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Mr. SMITH. What is the difference between the capital that goes into war savings bonds and the capital going into the construction of these public-housing projects?

Mr. EGAN. I would say the capital that goes into these housingauthority bonds, through investment houses, is supported and secured by Federal contributions, but the Federal Government does not directly guarantee those bonds themselves.

Mr. SMITH. Let us speak of these Federal contributions as taxes, because that is what it really means. That bond-the bond which a man buys for the building of this project is guaranteed by the credit of the United States Government; is that not true?

Mr. MILLER. There is a considerable difference between these housing bonds and the bonds or obligations issued by the United States Government. The bonds or certificates of indebtedness, or the obligations issued by the United States Government, are the direct obligations of the United States Government and are payable out of any funds that the United States Government has.

These housing bonds are not the obligation of the United States Government at all. They are the obligations of the local authorities, to start with. They are secured by the agreement of the Public Housingg Administration, which is part of the Government, to make certain contributions per year, under certain conditions.

That is not a guaranty of the obligations themselves, and the agreement to pay the contributions is subject to a number of conditions which may come into being or may not, in which case the contribution would not be paid, and therefore the bond would not be protected.

That is the difference between the bonds of the United States Government and the bonds of the local housing authorities.

Mr. SMITH. You are making the point that the housing bonds are not guaranteed by the United States Government in exactly the same manner as an ordinary bond?

Mr. MILLER. They are not guaranteed at all.

Mr. SMITH. What is this annual Federal contribution? It says specifically in here that it must be provided.

Mr. MILLER. The term "guaranty" has a well-known legal consequence. That consequence, that legal consequence, does not flow here in the sense that you use it. The only obligation of the United States Government here is to pay the contributions under certain conditions; and if those conditions are broken, the United States Government does not pay the contributions.

Mr. SMITH. Now, specifically, what conditions do you speak of being broken?

Mr. MILLER. Well, there are three or four principal conditions. One is that the low-rent character of the project must be maintained. Another is that equivalent elimination must take place. A third-and one which has been most difficult is that the local community must make a local contribution equivalent to 20 percent of the contribution made by the Federal Government.

If any one of those conditions is broken, the contribution is either not paid at all or is proportionately reduced. And that is a risk that the purchaser of the bonds takes.

In your own State of Ohio, when your supreme court held that the properties were not tax-exempt, that they were subject to taxation, the municipalities in your State could not then provide the local con

tribution which the act required and the United States Government could no longer pay contributions on those projects in your State. Mr. SMITH. But you foreclosed.

Mr. MILLER. NO; we did not foreclose.

Mr. SMITH. You took them over, did you not?

Mr. MILLER. With the approval of the local authorities. That was

a voluntary agreement. There was no obligation upon them.

Mr. SMITH. What point are you trying to make? That the contribution was still being paid just a short period between the time when this decision was made by the court and the time you took it over? That was the only period; is that not true?

Mr. MILLER. I say that after that decision was rendered we could not legally pay contributions.

Mr. Boggs. A point of information, Mr. Chairman. The House is in session. How long are you going to sit? Is it contemplated that the committee will meet this afternoon, Mr. Chairman?

Mr. GAMBLE (presiding). I think we are going to try to get before the Rules Committee this afternoon on Reconstruction Finance Corporation and the Federal Credit Union.

Mr. Bogas. So that we will not meet this afternoon?

Mr. GAMBLE. That is right. Mr. Wolcott tried to get before the Rules Committee yesterday, but was unable to do so. He hopes to be able to do so this afternoon on S. 2287, Reconstruction Finance Corporation, and the Federal Credit Union bill, S. 2225.

Mr. Boggs. Mr. Chairman, is it understood that we will recess at 12:30?

Mr. GAMBLE. Yes. Is that agreeable to you?

Mr. BOGGs. Completely so.

Mr. GAMBLE. I know you are interested in the program on the floor, which involves the District of Columbia bill for 1949 and the legislative appropriation bill, which is even more important.

Proceed, Dr. Smith.

Mr. SMITH. You advertise these bonds, do you not, stating in your advertisement that they are backed by the Federal contributions?

Mr. MILLER. First of all, we do not advertise them. Local authorities advertise them. Secondly, that is quite correct--the security back of them is the agreement by the Public Housing Authority to pay contributions, which security, as I pointed out, is conditional.

Mr. Sмгтн. Well, that means that they have the full faith and credit of the United States Government back of them, does it not?

Mr. MILLER. I would say so.

Mr. MULTER. No; it does not, sir. The agreement is to make a specific contribution up to a limited amount. That does not put the full faith and credit of the United States Government behind them. Mr. SMITH. But it puts the full faith and credit of the Government behind them to the extent of the amount that is pledged.

Mr. MULTER. Certainly.

Mr. SMITH. And the annual Federal contribution covers the interest and amortization; is that not true?

Mr. EGAN. Almost. There was a slight difference in many cases which had to be made up in the rents.

us.

Mr. Boggs. It has been increased 1 percent in this present bill before

Mr. EGAN. That is right.

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

Mr. EGAN. 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.

Mr. EGAN. We did permit local authorities to make payments in lieu of taxes to that extent, Mr. Congressman, but we have been restricted from going that high by the Appropriations Committee, and we can now permit them to pay only the contractual amount in the original cooperation agreement.

Mr. RILEY. Do you have any figures to show what the contributions of the local municipalities are for the operation of the police department, health department, fire department, educational facilities, and so forth, as regards public housing?

Mr. EGAN. I do not know whether we have all those figures. Mr. RILEY. What is the percentage of the contribution of the local municipalities in relation to the shelter rent?

Mr. EGAN. Mr. Vinton might answer that for you.

Mr. VINTON. Mr. Congressman, for the last year in which the payments in lieu of taxes were made at 10 percent of shelter rents, the payments in lieu of taxes per dwelling per month amounted to $1.95. The full taxes in that year would have been, if paid, $7.21. The difference between those amounts, or $5.26, is the local contribution, which, in accordance with the terms of the act, must be at least 20 percent of the Federal contribution. As a matter of fact, in that year the local contribution thus computed was 110 percent of the actual Federal contribution, or over five times the amount required by the statute. It was for that reason, and because of the insistence of the localities that their expenses were very high and continually mounting, that the 10 percent of shelter rent was permitted in those years.

Now, of course, the cost to the cities of providing services to lowincome families is very much more than even the full ad valorem taxes, if they were paid. In most cities education, for example, is costing $125 to $150 a year for each child, and when we have almost two children in the average family in public housing, the cost of education runs up into substantial amounts. Payments in lieu of taxes, at $1.95 per unit per year, would amount to about $24 per year, which is only a small fraction of the cost of education alone. Thus, the cities really are making substantial contributions.

Mr. MULTER. What were the total dollar amounts paid?

Mr. VINTON. I do not have that, but we will supply it for the record.

Mr. RILEY. In other words, if you consider all the facilities and services furnished by the municipalities and the local political divisions, it might run as high as 15 to 20 times the Federal contribution; is that not right?

Mr. VINTON. That is right.

Mr. RILEY. That would be a true statement?

Mr. VINTON. Perhaps, let us say, 10 times as much.
Mr. RILEY. Ten times?

Mr. VINTON. Yes. Of course, to make the record perfectly clear, it should be understood that the city is also making similar contributions of the difference between the cost of services and ad valorem taxes, with respect to other low-income families not living on these projects. Mr. RILEY. Yes; that is true.

Mr. VINTON. Because all housing, except very high-class housing, costs the city more in services than they collect in ad valorem taxes. Mr. RILEY. Now, there is another question I want to ask Mr. Egan. On page 2 of your statement: In the original set-up the Federal Government made loans up to 90 percent, and the local authorities, through some medium, were supposed to provide 10 percent of the cost. Was that a cash contribution, or an equivalent of a cash contribution, or did the local municipalities simply lend their credit to issue bonds which were amortized by the income from the projects?

Mr. EGAN. That is all they did. There were no actual cash contributions.

Mr. RILEY. It was simply a credit?

Mr. EGAN. As a matter of fact, that 10 percent was raised by the local authority by issuing bonds, and the annual contribution was applicable to the total development costs, so really those bonds are serviced by annual contributions.

Mr. RILEY. They are amortized through the income from the property?

Mr. EGAN. That is right.

Mr. RILEY. Thank you very much.

Mr. FLETCHER. Mr. Buffett.

Mr. BUFFETT. Mr. Egan, have you studied public housing experiments in European countries?

Mr. EGAN. I never have, Congressman; no, sir. I do know, of course, that there have been substantial programs in foreign countries, but I have never gone into it at all.

Mr. BUFFETT. You have never made any effort to follow those programs through to determine what their social, financial, and political consequences were?

Mr. EGAN. NO; I really have not, Congressman.
Mr. NICHOLSON. Mr. Chairman.

Mr. FLETCHER. Mr. Nicholson.

Mr. NICHOLSON. You think that people who live in a house or own real estate should pay all the charges of the city government?

Mr. EGAN. Do you mean regardless of what type of housing it is? Mr. NICHOLSON. Well, of course, if you take your housing proposition to the nth degree and say that the city of Boston is all slums, and you are going in there to build houses everywhere, who is going to pay the taxes for the children going to school, for the water costs, sewage, and everything else? Of course, in Massachusetts the municipality-the only place where the municipality gets any money is out of real estate. We do not get anything else. We have the income tax, of course, but everything needed for the services comes out of real estate. So that if you come in and take over large areas, it means that the thinner areas have to absorb the slack.

Mr. MULTER. Will the gentleman yield?
Mr. NICHOLSON. Yes.

Mr. MULTER. Nobody would go into Boston or any other community unless invited by the municipality to do that. Nobody is going to go in and say Boston is a slum area unless Boston invites us in to help clear what you designate as a slum area. That is the fallacy of your premise. Just as in any other community, these people do not go in anywhere unless invited in by the locality.

Mr. NICHOLSON. These people are the people in the United States. Whenever they come in, Massachusetts has to pay them.

Mr. MULTER. Only if Massachusetts invites them in to help clear up this problem in their own community.

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