clear that the proposed legislation will allow, during the initial rent up period, admissions of persons whose income exceeds the median income for the area even though such persons may be prepared to pay the full market rate for housing and receive no subsidy. This can now be done under section 236 as long as lower income families are given preference in obtaining the housing. In addition, it is not clear under the new 502 that families whose incomes rise, after they are admitted, above the median can continue to live in the project and pay full market charges. Currently, under section 236, the admission income limits are only applicable during the initial rent up period. Both of these important concepts should be continued under 502 because they will contribute to economic integration and produce better communities where occupancy is not limited to those receiving Federal assistance. NHC strongly supports the proposed legislation authorizing the disposition by local public housing authorities of newly developed or acquired housing as well as existing projects to the residents and other low-income families. Upon such disposition of public housing we also support the proposal for continuing the annual contributions to enable the achievement of monthly charges which the low-income residents can afford. However, we believe that there are serious problems in the proposed legislation. An amendment is needed to provide for necessary repairs and improvements in existing public housing before its disposition. Lowincome families should not take over housing which needs such repairs and improvements to make it suitable for their ownership. Loans should be available to provide for this additional work together with the cost involved in achieving homeownership of low-income families. Currently the proposed legislation contemplates only the need to include closing costs and prepaid expenses. Therefore, it is necessary to add a provision allowing supplemental annual contributions to be authorized to cover the debt service on such loans from the Secretary or others required to make such repairs and improvements, cover conversion expenses and other closing costs and prepaid expenses. In addition, the proposed legislation provides that the price charged by the local housing authority is (1) the portion of the unpaid balance on the public housing agency's principal debt on the project at the time of scale, in the case of housing built specifically for immediate resale to tenants and other low-income families, or (2) the appraised value at the time of the sale, in the case of existing projects. In addition, there are provisions for mutual self-help projects which provide for the eventual purchase of the units. The interest rate to be charged in any event is either the maximum rate applicable to mortgages insured under section 402 or the rate on the public housing principal debt on the project, whatever is greater. These provisions should be amended to provide that the sale price under any circumstances will be no more than the amount of the outstanding bond indebtedness plus the cost of any supplemental loan to cover necessary repairs, cost of cooperative conversion, closing costs, and other prepaid expenses. Accordingly, the legislation should make clear that the annual contributions would continue not only to cover the outstanding bond indebtedness but would also govern the debt service on the difference between the outstanding indebtedness and the new loan amount. Likewise, an amendment is needed to make clear that the interest rate will in no case exceed the rate on the public housing agency's principal debt on the project. There are several amendments required to retain provisions in existing law which were found necessary as a result of past experience, especially with respect to cooperative housing. There are real distinctions between programs which result from their essential differences and needs. Where existing laws recognize the need for special provisions adapted to the unique requirements of a program, these provisions should be continued. These amendments are explained in detail in the NHC position paper. The proposed bill should be amended to continue on all eligible projects a profit and risk allowance of 10 percent of estimated projected costs except the value of land or property prior to construction where the mortgage amount does not exceed 90 percent of replacement cost. As proposed, the bill would only allow a profit and risk allowance of 10 percent of estimated project cost on section 502 projects and would only allow a "profit and risk allowance" of no specified percentage for other eligible multifamily projects. Since 1956 the housing laws have directed that FHA include such allowance in its estimate of replacement cost on certain multifamily projects. This policy is necessary to attract developers of multifamily housing and to achieve the objectives of the national housing partnership. In projects involving cooperatives and other nonprofit mortgagors, an amendment should also provide that the Secretary shall include in replacement cost an amount for the developer's profit and risk which will be fair and uniform as compared with the amount allowed in projects involving profit mortgagors. This is necessary to avoid discouraging or discriminating against the construction of cooperative and other nonprofit projects. The proposed amendment would provide a reasonable profit and necessary protection to the developer against the price increases and risks that generally occur during the period of 12 to 18 months until a project is completed after the issuance of an FHA commitment which fixes the replacement cost and mortgage amount. In the case of consumer cooperatives where there is no identity of interest with the developers the profit and risk allowance in the replacement cost becomes a part of the lump-sum construction price and covers risks imposed on the developer to protect the purchasing-cooperative members against any increase that occurs in development costs after the member has purchased his unit. An amendment is necessary in the cost certification provision to cover cases where prefabricated houses or major housing components are furnished by a subcontractor or supplier having an identity of interest with the mortgagor or builder. In such cases it is not feasible to have a certification relating to the costs involved in the factory production of such houses or housing components. Accordingly, the cost certification should provide for an allowance representing the Secretary's estimate at the time of the issuance of the commitment of the value of such prefabricated housing or major housing components. 66-138 - 71 pt. 2 4 Amendments are also necessary to sections 501 and 506, in order to retain provisions of existing law regarding cost certification. There has been successful experience and effective administration under these provisions for many years. It is necessary to continue these provisions and avoid uncertainties regarding the manner in which cost certification is handled. We are opposed to repealing well established statutory rules and granting broad administrative discretion which will create doubts and uncertainties that could adversely affect housing production. Many State laws provide for higher ratio loans by banks and financial institutions when a mortgage is insured by FHA under the National Housing Act. We recommend an amendment that would assure that loans insured under the 1971 act would be regarded as loans insured by FHA under the National Housing Act so they will continue to be eligible for the higher ratio loans under State law. The Tax Reform Act of 1969 provides certain tax incentives relating to the construction and sale of limited-distribution projects under sections 221 (d) (3) and 236. A suggested amendment would assure that comparable projects under the 1971 act would be eligible for these tax incentives. The proposed bill does not contain adequate advance authorizations for our housing programs. Therefore, we recommend additional authorization for each of the following programs. In addition, it should be noted that the bill actually "drops" existing authorization for the rent supplement program. We have added these existing authorizations to the section 502 authorizations. The amount of the authorizations which we recommend are as follows: (a) Home ownership program under section 402: On July 1, 1971 (for fiscal 1973) an additional authorization of $250 million. On July 1, 1973 (for fiscal 1974) an additional authorization of $300 million. (b) Rental and cooperative housing program under section 502: On July 1, 1971 (for fiscal 1972), an additional authorization of $240 million. On July 1, 1972 (for fiscal 1973), an additional authorization of $350 million. On July 1, 1973 (for fiscal 1974), an addititonal authorization of $400 million. It should be noted that under the proposed bill section 502 would include both the interest assistance (which now includes the section 202 elderly housing program) and rent supplement programs; accordingly, the proposed authorizations reflect the needs of both programs. (c) Public housing program for new units to be developed : On July 1, 1971 (for fiscal 1972), an additional authorization of $300 million. On July 1, 1972 (for fiscal 1973), an additional authorization of $350 million. On July 1, 1973 (for fiscal 1974), an additional authorization of $400 million. We appreciate the opportunity to present the views of the National Housing Conference on these important legislative matters. The CHAIRMAN. Thank you very much for that statement. I want to say that I am impressed by what I consider the merit in many of the suggestions you have made. They certainly will be considered by this committee when we take up the legislation. Mr. KEITH. Thank you, Mr. Chairman. The CHAIRMAN. I note your reference to the water and sewer grants. You suggest that they be continued as a separate fund. Let me say that in developing my bill, S. 2333, the choice was made to treat the water and sewer program the same as the other four development programs and wrap them all up into one community development package. We recognize the popularity of the water and sewer program, but I rather feel that it should be handled the same as urban renewal and other programs. The result is the water and sewer grants would be made to a large city only as a part of and overall community development plan on the part of the city. Otherwise the city would get funds for water and sewers, but have no obligation to carry out other developmental activities. Let me say there is an exception which I am sure your noted in the bill: At the discretion of the Secretary, exceptions can be made for cities of less than 25,000 population to permit a grant for the single purpose of water and sewer, without a requirement to undertake a comprehensive community development effort. I feel that something like that would be necessary. But that is one of the things we will have to work out when we consider the bills. Mr. KEITH. Yes. The CHAIRMAN. You refer to the 10 percent local participation. I may say that we have received objections to the proposed 90-10 formula because it does not include the usual noncash grant-in-aid credits as in urban renewal. Some claim that many more development dollars would be spent if the city were required to put up at least one-fourth in noncash credits. Would you comment on that? Mr. KEITH. Well, I would say first, Senator, that the background for our proposing that the communities still retain the option of getting credit for public improvements and so on, that they contribute out of their own capital budgets, even on a 90-10 basis, is predicated on the position that in a number of municipalities, cash funding is so limited that this might well present an obstacle, even if it is only 10 percent, to actually come up with 10 percent in cash, and that might in some cases present a problem. Now, your further suggestion of retaining the noncash grant-in-aid credit on a 25-percent basis rather than the 10 percent proposed, or rather than the one-third basis that has long existed in the urban renewal program, would in my opinion be preferable to the present formula on urban renewal. I would still think that from the standpoint of the objectives of your bill, that the 90-10 ratio would be more desirable. The CHAIRMAN. Let me say that I fully agree with you. There ought to be an allowance for the grant in aid for noncash contributions. The matter of working out the formula is something we will have to consider further. Now, I would like to ask you to do one thingI don't ask you to answer this now-but I would be glad if you would submit for the record a statement about something that you did not Chirwan kahermmittee on Horng and Ton for DEAR SEATOR PARKMAN: During my tentionET VE CAL & M 13. Jos requested that I catal font te vema of the National Housing Conference of the Dreams fata fr curly tenertem grants proposed in the L We #PRET exon this formula as equitable, aMCR the te advity and accompilements by comnmites peringating in grain programa which wold be consolidated, and as providing beforeER awnining watefactory performance. We also support the petriste ees percent of the community development grants for allocation tr HED TO COMBIünities which had not previously been active in categorical grant programs, to communities whose basi: grant entitlement is def woffment to meet urgent development needs, or communities which bare sostined disers as determined by the President. The basic grant entitlement for active communities would be determined as the average annual amount of Federal grants or loans under the categorical programs to be merged which they have received during the three largest years during the past five. The grants could amount to 115 percent in the second year. and 145 percent in the third year. For communities receiving grants under the Hecretary's special allocation authority, grants in the second year may equal 115 percent of the first year's entitlement and 130 percent in the third year. The NHC also strongly supports the provision in Section 6(b) of 8. 2333 that previous grants or reservations made to communities under the categorical programs to be consolidated shall not be deducted from the basic grant entitlement of the respective communities. Sincerely, The CHAIRMAN. Senator Tower? NATHANIEL S. KEITH, President. Senator TOWER. No questions, Mr. Chairman. Senator STEVENSON. Mr. Keith, you suggested the water and sewer program not be folded into the community development assistance program. What is the rationale for deciding which programs to fold in! For example, why should the open space program be terminated, as it is under S. 2333, and not, for example, the Model Cities program? What should the rationale be for making these distinctions between one and another, as to whether they should be folded in or not? |