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Moreover, any reluction in the proposed cost limits which would result in reducing the size of the dwellings in public housing or the sturdiness of their construction would be a very false economy. Public housing is built for a long life of hard wear, and the use of durable materials and of well-built equipment pars for itself many times over in reduced operating costs over a long period of years. Other special features of public housing projects, which are not usually found in private residential construction, serve to keep annual costs down and reduce Federal contributions. Such economies, which over the life of a project far exceed the additional capital costs involved, might well be made impossible if cost limits were set too low.
H. R. 4009 expresses the clear congressional intent that Federal assistance shall be given only to low-rent projects which are not of elaborate or extravagant design or materials and in which economy will be promoted both in construction and in administration. In order to facilitate the achievement of this objective, the bill specifically requires that no award of the main construction contract on any new project shall be made unless the PHA, taking into account the level of construction costs prevailing in the locality, has specifically approved the amount of such main construction contract.
The provisions in section 204 to encourage financing through private investors are almost identical with the similar proposals that have been presented to the Congress over a period of 3 or 4 years, which have twice been favorably acted upon by the Senate, and which were approved by this committee last year. The essential purpose of these provisions is to assure that projects built under the act will continue to serve low-income families even though there be a default by a local authority in its obligations. Under the existing act, in the event of a substantial default the PHA could not continue to pay annual contributions whether or not we took over the project. As a result, the bonds which the local authority had sold to private investors would go into default when the contributions were stopped. Eventually, rents would have to be raised, causing extreme hardship to the tenants whom the project was intended to serve.
The proposed provisions correct this by permitting the PHA to continue to make contributions available for a project in the event that it is taken over by the PHA. These Federal annual contributions, the continuity of which would thus be assured, are pledged by the local authority as security for its borrowings from private investors. The resulting improvement in the security of these loans will, we believe, make it possible for the local authorities to borrow substantially all of their capital funds from private investors at very attractive rates of interest.
The proposed provisions also shorten the maximum period for loans and for annual contributions to less 40 years instead of 60 as provided in the present act. The maximum contribution rate is raised by 1 percent of development cost per annum to compensate for the shorter period over which contributions may be paid. By shortening the amortization period, lower interest rates will be obtained. The resultant savings in interest, due both to the lower rates and the reduced periods over which interest is paid, will much more than compensate for the proposed increase in the contribution rate.
The total amount which the PHA may borrow from the Treasury and have outstanding at any time is increased in H. R. 4009 to $1,500,000,000, instead of the $800,000,000 now authorized to be issued. This borrowing power is to provide funds for loans to local authorities, primarily for short-term loans during the construction period. The increase in amount is necessitated by the increase in size of the program.
SIZE OF PROGRAM
II. R. 40°9 permits the construction of not to exceed 1,050,000 dwellings, in addition to those heretofore authorized. The Administrator of HHFA has already explained the need for a program of this size. I can only add that I am heartily in favor of such a program of low-rent housing, which is so desperately needed by the underprivileged citizens of the Nation.
The bill authorizes construction to be started on 150,000 units after July 1, 1949. Each year thereafter, this authorization is increased by 150,000 units until the full program of 1,050,000 units is authorized in 7 stages. Subject to this total amount, the President may increase any of these authorizations by 100,000 units, or may decrease any of them by a like amount after receiving the
advice of the Council of Economic Advisers as to the effect of such action on the building industry and on the national economy.
It will be possible to undertake a program of this magnitude, if authorized by Congress, only because we can count on the devoted and efficient participation of local housing authorities throughout the country. Forty-one of the States have low-rent housing laws authorizing the setting up of local authorities. There are now nearly 400 such authorities with actual experience in the development or management of public housing. There are over 150 additional authorities ready to participate in a newly authorized program, and more will be formed if Federal assistance becomes available to them.
It will require the best efforts of these local authorities, together with the assistance which PHA will give them, to carry out this program. Both the local authorities and PHA will have to greatly expand their organizations and recruit the necessary skilled staff. Even with our combined best efforts, I do not be lieve that it will be possible to put the full annual quota under construction in the first year, but I am confident that the local authorities, working with PHA, can work up to the proposed level of production within 12 to 18 months and thereafter carry forward at the proposed rate.
ANNUAL CONTRIBUTIONS BY THE FEDERAL GOVERNMENT
The authorization to contract for annual contributions (which are necessary to achieve and maintain low rents in public housing) is increased, in keeping with the enlarged size of the program, to a total of $400,000,000 per annum. This authorization becomes available in five annual installments of approximately equal size, beginning on July 1, 1949.
The total authorization of $400,000,000 per annum would, based on the present going Federal rate of interest, provide subsidy authorization sufficient for lowrent housing projects with a total capital cost of approximately $8,900,000,000. If we are to obtain the full number of 1,050,000 dwellings authorized by the bill, it will be necessary to achieve an average cost of $8,500 per dwelling. It is, of course, impossible to make any accurate estimate of building costs over a period of 7 years, and to determine whether or not we will be able to construct all of the dwellings which are authorized. It is certainly to be hoped that the efficiency of building construction will be improved over a period of years through research and invention, and the whole industry must work in that direction. Moreover, low-rent projects built on slum sites will no longer have to bear the full costs of such sites, since in appropriate cases sites can be acquired at their value in use through the slum clearance provisions of title I of H. R. 4009.
In estimating the cost to the Federal Government of the low-rent housing program over its entire life, it is iniportant to emphasize that this will be substantially less than the amount of the maximum subsidy over the full 40-year period. These are maximum limitations, and do not represent the payments which will actually be made. In good years when wages are relatively high and the rentpaying ability of low-income families is correspondingly increased, the subsidy required by low-rent projects is much below the maximum. On the other hand, in bad times many of the projects may require the maximum amount. On the basis of past experience, we believe that the annual contributions required over a term of years will aggregate something between two-third and three-quarters of the maximum authorized amount.
LOCAL CONTRIBU IONS AND PAYMENTS IN LIEU OF TAXES
The second part of section 205 of H. R. 4009 revises the present requirements as to local contributions. The present act requires that such contributions shall equal 20 percent of the Federal contributions actually paid, and that these local contributions may be made either in cash, in tax exemption, or in tax remissions. As a matter of fact, they have always been made through the exemption from real and personal property taxes which has been extended to low-rent projects by legislation in the various States.
In actual experience it was found that the local contributions through tax exemption far exceeded the amount required under the act. Accordingly the PHA some years ago authorized local authorities (subject to the requirement for 20 percent local contributions) to make payments in lieu of taxes equal to 10 percent of the shelter rents charged in their projects. In 1947, however, the PHA was directed to discontinue approving such payments in lieu of taxes by a requirement in the Government Corporations Appropriation Act, pursuant to which payments in lieu of taxes on all projects requiring contributions were limited to the amounts specified in the original contracts made with the local authorities. This prohibition was continued by action of the second session of the Eightieth Congress. The payments in lieu of taxes specified in the original contracts (which were made in the early years of the program before adequate experience was available) varied greatly; and the reversion to the provisions of these early contracts thus resulted in unequal and discriminatory treatment of the various localities.
In order to remedy this condition, H. R. 4009 would return to the former policy of authorizing payments in lieu of taxes at a uniform rate of 10 percent of shelter rents for all cities. The pending bill also substitutes a requirement for total exemption from real and personal property taxes in lieu of the requirement for local contributions equal to 20 percent of the Federal contributions. The administration of this 20 percent requirement has been burdensome and time consuming and the substitution of complete tax exemption (subject to a 10 percent payment in lieu of taxes) will greatly simplify administration. The local contributions will, in general, be approximately the same as they have been under the present provisions of the United States Housing Act. The proposed change in the local contribution system, together with payments in lieu of taxes based on a uniform percentage of shelter rent, will result in putting the projects of all localities on the same basis, and will make them equally able to serve the same relative level of low-income families.
H. R. 4009 also provides that contracts on existing projects may be revised in respect to local contributions and payments in lieu of taxes so as to put the existing projects on the same basis as new projects. The provisos in the Government Corporations Appropriation Acts for 1948 and 1949 would be repealed by section 504 of H. R. 4009, and payments in lieu of taxes could then be made retroactively for these 2 years at the rate of 5 percent of shelter rents per annum.
SPECIAL PROVISIONS FOR LARGE FAMILIES OF LOW INCOME
Under the existing provisions of the United States Housing Act it has often been difficult to meet the needs of large families of low income. Section 206 accordingly revises the requirements as to eligibility for families with a relatively large Dumber of children. In lieu of the present provision which requires that income at the time of admission may not exceed five times the gross rent, or six times the gross rent for families with three or more minor dependents, H. R. 4009 provides that the 5 to 1 ratio shall be used for all families, but that, in determining family income for admission and for setting rents an exemption of $100 shall be given for each minor member of the family. Under this new provision, there will be a somewhat larger spread between the incomes for eligibility of families with few children and those with a relatively large number of children, in recognition of the very substantial differences in their respective living expenses.
Further difficulties have arisen in the case of families who are eligible to remain in a project on the basis of the income of the regular, principal worker or workers, but who become ineligible if a child goes to work upon the completion of his schooling. Even though this be a temporary condition which will end as soon as the child marries and establishes his own home, the family would nonetheless be required to move from the project. The present provisions thus tend to force children to leave the home in order to continue the family eligibility. H. R. 4009 therefore authorizes the exclusion from family income of either the earnings of such a secondary worker or $100 in determining eligibility for continued occupancy, but not for original admission to a project. The exclusion of secondary earnings will be only a temporary matter, since it is limited to wage earners who are under 21 years of age. Moreover, the income of such children will not be excluded in determining the actual rent to be paid by the family.
RURAL NONFARM HOUSING
The original declaration of policy of the United States Housing Act covered both rural and urban communities, thus including both farm and nonfarm housing in rural areas.
H. R. 4009 proposes to change this declaration to cover only urban and rural nonfarm areas, in recognition of the fact that a separate program of farm housing administered by the Secretary of Agriculture is being provided until title IV of the pending bill.
Low-rent public housing in rural farm areas would continue to be the responsibility of the Public Housing Administration. In order to assure funds for projects in rural nonfarm areas, section 205 (a) provides that 10 percent of each installment of annual contributions authorization shall be reserved for such projects for a period of 3 years after such authorization become available.
Rural nonfarm housing has been relatively neglected in most studies of the housing problem and in the programs of both Federal and local governments. The statistics of the census, however, show that relatively large numbers of families are living in extremely substandard dwellings in rural nonfarm areas and it is common knowledge that small villages and crossroads have slums no less obnoxious than those of urban centers. The development of a program of low-rent housing for these areas should no longer be delayed.
We believe that it will be possible to develop a proper program of housing for low-income families in such areas under the provisions of the United States Housing Act, as amended by H. R. 4009. The revised provisions as to local contributions will prove useful in rural nonfarm areas where the contributions which can be provided through tax exemption are likely to be lower than in cities. Since the rural nonfarm program will be limited to very small groups of houses or even single houses, it will occasionally be found necessary to sell a dwelling to its occupant if his income increases so that he is no longer eligible for subsidy. Where a dwelling is so sold, there would be no necessity for further reexamination of the owner's income, and this is made clear in section 201 of H. R. 4009, which makes the requirement as to reexamination applicable only to tenant families. With these changes we believe it will be possible to provide a satisfactory program of low-rent housing for rural nonfarm families of low income.
As most of the members of this committee know, an attempt was made 10 years ago to initiate a program of low-rent farm housing under the United States Housing Act. The provisions of the act were found to be of very difficult application to this problem, and the program was not developed further. Of this program, there now remain some 500 farmhouses owned by local authorities, together with contracts which have been deferred for some 6,000 additional dwellings. If legislation is adopted entrusting the farm housing program to the Department of Agriculture as is done in H.R. 4009, the PIA would undertake to liquidate what is left of this early low-rent farm program. Some of the old deferred contracts could doubtless be converted into contracts for rural nonfarm housing, and cancellation of the remainder of the contracts could almost certainly be effectuated. It should be possible to sell almost all of the existing farmhouses to the tenants at prices which they could now afford. We believe that the present statutory powers which we have as to the modifications and cancellation of contracts would suflice for the liquidation of this program and for the taking of whatever losses are involved in the cancellation of contracts or in the sale of the existing dwellings.
REMOVAL OF REQUIREMENT FOR EQUIVALENT ELIMINATION OF SLUM DWELLINGS
A provision in the present act requires that every low-rent housing project include the elimination of unsafe or insanitary dwellings substantially equal in number to the number of dwellings to be provided by the project.
H. R. 4009, however, recognizes that slum clearance and the provision of low-rent housing, though closely related, are in reality separate problems. It accordingly separates these functions and provides Federal assistance for the clearance of slums under title I. Since the responsibility for an action program of slum clearance is thus separated from the low-rent housing program, H. R. 4009 would delete the requirement as to slum elimination from the United States Housing Act.
AMENDMENTS TO NATIONAL BANKING ACT
Section 502 includes two amendments to the National Banking Act, both of which are designed to extend and improve the market for the obligations of local housing authorities. Under the present provisions of this act, national banks are permitted to purchase Government bonds and other obligations of similar security without any limitation as to amount, and are also permitted to underwrite the issue of such securities. As to obligations of local housing authorities, however, the banks are limited in their purchase of 10 percent of the bank's unimpaired capital and surplus for any one obligor and are not permitted to underwrite such issues.
Pursuant to the provisions of the financing amendments contained in H. R. 4009 (particularly sec. 204 (b)), special security features will attach to the definitive bonds issued by local public housing agencies in connection with their low-rent housing programs. Special security features also attach to short-term notes isued by these authorities when secured by pledge of rights under a loan contract with the PHA.
In recognition of these security features, section 502, through amendments to the National Banking Act, would authorize national banks and (to the extent permitted by State laws) State member banks of the Federal Reserve System to purchase larger amounts of, and to underwrite, local housing authority shortterm notes (of not more than 18 months' maturity) and definitive bonds, when properly secured.
It is believed that the adoption of these amendments is vitally necessary to the success of the financing of the low-rent housing program. As pointed out earlier, it is contemplated that substantially all of the necessary capital funds will be obtained through the sale of bonds to private investors. A steady flow of these obligations in very substantial amounts must be sold month after month over a period of 6 or 7 years. During this time large amounts of other tax-exempt municipal and State bonds will also be offered for the financing of many types of public works which were deferred during the war. These obligations will naturally be in competition with the housing bonds. In order to secure the most attractive interest rates, the largest possible investment market must be available for the sale of these housing obligations. Moreover, the participation of the largest number of underwriters will be advantageous in securing wide distribution and low interest rates. The flow of securities will be so substantial that there will be no dearth of them available to all eligible underwriters. There should be no hesitancy in according to these housing obligations the same market facilities that are available for other issues of comparable security.
In conclusion, I want wholeheartedly to second the Administrator's recommendation for the repeal of the requirement in the Government Corporations Appropriation Acts for 1949 which limits our employees at grades above P-3 or CAF-10 to not more 20 percent of our total administrative staff. Under a new program of low-rent housing, the active operation of which is confided to local authorities, the role of the PHA will be primarily one of technical advice and supervision. For this type of work we will need the best people whom we can recruit. Without an adequate number of technical and supervisory employees in the higher grades we would find it virtually impossible to carry out the responsibilities which H. R. 4009 proposes to intrust to us. We most urgently ask to be relieved of the handicap imposed on this unprecedented restriction and recommend its repeal.
I have been authorized by the Director of the Bureau of the Budget to advise that there is no objection to the presentation of this statement to your committee and that the enactment of H. R. 4009 would be in accord with the program of the President.
Mr. BUCHANAN. What would be the expected net dollar cost of H. R. 4009 by titles, Mr. Foley?
Mr. FOLEY. The commitments for repayable loans on slum clearance for years: 1950, $25,000,000 maximum; 1951, $225,000,000, and $250,000,000 each year thereafter, including 1954, or including a billion dollars.
For the low-rent public housing, for repayable loans, a total of $700,000,000.
In farm housing, a total of $250,000,000. Or a total of repayable loans for all sections of the bill of $1,950,000,000.
On grants in slum clearance, the total would be at the maximum $500,000,000.
In farm housing, it would be $12,500,000; totaling $512,500,000. On contracts for annual contributions, which are contained in two places, in low-rent public housing, a possible maximum of $100,000,