Mr. WOLCOTT. Any change of procedure with respect to the handling and signing of these annual subsidy contracts within the last year?

Mr. SLUSSER. Have we changed the procedure of them?

Mr. WOLCOTT. Yes.

Mr. SLUSSER. Yes, we have made some changes in the annual contribution contract.

Mr. WOLCOTT. What is the change in the procedure you made? Mr. SLUSSER. I cannot recall all of the conditions; it was somewhat of a tightening-up process in the contract to overcome some of the difficulties that historically had taken place.

Mr. WOLCOTT. Under these 40-year contracts

Mr. SLUSSER. May I go back to the other question? There was no change in the procedure, but there was change in the annual contribution contract. I thought that was your question. We did make some changes in the annual contribution provisions.

Mr. WOLCOTT. How do you arrive at the community contribution; what are the contributions for?

Mr. SLUSSER. The contribution is determined by the cost of the project, the rent we collect and the net residual receipts as a payment by the local authority. The subsidy makes up the difference.

Mr. WOLCOTT. In relation to the ultimate cost of the project, what is the average, if there is an average, increment to the cost occasioned by the annual contributions? I know I do not make myself very clear, but this whole thing is pretty muddy in my opinion. You make annual contributions over a period of 40 years. Let us take an example. The construction cost of a project, we will say, is $500,000. After the 40-year period has elapsed, what does that amount to; in addition to the $500,000, what would it be?

Mr. SLUSSER. Based on about 4 percent on the capital charge, whatever that would amount to.

Mr. WOLCOTT. What is the 4 percent based on?

Mr. SLUSSER. The annual debt service on the capital cost over the period of time.

Mr. WOLCOTT. It would be 4 percent of what?

Mr. SLUSSER. Four percent of the total development cost.

Mr. WOLCOTT. What would 4 percent on $500,000 be?

Mr. SLUSSER. It would be 4 percent debt service over a period of

40 years, on the total development cost.

Mr. WOLCOTT. That would be $20,000 a year for 40 years?

Mr. SLUSSER. Yes; I think that would be right.

Mr. WOLCOTT. $800,000 for 40 years, on an initial expenditure of $500,000; is that about right?

Mr. SLUSSER. Yes, that would be about right.

Mr. WOLCOTT. Then it would be profitable for the Federal Government to build the properties outright in the first instance, would it not?

Mr. SLUSSER. No, I do not think so. The residual receipts reduce the amount considerably.

Mr. WOLCOTT. What are the residual receipts?

Mr. SLUSSER. This coming year, we estimate $135 million as total rental income and net residual receipts at $23 million. Mr. WOLCOTT. What do they consist of?

Mr. SLUSSER. Net rentals from properties.

Mr. WOLCOTT. You get the rents anyway?

Mr. SLUSSER. Yes, we get the net rents as a credit against annual contributions.

Mr. WOLCOTT. And you are going to get the residual receipts, are you not, just the same, over this 40-year period?

Mr. SLUSSER. Of course it costs something to operate and maintain the property over that time.

Mr. WOLCOTT. Do you subsidize the maintenance of the properties, and so forth?

Mr. SLUSSER. No, sir.

Mr. WOLCOTT. Is that contained in the annual contribution?

Mr. SLUSSER. Not in the view I take of it. We do not subsidize the operation of the plant. They get that from the rental income of the property. We do subsidize the debt service of the property.

Mr. WOLCOTT. For tax purposes, you write off about $1 million more than the $800,000 for 40 years than the initial cost. You take into consideration all of your depreciation at the expiration of 40 years, and have a good deal of your residual cost, or whatever you might call it, for maintenance of the project.

Mr. SLUSSER. Mr. Chairman, we would like to furnish for the record the information on the request of Mr. Wolcott on the cost of projects, We would like to prepare a statement for the record on that. Mr. BROWN. All right.

(The information is as follows:)

FINANCING THE CAPITAL COST OF LOW-RENT HOUSING

Local authorities finance the capital cost of their low-rent projects by short-term borrowing during construction and by the sale of long-term bonds upon completion. The United States Housing Act authorizes the Public Housing Administration to make such loans to the local authorities, but limits the amount of the loans to 90 percent of the total project cost. The remaining 10 percent must be obtained by the local authorities from other sources.

As a matter of fact, however, the loans by PHA to local authorities are only a very small fraction of the authorized amount. On December 31, 1955, local authorities had loans outstanding from private investors amounting to $2,774 million, while their borrowings from PHA amounted to only $90 million. only 34 percent of the outstanding financing was by loans from PHA.

ADVANTAGES OF ANNUAL CONTRIBUTIONS INSTEAD OF CAPITAL GRANTS

Thus,

It was estimated in the hearings that if a project costing $500,000 is financed by bonds which mature over a 40-year period, the total disbursements for repayment of principal and interest over the 40-year period would amount to $800,000. It is, of course, natural that the total expenditure for financing a project over a period of years exceeds the initial capital cost. This is equally true in the case of a privately owned dwelling financed by a mortgage or any other property amortized over a period of time.

It does not follow from this, however, that it would be cheaper for the Federal Government to finance the cost of public housing through capital grants. The appropriations for such capital grants would have to be financed by Treasury borrowings, and such borrowings would bear interest until repaid. Moreover, the contributions actually paid year by year are substantially less than the annual debt service required for interest and amortization. This is because the contributions are reduced each year by the residual receipts of the project; that is, by its rental earnings less the cost of management, repairs, utilities, payments in lieu of taxes, etc. These residual receipts over the period 1941 through 1955 aggregated 53.8 percent of the maximum contributions. In other words, the rents of the projects have not only paid all operating costs, but also 46.2 percent of the interest and amortization of the capital costs.

If a capital-grant system were used, these residual receipts which accrue over 40 years would not, of course, be available in advance, and appropriations would have to be made covering the full cost of the projects and involving substantial increases in the national debt. By contrast, under the annual-contributions system the necessary subsidies are appropriated year by year so that the cost of providing housing for low-income families is spread over the period during which the projects are in use.

Mr. WOLCOTT. Now has the President changed his mind about public housing since 1954? I have not read anywhere that the President has changed his mind at all.

Mr. COLE. No, he has not, Mr. Wolcott.

Mr. WOLCOTT. Then what is the matter with the criteria that we wrote into the 1954 act?

Mr. COLE. I do not think that was what the administration recommended.

Mr. WOLCOTT. Are you distinguishing between the President and the administration?

Mr. COLE. No.

Mr. WOLCOTT. Well I have to; because I am not going to take this thing much longer. I have been taking it for the last 2 or 3 years. I was at a conference at the White House and there was not a day but what they told me what they wanted and what they wanted they got. I got back to the office and wrote it into the law and it became the 1954 act. And we heard nothing about it for 11 months, and I found out you only contracted for about 100 units in 11 months, out of that 35,000 units and then within 30 days of the last of the yearin 11 months you only contracted for 100 units, and in the twelfth month you contracted for 19,000 units. I have never been able to understand that, not at all, and have not yet had an explanation of it.

I have not seen anywhere where the President has changed his mind with respect to the necessity for public housing. We were told at that time his purpose was to make provision for the replacement of people who are to be displaced by urban rehabilitation and slum clearance.

Mr. COLE. That is still the basic purpose of the administration's program; it is still the program.

Mr. WOLCOTT. I do not understand it that way. As I have told you, I have been trying to find out for 3 years who the "they" are in the Government, who are claiming different from what the President told us himself.

Mr. COLE. I am the Administrator of the Agency, and I must take and do take responsibility for this; and if I am contrary to the President's request, then I am responsible for it. But I do not think I am.

Mr. WOLCOTT. I will say in my own defense that I am going to take the attitude that the 1954 act expressed the wishes of the President until the President tells me differently himself, or it comes directly from the President that he has changed his mind. And I do not want to hear any more about the "they" in the White House who have changed their mind, until the President tells me he has changed his mind.

Mr. MULTER. Are we going to change "protocol" in this committee on quoting the President? I have always understood that the "administration" means the "President."

Mr. RAINS. I do not want to get into that, but it is a fact, Mr. Cole, that in the President's state of the Union message he set forth in plain

English that he wanted 35,000 units of public housing in each of the years?

Mr. COLE. That is right.

Mr. RAINS. If he changed his mind, I do not know anything about that; but, Mr. Slusser, I would not want the record to stand that a $500,000 public housing program would cost the Government $800,000. That is not right, is it?

Mr. SLUSSER. No.

Mr. RAINS. Let us go back and put on the record like it actually happens. In a public housing project, wherever it is, the first step necessary is for the State legislature to enact a law providing for the setting up of local housing authorities in the various towns and cities of the State. That is the first step, is it not?

Mr. SLUSSER. That is right.

Mr. RAINS. The next step is that the local housing authority must pass a resolution stating the need and the reasons for needing public housing units, and that must also be approved by the city council or the city governing body; is that correct?

Mr. SLUSSER. That is right.

Mr. RAINS. And then the application comes to Washington, and the first thing you do is to make an investigation to ascertain the need and the economic feasibility of the project; is not that correct?

Mr. SLUSSER. That is right.

Mr. RAINS. And is not that part of the preliminary planning you do?

Mr. SLUSSER. That is correct.

Mr. RAINS. Then the preliminary loan or grant which you make to the local housing authority is utilized in what-the architect's plans, and so forth?

Mr. SLUSSER. It is used in the preliminary site drawing, to indicate what the local authority thinks it can put on a certain site which it has selected and can acquire.

Mr. RAINS. And simply to straighten out the record and get your idea, if that local community doesn't need a project, you do not force a 40-year contract on them unless they measure up to your criteria and qualifications, do you?

Mr. SLUSSER. They must meet all the requirements of the law.

Mr. RAINS. And in actuality, this is the way it works. In all the instances I know-there may be exceptions here and there-the hold back comes from the PHA in Washington, instead of from the local housing authority in the field. In other words, you are not pushing it on them; they are pleading for it. It not that the usual rule?

Mr. SLUSSER. We believe at the present time we are serving the needs of the community. They are making the request upon us. We do not always agree as to the number of units they may want. We may find a difference existing as to market in the community and, because of the changed economic conditions, they are asking for more than we think they need over a long period of time.

Mr. RAINS. There is not too much difference between the bill Mr. Widnall introduced and the bill I introduced, but I have one policy question I want to ask: Do you believe it is to the benefit of the public housing program that it be extended more than a period of 1 year at a time?

Mr. SLUSSER. I think that is too short.

Mr. RAINS. Will you state a few reason why it is essential, if we are to continue the program, that it should be continued for more than one year at a time?

Mr. SLUSSER. To begin with, it gives the local community an opportunity to properly plan for the program; it gives us an opportunity to properly review that program without the haste which Mr. Wolcott spoke about a few moments ago. We are rushed at deadline dates at the end of the year, and pressure is upon us to make speed within the authorization of Congress, within the 1 year's time. We have need, I think, to level out the program as to what the actual need is.

Mr. RAINS. Also, it presents a personnel problem to you, does it not?

Mr. SLUSSER. That very definitely is one of the administrative problems, the fact we cannot recruit help for the technical divisions on a 1-year basis.

Mr. RAINS. In your statement in mentioning the difference between the bill I introduced and Mr. Widnall's bill with reference to housing, you stated that H. R. 9537 would give preference in public housing projects to the elderly, and you said also that in the bill I introduced it would give preference in projects to the elderly; but in the bill I introduced it would only give preference in these extra units over and above and would not eliminate the present preference in existing units for GI's, and so forth. There is that difference?

Mr. SLUSSER. I believe the difference was in the definition of families. Yours would require that they be families with the head 65 years or older; whereas in H. R. 9537 we would permit a family where either the husband or wife is that age. We do now consider that if there is a family of two, an older gentleman and his wife, and if he should pass away, the wife could continue in occupancy.

Mr. RAINS. I think that is splitting hairs. If he passes away, I think the widow becomes the head of the house, or whoever is left. I do not see a great deal of difference in that. What I am talking about, and I do not want to get confused, in the bill I introduced I do not seek to make any preference in the elderly citizens in the 50,000 units, but only that preference in the additional 10,000 units is provided; whereas in the bill Mr. Widnall introduced, the preference goes to all units. That difference is there, is it not?

Mr. SLUSSER. That is correct.

Mr. RAINS. Now some of us are a little interested in certain sections of the bill Mr. Widnall introduced about the disposing of certain projects. We have no information, of course, about that and certainly have no objection to it. I would like the record to show, as I am sure you will agree, that the building at Georgia Tech in Atlanta is not only in a rather dilapidated condition, and that the campus and property all adjacent to it belongs to Georgia Tech?

Mr. SLUSSER. It is adjacent to their property; yes, sir.

Mr. RAINS. And could be used for no purpose without complete rehabilitation, except as a dormitory?

Mr. SLUSSER. I cannot answer that, as it is new to me.

Mr. RAINS. I went through it room after room and would make the statement that it would have to be completely redone and changed for any purpose except to be used for their dormitory.