Mr. REILLY. If the Government went in there and built the buildings itself, without any minimum contribution, there would be no local taxation. Mr. STRAUS. That is correct. Mr. SPENCE. Have you ever had raised the question that under that act there was no consideration for the excemption, because otherwise they would be exempt, even if they did not specifically exempt them? Mr. STRAUS. They are not specifically exempt unless they specifically exempt them. They are owned by the locality, not by the Government; they are not Government projects, and unless the State or the locality by voluntary act confers tax exemption on the project, it is not exempt. That is one of the good parts about that act. Mr. SPENCE. That was my understanding of it, except that some question of that kind had been raised in my State, Kentucky. Mr. STRAUS. I have the facts on that State, and I can directly answer that question. Kentucky is one of the States which has a complete and adequate housing act, enabling them to participate in every way. Mr. FARLEY. How about Indiana? Mr. STRAUS. Indiana, ditto. Mr. MCKEOUGH. Illinois? Mr. STRAUS. Illinois has a defective act, and I have been in constand correspondence and telephone communication with them. There is no provision for tax exemption, and the tax in the city of Chicago-and I was working on that yesterday-would run as high as $1.90 per room per month. You cannot rehouse slum dwellers on a basis of $4 per room per month when there is a tax of $1 per room per month involved. Mr. MCKEOUGH. What correction should be made in the act? Mr. STRAUs. The correction needed is the standard act which has been enacted in most of the other States having housing legislation, which will permit the localities to grant tax exemption to these housing projects. Mr. MCKEOUGH. Have you had that up with the Governor?. Mr. SPENCE. There is no question ever raised about these projects being exempt under the general law? Mr. STRAUS. No, sir. As I understand it-and my counsel is here to correct me, but I am 99 percent sure that I am right the tax exemption which these projects may have, or do have, is in every case a specific act of the legislature, and I think that that is one of the good parts of the program, that we do not go in and Mr. SPENCE. There is no question but that otherwise they would be taxable. Mr. STRAUS. Surely. Mr. WILLIAMS. Do you run into any constitutional provisions in many of the States? Mr. STRAUS. There are several States in which that question is coming up, principally, again, Illinois, which seems to be one of the tougher ones, and where I am told the attorney general believes a constitutional obstacle exists. Mr. WILLIAMS. That they cannot be exempt that is, under the constitution of Illinois-and I have the impression about Missouri, although I am not sure, that they are exempt, and that the legislature by no act of theirs could tax them. Mr. STRAUS. I have not the detailed facts on Missouri, and we have not been up against that. You are correct that Missouri is one of the States that has no enabling legislative tax. I am familiar with the situation in Illinois, because I have worked hard on it. Mr. MEEKS. Have you had a formal opinion from the attorney general in Illinois to that effect? Mr. STRAUS. No, sir. I do not think that it is wise for me at any time to deal with the attorney general directly. I think that I should have contact with the Governors, and with the mayors, occasionally. Mr. MEEKS. Has the Governor given in any correspondence the impression that he is of the opinion that there is that constitutional question? Mr. STRAUS. I do not think he did. He merely says that he is exploring the subject. Mr. MEEKS. You have indicated that your viewpoint is that you were somewhat disappointed in not having the situation cleared in Illinois. Mr. STRAUS. That is correct. Mr. MEEKS. Has he ever indicated the hope that it will be done at the special session of the legislature? Mr. STRAUS. Yes. Mr. WILLIAMS. These housing authorities are considered the agencies of the State, are they not? Mr. STRAUS. Yes, sir. Mr. WILLIAMS. State institutions. Mr. STRAUS. I do not think that they are agencies of the State, although in some cases they may be considered agencies of the city. Mr. WILLIAMS. A political subdivision of the State. Mr. STRAUS. Possibly. Mr. WILLIAMS. In some cases, are not the State housing authorities created? Mr. STRAUS. We have such boards in many States, but they merely act in a supervisory capacity. Our dealings are always with the city, with the local housing authority. Mr. REILLY. Have you estimated what will be the Government subsidy per room under the projects that you have already planned? Mr. STRAUS. Yes, sir; we have that information. Mr. REILLY. What does it amount to? Mr. STRAUS. The Government subsidy is an annual subsidy. The average rental before the Government subsidy would be between $9 and $10. The average rental which the slum dweller can afford to pay is between $4 and $5. I am always talking about per room per month. So that the local subsidy in the form used, of tax exemption, makes up that difference between $4 and $9, or $5 and $10, per room per month. Mr. REILLY. Do you mean that the Government will have to pay $5 and $10 per room per month? Mr. STRAUS. No, sir; the maximum that the Government contracted to pay under the figures that I named there would be a maximum of $4 per room per month, shared by the Federal Government and the local government. Mr. REILLY. The Government would pay how much, then? Mr. STRAUS. The Federal Government? It is hard to answer you. I am not trying to duck your question, and I understand it, but it depends upon the amount of local contribution that we can get. If the annual local contribution is 20 percent of the total that we must get, the Federal subsidy will be larger. If it is 60 percent, which we have succeeded in getting, it would be smaller. But the difference between the social rent, what the slum dwellers can afford to pay, and the economic rent, which is what a private builder would have to rent them for, must be made up in some way, and the only way that it can be made up is by a subsidy, an annual subsidy, according to this act, and that subsidy is shared by the Federal and local govern ments. You asked me how much it amounts to. It amounts to about $4 per room per month. Mr. REILLY. That the Government will have to pay? Mr. STRAUS. The Government will have to share that with the locality. Mr. REILLY. Let me make this statement. Under the program before we wrote this last bill, the theory was that the Government would loan all of the money to the locality, and the Government then would pay in subsidies sufficient to pay the interest; in other words, the Government would give the money, and then pay out in subsidies enough to redeem the mortgage. What does your plan provide that is different from that? Mr. STRAUS. My plan provides absolutely nothing that is different in any way. I am not suggesting any amendment that would in any way modify the original act in its substantive provisions, which you have just very well outlined. I am trying very hard to emphasize that. The amendments that I am asking for are an increase in the amount of money available, which will be $300,000,000 after July 1 of this year, to a billion, and the removal of the 10 percent local participation provision, so that we can loan 100 percent instead of 90 percent. Mr. REILLY. Under your amendments, your set-up would loan the full amount? Mr. STRAUS. Yes, sir. Mr. REILLY. And all you would get from the city would be exemption from taxes? Mr. STRAUS. All that we would get from the city would be a local annual contribution. I do not like to use the word "exemption" because they do other things. They contribute services. Some of them will contribute parks and money, and something or other, and many make part of the necessary local contribution toward the total annual grant. If you ask, isn't it usually or mostly tax exemption, the answer is yes. Is that plain? Mr. REILLY. I do not think there is enough from the community. Take this Williamsburg proposition, of 1,600 apartments, and something like 4,000 rooms; the Government under that plan would have to pay $4 per room per month? Mr. STRAUS. That is substantially correct, sir, and if you can tell me any way in which to rehouse slum dwellers without the Government making an outright grant or subsidy, I wish I knew it. It has been true in every country in the world, and the only way I know of to justify it is that it is a contribution made by the Government, both national and local, to the well-being of the entire community, comparable to health services, to roads, to schools, or to any other one of the other services which we consider part of the modern city. It is a contribution toward wiping out these festering slums, and incidentally putting people to work. That is the only ground that you can excuse it on, because if anybody thinks that the Government housing program is not going to cost money, he is kidding himself and maybe kidding others. Mr. REILLY. Should not the Government housing programs of New York and Chicago be largely a local problem? Mr. STRAUS. I do not know how to answer you. They are, directly. If what you mean is this, that there should be large local participation, of course they are. If, on the other hand, you mean, "Don't you think the thing can be solved that way?" I would answer you equally unequivocally "no," that the local governments are in a condition so far as their own financial budgets are concerned. You just would not get any housing, any more than if you asked them to finance entirely their school program, or their road program. There is one thing that I would like to get into the record, and that is the costs of local contributions. I think that these figures will be interesting, and I will try to make it very simple. (See exhibit II.) EXHIBIT II EFFECT OF AMENDMENT TO UNITED STATES HOUSING ACT OF 1937 ALLOWING FEDERAL LOANS UP TO 100 PERCENT UNTIL JULY 1, 1939 I. The proposed amendment would preserve the principle of local participation. Although the proposed amendment would make it possible for the United States Housing Authority (for the limited period until July 1, 1939, where necessary to speed construction) to lend up to 100 percent of a project's development cost instead of 90 percent, the extent of local participation under the present and contemplated arrangements of the United States Housing Authority would still be more than double the minimum now required by the act. The following table is based upon the fact that, while the act now requires local annual contributions equal to only 20 percent of the Federal annual contributions, the actual average of the annual local contributions obtained on the projects covered by the nine contracts approved by the President to date is 61.9 percent of the Federal annual contributions. Assuming a project costing $1,000,000, this table shows the actual local contributions which would be obtained under the proposed amendment permitting 100 percent Federal loans, compared with the minimum local contributions required under the present law. (1) Minimum local contributions required under present law permitting only 90 percent Federal loan, with 10 percent local capital contribution and 20 percent local annual contribution: Maximum Federal loan_ Local Capital Participation 1..... Maximum Federal annual contribution.. Annual value of 10 percent local capital grant (3 percent) 20 percent required local annual contribution Total annual value of local participation $900,000 100,000 35,000 3, 635 7,000 10, 635 (2) Value of local contributions under proposed amendments permitting 100 percent Federal loan, assuming local annual contributions equal to 61.9 percent (representing actual average percentage obtained on United States Housing Authority contracts approved by the President) of Federal annual contributions: Maximum Federal loan_ Maximum Federal annual contribution_ 61.9 percent local annual contributions. $1,000,000 35,000 21, 6€5 Assuming that it is furnished as a grant rather than through sale of 10 percent of bonds by local housing authority. II. Tax exemption can and should be counted as a local annual contribution 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. A housing project, though financed by a Federal loan, is owned by a local housing authority, which is a separate public corporation created under State law. It is opt optional hal with the people in each State either to grant or withhold tax exemption, and, to date, housing projects in 4 of the 33 States are not entitled to tax exemption. 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 operating 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. As a result, tax exemption deprives the city of a present source of revenue, while the city continues to furnish all municiapl services practically free of charge to tenants who had been living in fully taxed properties. 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 a 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 |