APPENDIX

Additional Statements and Data

STATEMENT OF RALEIGH W. GREENE, CHAIRMAN, LEGISLATION COMMITTEE, NATIONAL LEAGUE OF INSURED SAVINGS ASSOCIATIONS

Mr. Chairman and members of the Subcommittee, my name is Raleigh W. reene. I am President of the First Federal Savings and Loan Association of t. Petersburg, Florida and Chairman of the Committee on Legislation of the ational League of Insured Savings Associations. On behalf of the National eague, a trade association whose membership is composed of savings and an associations and others interested in the savings and loan industry, this atement is presented. It comments upon three bills pending before this Submmittee, namely:

1. the Community Development Assistance Act of 1971 (S. 2333).

2. the Urban Community Development Revenue Sharing Act of 1971 (S. 1618), id

3. the Housing Consolidation and Simplification Act of 1971 (S. 2049).

INTRODUCTION

The National League favors the tendency of both S. 2333 and S. 1618 to low more of the detailed decisions involved in planning both 'housing and comunity development needs to be made at the grass roots level by people most miliar with local conditions. Hopefully, these bills will afford State and local >vernmental bodies more flexibility in determining specific projects to be develed in line with local needs, which may well vary from community to comunity. By combining into a single aid program several Federal aid programs resently limited to specific different purposes, both bills make it feasible for e Federal government as trustee of public funds to confine its role mainly to itlining broadly eligible purposes for which Federal assistance may be used. evertheless the Federal agency can and should still retain surveillance adelate to asure proper expenditure of funds by State and local governments for e eligible purposes so outlined.

Use of the pattern of block grants as distinguished from grants limited to ecific categories of purposes should induce recipient governments to pay heed establishing their own relative priorities among the purposes and projects for nich the funds may lawfully be used.

Selection of priorities becomes the more important because all socially desirable ojects cannot be funded simultaneously from Federal funds, if the nation hopes keep a semblance of control over inflation. From the standpoint of financial ability, substantial control of inflation is necessary if thrift institutions are continue effectively the function of attracting savings capital that still forms e bulwark of a source of finance for residential housing in this country. Despite the great amount of publicity given to government aid to housing, the ld, hard statistics as reported in Federal Reserve Bulletins continue to prove at the bulk of housing finance in the United States is provided through the edium of conventional mortgages held by financial institutions.

Of $451.1 billion of all mortgage debt in the United States outstanding at the d of 1970 secured by housing, farms and commercial properties, the distribution nong holders was as follows:

nancial institutions_.

dividuals and others..

deral agencies (even including for this purpose FNMA).

Total

(Source: Table Mortgage Debt Outstanding, A 52, Federal Reserve Bulletin, igust 1971.)

66-138 0-71-pt. 2- -39

As to nonfarm residential housing in the United States, Table 1 shows the distribution of mortgage holdings as of the end of 1970 among financial institations. It should be of interest to the Subcommittee to observe three facts demonstrated by this Table, namely:

1. The major role played in residential finance by conventional mortgages is apparent from the fact that they comprise $240.7 billion out of a total of $3146 billion of nonfarm residential mortgages held by financial institutions.

2. Of that total of $314.6 billion, savings and loan associations alone hold just short of half, at 47.8 percent.

3. Of a total of $240.7 billion of such conventional mortgages, savings and loan associations hold more than half, at 54.8 percent.

TABLE 1.-HOLDINGS OF NONFARM RESIDENTIAL MORTGAGES BY FINANCIAL INSTITUTIONS AT END OF 1970 [In billions of dollars, rounded]

Source: Tables, mortgage loans held by banks, A 52; mortgage activity of savings and loan associations, and mortgage activity of life insurance companies, A 53, Federal Reserve bulletin, August 1971.

These facts clearly demonstrate that savings and loan associations continue to perform the function of providing a major segment of the residential home finance in this country, in distinct contrast to the portion provided through gor ernment subsidy, insurance or guarantee programs, even allowing for the fact that some minor portion of the conventional mortgage loans may benefit indi rectly from some form of Federal Treasury assistance. This achievement has been accomplished despite competition for the saver's investment dollar offered by financial competitors (including the Department of the Treasury itself) and general business competitors.

This statistical review evidences the need for achieving credible control over inflation as an inducement for continued thrift accumulation as a prime source of housing finance. It also illustrates the need for conducting the national econ omy in a manner that minimizes the occasions for the Federal government to enter the pub.ic market in competition with thrift institutions for the savers dollars. Little encouragement along this line can be gained from the record of the current Administration to date. Its 1970 attempt to run a financially po Federal government as if it were rich, ignoring the realities of the situation produced a Federal deficit of about $25 billion. As chief spokesman for the Administration's new venture into bureaucratic economic controls, the Secretary of the Treasury anticipates another Federal deficit for the current fiscal year in the range of $27 billion to $28 billion, a level much larger, he stated, than b would like to see. Deficits of these magnitudes themselves counter the current downward drifts in market interest rates, because they force the Federal. ernment to borrow from the public enough capital to pay Federal bills. Set borrowing impales thrift institutions on the horns of a dilemma. To the exten the borrowing is done by selling obligations to the commercial banking syste it is inflationary. To the extent it is done by tapping funds owned by individuals it draws on the same dollars that potentially become savings funds in thri institutions.

In attempting, therefore, to authorize appropriations of more Federal funds t aid the relatively minor portion of home finance supplied by Federal assistance the Congress should make use of a measuring spoon rather than a shovel, lest succeed only in harming the ability of thrift institutions—and particularly ings and loan associations-to continue to supply the much larger segment home finance they have provided in the past and still continue to supply.

We would also like to take this occasion to expose the canard that placing ings in thrift institutions somehow depresses the economy in a period when " nation's housing needs remain unfilled. The statistics set forth in Table I sh that these savings dollars are productive dollars in the national economy. Rather

than being isolated in some underground vault in Fort Knox, they enter the stream of the economy as mortgage loans, thus giving life to the residential housing industry, which in turn produces a beneficient ripple effect throughout a major segment of the national economy. The verity of this observation was amply proved by the converse situation that prevailed in 1966 when "tight money" conditions attracted savings away from thrift institutions and created a huge hole in the sources of housing finance, causing dire results to the health of the housing industry and other facets of the national economy dependent upon it. For all of the foregoing reasons, therefore, the National League recommends that this Subcommittee apply a cautious standard on care in determining the amount of funds it authorizes appropriated to carry out the purposes of the three bills to which this testimony is directed. Within this framework, the National League has no objection ot the authorization of either funds or contract authority imited to a period of years required from a practicable standpoint for the fruition of State or local projects that truly benefit the people of the community within an appropriate scale of local and national priorities. However, it does not favor the open-end appropriation authorization technique employed in S. 1618. It also respectfully suggests that the total grant authorizations of $8.8 billion in S. 2333 be reduced to a figure more nearly compatible with the fiscally unhealthy state of the national economy and its threat to the ability of thrift nstitutions to continue to attract savings funds to carry out housing finance unctions.

In considering the total authorization for grant funds under S. 2333, it should De borne in mind that the bill does not include either the rehabilitation loan program or the model cities program. Both would continue as separate programs vith funding apart from S. 2333.

It should also be kept in mind that in addition to the proposed $8.8 billion authorization for grants, S. 2333 would give the Secretary of Housing and Urban Development an additional borrowing power from the Secretary of the Treasury of as much as $1.5 billion or such greater amount without limit as the President nay authorize. These borrowings are to be used to make loans and interim advances to community development agencies under section 9(a) of S. 2333. The Subcommittee is respectfully urged to consider a less ambitious and bountiful program at this time than one entailing possible Federal expenditures totalling $10.3 billion plus whatever additional borrowings the President may authorize rom the Secretary of the Treasury.

The National League favors the provisions in section 8(a) (1) of S. 2333 that would restrict the Federal grant to a specified percentage (90 percent) of the otal net program cost for most projects. Indeed, it would favor extension of that rinciple to all programs under the bill, on the theory that State and local gencies should contribute some self-help to the execution of the programs ssisted by Federal aid. The Subcommittee might be well advised to consider educing the 90 percent limit to a lower percentage, such as 85 percent, in order o assure that State and local agencies will put the Federal funds to use in prorams of real interest to the respective communities, rather than merely applying hem to boondoggles.

Section 6(a)(1) of S. 2333 would tie 75 percent of the amount of grants made vailable under that bill with programs already under way by virtue of Federal rant or loan programs being phased out of existence under section 14(b), (c) nd (d) (1) of the bill, provided the ongoing program included two or more of he 14 types of projects described in section 4 of the bill. Some such continued unding of incompleted programs already undertaken with Federal aid appears > be fair and logical.

Section 6(b) of S. 2333 provides that the "basic grant entitlement" of a “localy" with two or more such programs under way shall be the sum of the average nnual amount of Federal grant, loan or reserved assistance with which it was edited over the 3 highest of the 5 preceding fiscal years. Section 8(a) (2) then ecifies that grants to a community development agency in such a locality will ⚫ limited to 115 percent of that basic entitlement in the first year of grants to the gency under this bill, 130 percent in the second year and 145 percent in the ird year. It is recommended that the Subcommittee consider the possibility of creasing the stated percentage figures, in view of the recommended limitation 1 total appropriations authorized under the bill and in further view of the ct that such agencies have already received Federal assistance under related using acts in the past, while all other localities would be vying for an allocave share of the remaining 25 percent of total grant funds available under

the bill. In contrast, section 8(a)(3) of S. 2333 would limit each of these other localities in the second year to percentage limits of 115 percent of its first year entitlement and in the third year 130 percent. In all cases to which these percentage figures are proposed to be made applicable, the danger exists that they may well tend to form a magnet for agencies in individual localities to concoct programs that would justify receipt of their "share" of grants under this bill up to the limits it prescribes.

In the interest of fairness in distribution of whatever funds become available, it may be questioned whether that distribution is subject to precise formularization such as that proposed in S. 2333. Perhaps overall equity could be better attained by use of a less precise State-by-State limitation such as the 15 percent figure used in section 213 of S. 1618.

In lieu of the "basic entitlement grant" and "first year entitlement" concepts employed in S. 2333, S. 1618 would use a guideline composed of the factors of population, poverty, overcrowding and housing deficiencies in order to compute the amount of revenue sharing payments to be made available under Title I to non-Federal units in State, metropolitan and local areas. By itself, this formula would not assure aid to programs already in the process of planning or execu tion by the use of Federal aid on a separate category basis. As to planning and management programs under Title II of S. 1618, section 212(a) does speak in terms of the establishment of procedures for orderly transfer of Federal assist ance activities from section 701 of the Housing Act of 1954. As previously noted. S. 2333 approaches the problem in much more specific terms.

S. 1618 includes among eligible community development activities a factor that gives heed to the application of well-considered priorities to investment of Federal, State and local resources. This is a highly desirable guideline. (Section 102(a) (9). Note: the "(a)" has been inadvertently omitted in the print of 8 1618).

S. 1618 also provides expressly for permitting public examination and appraisal of community development activities carried out under Title I of the bill (see tion 108), requires proper accounting for use of revenues received under that Title I (Section 109), sets for a procedure for recovery of funds where recip ients fall short of substantial compliance with Title I (section 110), expressly refers to applicability of the Civil Rights Act of 1964 (section 111), and requires the Secretary of Housing and Urban Development to evaluate the effectivenes of Title I of the bill in his annual report to the President (section 116(b)), Provisions such as these should be included in the bill reported from the Subcommittee.

A comparatively minor difference between S. 1618 and S. 2333 is the manner in which they apply the Davis-Bacon Act's labor standards as to construction of residential property. S. 1618 would apply them only to property designed for use by 12 or more families (section 113) while S. 2333 would apply ther to property designed for use by 8 or more families (section 10). This difference will require reconciliation.

Similar reconciliation is required between the effective dates provided in the two bills. S. 1618 would make the provisions of its Title I effective on January 1, 1972 (section 117) while S. 2333 would fix July 1, 1972 as its effective date (section 14(a)). That date triggers the cutoff of aid under specified Federal housing statutes.

Title II of S. 1618 deals with general State and local planning and manage ment programs that have no direct counterpart provisions in S. 2333, which deals directly with community development activities of the type set forth in S. 2333. The Subcommittee is therefore confronted with the decision whether a sharing of Federal revenue should be provided to State, regional and local governmental units and to agencies of these units and metropolitan agencies and to other subdivisions of government for planning and management pur poses. The aim of improving the capability of governmental units in planning an management functions is undeniably worthy. It should be carefully considered however, whether under a dual system of government such as ours, this a is a Federal responsibility, as distinguished from a State, regional or local re sponsibility. If the Subcommittee decides Federal aid is warranted for thes purposes, it should also proceed to decide whether any matching funds a to be required from the recipient of such Federal aid. S. 1618 would expressi forbid requiring any matching funds as a condition for receiving Federal gran under Title II of the bill. The National League would prefer that the legislatio require some providing of funds by the recipient, as a measure of good faith that the grant funds will be used for planning and management functions realis

ranted by the people in the constituency of the recipient. A 10 percent or 15 ercent contribution by the recipient would help to assure such good faith. Care ust be exercised to assure that the furnishing of Federal funds is handled 1 such manner as to guard against undue influence by the Federal government in ecisions by other governmental units that are designed to be made by State, egional or local units of government.

The restriction of 15 percent on the amount of funds available under Tie II of S. 1618 that can be used for grants in any single State is a desirable easure to give some assurance against an undesirable disproportionate amount grants going to a single State, in the event the subcommittee decides to favor grant program like that provided in Title II.

S. 2049

The National League looks with favor upon the enactment of legislation along he lines of the Housing Consolidation and Simplification Act of 1971 (S. 149). As the title signifies, the bill would consolidate and simplify the body Federal housing legislation that has grown piecemeal since the days of the ew Deal. The provisions in this bill have been lucidly expressed. In genal they would afford the Secretary of Housing and Urban Development more exibility in determining the specific terms of mortgages that make them elible for mortgage insurance. The flexibility extends to including provision for 1 experimental dual interest-rate system. One approach that would be availole until July 1, 1973 would permit the interest rate to be negotiated between le mortgagor and the mortgagee, provided no charge in the nature of disunts or points were made in connection with the transaction (section 103(a)). he other phase of the system would continue the authority of the Secretary prescribe maximum interest rates for insured loans while permitting disunts or points be used in connection with the transaction (section 4 of the evised National Housing Act as added by section 101 of S. 2049). The Naonal League has testified in the past in favor of such a dual system experient. It continues to advocate it.

The bill would helpfully consolidate residential housing provisions into four Lsic classes:

1. 1-to-4-family homes and single units in a condominium (section 401 of the evised National Housing Act as added by section 101 of S. 2049).

2. Homes and units of that type whose ownership is assisted by Federal payents (section 402 of the Revised National Housing Act as added by section 1 of S. 2049).

3. Multifamily housing (section 501 of the Revised National Housing Act added by section 101 of S. 2049), and

4. Multifamily housing benefitting from Federal assistance payments (secon 502 of the Revised National Housing Act as added by section 101 of S. 49).

As to the scope of Federal assistance payments we repeat the National ague's query in its 1970 testimony on a similar bill whether it is wise classify in a "lower-income" status all those who receive the median inme of an area or less, as a family for the purpose of receiving Federal yments toward home ownership under section 402 cited above or as tenants r the purpose of satisfying requirements for Federal payments designed to luce rents in multifamily housing under section 502 cited above. The clasication of lower income should be confined to a lesser number of people. te dilemma caused by using median income is that under one alternative, e aggregate of Federal funds needed to provide all the payments author. d would be inordinately high in view of the financial condition of the Fedal government. Under the other alternative, if funds are not appropriated in fficient amounts to take care of all eligible people, those who want but do not eive benefits will be disgruntled because of a feeling of being discriminated ainst. It would seem far preferable to reduce the size of the eligible class a more realistic basis under which occupants of the class may anticipate sistance from Federal payments that are consistent with the economic wellng of the Federal budget.

The definition of "low-income families" in section 3(2) of the United States using Act of 1937 as it would be amended by section 201 of S. 2049 comes ser to the mark. It covers only those in the "lowest income group and who not afford to pay enough to cause private enterprise in their locality or tropolitan area to build an adequate supply of decent, safe and sanitary