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 homeownership 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 rental 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 low-income 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 conveyance 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 homebuyer 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 increases 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.

OTHER LEGISLATION

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 avaliable 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. If the Chairman wishes, these could be printed in the record of the hearings.

The CHAIRMAN. Now, the other group that I had some complaints about, but I think you covered also, and that had to do with these cities and areas that had been active in the programs heretofore, and perhaps have carried on to a point that they would they might not be held eligible for additional help, but I believe you answered that in your paper also.

Secretary ROMNEY. That is correct, because the hold-harmless principle applies to those communities, Senator. What we do is to establish a base period. We take a 5-year period, and we use that as a base period in determining the level of funding that they have been receiving under the programs that are consolidated under special revenue sharing and then we give them an assurance that they will receive at least that amount of money in the distribution of the $1,900 million, and that they will continue to receive at least that amount indefinitely. That is not something that expires. Indefinitely, except for the model cities amount. And the model cities amount, because the model cities program was enacted as a program that was intended to last for only 5 years, would carry forward only to that extent in the hold-harmless principle. But as far as the other categorical programs are concerned, localities would continue to get money at least equal to what they had been getting.

We believe this is very equitable with respect to the cities that have been very active in the programs, and been getting grants, and at the same time it provides the opportunity to fund cities that haven't been funded in the past.

Now, in some instances, this is because they haven't been active. In some instances, there has been inequity in the distribution of funds, and considering the complexity of these programs, and the extent to which communities have either spent a great deal of time themselves in becoming familiar with the processes, the procedures, or of hired people who are familiar with them, they have benefited disproportionately to others that haven't equal expertise.

So we think that what we have done is to develop a means by which we can develop a greater degree of equity as we go forward here with respect to both types of communities.

The CHAIRMAN. Yes, sir. I want to ask you just one thing about the public housing proposals. One of the proposals is the deletion of the requirement that a family must move from public housing, if its income increases beyond the local authority limits for continued Occupancy. What arrangement will be made with that?

Secretary ROMNEY. Well, they will pay a higher rent if they remain. In other words, they wouldn't continue to be subsidized if they didn't need the subsidy. They would be permitted to stay on. Now, the reason for that is this, Senator: That if you go back over the history of public housing, what has happened is that initially public housing had a pretty good mix of families from an income standpoint. You had families in public housing that were moderate income families as well as low-income families, but over the years, as a result of many things, the tendency has been for the public housing units to be cccupied just by low-income families, and to a very considerable extent by problem families, and the result is we haven't had the degree of income mix that is really desirable in the housing project.

Consequently, we think it is wise to permit families whose income improves when they are in public housing to remain there, providing they are willing to pay a higher rent for the unit they occupy.

The CHAIRMAN. Of course, there is a provision in the law now that allows them to stay there if they cannot find housing in the community to meet their needs.

Secretary ROMNEY. I think that is right. We think this ought to be encouraged more than it is.

The CHAIRMAN. Well, it seems good to me. Senator McIntyre? Senator MCINTYRE. Thank you, Mr. Chairman, Mr. Secretary, I am interested in the formula you discussed; four ingredients: Poverty, density, need, population. Now, every time I have heard about revenue sharing, I have heard of a formula which includes what is referred to as tax effort. Is that not included in this particular formula?

Secretary ROMNEY. Well, Senator, the tax effort factor is a part of general revenue sharing. In the case of general revenue sharing, the formula is population and tax effort. That is the $5 billion that would be distributed automatically to States and local units of government. But the urban community development special revenue sharing program is based on the four factors that I have mentioned. So it does take into consideration need, in three of the four elements: Poverty, housing deficiencies, and the extent to which there is overcrowded housing.

Senator MCINTYRE. That formula then will be kind of loose, will it not? It will be pretty much at your discretion?

Secretary ROMNEY. No. It is very fixed.

Senator MCINTYRE. How do you measure need?

Secretary ROMNEY. All four of those things are established by census figures, so we take the 1970 census figures and we use those as a basis of automatic distribution, and there is no discretion there. Senator MCINTYRE. All right. That is good. When you answered the chairman's question-in his bill, he has listed those cities that have participated in this program, and he doesn't want to see them limited, so in his bill, he provided for 75 percent of a base figure, like 2.5 billion, and you have answered that this would be the basis for allocation of funds; but does that compromise your formula at all?

Secretary ROMNEY. Let me explain it a little bit. What we have asked for is $1,900 million. Now, we take 80 percent of that billion 900 million and we divide that on the basis of these four factors: Population, housing deficiencies, overcrowding, and poverty, as between the metropolitan areas, and then in the case of each metropolitan area, we would use those same four factors to distribute the amount allocated to that individual metropolitan area as between the communities of 50,000 or more. So it is an automatic amount that goes to the metropolitan cities, all of the cities of 50.000 or more or the core cities in the standard metropolitan statistical area. So all of the metropolitan cities would get an automatic amount of money through this formula.

Senator MCINTYRE. But it does become a fifth factor. It is another part of the formula?

Secretary ROMNEY. What?

Senator MCINTYRE. In attempting to keep up the level.

Secretary ROMNEY. That is in addition to the automatic formula. The hold harmless principle is in addition to the automatic distribution, and because we want to make certain that no community will get less than it has been getting under the categorical assistance programs, we give them assurance that if the amount they get under the automatic formula that I have just described results in a lesser amount than they have been getting over the base period, then we would make up the difference out of the discretionary 20 percent-20 percent of the $1,900 million that was not distributed automatically to metropolitan areas so that every community that has been receiving funds under our program would get funds under this program.

Now, Mr. Chairman, there is one difference here between the approach in your bill and the approach in the special revenue sharing that we think is a very important matter that I may not have developed as fully in my written statement as I think it should be developed, and that is this: That under the special revenue-sharing proposal as we have submitted it, the money would go to the mayor, or those responsible for governing the general purpose unit of government.

Senator MCINTYRE. Elected officials?

Secretary ROMNEY. That is right. Now, under S. 2333, the money could go to the mayor, but the indication is that the intention is that the money would go to a community development agency, which could become an independent agency, such as other agencies that are set up under similar Federal legislation.

We think it is very desirable for this money to go to the mayor and those responsible for running the general-purpose government, so that they can determine its use, and so that they can sponsor its use, and that there not be a diluted responsibility at that local level. We think there will be a much better result, and furthermore, we think the people can hold the mayor or the general purpose officials responsible a lot better than they can some commission or authority that has been appointed semi-independent.

Senator MCINTYRE. Well, you know, I tend to agree with you on that point. This is the first time I have really had a chance to discuss with somebody in the administration the revenue-sharing proposal. There is a real problem in my State, particularly when you talk about the tax effort part of the formula, and the $5 billion new money. On the issue of local control, I have had instances where something was done by the housing agency, and it irritated, to say the least, a seg. ment of the population of the city I have in mind. A young man went out and got elected to city council. He got to the council thinking he could do something about this, and found out that he couldn't. What happens to these housing agencies now? As I get the picture, Mr. Secretary, what happens is that the housing agency comes in with a plan at some time during the year and the mayor and city council ultimately approve it, and then there is a great deal of flexibility allowed to the housing agency in implementing the plan. It may decide to put a high rise here or something else there. They have a chance to change it a great deal from what they really proposed.

Secretary ROMNEY. I think I need to make a little clear the fact. that the consolidation of categorical programs applies only to the community development programs. It doesn't apply to any of the housing programs. The housing programs would not become a part

of the special revenue sharing. The housing programs would continue to operate pretty much as they operate now, and they are pretty much out of the range of influence of the local officials, particularly because of the creation of public housing authorities. They are responsible for the public housing that goes up within the community, and the degree of influence local officials can have after a separate authority has been set up varies a good deal. In some places they have some influence, and in some places they don't. But in any event, as far as public housing is concerned they don't have direct control over that. As far as the other programs are concerned, the FHA programs, the subsidized and unsubsidized, those are all programs undertaken by independent, private profit or nonprofit organizations, and consequently, the local officials don't have the opportunity to influence

that.

Now, the House Banking and Currency Committee has completed some studies. They had three panels, and in legislation that they have suggested, they would give local officials some authority over the location of housing by requiring the creation of State and metropolitan housing authorities. But at the present time, the local officials are limited to such influence as they can exert through the public housing agency, and through such means as zoning and actions of that type. But the housing programs are not a part of special revenue sharing. They continue to function as they have been functioning. What we have recommended in housing is a simplification and consolidation of the programs.

Senator MCINTYRE. Water and sewer? What are the other three? Secretary ROMNEY. Water and sewer is not now in. Water and sewer is out because we felt that, as we took a look at it, the water and sewer programs had been of particular benefit to smaller communities, and there were reasons why water and sewer should not be consolidated.

The programs that are now consolidated are urban renewal-and that includes neighborhood development as well as conventional, and includes the demolition and rehabilitations, all part of urban renewaland also model cities, and rehabilitation loans, and neighborhood facilities. Those are the programs that are consolidated.

The CHAIRMAN. Would the Senator yield very briefly?
Senator MCINTYRE. Yes, sir.

The CHAIRMAN. Mr. Secretary, in view of this statement, I believe you want to make a change in your printed statement, because you do say:

"Funds could be used to acquire, clear, and redevelop land to construct public works, such as water"-that is on page 12-"water and sewer facilities."

Secretary ROMNEY. That is correct, Senator.

The CHAIRMAN. Why

Secretary ROMNEY. That is because community development as proposed is broad enough to include water and sewer development in the communities that may not get water and sewer grants.

The special revenue-sharing funds could be used for water and sewer projects. That would be up to the local communities to decide. The CHAIRMAN. Could be used.

Secretary ROMNEY. Surely.

The CHAIRMAN. I thought you said they would not be used.