Enclosed is an opinion of the General Counsel dated November 30 which discusses in detail the nature of a mutual-aid homo-ownership housing program under the United States Housing Act and the manner in which such a program con be undortakon in conjunction with the Bureau of Indian Affairs.

Since this is an entirely different type of program involving different concepts of programing, design, and management from thosɔ which have prevailed heretofore and on which our standards, procedures and legal documentation are based, each project will have to be considered on its own and dll have to be individually reviewed and approved by the Central Office staff.

Because of the novalty of this program and the working relationships that must ba doveloped batean the BIA and the FHA in its execution, it is contemplated that a few sample projects will bə dəveloped first to gain experienco.

You will bɔ adviced further in regard to PHA-BIA relationships and areas of responsibility. In the meantime, please cooperate with the field ropresentatives of the BIA and with representatives of Indian tribes interested in this program in discussing it with them and referring any questions they may have to the Central Office staff.

Marin C. Vil

Commissioner

Enclosure

SUBJECT: PHA Mutual-Help Housing Program in Conjunction with the
Bureau of Indian Affairs

On August 27, 1962, you transmitted a letter to us dated August 24, 1962, and enclosure from the Bureau of Indian Affairs requesting a determination as to whether the PHA can engage in a "program for Mutual or Self-Help Housing on Indian reservations." Should the PHA be unable to participate in this program, the BIA intends to submit a request for a grant under the Section 207 demonstration program and eventually request legislation to authorize such a housing program. (The enclosure with the BIA letter is their proposal for a demonstration grant.) Your note called for a determination of PHA's legislative authority to engage in such a program and, if such authority exists, an outline of "the precise way a self-help program could be worked into the ongoing low-rent public housing program under present legislative authorities."

We find that the PHA can legally engage in a housing program such as proposed by the BIA and that no new legislative authorization would be required. The Section 207 demonstration program could provide additional valuable assistance in determining the most suitable structures and in evaluating the program.

I. Factors Determining Characteristics of Program and the BIA's Proposals
The nature of an adequate housing program for American Indians living on
Reservations must take into account the following factors:

1. The housing conditions on most of the Indian Reservations are deplorable and there is practically no supply of decent housing available.

2. The state of underdevelopment on the Reservations is comparable to the conditions in Puerto Rico and certain foreign countries where aided self-help housing programs have proven successful.

3. As deplorable as conditions are, the great mass of Indian families are owners and not renters. These are families who have been living in the poorest type of accommodations, who are accustomed to very low standards of maintenance, and who therefore must be given the incentive as well as the

questionable whether a rental type program would have this effect. On the other hand, home ownership being traditional, they can be expected to respond to all of the incentives that individual ownership provides. (We are not here discussing the type of project desired by the Oglala Sioux Tribe and other tribes for rental by relatively higher income families and for congregate housing of elderly families on a rental basis.)

4. Under an earlier housing program of the BIA, houses were built utilizing force account Indian labor and were given to Indian families, but these homes deteriorated badly because the families felt no sense of responsibility due to lack of identification with or pride of participation in their construction. 5. The conventional low-rent program, with rents of about $45 per month (such as in the first project for the Oglala Sioux Tribe), can meet no more than 15% of the need for decent housing on the Reservations because 85% (or approximately 60,000) of the Indian families have incomes of $2,000 per annum or less.

Basically, the BIA proposes a program whereby "with relatively modest material assistance and guidance, Indian communities can be mobilized around their felt need for housing in an organized program of self help." The prospective lowincome occupants of or, more precisely, participants in each project would be selected prior to the start of construction and the bulk of the construction work would be performed either on a full-time or part-time basis by members of the selected families. The objective of those participating in a project would be to gain a house which is "theirs."

In addition to the contribution of labor by the participants, the sites for the houses would be made available by the tribe or the participants, and, to the extent possible, the building materials (such as stabilized earth blocks, bricks, lumber, or logs) would be obtained and/or manufactured by the tribe or the participants. The design for the houses would be supplied to the participants by the BIA or the PHA, with the BIA contributing "personnel to organize and stimulate community action" and "to train and supervise during construction and give aid in social welfare problems, family selection, etc."

To aid in developing a sense of responsibility toward maintaining the house in good repair, the BIA proposes that the participants "pay a moderate, regular payment for five to ten years to cover at least part of the cost of the materials."

II. Principal Advantages of This Mutual-Help Program

The details of the PHA's proposed program are discussed below. In addition to the major advantage of reaching down into a much lower income category than is possible under the PHA's conventional program (it is estimated that, under optimum conditions, operating charges as low as $10 per month, including utilities, can be achieved), the important advantages are as follows:

1. As noted above, under the previous housing program of the BIA, Indian families received houses an outright gifts which resulted in poor upkeep. Under

the proposed program, the participant would be motivated to maintain his house because he would have participated in building it himself and would be required to maintain it himself under penalty of postponement of his acquisition of ownership or even loss of the right to ownership. In etion, the local housing authority, assisted by the BIA, will have sufficient control of the houses to assure that they are properly maintained during the years the participants are tenants and, during this period, the picipating families would have an opportunity to become habituated in proper maintenance of their houses.

2. A basic feature of the plan is the use of the land, labor and materials supplied by the participants to reduce the Federal subsidy that would caterwise be required to provide such low-rent housing. It also makes use c the same participant's contribution as a guarantee that the participan vill maintain his dwelling under penalty that if he does not, and the local housing authority is required to do so for him, his acquisition of ownership vill be deferred to the extent of the maintenance cost required to be incurred by the local housing authority.

The plan accomplishes these objectives by using the participant's contbution in the following manner. A portion of his contribution is avoided to establish a reasonable operation and maintenance reserve which, i used for such purposes, will be applied to payment for the dwelling. remainder of the participant's contribution, although not appliediately to the operation and maintenance reserve, will also be available for operation and maintenance expenses if needed, and if not used for those purposes, for ultimate payment for the dwelling. The result of this arrangement is that if the family maintains its own dwelling, the value of the amount that it has contributed as mutual help is applied to enable it to acquire cership that much sooner. On the other hand, if the family does not mainain its property, that same contribution by it enables the local housing anthority to continue to provide that family with decent housing at ro ɛ. tional subsidy cost to the Government until that source of funds is exausted. This combination of Federal aid and participant's incentives--the participant's desire to conserve maintenance reserves and any excess mutual help cre: to enable him to obtain ownership that much sooner--makes maximum use of i-dividual self-help incentives and Federal subsidy to achieve the best vele for every dollar of Federal subsidy in providing decent housing for lovincome families.

3. As will be explained more fully below not only does this proposal enable the PHA subsidy to reach a much lower income group than would otherrise be possible but it does so at a fraction of the subsidy required to house lowincome families under the conventional rental type of project.

A key consideration is that for purposes of the proposed program, PHA's relationship would have to terminate earlier than the 40 years that is standard in the case of conventional low-rent projects. Because of the nature of the structures, participants and incentives involved in this program, the period before the participants will own their houses must be relatively short. The BIA proposal suggests a period of 5 to 10 years. Under this proposal a 10-year period can be achieved if the mutual-help contribution amounts to as much as 50% of development cost; 14 years if the contribution is 30%; and 16 years if it is 20%.

Annual Contributions. Section 10 of the United States Housing Act authorizes the PHA to make annual contributions for a period up to 40 years, at a rate not to exceed a certain percentage of the project's development or acquisition cost. The rate contracted for is in an amount sufficient to pay the principal and interest on the bonds sold to private investors to finance the project. In general, the PHA has followed a policy of contracting for payment of annual contributions over the full period of 40 years, thereby permitting the use of an annual rate substantially below the permissible maximm, which rate would be (under current interest rates) sufficient to pay off the development cost in 29 years.

The objective under the proposed mutual-help program is to obtain the maximm benefits out of the incentives of home ownership combined with mutual-help contributions to provide low-income families with decent housing at the lowest aggregate subsidy cost. This is achieved by reducing the amortization period to the minimum which is consistent both with the type of structure involved and the reasonableness of the length of time that the participant should be required to wait before he acquires ownership. Thus, under this proposal the amortization period is reduced to the minimum by increasing the rate of annual contributions to the maximum amount permitted under the Act. (It should be noted that the utilization of the maximum annual contributions rate permitted by the USHAct in this instance does not depart from the principle we have maintained that annual contributions be limited to debt service. In this instance the debt service rate is increased by shortening the amortization period, thereby causing the annual contributions rate to be increased accordingly.)

As the discussion below will demonstrate, this combination of financing and incentives results in increasing the relative amount of each annual contribution, but results in reducing the aggregate contributions by 81% in comparison to the conventional project financel for 40 years by permanent bonds (the standard method) or by 74% if financed by temporary notes for 29 years at 21%, assuming, in each case, a 30% mutual-help contribution and the $5370 dwelling unit cost used to illustrate this proposal below.

This savings in Federal subsidy as between the conventional program and the mutual-help program is explained more fully below using the following table: