private organization of which I was a director or president. There is a degree of loyalty, of unanimity, of pulling together among our staff that I think would be a model for people anywhere in the country.

I would like to show you the way they act. The biggest trouble that I have is in making them go home at night. They work until 10 and 11 o'clock.

Mr. WHITE. You say that there is absolutly no dissension, and it has not impeded your progress?

Mr. STRAUS. I say to you that we have and have had an organization as smooth functioning as could be found anywhere.

If you change that question and you ask, "Have you had complete success with every employee whom you have taken on since the time you have been there?" -I would say that if I had that sort of ability, I would be a good deal abler than I hope to be.

Mr. MCKEOUGH. If you would be anything else, you would certainly be a marvel.

Mr. WHITE. Was that question unfair to ask you?

Mr. McKEOUGH. I move that we adjourn.
Mr. GOLDSBOROUGH. Please withhold that.

Mr. WHITE. If you want to go ahead, go.

Mr. MCKEOUGH. If you would come in on time, a lot of this would be unnecessary. I have an appointment, and I have to leave. I am anxious to hear Mr. Straus, and I do not think he had completed his statement, and I presume that the Chair will call a meeting sometime in the future.

Mr. GOLDSBOROUGH. We can finish in a very few minutes.
Mr. MCKEOUGH. I withdraw the motion.

Mr. GOLDSBOROUGH. You do not have anything further?

Mr. WHITE. No; that was a fair question and answer.

Mr. GOLDSBOROUGH. I want to get this over with, and resume our normal function.

Now, gentlemen, it is 5 minutes of 12, and several members want to question Mr. Straus. Would it be agreeable for you to come back tomorrow morning, Mr. Straus?

Mr. STRAUS. Surely, any time.

Mr. GOLDSBOROUGH. Mr. Keyserling, will you furnish the information which is desired by Mr. McKeough, Mr. Meeks, and Mr. Spence?

Mr. WHITE. I would like to have it for Ohio.

Mr. GOLDSBOROUGH. And Mr. Crawford, Mr. Transue, and Mr. Kopplemann? What they would like to have is that information in the mail tonight, so that they can have it for tomorrow morning's hearing.

Mr. KEYSERLING. They will have all of that information.
Mr. FORD. Include California, too.

Mr. GOLDSBOROUGH. In other words, while we recognize the great importance of this measure, at the same time you might expedite it as far as it is humanly possible to do it; and we will adjourn until tomorrow morning at half past 10.

(Thereupon, at 12 o'clock noon, an adjournment was taken until Friday morning, April 29, 1938, at 10:30 o'clock.)

AMENDMENTS TO UNITED STATES HOUSING ACT OF 1937

MONDAY, MAY 2, 1938

HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met to resume consideration of H. R. 10417 at 10:45 a. m., Hon Michael K. Reilly presiding.

Other members of the committee present: Mr. Williams, Mr. Spence, Mr. Farley, Mr. Meeks, Mr. Kopplemann, Mr. Ford, Mr. Brown, Mr. Patman, Mr. McKeough, Mr. Transue, Mr. Gifford, Mr. Luce, Mr. Crawford, and Mr. Gamble.

Mr. REILLY. The committee will come to order.
Mr. Straus, you may proceed.

STATEMENT OF HON. NATHAN STRAUS, ADMINISTRATOR OF
UNITED STATES HOUSING AUTHORITY

Mr. STRAUS. Mr. Chairman, before I refer to the map over here, to which I would like to call your attention, I would like to get something on the record which seems to me of importance in view of the testimony the other day. I am afraid that I failed to make one thing plain, and I think that it is in the interest of the bill itself, as well as in the interest of your understanding of the amendments that we are seeking, that I should make this plain.

I refer to the matter of tax exemption which is used in this program, local tax exemption, and the point that I am trying to make is that the contention that tax exemption of a project does not constitute a local contribution is not a tenable position, and I would like to state exactly why that is so.

Mr. REILLY. Pardon an interruption for just a moment. There are two phases of that tax exemption. Where a city gets a housing project, the amount of the tax received is nowhere equal to what would be reflected on the complete project. That is the thing that I think Mr. Goldsborough had in mind, and the committee had information a year ago that many of these slum-clearance projects were a loss to the city. They got nothing out of them.

Mr. STRAUS. Mr. Chairman, I am glad to answer that to the best of my ability, as well as any questions that the committee may put to me, but I would like to have the privilege, because of the importance of this matter, of completing the statement that I had just begun, and it won't take over 5 or 6 minutes. Is that all right?

Mr. REILLY. Go ahead.

Mr. STRAUS. The explanation of this question of tax exemption is important, because it must be right, as far as I am concerned, anyhow.

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I have distributed to you this morning a memorandum entitled "Tax exemption can and should be counted as a local contribution in the amount which would normally be levied as a tax."

(The memorandum referred to is exhibit IV which is set forth as follows:)

EXHIBIT IV

Tax exemption can and should be counted as a local contribution in the amount which would normally be levied as a tax, for the following reasons:

First. Because the United States Housing Act expressly permits tax exemption to be counted as a local annual contribution (sec. 10 (a)).

Second. Because, in the absence of State constitutional or statutory provisions, these projects would be subject to local taxation, since they are locally owned and are not federally owned as in the case of a Federal post office where the property would be automatically exempt from local taxes: Since the projects are not Federal projects, but are locally owned, some voluntary, positive step is necessary if these projects are to be exempt from taxation. In the absence of any constitutional or statutory provision, these projects would be subject to taxation. It must be remembered that there is nothing inherent in public projects which makes them exempt from taxation. Tax exemption is always a matter of privilege and not a matter of right. Thus, there are four States where the housing laws do not expressly grant tax exemption, with the result the projects are recognized as being subject to normal real-estate taxes. In other words, it is optional with the State either to grant or withhold tax exemption. Public housing projects are subject to taxation unless they are expressly exempted by State law, constitutional or statutory.

Third. Because in most of the State housing laws, the local housing authorities and the cities are authorized to fix, or enter into contracts for, payments by the local authority to the city for services in lieu of taxes: While tax exemption is granted, these State laws permit the local authority and the city to require payments in substitution for taxes on the projects. In computing the annual value of tax exemption, the United States Housing Authority only gives credit for the difference between the normal taxes which would be charged and any payments to be made for services. In most cases no payments are made in lieu of taxes for such services, and in all cases the payments are limited to a very small sum which does not exceed 5 percent of the shelter rent on the project. The localities contract over the entire life of the project not to charge for regular municipal services which they are to furnish and which cost the localities large sums.

Fourth. Because tax exemption is just as effective a method of getting low rentals as cash contributions to meet part of operating expenses or debt service: In the absence of tax exemption, the taxes on a project would be a charge which would have to be met from rentals or from cash subsidies, just like operat ng expenses. If tax exemption were not granted, the Federal subsidies would have to be higher or the rents would be much higher. Cities throughout the country have found that tax exemption was the only feasible way to provide local annual contributions in the substantial amounts which (together with the Federal contributions) are necessary to achieve low rentals that slum dwellers can afford. Cities have been unable to provide cash contributions because of their financial condition and constitutional and statutory debt limitations. Tax exemption as a contribution is both legally feasible and practically effective in getting low rents. Fifth. Because taxes are now being collected from the sites to be used for the projects and because taxes are being collected (as part of their rent) from the families who are to inhabit the project: A vacant or sparsely settled site may pay a very small tax and, correspondingly, it will require relatively few municipal services. When this site is improved, the property and its occupants will naturally require a substantially increased amount of municipal services. Correspondingly, State laws invariably provide that such improved properties are taxed at a higher rate than vacant land-a rate which is based on its assessed value. These taxes are borne (as part of their rent) by the families who occupy the property. When a public housing project is constructed upon a vacant or sparsely settled site, the families who formerly lived in taxed properties will continue to be furnished with municipal services, even though they now live in a project which is exempt from taxation. In short, the city is making a real contribution through tax exemption, for it must furnish, and pay the cost of, municipal services without receiving any taxes from the project or its occupants.

Sixth. Because the proper method of determining the value of tax exemption is to ascertain the tax which would be charged against the project on the basis of current laws and practices, in the absence of a specific grant of tax exemption: Thus, in the case of five limited-dividend projects originally financed by the Public Works Administration, the average tax now being charged and collected by the localities amounts to $2.09 per room per month. If a limited-dividend project were to be acquired by a local housing authority and devoted to low-rent housing purposes with the benefit of Federal annual contributions, it would certainly not be contended that the value of tax exemption was any less than this amount which is now being collected as a tax from these projects. If these taxes were being waived or remitted, the fair measure of the local contribution would be the amount of the taxes now being charged on these limited-dividend projects. In the same way, the fair measure of the local contribution represented by the tax exemption of a public housing project is the amount of the taxes which would be levied on both the land and buildings constructed.

General summary. - The United States Housing Authority, in aiding a housing project, is in the dual position of (a) a banker with respect to its original development loans and (b) a Government agency interested in the social objective of low rentals with respect to its annual contributions. Insofar as United States Housing Authority loans are made to projects, these projects are in exactly the same position as projects financed by the Reconstruction Finance Corporation or insured by the Federal Housing Administration. The Federal Housing Administration projects and the Reconstruction Finance Corporation railroad and other projects are subject to local taxes notwithstanding Federal loans. Housing projects aided by United States Housing Authority loans would also be subject to such taxes unless tax exemption were conferred by the State as a local contribution or subsidy. If projects were aided only by loan from the United States Housing Authority with no Federal or local annual contributions or subsidies, the rentals would be clearly beyond the reach of the low-income families living under slum conditions. The purpose of Federal and local annual contributions or subsidies is to make up the difference between the economic rent which would be charged in the project to meet operating expenses and debt service (including taxes) and the social rent which these low-income families can afford. Just as the Federal Government makes its annual contribution or subsidy in the form of cash to meet part of the annual charges on the project (and thus reduces rentals) so the local Government makes its annual contribution or subsidy in the form of remission of normal annual tax charges (and thus reduces rentals).

In England a local annual cash contribution is made, but full local taxes are collected from the project with the result that the local taxes collected from the project substantially exceed the local cash contributions. In America, the local contribution in the form of tax exemption will therefore represent a substantially higher local contribution then that obtained in England. Moreover, tax exemption is the only fesaible means in America of obtaining the necessary continuing local donations in sufficient amount to assure low rentals.

The points that I want to make in that connection are fourfold, and I can state the whole four in 5 or 6 minutes.

First of all, the question as to whether tax exemption constitutes a local contribution is not something which is before you gentlemen today officially to determine. You made that determination in section 10 (a) of the act, which expressly permits tax exemption to be counted as a local annual contribution.

Mr. WILLIAMS. That would not keep us from changing it if that privilege has been abused, in our opinion.

Mr. STRAUS. Surely. I merely wanted to point out that it is not a precedent under the legislation that I am seeking.

Second, in the absence of State constitutional or statutory provisions all projects would be subject to local taxation, since they are locally owned and are not Federally owned projects. Federal property, of course, is automatically exempt from taxation. These projects are only exempted in each case by specific State legislation, enabling legislation confirmed by specific local action. That is, it is optional with the people in each State.