suasively that 6 months was too short a period in which to implement a complete overhaul of a statute as complex as the National Housing Act.

We have tried, in this year's resubmission, to achieve as smooth a transition as possible between the old and the new act. The proposed act would be entitled the "Revised National Housing Act" in view of the continuity of basic substantive provisions. Its effective date would be established by the Secretary of ĤUD after he was satisfied that all necessary steps had been taken to assure that program activity would not be interrupted.

We have been aided by the many helpful suggestions that came out of the hearings and other discussions on last year's draft, and we have incorporated them in the bill now before the committee. I know that a consolidated proposal such as this one cannot please everyone in every detail. But, I believe we have reached a point where our proposals have been analyzed at great length and where there is a consensus that they are sound, and that they are important to carrying our national housing policy.

The Revised National Housing Act would reduce many separate existing programs, each with its detailed terms and narrow applicability, into a few broad flexible insuring authorities. Most of the existing programs would be consolidated into four basic programs-two involving subsidies as well as mortgage insurance and two involving only mortgage insurance.

One- to four-family units would be covered under one subsidized and one unsubsidized program, and multifamily and cooperative projects with five or more units would be covered under the other two programs. The remaining miscellaneous existing authorities would be grouped under four other categories: health facilities, land development, home improvement and mobile home loans, and multifamily improvement loans.

În addition, we are proposing to modify or eliminate many of the rigid limitations in FHA operations that have developed over the years, whose main effect now seems to be to frustrate the public in its use of the programs. For example, the National Housing Act contains numerous flat dollar limits on the overall size of a mortgage on multifamily housing or on the various types of health facilities. These limits on project size have obstructed the development of desirable and feasible projects or have led to the wasteful use of multiple mortgages. Your committee is familiar with other examples, such as mortgage maturities that differ for different programs and per unit mortgage limits that soon become obsolete or that are too high or too low, depending on cost levels that vary across the Nation.

Each year, Members of Congress receive numerous requests to modify this or that statutory limitation so that a project can proceed to development. Often, legislative relief is too late to help. We have tried to make the revised statute more responsive to the legitimate demands of the public, rather than a repository of detailed and often obsolete specifications.

I know the consolidation will assist us in administering the FHA operations and in streamlining the multitude of procedures now in effect. I am also confident that the Congress will find its oversight duties less frustrating and far more fruitful. Most important, we will

be in a better position to ease the heavy burden the private sector bears when it participates in the FHA programs. The ultimate beneficiaries will be the low- and moderate-income people who look to our programs to meet their housing needs.

I do not intend to go into the details of our FHA consolidation and simplification package. Many of these details were brought out during last year's hearings. In addition, we submitted extensive descriptive and explanatory materials to the committee several weeks ago, and these are also being submitted, if the chairman wishes, for the hearing record. I will discuss briefly, however, the three major changes we are proposing this year with respect to our private subsidy programs to enable them to function more efficiently, more rationally, and more equitably

(1) the establishment of income limits for initial occupancy which are based on median family income levels for the area: (2) the establishment of maximum mortgage limits by the Secretary based on prototype costs for each housing market area; and (3) the replacement of a separate rent supplement program by an integral component of the basic rental assistance program. Now, the existing income limits for the private subsidy programs are essentially determined on the basis of income limits established by thousands of local housing agencies for purposes of the public housing program. For a variety of reasons, there is a wide discrepancy in the income ranges local agencies choose to assist in their public housing programs. But the use of public housing income limits as a base for the private programs results in a haphazard and unfair distribution of subsidy benefits around the country. In some areas a much wider range of families are eligible for assistance than in others, merely because of the decisions made with respect to the public housing program for reasons peculiar to that program. What this means is that in some areas of the country the private programs are operational in only a very limited way, as to the types and locations of assisted projects.

Our proposal to base income limits in the private programs on the median income in the area, with adjustments upward or downward if unusual local conditions warrant a variation, should provide the needed flexibility to serve all geographic areas equitably.

Next, our proposal to replace the statutory dollar limits on mortgage amounts with administratively determined limits based on prototype cost estimates seeks a more equitable operation of FHA programs. This procedure would permit the establishment of mortgage limits by geographic areas on the basis of prevailing cost levels in each area. It would also permit the timely updating of the limits on the basis of changes in land or construction costs. With this flexibility, we could not only accommodate the very high cost areas where nationwide statutory limits have tended to be too low, but we could assure that cost limits are not unnecessarily and wastefully high in other

areas.

We are pleased that a prototype provision was enacted in the 1970 Housing and Urban Development Act with respect to the public housing program. The prototype provision we are recommending this year for the FHA program is modeled after the public housing provisions, and we expect that the administrative procedures used in de

termining cost limits for both sets of programs can be closely coordinated.

Finally, we propose to fold in the rent supplement program as a component of each project assisted under the rental assistance program. At least as much subsidy could be provided in up to 20 percent of the units in any project as can now be provided in rent supplemented units in a current section 236 project. This consolidation would permit us to provide a wider variety of economically integrated and sound projects than we can achieve at present in the face of varying and sometimes conflicting requirements of the two separate programs.

Naturally, we do not consider this housing consolidation legislation the last word on our subsidized housing programs. The President's third annual housing goals report discusses several problems that go to the heart of our present programs. These include their longrun costs, as well as the inequity involved in giving housing assistance to some low- and moderate-income families and not giving it to others in the same circumstances.

We must continue to give these issues very serious study. Meanwhile, we should improve and make more workable the programs we have through prompt enactment of the consolidation package we have proposed.

And, again, I am encouraged by the chairman's opening comments. I believe that we may get early action on this needed legislation. Now, let me turn to the public housing aspects of the bill.

Needed improvements would also be made in the public housing statute. The subsidy structure would be overhauled to provide a more effective statutory framework for the new operating subsidy authorizations enacted by the Congress in 1969 and 1970.

Under present law, the Federal annual subsidy to a public housing project is in an aggregate amount which makes no distinction between the need to pay financing costs-amortization and interest-and the need to provide operating subsidies in those cases where rental income. is not enough to pay for maintenance and operation. The aggregate annual subsidy is determined by taking a percentage of the project's development cost. This percentage consists of the going Federal interest rate plus two percentage points. The formula has a definite relationship to project construction and financing costs, but it is only remotely related to the amount of subsidy which is needed for running the project. The amount available for operating subsidies is whatever is left over from debt service-and this is an irrational way of determining operating subsidies.

This is not said in criticism of the Congress. At the time that the formula was devised, the Federal subsidy was not available to pay operating expenses. Now that it is available for paying operating expenses, we propose to gear the amount to need, rather than to how much is left over after paying debt service.

Our proposal would eliminate the present limitation on the aggregate amount of annual subsidy which may be paid to a local housing authority. Subsidy for project development cost could be paid in an amount not to exceed annual amortization and interest payable on the obligations issued by the local housing authority to finance construction of the project. No more is needed for this purpose.

Consistent with the amendments enacted in the 1970 act, we will provide operating subsidies in amounts needed to assure the basic low-income character of the project and to achieve adequate operating and maintenance services. This change will improve our subsidy program in two ways. First, there is the obvious benefit of gearing operating subsidy to need. Second, it will help clarify the shared responsibilities of the Federal Government and the thousands of local public housing authorities for the efficient and economical expenditure of the operating subsidy funds.

In exercising our share of this divided responsibility, we intend to see to it that the operating funds are fairly allocated to the local public housing agencies on the basis of need. Beyond that, in approving their proposed annual budgets and in our postaudits, we intend to assure ourselves that these funds are prudently spent for the purposes intended by the Congress.

Of the aggregate annual contract authority, up to $200 million would be earmarked specifically for the payment of operating subsidies. The $200 million would cover the $150 million provided in 1969 and 1970 for operating subsidy payments plus an additional amount to cover authority heretofore utilized for the special $120 per annum subsidy payments that serve the same purpose, but that are limited to selected types of dwelling units.

To assure that operating subsidy funds are allocated fairly and equitably, any locality which receives such funds would be required to establish minimum rental requirements. You will recall that action on this matter was deferred in connection with the 1970 legislation to permit further consideration as to what the income contribution ratio should be.

We are proposing an income contribution ratio equal to 20 percent of family income. This ratio has traditional acceptability in the public housing program and is used in many local housing authority rent schedules. It would, therefore, have minimal impact on tenants now residing in public housing units. Localities which do not receive operating subsidy funds would not be subject to this income contribution requirement and would continue to fix their own rents, subject to HUD's approval. All localities would continue to be subject to the recently enacted requirement that rents may not exceed 25 percent of family income.

We are again proposing the enactment of a new public home ownership program which would permit individual low-income families or an association of such families to purchase newly developed housing as well as existing units now operated as dental housing. This would replace the program authorized by the Congress in 1965 under section 15(9) of the U.S. Housing Act which has been unworkable because the required monthly payments are beyond the financial means of lowincome families.

The proposed homeownership legislation would provide subsidy assistance up to the full amount of principal and interest payable by the local housing authority on the debt it has incurred in developing the housing. The purchasing family would be required to contribute 20 percent of its income to homeownership expense, but this contribution would have to be sufficient to cover the full cost of utilities, insurance, maintenance, and taxes. The program provides for the convey

ance of the property as soon as the low-income family undertakes the obligation to purchase the property and execute a mortgage to the local housing authority. Thus, the family would enjoy all the benefits and responsibilities of homeownership immediately.

We believe the potential for a successful public housing homeownership program has been demonstrated under the several home buyer programs such as the turnkey III low-income homeownership program-developed through administrative action. The provision of new homeownership opportunities in public housing takes on added significance when we consider the problems which many local housing agencies are encountering in maintaining and operating their rental units.

The legislation also contains a number of other changes which will make the public housing program more effective. These include: A modification of the definition of "elderly family" to permit a single person who is at least 50 years of age to be admitted to public housing:

The deletion of the requirement that a family must move from public housing if its income increased beyond the local authority's limits for continued occupancy;

The provision of greater flexibility in the way local housing agencies finance the capital cost of their projects; and

Changes to facilitate the modernization of existing projects with $100 million in contract authority to be earmarked for this purpose. The legislation also provides for an additional $150 million in new public housing contract authority for fiscal year 1973.

Now, there is one other bill that would carry out a specific recommendation of the President and on which I hope the committee will take early and favorable action. This is S. 1207, introduced by the chairman for himself and Senator Tower. It would expand our authority with respect to title I home improvement loans that aid in the preservation or restoration of historic structures listed in the National Register of Historic Places. It would prove particularly helpful in stimulating private investment that supplements the limited public funds available for historic and architectural preservation.

That completes my prepared testimony on the several pending bills. I am submitting additional materials, including brief outlines, detailed summaries and analyses, that I hope will prove helpful to your committee and, if the chairman wishes, these additional materials could be printed in the record of the hearings.

The CHAIRMAN. We should be very glad to have them, and without objection, they will be included in the reocrd (see p. 170).

Mr. Secretary, of course, there are lots of questions I could ask, but you have answered some of my questions as you have gone along.

One question I was going to ask, and I think that you covered it very well. Since the question of revenue sharing came up, I have had complaints from the smaller cities, towns, and counties, rural areas, that are outside of the metropolitan area.

I note from your statement this morning, if I construe it properly, that you are thinking of them and that you do include funds that may be used by such localities.

Secretary ROMNEY. That is correct. There is $100 million that would be used to apply the hold harmless principle to communities outside of