Mr. KUNKEL. When the city goes into an arrangement with the Public Housing Authority, the city is required to establish tax exemption for the project on which the houses are built; is that not correct? Mr. EGAN. That is correct. The local authorities are operating, really, under State statutes, and the statutes provide for full tax exemption of these projects. They also provide that payments in lieu of taxes be made if the cities and the local housing authorities so agree. Mr. KUNKEL. And the cities have to go along with it, too.

Mr. EGAN. That is right.

Mr. KUNKEL. You spoke of a contract in which the local housing authorities and the municipalities agree that there shall be a payment in lieu of taxes. That must be made, I take it, after the original arrangement is made; is that correct?

Mr. EGAN. The cooperation contract between the locality and the local authority provides, among other things, for certain payments in lieu of taxes if the city requires it. Some of them have not required it. It also requires the city to use their police powers to eliminate substandard dwellings to complete the equivalent elimination required in the act. It also requires them to provide all the services that would normally be given to the project, if the project were not tax exempt. Those contracts are recited and their principal provisions summarized in the annual contribution contract between the Federal Government and the local housing authority.

Mr. KUNKEL. Are those contracts made after the original arrangement by which or under which the public housing is erected? Mr. EGAN. NO; they are generally made prior.

Mr. KUNKEL. Simultaneously or prior?

Mr. EGAN. Generally prior, so that their provisions may be recited in the annual contribution contract. When made subsequent to the annual contribution contract, that contract requires that a satisfactory cooperation agreement must be obtained.

Mr. KUNKEL. And do they depend on the amount of rent charged? Do they vary with the amount of rent charged?

Mr. EGAN. Yes, the payments in lieu of taxes will vary, when you apply the percentage that is written in the contract to the shelter rent. They will vary depending on what the shelter rent is. There are, however, some localities which have written specific dollar amounts. We can show you all of those types of contracts, Mr. Congressman. Mr. KUNKEL. I was interested particularly in knowing how this arrangement was arrived at, as the time element, because it seems a little odd to me that you should have this provision requiring tax exemption, and then simultaneously, as has been done-and I know it has been done, from personal knowledge-permit this arrangement to be made whereby a payment in lieu of taxes is made, which, of course, is substantially the same thing. This is made by the housing authority to the local municipality. I am interested in seeing-and I think Mr. Monroney is interested in the same thing-whether the local municipality is eating its cake and having it, too.

Mr. EGAN. I will be glad to supply that information.

Mr. MONRONEY. There would be this to be said for payment of taxes in recent years: Where they are charging economic rents in these projects, and not maintaining the low-rent character, then, I presume they could go ahead and legitimately pay taxes, because they are in

competition with other apartments and other buildings which are also charging an economic rent.

Mr. EGAN. That is right. You see, the argument has repeatedly been made by localities that the Federal subsidy was decreasing during the war, because the incomes of these families went up, and it was not possible to evict them due to the housing shortage. Because of that situation, under which the Federal subsidy was decreasing, they felt they should get some relief in the way of payments in lieu of taxes. Mr. MONRONEY. I think the thing we have to study here is a longrange program, and I think it should be pretty well standardized. I do not think you are going to be able to pay some taxes in one community, and no taxes in another, because sooner or later everyone is going to want Federal payments to make up for the loss in taxation. Mr. EGAN. That is right.

Mr. BROWN. I am under the impression that some of the States do not have ad valorem tax; is that correct?

Mr. EGAN. Some of the the States have no ad valorem taxes?

Mr. BROWN. Yes.

Mr. EGAN. I do not know that to be a fact.

Mr. FOLGER, North Carolina does not have.

Mr. SPENCE. How many of the States have enacted enabling acts to allow you to construct these projects?

Mr. EGAN. Forty-one States have enabling legislation.

Mr. SPENCE. In the slum-clearance provision, there is a provision to the effect that you have to create your project on the site cleared; is there not?

Mr. EGAN. I did not quite get your question.

Mr. SPENCE. In slum clearance, you construct your project in the locality, generally, which has been cleared?

Mr. EGAN. That is correct, generally.

Mr. SPENCE. Do you think that is a good provision? It seems to me that the slums were built many years ago, long before the improvements in transportation and other facilities were brought about, and they are no longer desirable under any conditions for housing. The sites would be far more desirable for industry. Would it not be more desirable to locate these new housing projects in accessible places, which now might be some distance away from the cities?

Mr. EGAN. That is right.

Mr. SPENCE. In the old days the residences were in the cities because people could not get to their places of employment. But now there is a tendency to develop the suburbs. The most desirable locations for dwelling purposes are away from the cities. Would that not apply to the dwellers in these housing projects as well?

Mr. EGAN. I think, Congressman, that you are putting your finger on something that this bill will assist in curing. The slum clearance and urban redevelopment provisions in title V of this bill would permit the cities to clear these slum areas and put them to any new use which they might deem to be a proper use, as recommended by their planning officials. I do know that under our low-rent housing programs, if a city had to take only slum areas it often would be rebuilding in areas which might be much better for some other use than for housing by low-income families. That is why the slum-clearance feature is inserted in this bill.

Mr. SPENCE. Some of these slum sites would be very valuable for industry.

Mr. EGAN. That is right, or for high-class residential purposes.

Mr. SPENCE. It seems to me that ought to be considered. I think probably more could be obtained from the sites if they were used for industry than for housing, and the money obtained might very well be invested in some locality which would be more desirable for housing. Mr. EGAN. I agree with you, Congressman.

Mr. SMITH. Mr. Egan, did you wish to give the impression that the people living in the slums are the ones who will occupy the newly constructed dwelling units?

Mr. EGAN. That is correct. In this bill, Mr. Chairman, it is provided that they must come from a slum dwelling to be eligible for admission. Under the original United States Housing Act, although there was no specific provision on this point, it was certainly implied that the tenants of low-rent housing should come from the slums, and we accordingly established such a requirement in our administration of the act. Tenant families are admitted only if they come from the slums, except that this provision is waived in the case of veterans of low income.

Mr. SMITH. You say that is not in the old law?

Mr. EGAN. It is not in the old law that tenants have to come from a slum.

Mr. SMITH. But they have to come from something less than what you might call a good dwelling; is that not true?

Mr. EGAN. That is right.

Mr. SMITH. It is merely a difference in name; is that not right? The present law merely puts the matter in somewhat different terms, does it not?

Mr. EGAN. That is right. The proposed law, S. 866, is very explicit in stating that tenants have to come from a substandard house. Mr. SMITH. And you say that is not in the old act?

Mr. EGAN. No, sir.

Mr. SMITH. There is nothing like it in the old act?

Mr. EGAN. And there is nothing like it in the old act. No; there is nothing that really hits on that point in the old act, to my knowledge. Now, I do not know whether it is inferred or not, but it is certainly not explicit. It is our policy, however, and has always been the policy of the agency, as far as I know, to require that a family to be eligible for admission in any of the projects built under this program has to come from a slum dwelling.

Mr. SMITH. And there is nothing in the old act which authorizes the Federal Government to pay to the municipalities money in lieu of taxes?

Mr. EGAN. On the contrary, sir, there is a specific provision in the act which does authorize the Federal Government to make payments in lieu of taxes on low-rent projects owned by it. On locally owned projects any payments in lieu of taxes would be made by the local authority and would be considered an operating expense of the local authority similar to insurance premiums, utility charges, and so forth. Since the United States Housing Act does not go into the matter of the operating expenses which a local authority may incur, it is naturally silent as to the making of payments in lieu of taxes by local authorities. The only requirement of the act is that local contribu

tions (which have been made through tax exemption) must equal 20 percent of Federal contributions.

Mr. NICHOLSON. Mr. Chairman.
Mr. SMITH. Mr. Nicholson.

Mr. NICHOLSON. I think that in Massachusetts the government has always paid Boston and one or two other communities payments in lieu of taxes. Our constitution provides that the only property that can be exempt in Massachusetts is religious, charitable, and educational property. And if they let their buildings for remuneration, then, they have to pay taxes on them. So I am pretty sure that in our law in Massachusetts, relating to slum clearance, that we have written in a provision to the effect that the Federal Government will have to pay us something in lieu of taxes, because nobody can be exempt in Massachusetts except the three groups I have mentioned. The reason the State required that was because in doing away with 8 or 10 acres of land, that instead of Federal Government assisting, it put a higher tax rate on the people of the city. If the city is going to assume those responsibilities, why do they not rebuild the area themselves and leave the Federal Government out of it entirely? Because they are the Federal Government. They are the ones who have to pay, in the ultimate analysis.

Mr. EGAN. Mr. Congressman, I do not know what the actual provision is in the Massachusetts State law as to the tax-exemption feature, but I am quite certain that there is something in that law which provides for tax exemption on low-rent public housing projects.

Mr. NICHOLSON. There is something in our law that this Department has to give us something in lieu of taxes. You cannot tax them because you cannot tax the Federal Government. But if the Federal Government comes in and gets revenue out of it, they come under the same classification as anybody else.

Mr. EGAN. That may be possible, Mr. Congressman. There may be a provision in the State law that requires some payments in lieu of taxes. I would not know. We could look that up. As I indicated to the chairman, we can submit copies of State statutes, for all the States in which the program has been authorized. I would be glad to submit a statement dealing with the situation in Massachusetts. (The statement referred to is as follows:)

* * *

TAX EXEMPTION OF LOW-RENT HOUSING PROJECTS IN MASSACHUSETTS Under Massachusetts law, low-rent public-housing projects are exempt from property taxes. Section 26-R (formerly sec. 26-W) of the Massachusetts Housing Authority law provides in part that "the real estate and tangible personal property of a housing authority shall be deemed to be public property used for essential public and governmental purposes and shall be exempt from taxation and from betterments and special assessments." In the case of Allydonn Realty Corporation v. Holyoke Housing Authority (304 Mass. 288, 23 N. E. (2d) 665 (1939)), the Supreme Judicial Court of Massachusetts held that this tax exemption, as well as the other provisions of the Housing Authority law, was in the furtherance of a public purpose and therefore valid.

Payments in lieu of taxes are, however, authorized by section 26-R. Their amount may be determined by mutual agreement between the local authority and the municipality, or fixed without agreement by the municipality, but in the latter case the amount paid cannot exceed taxes based upon the average assessed value of the property for the 3 years preceding its acquisition by the local authority. In other words, the Massachusetts law, while declaring the property tax-exempt, recognizes that some reimbursement to the locality for governmental services rendered may be made by public housing projects.