Similar provisions are embodied in many of the other public housing laws in the 41 States which have adopted enabling legislation.

Mr. McMILLEN. Mr. Chairman.

Mr. SMITH. Mr. McMillen.

Mr. McMILLEN. How much, would you say, in dollars and cents, the average tenant in one of these public housing units is subsidized? In other words, how much less would his rent be than the average rent paid for a similar unit in that district-the prevailing rent, in other words.

Mr. EGAN. I do not have any figures in mind at the moment, Congressman. I would like to supply it. I would say it is roughly about one-third.

Mr. McMILLEN. About one-third?

Mr. EGAN. Roughly, yes. Between a half and a third of what it might cost otherwise.

Mr. VINTON. We would be glad to submit some figures for the record. Speaking broadly, in order to serve these families of very low income who come from the slums, it is necessary to secure rents, including utilities of about a half or one-third of what private enterprise would have to charge in order to secure a proper economic return for an equivalent dwelling.

Mr. MCMILLEN. Based on a business proposition.

Mr. VINTON. As an ordinary business operation.

Mr. McMILLEN. This individual would be subsidized to the extent of one-third to one-half of his rental?

Mr. VINTON. That is not the cost of the subsidy, Mr. Congressman, that is the difference in the rent.

Mr. McMILLEN. You will supply some figures for the record on that point?

Mr. EGAN. That is right.

(The information referred to follows:)

RENTS ACHIEVABLE FOR TYPICAL PRIVATE RENTAL HOUSING IN COMPARISON WITH RENTS FOR A SIMILAR PUBLIC HOUSING PROJECT

A report entitled, "Effects of Taxation Upon Housing," submitted by Senator Tobey of New Hampshire to the Joint Housing Committee, made a comparison of the lowest monthly rent achievable for a unit of private housing built under typical FHA, title VI, financing, and a public housing unit of the same capital cost built by a local housing authority under the United States Housing Act. In this report it was estimated that the monthly rental for a private rental unit built at a capital cost of $6,505 would be $70.70, which includes a net profit of 6.7 percent after taxes.

For a low-rent public housing unit with the same capital cost and same operating cost, it was estimated that the monthly rental would be $24.36 if the maximum subsidy were paid. This is just over one-third of the rental of the same unit if privately built and financed and receiving no subsidy, either local or Federal. If less than maximum subsidy were paid (as is usually the case) the rent would be correspondingly increased.

The report shows that of the $46.34 difference in monthly rent, the Federal annual contribution would account for $18.97 and the local contribution in the form of tax exemption would amount to $7.27. These together total $26.24, leaving a remainder of $20.10 which is accounted for by the absence of profit and by the long-term low interest rate financing which can be obtained through local housing authority bond issues.

Mr. McMILLEN. May I ask a question: Do you consider this program inflationary, this program as proposed under this public housing provision?

Mr. EGAN. Mr. Congressman, I presume if we moved into that immediately, it probably would contribute to inflation to some degree. However, I do not see how it is possible for us to get any more than about 10,000 units of the deferred project into construction this year, if we got this relief on the cost limits. We could even show you some figures as to how much we could expect to get into construction during the next 5 years. It generally takes, from the time you sign an assistance contract with a local authority, from 6 to 8 months before you can get it under way. On the new program it will be well into next year before there is any substantial volume of construction and by that time the few present shortages in materials should have been cured. Mr. McMILLEN. There is no provision for a contribution to be made by the State. It all falls upon the Federal Government and the municipality; is that true?

Mr. EGAN. That is correct, sir.

Mr. McMILLEN: How do feel about that? Do you feel that the State has an obligation, a financial obligation, to make a contribution to this subsidy? Do you not feel that the States, in many cases, have been very backward, and that some of them have done nothing, toward attempting to correct this situation in the years gone by, whereas they should have done something-in the way of not permitting these slums and blighted areas to grow up in these municipalities?

Mr. EGAN. Congressman, some States have actually done something. For instance, I can give you an indication of what the State programs are throughout the country. I believe we have a record of that. But I think on the low-rent housing there are only four States, New Hampshire, Massachusetts, New York, and Illinois, who are actuaily providing funds for State programs for that purpose.

Mr. McMILLEN. I am familiar with the program in Illinois.

Mr. EGAN. Yes. New York State's program is a major program. It is much larger than the Federal program in that State.

Mr. McMILLEN. Do you feel that there ought to be some provision in the law compelling other States, which have not already done so, to make a contribution to this cause?

Mr. EGAN. I do not know. It is certainly up to the Congress to make that determination.

Mr. McMILLEN. What is your opinion about it?

Mr. EGAN. I think some States just would not be able to do it.

Mr. McMILLEN. Do you not think that perhaps some pressure ought to be put on those States so that they would be compelled to perform their obligation as to other States which you mentioned?

Mr. EGAN. Even in those States, the programs to which they are contributing are supplemental programs to the Federal program. They are not contributing directly to the Federal program. I know that there would be many States which would never be able to participate in the low-rent housing program if they were forced to put up capital funds. In my opinion, it comes down to a factual situation, as to whether, by putting such a requirement in the legislation, we would be discriminating against those States which could not afford it. That is the thing that bothers me.

Mr. MCMILLEN. Is it not true that many of the States are far better able financially to make a contribution here than the Federal Government is? If you compare the public debt with the debts of the various

States, are not the States in a far better position to look after some of these obligations than the Federal Government?

Mr. EAN. I presume that is so of some States, Congressman. I do not think that is generally true, however. But I could not really say. I am not informed enough to know whether the States are better off financially than the Federal Government.

Mr. FLETCHER (presiding). Mr. Riley.

Mr. RILEY. I want to go a little further into this tax situation, Mr. Egan. I am frank to say that I know very little about public housing and I am trying to get some information on it. In some of the States, Mr. Egan, the principal income to the schools is through ad valorem

taxes.

Mr. EGAN. That is correct.

Mr. RILEY. Collected by the school districts and by the municipalities?

Mr. EGAN. That is correct.

Mr. RILEY. I believe you stated in your testimony that a great many of these families in the low-cost housing units are very large families. That throws quite a burden on the educational facilities of the political subdivisions of those States who derive their income from these ad valorem taxes. I wonder if there is not justification, then, for a contribution toward the tax income because of the educational expense occasioned by taking care of these families.

Mr. EGAN. Well, of course, that is the argument that is presented to us constantly by the localities. The payments in lieu of taxes that we have made in the past under this program are allocated through the various taxing jurisdictions, which would include the school districts. Even where there is a county tax, the county would get a percentage of it. It does not all go to the municipality.

Mr. RILEY. Some States derive their income for school purposes from indirect and income taxes almost altogether, but others have to depend on the ad valorem taxes?

Mr. EGAN. That is correct.

Mr. RILEY. So that there is a discrimination between these States and those which have a different tax structure.

Mr. EGAN. I think there is.

Mr. FLETCHER. Should that not be uniform, Mr. Riley, straight through? There is 5 percent in lieu of tax payment. Should that not be uniform? Why should one State get more than another?

Mr. EGAN. I think it should be a uniform policy, Mr. Chairman. I think that in the early days of this program, as I read the history of it, there were some localities which were more concerned, because of low incomes of their people, with keeping the rents low, and so were willing to sacrifice any payments in lieu of taxes. Others felt the rents would not have to be set quite so low and that there could be some contribution in lieu of taxes.

Mr. RILEY. Mr. Chairman, the reason why the ad valorem taxes in some communities are higher than they are in others is because there is no other source of income. So some consideration, it seems to me, should be given to that. That is one of the problems arising out of a program of this kind.

Now, as I understand it, the Federal Government contributes up to 10 percent of the shelter rent of the project.

Mr. EGAN. We did permit local authorities to make payments in lieu of taxes to that extent, Mr. Congressman, but we have been restricted from going that high by the Appropriations Committee, and we can now permit them to pay only the contractual amount in the original cooperation agreement.

Mr. RILEY. Do you have any figures to show what the contributions of the local municipalities are for the operation of the police department, health department, fire department, educational facilities, and so forth, as regards public housing?

Mr. EGAN. I do not know whether we have all those figures.

Mr. RILEY. What is the percentage of the contribution of the local municipalities in relation to the shelter rent?

Mr. EGAN. Mr. Vinton might answer that for you.

Mr. VINTON. Mr. Congressman, for the last year in which the payments in lieu of taxes were made at 10 percent of shelter rents, the payments in lieu of taxes per dwelling per month amounted to $1.95. The full taxes in that year would have been, if paid, $7.21. The difference between those amounts, or $5.26, is the local contribution, which, in accordance with the terms of the act, must be at least 20 percent of the Federal contribution. As a matter of fact, in that year the local contribution thus computed was 110 percent of the actual Federal contribution, or over five times the amount required by the statute. It was for that reason, and because of the insistence of the localities that their expenses were very high and continually mounting, that the 10 percent of shelter rent was permitted in those years.

Now, of course, the cost to the cities of providing services to lowincome families is very much more than even the full ad valorem taxes, if they were paid. In most cities education, for example, is costing $125 to $150 a year for each child, and when we have almost two children in the average family in public housing, the cost of education runs up into substantial amounts. Payments in lieu of taxes, at $1.95 per unit per year, would amount to about $24 per year, which is only a small fraction of the cost of education alone. Thus, the cities really are making substantial contributions.

Mr. MULTER. What were the total dollar amounts paid?

Mr. VINTON. I do not have that, but we will supply it for the record.

Mr. RILEY. In other words, if you consider all the facilities and services furnished by the municipalities and the local political divisions, it might run as high as 15 to 20 times the Federal contribution; is that not right?

Mr. VINTON. That is right.

Mr. RILEY. That would be a true statement?

Mr. VINTON. Perhaps, let us say, 10 times as much.

Mr. RILEY. Ten times?

Mr. VINTON. Yes. Of course, to make the record perfectly clear, it should be understood that the city is also making similar contributions of the difference between the cost of services and ad valorem taxes, with respect to other low-income families not living on these projects. Mr. RILEY. Yes; that is true.

Mr. VINTON. Because all housing, except very high-class housing, costs the city more in services than they collect in ad valorem taxes. Mr. RILEY. Now, there is another question I want to ask Mr. Egan.

On page 2 of your statement: In the original set-up the Federal Government made loans up to 90 percent, and the local authorities, through some medium, were supposed to provide 10 percent of the cost. Was that a cash contribution, or an equivalent of a cash contribution, or did the local municipalities simply lend their credit to issue bonds which were amortized by the income from the projects?

Mr. EGAN. That is all they did. There were no actual cash contributions.

Mr. RILEY. It was simply a credit?

Mr. EGAN. As a matter of fact, that 10 percent was raised by the local authority by issuing bonds, and the annual contribution was applicable to the total development costs, so really those bonds are serviced by annual contributions.

Mr. RILEY. They are amortized through the income from the property?

Mr. EGAN. That is right.

Mr. RILEY. Thank you very much.

Mr. FLETCHER. Mr. Buffett.

Mr. BUFFETT. Mr. Egan, have you studied public housing experiments in European countries?

Mr. EGAN. I never have, Congressman; no, sir. I do know, of course, that there have been substantial programs in foreign countries, but I have never gone into it at all.

Mr. BUFFETT. You have never made any effort to follow those programs through to determine what their social, financial, and political consequences were?

Mr. EGAN. No; I really have not, Congressman.

Mr. NICHOLSON. Mr. Chairman.

Mr. FLETCHER. Mr. Nicholson.

Mr. NICHOLSON. You think that people who live in a house or own real estate should pay all the charges of the city government?

Mr. EGAN. Do you mean regardless of what type of housing it is! Mr. NICHOLSON. Well, of course, if you take your housing proposition to the nth degree and say that the city of Boston is all slums, and you are going in there to build houses everywhere, who is going to pay the taxes for the children going to school, for the water costs, sewage, and everything else? Of course, in Massachusetts the municipality-the only place where the municipality gets any money is out of real estate. We do not get anything else. We have the income tax, of course, but everything needed for the services comes out of real estate. So that if you come in and take over large areas, it means that the thinner areas have to absorb the slack.

Mr. MULTER. Will the gentleman yield?

Mr. NICHOLSON. Yes.

Mr. MULTER. Nobody would go into Boston or any other community unless invited by the municipality to do that. Nobody is going to go in and say Boston is a slum area unless Boston invites us in to help clear what you designate as a slum area. That is the fallacy of your premise. Just as in any other community, these people do not go in anywhere unless invited in by the locality.

Mr. NICHOLSON. These people are the people in the United States. Whenever they come in, Massachusetts has to pay them.

Mr. MULTER. Only if Massachusetts invites them in to help clear up this problem in their own community.