While postponing detailed discussion of the proposals concerning low-rent public housing until Mr. Egan can present his testimony, I believe I should again make clear to your committee my own general views on this subject.

Our constant effort should be to strengthen and improve the private housing industry so as to broaden steadily the area of national housing needs which it can serve. I believe the measures in this bill which I discussed previously will give substantial impetus to this effort. With full and energetic cooperation by industry, labor and government, these measures should make it possible to reduce progressively the need for public housing by constantly enlarging the housing market which private enterprise can effectively serve, with housing both new and old.

Nevertheless, we cannot ignore the fact that notwithstanding this encouraging prospect of progress there remains today and will probably remain for years to come a percentage of families who, because of the low level of their income, must live in slums or other inadequate housing. I hope and believe that the percentage of families in this predicament will constantly decrease in ratio with the progress of the private housing industry. However, so long as any group of American families must perforce live in such housing with no hope for relief through their own efforts, I do not think that this country, with its democratic principles and its high standard of living, can turn its back upon them.

Furthermore, I do not believe there is now any practicable alternative ways of providing these families with adequate housing of minimum standards other than through public aid.

On the whole, it seems to me that the basic formula and procedures established by the United States Housing Act of 1937 have worked well and have made possible the provision of low-rent housing for low-income families. The bill seeks to improve and perfect that act. There may be better methods for extending this public aid but, if so, these methods have not yet been formulated despite intensive study of this problem area for many years. Unless and until better methods are formulated, I think we should move forward on the basis of the procedure already tested by experience.

I will comment only briefly on the remaining titles of the pending bill, since your committee will undoubtedly want to hear from the Department of Agriculture, which would be charged with the responsibility of administering the farm housing title, and from the Veterans' Administration, which would be charged with the responsibility of administering the "paraplegic" title.

While I am not an expert on the special problems of farm housing, I have studied the farm housing title of the bill and believe that it represents a workable approach to the problems in this field.

From the standpoint of the coordination of this program with the balance of the programs contained in the bill, I should point out to the committee that the Secretary of Agriculture, who would be responsible for the administration of the farm housing title, is represented on the National Housing Council.

As to the title authorizing special housing aids for the so-called paraplegic cases among veterans, I believe that veterans suffering from

this type of total disability as the result of their miiltary service merit sympathetic assistance from their Government. The administration of this title would be wholly the responsibility of the Administrator of Veterans' Affairs.

In conclusion, Mr. Chairman, the pending bill contains a combination of measures which, in my opinion, would be of far-reaching benefit and importance in assisting the country in meeting and eventually overcoming its long-standing housing problems.

And now, if it is agreeable, I would suggest that your committee permit Mr. Egan to present his statement with respect to the low-rent public housing provisions of the bill or hear from Commissioner Richards, of the Federal Housing Administration, as to any details with respect to the FHA amendments.

I thank you very much, Mr. Chairman and members of the committee.

The CHAIRMAN. On page 17 of your statement (transcript, p. 31), Mr. Foley, in the last paragraph on the page, you say:

I believe that there is a rather general agreement that a combination of Federal and local fiscal aid is necessary to make any substantial dent in this special problem area.

On what do you predicate your conclusion that there is a responsibility on the part of the Federal Government to participate in such a program?

Mr. FOLEY. If I understand your question, Mr. Chairman, it is as to on what I base my conclusions as to a responsibility on the part of the Federal Government, or as to the more basic facts

The CHAIRMAN. Why is it necessary that the Federal Government participate?

Mr. FOLEY. There had been a good deal of study in the Congress in previous years, by various committees brought to a head again in the past year by a subcommittee headed by Senator Bricker-on the comparative fiscal situations of State, municipal, and local governments and the Federal Government and their relative ability to proceed on a problem of this kind.

Prior to the war the finding was, I think, that the Federal Government was in a much better position, fiscally, to assist than the States and communities were to carry the whole load. There was some feeling, I believe, generally and quite understandably, that the changed situation during the war resulted in a changed situation with respect to State reserves. There was some feeling, I suppose, that this put the States and communities in a better position in that respect.

However, it is my understanding that the postwar study indicates that much of the improved situation, in the States particularly, resulted from the deferment of public works that must now be undertaken. This leaves the situation substantially, relatively, as it was before the war.

Studies on that are available, and they can be furnished for the committee, if you wish.

(The statement referred to is as follows:)

A review of the relative financial capacity of the Federal Government and of the States and local governments, the present financial condition of States and

cities, and some recent studies and reports which have considered this general subject indicate that Federal financial assistance for low-cost housing and urban redevelopment is both necessary and desirable.

Financial capacity. It is the same citizen of the United States who as a taxpayer pays Federal, State, and local taxes. It is his resources and the resources of all the other taxpayers like him, which determine the financial capacity of the Federal Government, the States, and local governments.

There are, however, basic differences between the practical capacity of the revenue systems of different levels of government. Local governments are creatures of the State in which they exist and draw their taxing power from that State. Local governments rely today for almost two-thirds of their revenues on the general property tax. This tax has stringent practical and legal limitations. In several States the maximum tax rate is fixed by statute or constitution. Practically, however, when general property taxes in any State reach too great a proportion of the earnings of a property, tax delinquency increases and tax revenues fall off.

States have the power to tax their full resources, but they are in a less strategic position to levy progressive individual and corporate income taxes and excise taxes than the Federal Government. These taxes have formed a large portion of the total of the combined revenues of all governments in the last few years. When State income or sales taxes become too burdensome, the taxpayer can move his residence or place of incorporation to another State. The Federal Government is not confronted with this problem, unless the taxpayer chooses to abandon his assets in the United States and leave the country.

The Federal Government's revenue system produces more than four times the combined revenue of States and cities. Estimates of Federal revenue for 1948 amounted to 45.2 billion dollars, while in 1946 (the latest year for which data are available) State revenues amounted to 7.2 billion dollars, and city revenues to 3.6 billion dollars. Actually the difference is still greater because State and local revenues include substantial sums received from the Federal Government. The maximum annual subsidies for housing and urban redevelopment which would be authorized by the passage of S. 866 amount to about one-half of 1 percent of current annual Federal revenues. The local contributions required as a condition of the Federal grants would consume a much larger share of the revenues of the local governments concerned.

The capacity of Federal, State, or local governments to borrow is dependent upon their respective revenue systems. Most local governments have constitutional or statutory debt limits fixed as a percentage of assessed valuation. However, bond buyers characteristically watch the financial condition of local governments and the credit of most muncipalities will dry up before their legal debt limits are reached.

In 1946, there was a substantial increase in new muncipal bond issues and in 1947 the Bond Buyer (principal municipal bond magazine) reported an alltime high in new municipal issues. The same publication forecasts a still greater volume of new State and municipal debt in 1948.

State debt is generally low. However, most States have stringent constitutional or statutory debt limits and some States are prohibited from issuing any bonds at all. In the last analysis, State borrowing would be limited by State revenue systems, which, as indicated above, are more limited in important respects than the Federal revenue system.

Current financial condition of States and local governments. In a recent study, The Coordination of Federal and State Taxes, a Senate committee, headed by Senator Bricker, summarized the factors contributing to relatively strained State and local financial conditions at the present time. The report of this committee states that "State and local governments have increased their annual rate of spending by about $5,000,000,000 over the last 2 years." Most of this increase has been for salaries and accumulated deficiencies in plant and equipment. At the same time, many State and local revenues, notably those from the highly important general property tax, have not expanded to any appreciable extent. Early Mallery, director of the American Municipal Association, has supported these findings by his statement that although cities increased their receipts by 11 percent in 1947, this amount was "only a drop in the bucket" compared with increases in wages, education costs, improvements, and other expenditures which advanced 67 percent.

State surpluses and deferred improvement projects.-On June 30, 1946, surpluses in State funds amounted to 2.9 billion dollars. These surpluses, however, are more in the nature of suspense funds for they cover only a small portion of the backlog of proposed State and local construction, which is reliably estimated to exceed $10,000,000,000.

Further evidence of the need for Federal assistance.-In 1943, the Secretary of the Treasury, at the request of the Senate, prepared a comprehensive report entitled, "Federal, State, and Local Government Fiscal Relations," which recognized the need for Federal assistance in this field. The report suggested urban redevelopment and low-cost housing as creative opportunities for public investment; that is, laying the groundwork for greater private investment and progressively higher national incomes. The program suggested was a system of loans and grants by a Federal agency for urban redevelopment and low-cost housing to be undertaken by local governments.

More recently Senator Wagner addressed specific questions regarding Federal assistance for low-cost housing and urban redevelopment to the governors of the States, mayors, and prominent individuals. Almost all of the responses to Senator Wagner's survey testified to the financial incapacity of local governments to bear these costs alone, and showed the need for a program of Federal assistance. Further evidence of the inability of State and local governments to finance entirely from their own revenues low-cost housing and urban redevelopment lies in the fact that only four of the wealthier States have felt able to authorize funds for these purposes in spite of a general recognition of the costs and evils of widespread existing slums and the acute shortage of adequate housing.

Mr. FLETCHER. Then the answer is fiscal conditions.

Mr. FOLEY. Correct. That is what I understood the Chairman wished to discuss.

The CHAIRMAN. Are there any further questions of Mr. Foley before we call Mr. Eagan or Mr. Richards?

Mr. SMITH. Mr. Chairman.

The CHAIRMAN. Dr. Smith.

Mr. SMITH. Mr. Foley, the States have to pay for this anyway, do they not?

Mr. FOLEY. I am sorry, Congressman; I did not hear you.

Mr. SMITH. The States will have to pay for this anyhow, will they not? The Federal Government has no money, has it?

Mr. FOLEY. Do you mean in the sense that the taxation will come from the people in the States?

Mr. SMITH. Yes.

Mr. FOLEY. Yes; Congressman; that is true.

Mr. SMITH. Do you think you are making a point by saying that the Federal Government is more able to do this now than the States, or, in any event, regardless of whether the Federal Government has any debt or not?

Mr. FOLEY. I think, Congressman, that what you have to consider there, of course, is the question of timing, and, as I have indicated, I think the longer we wait the more the problem will grow. And you have also to consider the relative ability of the States, the cities and the Federal Government to raise funds.

Mr. SMITH. To do what?

Mr. FOLEY. To raise funds. The limited taxation base of the cities, in particular.

Mr. SMITH. You think this is merely a matter of who has the power of taxation, then?

Mr. FOLEY. To some extent, that is true, sir.

Mr. SMITH. To what extent?

Mr. FOLEY. To a very considerable extent at present.

Mr. SMITH. You base your statement, then, not on what you believe and know to be a fact and that the Federal Government should make itself responsible for undertaking this task of clearing slums, and so forth?

Mr. FOLEY. I do not mean to convey, Congressman, that there are no other reasons why the Federal Government should be interested in the slum situation than purely a narrow one of who has presently the greater power to raise funds.

Mr. SMITH. But you said "in large measure."

Mr. FOLEY. In large measure, as a practical matter, if we are to attack the situation reasonably soon, that becomes a factor; yes, sir. Mr. SMITH. The weight would be on the side of the taxing power, would it not?

Mr. FOLEY. If you are considering only the fiscal question involved; yes, Congressman.

The CHAIRMAN. Are there further questions of Mr. Foley?
Mr. GAMBLE. I have a few questions.

The CHAIRMAN. Mr. Gamble.

Mr. GAMBLE. Mr. Foley, on page 16 and the following pages of your statement (transcript p. 30) you discuss slum clearance and urban redevelopment, in which our housing committee has been very much interested and received a good deal of testimony, particularly under the Chicago plan, which is financed by the State of Illinois and the city of Chicago and which is going ahead, I understand, with some degree of success.

On page 19, sir (transcript p. 34) you refer to the necessary loan funds in the amount of $1,010,000,000, all of which funds are repayable with interest. That is the money that you loan for the purchase of these areas and the redevelopment of them.

Mr. FOLEY. The original assembly thereof; yes, sir.

Mr. GAMBLE. That is correct. Then you refer, in the next paragraph, to the subsidy assistance under this title, taking the form of capital grants. Does that take care of the contemplated loss between the purchase price paid and the sales price after the demolition has taken place?

Mr. FOLEY. That is correct, Congressman.

Mr. GAMBLE. I am just trying to get it clear in my own mind. Mr. FOLEY. That is correct.

Mr. GAMBLE. So that you make your loan under the $1,010,000,000 for the carrying through of this proposition. Then, that having been done, you make an authorization at the same time, so as to assure them of where they will come out, of a capital grant to take care of the loss, if any.

Mr. FOLEY. That is correct, Congressman. And in some instances it is conceivable that there might be some without loss, but characteristically there would be loss because of the very nature of the problem, which makes it necessary to consider this type of assistance in its solution.