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tion of those projects on which contracts with local authorities were signed before the war and which were deferred at the outbreak of the war. To meet this problem, section 903 would raise the per room cost limit in metropolitan areas under 500,000 from $1,000 to $1,250; it would raise the per room cost limit in metropolitan districts over 500,000 from $1,250 to $1,500.

In addition to increasing these permanent cost limits, section 903 would authorize a temporary increase of each limit by not more than $250 per room, in contracts made before December 31, 1949, where we find that it is not feasible to construct within the permanent limits without sacrifice of sound standards of construction, and where we also find that there is an acute need for such housing for veterans of low income. We believe this is a sound provision, necessary to enable the construction of low-rent housing for veterans under present conditions.

Section 904: We are convinced that, in the capital financing of lowrent housing, the local authority should rely primarily on borrowings from private investors. The purpose of the amendments in section 904 is to facilitate the enlistment of private capital at low interest rates.

The local housing authorities have made considerable progress in securing a favorable market for their bonds. The proportion of project cost covered by non-Federal loans has averaged 36 percent for all projects, and for 1944 financing, reached 70 percent. There have, however, been great disparities in the financing obtained by various local authorities. The rates and terms fixed by bidders on the public sale of local housing bonds have tended to reflect the credit of the municipality in which the housing authority functions, despite the essential similarity in the underlying security of all local housing bonds. I would like to explain briefly how the proposed financing amendments would improve the situation.

It is important to remember that the Federal annual contributions, both under the present act and under the proposed amendments, are pledged as security for the payment of interest and amortization on the loans of the local authorities. Under the present act, however, if the FPHA should take over a low-rent project in the event of a substantial default by a local authority in the performance of its contractual obligations, the annual contributions would stop. The maintenance of low rents, and the payments of interest and amortization on outstanding bonds, would both be put in jeopardy. The proposed amendments authorize the FPHA, in the event it takes over a project on default, to continue to make annual contributions available. This will assure both the continuation of low rents and the maintenance of the primary security underlying the bonds of the local authority. Such contributions could not, of course, exceed the maximum authorized by statute for the project.

Under these amendments, the projects would continue to serve the low-income families for which they are designed. The risks to private investors involved in a possible breach of contract by a local authority would be eliminated. The security underlying non-Federal loans would thus be perfected, and all local authorities should be able to finance their entire project costs from private investors and at lower interest rates than they could otherwise obtain.

With lower interest rates, the local authorities will be able to apply a greater proportion of the income available from rent and annual

contributions to the reduction of their principal indebtedness, thereby shortening the period of amortization. The proposed amendments accordingly reduce the maximum period for contribution payments from 60 to 45 years on all new projects. This 25 percent reduction in the contribution period is, of course, contingent upon the adoption of the financing amendments; the two provisions are inseparable.

Any permanent loans which may be necessary from the FPHA are likewise limited to a 45-year period from the date of the definitive bonds evidencing such Federal loan.

Since it is expected the local housing authorities will need to borrow little or no permanent capital from the Federal Government, the bill does not increase, the figure of $800,000,000 set in the present act as a limit on the borrowing power of the FPHA.

I believe that these financing amendments will be of great benefit to the low-rent program. They will make it possible for all authorities, both in large cities and in small cities, and in rural as well as in urban areas, to borrow their capital funds from private investors on favorable terms. They should virtually eliminate the necessity for any Federal participation in the capital financing of low-rent housing. Through the decrease in the contribution period, they will effect a saving of approximately one-fourth of the eventual cost of the program to the Federal Government.

Section 905 of the proposed bill provides for the rehabilitation of existing structures for use as low-rent housing. This is desirable, since any well-rounded housing program should preserve the values of existing housing as far as possible. Moreover, the systematic rehabilitation of existing dwellings may well help to check the spread of blight through neighborhoods which are otherwise sound.

The formula proposed for rehabilitation projects limits loans and annual contributions to 30 years, as compared with 45 years for new construction, because of the shorter useful life of rehabilitated buildings. The maximum annual contribution rate is set 1 percent higher than for new construction.

Although the contribution rate is increased, this will not necessarily imply a larger dollar subsidy per dwelling than for new construction. This is because of the somewhat lower capital cost expected in rehabilitation projects. Any increase in annual contributions that may be involved would be justified through the arrest or prevention of blight and conservation of existing property values.

We believe it is important that any such rehabilitation program be administered in strict accordance with the provisions of the bill which limit remodeling, repair, or reconstruction to cases where the spread of blight can thus be prevented or arrested in a given neighborhood. It would be unfortunate if rehabilitation were used to perpetuate the life of buildings which are structurally inadequate or located in neighborhoods so far gone that attempted reclamation would be contrary to the public interest. However, with these limitations, the amendments will offer an opportunity for rehabilitation of existing housing, where feasible, for use by families of low income. Section 907 provides for an extension of the low-rent housing program through an increase in the authorization for annual contributions. These annual contributions paid by the FPHA, together with the contributions required by statute from the localities, are used to bring the rents of public housing within the means of families

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of low income. They make up the deficit between the actual income and the actual expense of low-rent projects.

The present statute authorizes a maximum of $28,000,000 in annual contributions. That authorization is now exhausted. Additional authorizations will be needed for the expansion of the low-rent housing program.

Under section 907, in the first year after enactment of the bill, new contracts could be entered into for contributions totaling $26,400,000 per year. This amount is increased by $26,400,000 at the beginning of each of the three succeeding years, making a total additional authorization of $105,600,000 per annum by the fourth year. It is estimated that the additional authorization would cover a program of 125,000 dwellings a year. The proposed bill limits the urban program under the new authorization to 500,000 new units, excluding any provided through rehabilitation. This is a modest program in comparison with the pressing needs of returning veterans of low income.

The important differences between title IX of S. 866 and the parallel title VII of S. 1592, which passed the Senate in 1946, are very few: 1. S. 1592 did not propose to change the permanent per room cost limits, although it did authorize an increase of not more than $250 per room for an emergency period until December 31, 1947. Because building costs have increased sharply since S. 1592 was considered last year and because some portion of postwar increases in building costs may be expected to continue through the development period of any additional low-rent housing that may be authorized, S. 866 modifies the cost limits stated in S. 1592 in two ways: It authorizes an increase of $250 per room in the permanent cost limits, and also provides for an additional increase of $250 per room for an emergency period, until December 31, 1949.

2. S. 1592, in section 707, would have authorized additional annual contributions of $22,000,000 at the beginning of each of the 4 years after the passage of the bill. The increase in building costs that makes necessary the increase in per-room costs limits also requires a corresponding increase in the authorization for annual contributions. S. 866, therefore, provides new annual contribution authorizations 20 percent greater than those provided by S. 1592. Instead of $22,000,000, S. 866 provides for $26,400,000 to be added to the annual contribution authorization at the beginning of each of the 4 years which follow passage of the act.

In addition to these two changes, there are a number of other changes in the language of the bill which are designed to clarify the urban low-rent provisions of the United States Housing Act of 1937. A listing of these changes, with a brief statement of the effect of each, appears at the end of this statement.

Title VIII of S. 1592 would have authorized both the Secretary of Agriculture and the Federal Public Housing Authority to provide certain types of assistance in the field of farm housing, and would further have authorized FPHA to provide assistance in rural nonfarm housing. The provisions of former title VIII have been modified and appear in S. 866 as two different titles-title X providing for farm housing assistance by the Secretary of Agriculture, and title XI providing for rural nonfarm housing assistance by FPHA. As these titles are redrafted in S. 866, the entire responsibility in the field of farm

housing rests with the Secretary of Agriculture, and FPHA's responsibility in the rural field is limited to nonfarm housing.

We assume that representatives of the Department of Agriculture will discuss title X concerning farm housing, and we shall, therefore, limit our discussion to title XI, relating to rural nonfarm housing.

The problems of rural nonfarm housing have been sorely neglected. While less dramatic than the slums of our cities, the deficiencies of rural housing are equally grave, and adequate remedies for them are an essential part of the national housing program.

Title XI is primarily directed to the provision of housing for lowincome families in rural areas who do not live on farms.

The rural nonfarm program is similar to the urban program in its essential features, but with such modifications as are necessary to meet the special problems of rural nonfarm housing. Veterans and servicemen of low income are to have preference over all other applicants for a period of 4 years after the passage of the bill.

The title provides for the payment of annual contributions to local housing authorities in rural nonfarm areas to assist them in carrying out this program. These contributions are limited to a maximum period of 45 years, and are to be reduced or terminated to the extent that they are no longer needed.

A special annual contribution authorization is provided for rural nonfarm housing. In the first year after enactment of the bill, contracts could be entered into by the FPHA for contributions totaling $5,000,000 per year. This amount is increased by $5,000,000 at the beginning of each of the four succeeding years, making a total authorization of $25,000,000 per annum by the fifth year.

The financing amendments proposed for urban housing will apply also to this title, and the rural authorities should be able to raise substantially all of their permanent capital from private investors. The new title XI does not, therefore, authorize any increase in the capital funds of the FPHA for the rural nonfarm program.

It is estimated that the FPHA program authorized by this title would provide for approximately 30,000 houses per year, or a total of 150,000 in 5 years. This also is an exceedingly modest program in relation to the great needs of low-income families in rural areas.

Title XII of S. 866 provides for a procedure under which permanent Federally owned housing could be transferred to local public agencies for use as low-rent housing.

We anticipate that the largest part of the permanent war housing. constructed under the Lanham Act will be sold for private residential purposes. There have been indications from a number of localities, however, that disposition of some permanent war-housing projects to local public agencies for use as low-rent housing is regarded as being in the best interest of the community. Among the reasons why localities have reached such conclusions are:

1. The projects are urgently needed to rehouse low-income families, including those of veterans.

2. It is advantageous to the community to use the existing war housing for this purpose and thus reduce or eliminate the need for new public housing.

Under section 4 of the Lanham Act, consideration of such proposals from the localities would have to be taken up with Congress on a case-by-case basis. Title XII of S. 866 establishes standards for the

disposition of such housing to local public agencies without the necessity for congressional action in each case.

Section 1201 follows the principle of local initiative and local determination in housing matters since the locality itself must first request the transfer of permanent war housing for low-rent use as being in the best interest of the community or of the families of servicemen and veterans therein. Upon such request, the housing may be disposed of to a local public agency in the locality if (1) the President determines that there is no further war need for the housing and that such disposition is consistent with demobilization and (2) FPHA determines that the housing is suitable for low-rent use.

The proceeds of all disposition of permanent war housing under title XII would be handled in the same manner as is now provided in the Lanham Act, which includes provisions relative to covering balances into the Treasury as miscellaneous receipts.

Section 1201 (a) provides, and all contracts of disposition with local public agencies will require, that veterans and servicemen of low income be given the same preference in admission as is provided under section 902 of the bill. This means preference to veterans, as between applicants eligible for occupancy at the rent involved, for a period of 4 years after enactment of the bill.

To obtain the maximum return to the Government on its investment in the projects consistent with their use for low-rent purposes, FPHA would be authorized by section 1201 (b) to sell the projects for a consideration consisting of the payment by the local public agency of all the net revenues from the project during its useful life. In this way the Federal Government would be assured of the maximum return that could be obtained from the use of the property for low-rent housing purposes. Under this method of disposition the local public agency would be ineligible for annual contributions or capital grants with respect to the project. Section 1201 (b) also authorizes the sale of other Federally owned housing projects, such as PWA projects, on this basis.

The only major difference between title XII and the corresponding provisions of S. 1592 lies in revisions in section 1201 (b) to deal with the problem of war-caused deficiencies in the construction of permanent war housing. Under the present language of section 1201 (b), FPHA could make loans to correct such deficiencies where the loans could be repaid from income over a short span of years. Where the deficiencies are of such magnitude that the cost of correction could not be borne out of the project income without impairing the low-rent character of the project, FPHA would be authorized to utilize its disposition reserves to make the corrections.

The saving clause in section 1201 (c) is intended to make it clear that the title does not affect the sale of permanent war housing at its fair value, where feasible, for private residential purposes.

Title III, in section 302, establishes the Federal Public Housing Authority as a permanent agency and instrumentality of the United States. The permanent Authority will succeed to the corporate status of the United States Housing Authority and continue to administer the low-rent housing program authorized by that act as amended. The Authority will also have responsibility for other Federal public housing programs which were assigned to it as a constituent unit in

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