Mr. SPENCE. Some of these slum sites would be very valuable for industry.

Mr. EGAN. That is right, or for high-class residential purposes. Mr. SPENCE. It seems to me that ought to be considered. I think probably more could be obtained from the sites if they were used for industry than for housing, and the money obtained might very well be invested in some locality which would be more desirable for housing. Mr. EGAN. I agree with you, Congressman.

Mr. SMITH. Mr. Egan, did you wish to give the impression that the people living in the slums are the ones who will occupy the newly constructed dwelling units?

Mr. EGAN. That is correct. In this bill, Mr. Chairman, it is provided that they must come from a slum dwelling to be eligible for admission. Under the original United States Housing Act, although there was no specific provision on this point, it was certainly implied that the tenants of low-rent housing should come from the slums, and we accordingly established such a requirement in our administration of the act. Tenant families are admitted only if they come from the slums, except that this provision is waived in the case of veterans of low income.

Mr. SMITH. You say that is not in the old law?

Mr. EGAN. It is not in the old law that tenants have to come from a slum.

Mr. SMITH. But they have to come from something less than what you might call a good dwelling; is that not true?

Mr. EGAN. That is right.

Mr. SMITH. It is merely a difference in name; is that not right? The present law merely puts the matter in somewhat different terms, does it not?

Mr. EGAN. That is right. The proposed law, S. 866, is very explicit in stating that tenants have to come from a substandard house. Mr. SMITH. And you say that is not in the old act?

Mr. EGAN. No, sir.

Mr. SMITH. There is nothing like it in the old act?

Mr. EGAN. And there is nothing like it in the old act. No; there is nothing that really hits on that point in the old act, to my knowledge. Now, I do not know whether it is inferred or not, but it is certainly not explicit. It is our policy, however, and has always been the policy of the agency, as far as I know, to require that a family to be eligible for admission in any of the projects built under this program has to come from a slum dwelling.

Mr. SMITH. And there is nothing in the old act which authorizes the Federal Government to pay to the municipalities money in lieu of taxes?

Mr. EGAN. On the contrary, sir, there is a specific provision in the act which does authorize the Federal Government to make payments in lieu of taxes on low-rent projects owned by it. On locally owned projects any payments in lieu of taxes would be made by the local authority and would be considered an operating expense of the local authority similar to insurance premiums, utility charges, and so forth. Since the United States Housing Act does not go into the matter of the operating expenses which a local authority may incur, it is nat urally silent as to the making of payments in lieu of taxes by local authorities. The only requirement of the act is that local contribu

tions (which have been made through tax exemption) must equal 20 percent of Federal contributions.

Mr. NICHOLSON. Mr. Chairman.
Mr. SMITH. Mr. Nicholson.

Mr. NICHOLSON. I think that in Massachusetts the government has always paid Boston and one or two other communities payments in lieu of taxes. Our constitution provides that the only property that can be exempt in Massachusetts is religious, charitable, and educational property. And if they let their buildings for remuneration, then, they have to pay taxes on them. So I am pretty sure that in our law in Massachusetts, relating to slum clearance, that we have written in a provision to the effect that the Federal Government will have to pay us something in lieu of taxes, because nobody can be exempt in Massachusetts except the three groups I have mentioned. The reason the State required that was because in doing away with 8 or 10 acres of land, that instead of Federal Government assisting, it put a higher tax rate on the people of the city. If the city is going to assume those responsibilities, why do they not rebuild the area themselves and leave the Federal Government out of it entirely? Because they are the Federal Government. They are the ones who have to pay, in the ultimate analysis.

Mr. EGAN. Mr. Congressman, I do not know what the actual provision is in the Massachusetts State law as to the tax-exemption feature, but I am quite certain that there is something in that law which provides for tax exemption on low-rent public housing projects.

Mr. NICHOLSON. There is something in our law that this Department has to give us something in lieu of taxes. You cannot tax them because you cannot tax the Federal Government. But if the Federal Government comes in and gets revenue out of it, they come under the same classification as anybody else.

Mr. EGAN. That may be possible, Mr. Congressman. There may be a provision in the State law that requires some payments in lieu of taxes. I would not know. We could look that up. As I indicated to the chairman, we can submit copies of State statutes, for all the States in which the program has been authorized. I would be glad to submit a statement dealing with the situation in Massachusetts. (The statement referred to is as follows:)

* * *

TAX EXEMPTION OF LOW-RENT HOUSING PROJECTS IN MASSACHUSETTS Under Massachusetts law, low-rent public-housing projects are exempt from property taxes. Section 26-R (formerly sec. 26-W) of the Massachusetts Housing Authority law provides in part that "the real estate and tangible personal property of a housing authority shall be deemed to be public property used for essential public and governmental purposes and shall be exempt from taxation and from betterments and special assessments." In the case of Allydonn Realty Corporation v. Holyoke Housing Authority (304 Mass. 288, 23 N. E. (2d) 665 (1939)), the Supreme Judicial Court of Massachusetts held that this tax exemption, as well as the other provisions of the Housing Authority law, was in the furtherance of a public purpose and therefore valid.

Payments in lieu of taxes are, however, authorized by section 26-R. Their amount may be determined by mutual agreement between the local authority and the municipality, or fixed without agreement by the municipality, but in the latter case the amount paid cannot exceed taxes based upon the average assessed value of the property for the 3 years preceding its acquisition by the local authority. In other words, the Massachusetts law, while declaring the property tax-exempt, recognizes that some reimbursement to the locality for governmental services rendered may be made by public housing projects.

Similar provisions are embodied in many of the other public housing laws in the 41 States which have adopted enabling legislation.

Mr. McMILLEN. Mr. Chairman.

Mr. SMITH. Mr. McMillen.

Mr. McMILLEN. How much, would you say, in dollars and cents, the average tenant in one of these public housing units is subsidized? In other words, how much less would his rent be than the average rent paid for a similar unit in that district-the prevailing rent, in other words.

Mr. EGAN. I do not have any figures in mind at the moment, Congressman. I would like to supply it. I would say it is roughly about one-third.

Mr. McMILLEN. About one-third?

Mr. EGAN. Roughly, yes. Between a half and a third of what it might cost otherwise.

Mr. VINTON. We would be glad to submit some figures for the record. Speaking broadly, in order to serve these families of very low income who come from the slums, it is necessary to secure rents, including utilities of about a half or one-third of what private enterprise would have to charge in order to secure a proper economic return for an equivalent dwelling.

Mr. McMILLEN. Based on a business proposition.

Mr. VINTON. As an ordinary business operation.

Mr. McMILLEN. This individual would be subsidized to the extent of one-third to one-half of his rental?

Mr. VINTON. That is not the cost of the subsidy, Mr. Congressman, that is the difference in the rent.

Mr. McMILLEN. You will supply some figures for the record on that point?

Mr. EGAN. That is right.

(The information referred to follows:)

RENTS ACHIEVABLE FOR TYPICAL PRIVATE RENTAL HOUSING IN COMPARISON WITH RENTS FOR A SIMILAR PUBLIC HOUSING PROJECT

A report entitled, "Effects of Taxation Upon Housing," submitted by Senator Tobey of New Hampshire to the Joint Housing Committee, made a comparison of the lowest monthly rent achievable for a unit of private housing built under typical FHA, title VI, financing, and a public housing unit of the same capital cost built by a local housing authority under the United States Housing Act. In this report it was estimated that the monthly rental for a private rental unit built at a capital cost of $6,505 would be $70.70, which includes a net profit of 6.7 percent after taxes.

For a low-rent public housing unit with the same capital cost and same operating cost, it was estimated that the monthly rental would be $24.36 if the maximum subsidy were paid. This is just over one-third of the rental of the same unit if privately built and financed and receiving no subsidy, either local or Federal. If less than maximum subsidy were paid (as is usually the case) the rent would be correspondingly increased.

The report shows that of the $46.34 difference in monthly rent, the Federal annual contribution would account for $18.97 and the local contribution in the form of tax exemption would amount to $7.27. These together total $26.24. leaving a remainder of $20.10 which is accounted for by the absence of profit and by the long-term low interest rate financing which can be obtained through local housing authority bond issues.

Mr. MCMILLEN. May I ask a question: Do you consider this program inflationary, this program as proposed under this public housing provision?

Mr. EGAN. Mr. Congressman, I presume if we moved into that immediately, it probably would contribute to inflation to some degree. However, I do not see how it is possible for us to get any more than about 10,000 units of the deferred project into construction this year, if we got this relief on the cost limits. We could even show you some figures as to how much we could expect to get into construction during the next 5 years. It generally takes, from the time you sign an assistance contract with a local authority, from 6 to 8 months before you can get it under way. On the new program it will be well into next year before there is any substantial volume of construction and by that time the few present shortages in materials should have been cured. Mr. MCMILLEN. There is no provision for a contribution to be made by the State. It all falls upon the Federal Government and the municipality; is that true?

Mr. EGAN. That is correct, sir.

Mr. MCMILLEN. How do feel about that? Do you feel that the State has an obligation, a financial obligation, to make a contribution to this subsidy? Do you not feel that the States, in many cases, have been very backward, and that some of them have done nothing, toward attempting to correct this situation in the years gone by, whereas they should have done something-in the way of not permitting these slums and blighted areas to grow up in these municipalities?

Mr. EGAN. Congressman, some States have actually done something. For instance, I can give you an indication of what the State programs are throughout the country. I believe we have a record of that. But I think on the low-rent housing there are only four States, New Hampshire, Massachusetts, New York, and Illinois, who are actuaily providing funds for State programs for that purpose.

Mr. McMILLEN. I am familiar with the program in Illinois.

Mr. EGAN. Yes. New York State's program is a major program. It is much larger than the Federal program in that State.

Mr. MCMILLEN. Do you feel that there ought to be some provision in the law compelling other States, which have not already done so, to make a contribution to this cause?

Mr. EGAN. I do not know. It is certainly up to the Congress to make that determination.

Mr. McMILLEN. What is your opinion about it?

Mr. EGAN. I think some States just would not be able to do it.

Mr. McMILLEN. Do you not think that perhaps some pressure ought to be put on those States so that they would be compelled to perform their obligation as to other States which you mentioned?

Mr. EGAN. Even in those States, the programs to which they are contributing are supplemental programs to the Federal program. They are not contributing directly to the Federal program. I know that there would be many States which would never be able to participate in the low-rent housing program if they were forced to put up capital funds. In my opinion, it comes down to a factual situation, as to whether, by putting such a requirement in the legislation, we would be discriminating against those States which could not afford it. That is the thing that bothers me.

Mr. McMILLEN. Is it not true that many of the States are far better able financially to make a contribution here than the Federal Government is? If you compare the public debt with the debts of the various

States, are not the States in a far better position to look after some of these obligations than the Federal Government?

Mr. EAN. I presume that is so of some States, Congressman. I do not think that is generally true, however. But I could not really say. I am not informed enough to know whether the States are better off financially than the Federal Government.

Mr. FLETCHER (presiding). Mr. Riley.

Mr. RILEY. I want to go a little further into this tax situation, Mr. Egan. I am frank to say that I know very little about public housing and I am trying to get some information on it. In some of the States, Mr. Egan, the principal income to the schools is through ad valorem

taxes.

Mr. EGAN. That is correct.

Mr. RILEY. Collected by the school districts and by the municipalities?

Mr. EGAN. That is correct.

Mr. RILEY. I believe you stated in your testimony that a great many of these families in the low-cost housing units are very large families. That throws quite a burden on the educational facilities of the political subdivisions of those States who derive their income from these ad valorem taxes. I wonder if there is not justification, then, for a contribution toward the tax income because of the educational expense occasioned by taking care of these families.

Mr. EGAN. Well, of course, that is the argument that is presented to us constantly by the localities. The payments in lieu of taxes that we have made in the past under this program are allocated through the various taxing jurisdictions, which would include the school districts. Even where there is a county tax, the county would get a percentage of it. It does not all go to the municipality.

Mr. RILEY. Some States derive their income for school purposes from indirect and income taxes almost altogether, but others have to depend on the ad valorem taxes?

Mr. EGAN. That is correct.

Mr. RILEY. So that there is a discrimination between these States and those which have a different tax structure.

Mr. EGAN. I think there is.

Mr. FLETCHER. Should that not be uniform, Mr. Riley, straight through? There is 5 percent in lieu of tax payment. Should that not be uniform? Why should one State get more than another?

Mr. EGAN. I think it should be a uniform policy, Mr. Chairman. I think that in the early days of this program, as I read the history of it, there were some localities which were more concerned, because of low incomes of their people, with keeping the rents low, and so were willing to sacrifice any payments in lieu of taxes. Others felt the rents would not have to be set quite so low and that there could be some contribution in lieu of taxes.

Mr. RILEY. Mr. Chairman, the reason why the ad valorem taxes in some communities are higher than they are in others is because there is no other source of income. So some consideration, it seems to me, should be given to that. That is one of the problems arising out of a program of this kind.

Now, as I understand it, the Federal Government contributes up to 10 percent of the shelter rent of the project.