their project analysis of income and expense is being realized and if not, why not. Public Law 1020, having been passed by the 84th Congress on July 28, 1956, provides for the acquisition of Wherry housing by the various branches of service, such action being mandatory where it is determined Capehart housing should be programed in competition with the Wherry housing projects. I suggested to Hub Hill and his associates that they let me prepare an analysis of income and expense for each Wherry housing project, projected upon ownership by the various Departments of Defense. The profit potential available to the Government through military ownership and operation of Wherry housing offers a savings that would not only affect the national budget in a degree for many years to come but would result in private enterprise stepping out of the military housing program with its difficulties and complaints. A statement of "Owners' Comparative Income, Expense, and Investment Earnings," projected upon military ownership experience compared to owners' actual operating experience and the FHA estimate of income and expense, is submitted herewith in evidence of this résumé of facts herein presented. See Exhibit A. An Army rental allowance schedule for enlisted families and officer families is attached hereto; see Exhibit B. At Sam Houston Village No. 1, located at Fort Sam Houston, Tex., there are approximately 300 officer families and 200 enlisted personnel families living in this well-maintained Wherry housing project. The average family has more than two children and for this reason we have chosen the enlisted family rental of $96.90 as the average rental income. During a 12-month period the officer rentals would gross $354,240, and the enlisted personnel family rentals $232,560— a gross rental of $121,200 more than presently being collected by the owners of this Wherry project. In addition to this rental income, each serviceman living in private quarters receives a food allowance which has not been included in the above-referred rental schedule and is not to be considered in this presentation. The present Wherry owners have operated most efficiently and have been maintaining 99 percent occupancy. Realizing that there will be a turnover of personnel and maybe there would be a few days in which the military ownership management would prefer to repaint the duplex apartments or single-family residences on the interior, we have provided the 1 percent vacancy allowance which is presently being maintained by the owner. This would reduce the net rental income to be collected by the Defense Department Agency owner to $580,932-$119,668 more than was collected by the present owners during the fiscal year ended October 31, 1956. Operating expense, too, can effect savings of some $60,500 through Government ownership of Wherry merely by elimination of service costs which are available through present Government facilities that would not require any additional personnel. For example, garbage removal; $4,463 could be saved here because personnel presently performing these functions for the base could serve the Wherry housing project without the necessity of hiring new personnel not already in Government service. The same goes for fire and police protection. Legal and audit expense would not be necessary with the Judge Advocate's office and the Auditor General's office both having offices and/or representatives located at Fort Sam Houston; and certainly the necessity of advertising, dues, and subscriptions could be eliminated. Yes, and the military ownership would not include Dallas office overhead and executive salary contributions of $6,000 per annum included in the management operating payroll figure. In addition to the foregoing economies, big dollars in the Government-pocket could be realized by the saving on ad valorem taxes of $27,560 and the saving on fire insurance of an additional sum of $14,508. Further economies of $29,437 would be realized by Government ownership through waiver of the annual FHA mortgage insurance premium of $19,910 and exemption from the State franchise tax fee paid to the State of Texas by private corporations upon invested capital, $9,527. Briefly, The additional rental income.. The savings on ad valorem taxes, insurance and operating expenses- Elimination of State franchise taxes___ Give Government ownership of Wherry A.--. Greater return on their investment than the present private ownership can realize; and with the private owners' profit added--- Government ownership would earn annually. This is an annual net dollar margin return per unit of‒‒‒‒‒‒ During the remaining 27-year mortgage payout period, Government ownership of Wherry would earn or save per unit-- This is a 500-unit project. This project alone would save the taxpayers of Government during the next 27 year- 280 To project this example to its enormous possibilities, let's be real conservative and assume that Government ownership of Wherry would result in an overall unit cost earnings or savings of 60 percent of the unit return cited, $468. This would be per unit‒‒‒‒ 82,000 Wherry units owned by the Government during the remaining mortgage payout period would save the Government annually--- 22, 960, 000 And for the remaining 27 year mortgage payout period, these 82,000. Wherry units would save the Government and taxpayers‒‒‒‒‒ 619, 920, 000 This is only the beginning of the enormous savings to be gained by the Government. After the mortgage payout ends, those Wherry projects presently owned by private interests have a remaining leasehold to the Government property housing site for 18 years and in many instances 43 years. All four of the projects owned by Hub Hill & Associates are 75-year leases. Therefore, by referring to the annual amortization principal and interest figure-see Exhibit A-$236,660. Dividing this by 500 units, the result is an additional annual savings increment during the aforementioned 18-year lease period per unit of. Adding the per unit annual savings previously cited, assuming only 60 percent of the real potential__. Would give an annual unit savings per year.. For the remaining shorter lease life period of 18 years, this would total per unit__. And again-82,000 Wherry units owned by the Government would save the Government and taxpayers---. Adding the mortgage payout savings during the next 27 years-- This would result in a savings to the Government and tax- $473 280 753 13, 554 1, 111, 428, 000 619, 920, 000 1, 731, 348, 000 That is really not the final total. Many of these Wherry projects owned by private enterprise have 75-year leases on Government property sites at an annual rental of $100 per year. However, I do not feel that we should expand this example for the remaining 25-year lease period. It might be reemphasized at this point that this presentation has probably been too conservative considering we have a real, live example based on actual operating expense. In my opinion, adding $100 per unit to the $280 per unit dollar margin return per annum would still be considered conservative, inasmuch as $380 would still be only 81.2 percent of the net dollar margin return, $468, set forth at the bottom of the page, see Exhibit A. Expanding this additional $100 for 82,000 Wherry units for 45 years (27-year mortgage payout period and minimum 18-year remaining lease contract) totals an additional $369,000,000 which should not be completely overlooked in the en thusiasm that we all share to be realistic and yet save the taxpayers and the Government wasted dollars. EXHIBIT A C. B. HAGERMAN, C. P. A. Owners' comparative income, expense, and investment earnings for San Houston village, No. 1, for fiscal year ended October 31, 1956 FHA project No. 115-80003, 500-unit Wherry housing project located at Fort Sam Houston, Tex.-Analysis based on operating experniece of the Dodd Corp.] On May 19, 1958, Col. James Porter, A. F. testified before the Senate Armed Services Committee, pages 115 and 116: "Senator CASE. What was the result when you went to condemnation? did the price compare with the price you offered for negotiation? How "Colonel PORTER. Well that you could say was the $64,000 question. have been none settled by condemnation. We had one, the first one taken over There last year was Chanute Air Force Base. It was handled--the decision just came out about two weeks ago. It approximated the formula price. However, the Department of Justice is going to appeal and the sponsor, himself, will appeal. "Senator CASE. Let's have the figures on that as a matter of illustration. "Colonel PORTER. I don't have them exactly with me, but within the $200,000 of the formula price maximum. "Then, there was the other consideration that we condemn, we may have to pay off the entire mortgage. In this case it is a $6 million mortgage. "When we negotiate, we make the payments over a period of 27 years. We have to pay off this $6 million mortgage, we have to pay a penalty clause of three percent, it varies depending on the number of years, 5, 10, or 15 years, we have a penalty clause for prepayment. "Senator CASE. Penalty clause for pre-payment of three percent? "Colonel PORTER. Of a mortgage, yes, sir. It varies." Of course, there are many other features that must be considered in addition to the 3 percent penalty mentioned by Colonel Porter above, such as cost of litigation; (1) appraisals fees, (2) interest on increased award, (3) witness fees, (4) Government attorneys and other Government personnel time, (5) court reporters-all of this adds to many thousands of dollars. I do not have the necessary information to figure what the formula in Public Law 1020 would have given. The owners of the Chanute project are not members of the Wherry Association. Senator SPARK MAN. In view of your statement that you think this changed policy may produce a great deal more litigation, do you have any suggestions as to whether or not the law should be submitted? Mr. BOYD. Senator, I, being a country trial lawyer, always start my thinking in the courtroom and then think back. I think eventually that the services will rush to the formula as a bargain. I do not know whether they can be persuaded any other way except in the courtroom, but I think that the future experience in courts is going to show that the formula is a floor, pretty much, under the price. How can you say, when the military are now building a Capehart housing base, and if you compare the two and take into consideration the advance in construction costs, how can you say that the Wherry owner is not entitled to have his property considered at that value? You have an actual yardstick to measure it by. Mr. CARTER. But in the meantime, the Wherry owner will have his money tied up in that project 3 or 4 or 5 years, perhaps, in litigation, and will be out of business, to all intents and purposes? Mr. BOYD. That is right. That is certainly the practical side of it. The theoretical side has always been if the Government is acquiring property and the two cannot agree on the price, why, it is up to the court to settle the price. Senator SPARKMAN. All right. Is there anything further, Senator Payne? Senator PAYNE. No. Senator SPARKMAN. Thank you very much, gentlemen. Mr. Frank P. Flynn, Jr., cochairman of the legislative committee, Home Manufacturers Association. Will you come around, Mr. Flynn? STATEMENT OF FRANK P. FLYNN, JR., COCHAIRMAN, LEGISLATIVE COMMITTEE, ACCOMPANIED BY PAT HARNESS, EXECUTIVE VICE PRESIDENT, HOME MANUFACTURERS ASSOCIATION Mr. FLYNN. Mr. Chairman and members of the committee; my name is Frank P. Flynn, Jr. I am president of National Homes Acceptance Corporation, of Lafayette, Ind., and am testifying in behalf of the Home Manufacturers Association as cochairman of our legislative committee. The Home Manufacturers Association is the new name of the former Prefabricated Home Manufacturers' Institute. With me is Pat Harness, our executive vice president. The Home Manufacturers Association is composed of companies which produce the great bulk of prefabricated homes in the United States. Last year, while most types of construction experienced a 7 to 10 percent fall off in volume, our industry produced over 93,000 units, which was a drop of only 1 percent from 1956. We appreciate the opportunity to comment on the legislative proposals before this subcommittee. We are going to confine our statement to those legislative points with which we have had the most experience in the field. (1) We are in full agreement with the need for sufficient FHA insuring authorizations to keep the FHA in business for extended periods of time without running back to Congress every few months for additional authorizations. (2) Many of our companies are working with builders who have tried and are now trying to participate in the section 221 relocation housing program. We hope the Congress will see fit to eliminate the requirement that the community in which 221 housing is to be located must make a formal request that the section 221 program be made available. From our experience in the field, this requirement kills off more 221 proposed developments than any other. We endorse the proposal which would broaden the section 221 program so that rental housing could be produced under it by builders for profit. As you know, at present only nonprofit organizations may sponsor section 221 rental housing. We feel strongly that the present $9,000 limitation on mortgage financing under section 221 is inadequate and suggest that the limitation should be raised to $10,000 in normal cost areas and from $10,000 to $12,000 in high cost areas. In our opinion the Housing Act of 1958 should include provision for FHA to insure loans for subdivision development and for street and utility installations. Our observation is that one of the urgent needs for the future of housing is financing facilities for better planned community or subdivision programs. Without such financing residential development will be seriously retarded. Improved land costs have risen higher and faster than any other element of total housing cost. Much of the reason for such cost increases in improved land is attributable to lack of planning, the relative small scale, and the capital risk incident to large scale land improvement programs. A major service can be rendered to the more efficient and lower cost development of subdivision street and utility installations by making FHA insurance available to loans necessary for the installation of such improvements. In this respect we call your attention to the fact that the Nation's inventory of unused improved building sites is almost entirely depleted; a condition that is entirely different than when FHA was set up over 20 years ago. At that time, there were entirely too many such lots and the problem to be solved was to put unemployed men to work building homes on them. The success of the program in solving the problem is self-evident; the lots are gone. |